Texas toll agency breaking the law to stay solvent, seeks sweeping new powers

Essentially, the NTTA is broke and risks a poor credit rating for its future toll projects if it doesn’t get access to taxpayer subsidies. They’ve already raised their toll rates 32% in 2011 with automatic toll hikes scheduled indefinitely.

By Terri Hall | April 17, 2013

“This is a clean-up bill,” spouted the North Texas Tollway Authority’s (NTTA) bond counsel, Frank Stevenson II, one of the agency’s ‘legacy contractors,’ Locke Lord, LLP, who crafted House Bill 2247 that grants the authority expansive new powers.

To which Texas State Representative Yvonne Davis replied, “Aren’t you asking for new authority in this bill? You’re telling us this bill doesn’t give you any new authority, but there’s an awful lot of new language in here…If you already have this authority, why do you need this bill?”

Stevenson proceeded to dodge the question in a dicey back-and-forth exchange that lasted for more than 30 minutes in the House Transportation Committee hearing before he finally admitted the agency would indeed be granted new authority. NTTA attorneys were accused of misrepresenting the intent of the bill, trying to dismiss grassroots concerns that the bill granted the agency new powers that would decidedly shift the toll authority away from traditional turnpikes and into the world of ‘innovative financing’ gimmicks designed to extract heaps of public money from unknowing taxpayers to subsidize toll projects that are NOT toll viable.

“That’s why I’m upset with you guys, you start out by saying that we’re not doing anything but a technical ‘clean-up’ when, in fact, you’re broadening what you already have the authority to do, when, in fact, that makes it a change. The misrepresentation is what’s offensive to me,” Davis remarked sharply.

Texas lawmakers under the leadership of Governor Rick Perry have been moving the state in a steady decline away from a debt-free, affordable pay-as-you-go state highway program to one funded with explosive debt, tolls, local taxes, and multi-leveraging finance mechanisms that create a complicated hidden tax scheme. The result has been a slice-and-dice patchwork quilt of toll roads few Texans can afford to access, yet their tax money is paying for them.

Stevenson opined that existing statute limits the powers of the NTTA to funding its turnpikes solely with toll revenue bonds, which are backed by toll revenues only – so if the traffic doesn’t show up, the bond investors, not the taxpayers, incur the loss. He emphasized its need to gain access to other sources of taxpayer money to satisfy bond investors. Essentially, the NTTA is broke and risks a poor credit rating for its future toll projects if it doesn’t get access to taxpayer subsidies. They’ve already raised their toll rates 32% in 2011 with automatic toll hikes scheduled indefinitely. If the state had not interceded on the Highway 161 and Chisholm Trail toll projects to provide ‘credit assistance,’ it wouldn’t have gained the bond rating needed to make the projects viable.

The State of Texas is constrained by the Texas Constitution from providing loans or loan guarantees from the state highway fund, yet the Texas Department of Transportation did so anyway. Texas taxpayers are on the hook for the next 36 years for up to $8 billion in loan guarantees for the Chisholm Trail and Highway 161 toll projects (Hwy 161 is one driven by special interests not actual traffic congestion since it primarily benefits the Dallas Cowboys by building a more direct route to its stadium in Arlington).

The mentality with road building in Texas today is: get it built no matter how you have to finance it, no matter the cost to taxpayers or future generations. Officials don’t let a little thing like the Texas Constitution stop them. They know the chances of the taxpayers securing legal counsel and the funds necessary to sue the state to enforce the law is slim.

So onward they march regardless of the law. Then they seek to keep moving the goalposts further and further each legislative session to get the legal authority to do what they’ve already been doing. Indeed, Stevenson later admitted they are seeking changes to the NTTA statute to reflect what they’re already doing.

“Don’t tell us you’ve been breaking the law…” Davis quickly quipped, since that’s something lawmakers would rather not have aired in public.

The committee members laughed and Stevenson rephrased his statement, but it doesn’t change the fact that the NTTA has been operating ILLEGALLY and is seeking to legitimize its illegal acts by making them ‘legal’ after the fact.

NTTA bailout

This bill is really an NTTA bailout. It allows them to access state and local subsidies for its projects, which hasn’t been done up until now with the exception of Hwy 161 and Chisholm Trail. This would markedly shift Texas away from the good type of toll model (traditional turnpikes, self-funded with toll revenue bonds or they don’t get built) into the hybridized double tax model where taxpayers subsidize the toll roads.

People are led to believe the toll pays for the road when, in fact, their tax money already helped build it (or cover the debt service payments), so they’re being DOUBLE TAXED. Where’s the truth in taxation Governor Perry touted in his Budget Compact? The NTTA bill also allows local government entities to set-up NEW taxing districts and Transportation Reinvestment Zones, or TRZs, which can access both property and sales tax to subsidize NTTA toll projects. Their excuse to get this bill passed is that Regional Mobility Authorities already have this authority. RMAs nor any other entity should have this authority. Why would Texans want to expand it and ruin one of the few responsible tolling agencies that’s been confined to the most fiscally responsible type of tolling? Taxpayers need to keep NTTA in a tight box.

NTTA can currently hand its system to a private company to takeover any of its turnpikes without taxpayers’ consent, but this bill would expand that to any toll project that lies within an existing freeway as well (Sec. 29), known as ‘managed lane’ projects.

The bill also allows ‘excess’ revenue to be put into a general fund and spent for whatever purpose it wants (Sec. 6). Tolls collected from one turnpike/project can be spent on another in a redistribution of wealth not unlike socialism (Sec. 6, 8, 15, & 24). The NTTA would be able to issue bonds to pay-off other bonds, essentially using borrowed money to pay-off other borrowed money, like using a credit card to pay-off another credit card (Sec. 14). The agency would be granted the authority to transfer part of a turnpike or project to another governmental entity which can levy taxes to pay bonds to subsidize the toll project, and, again, the bill allows that entity to create new taxing districts to pay for toll roads (Sec. 30).

The toll man cometh

While this exact bill doesn’t speak to the NTTA establishing their own courts for toll enforcement (which strips Texans of due process in a court with a neutral third party when contesting toll fines/fees), another bill does, SB 1329 by Sen. Ken Paxton. HB 2247 references the NTTA’s ability to adopt their own rules for toll enforcement (Sec. 5), so combined with SB 1329, that’s the net effect.

In the Senate Transportation Committee, Paxton backed off letting the NTTA have its own courts and said he’d rather toll enforcement go through the Justice of the Peace courts, and signaled the plan now is to lump the NTTA toll collection language into Sen. Kirk Watson’s toll collection bill that deals with RMAs and TxDOT (SB 1793).

But Texans are concerned about the ideas in some of the toll enforcement bills that allow criminal trespass charges and stripping people of their car registration for failure to pay tolls. The punishment needs to fit the ‘crime’ so to speak and fines can be racked up in a very short length of time and can reach into the thousands. There’s also a move to criminalize people for failing to pay a debt.

Local debt + state debt = financial disaster

These bills, along with passage of any of the governor’s bills, show a concerted effort to push debt, higher taxes, and greater government authority to exert undue power over our freedom to travel.

Perry endorsed HB 3665 by Rep. Drew Darby and the companion senate bill, SB 1632 by Sen. Juan Hinojosa. It deposits Rainy Day Funds into the State Infrastructure Bank (SIB) to be used to guarantee local toll debt. The State will issue loans and provide credit assistance/enhancements for toxic local toll debt. It would fund mass transit and multi-modal projects as well. The bill would also authorize the commission to sell any loans and require the proceeds of the sale to be deposited into the SIB, so it can turn the SIB into a money-making operation for the state.

The public entity they loan the money to can use ANY tax or levy any NEW tax available to them to pay back the loan from the SIB. So taxpayers will not only repay their own tax money with interest through tolls, they’ll have their local taxes sucked into paying the loan and possibly have a local tax increase to pay back the loan of Texans’ own tax money. The taxpayers are still on the hook for all this debt and, if the SIB has to back these local toll loans, that means the toll projects are not toll viable roads that can be paid for with just the users of the road. So this whole SIB idea is a scheme to enter into risky loans to guarantee the debt that the private sector wouldn’t touch.

Here’s what the fiscal note on these bills say: “The bill would result in the State Infrastructure Bank (SIB) balances in the amount of $293.8 million shifting from the State Highway Fund to a fund outside the State Treasury. It is assumed the costs to the State to capitalize the SIB to provide a credit enhancement program would be significant. Because the number of public entities that would apply for financial assistance from the SIB and the scope of the associated project is unknown, the costs to the state cannot be estimated.

It also states: “The bill would require TxDOT to direct the comptroller or the trustee holding the SIB to transfer from the account the amount necessary to pay debt service due on a bond after receipt of written notice from a public entity of the entity’s inability to pay debt service on a guaranteed bond. The bill would authorize the commission to allow TxDOT to undertake the completion, operation, and maintenance of a project if a public entity has failed to comply with a credit agreement under the credit enhancement program.”

Now that sure sounds like the taxpayers get left holding the bag on risky toll projects that have no business being built in the first place. In reality, these traffic forecasts for today’s toll projects are routinely inflated by as much as 118%. The failed toll project South Bay Expressway in San Diego was off by nearly 40,000 cars a day and went bankrupt in less than three years.

More than 300 grassroots groups across Texas have aligned to fight this tax-debt-toll scheme and they hope to enlist enough lawmakers in the legislature to stop Perry in his tracks. In a state that claims to be fiscally conservative, its actions continue to show it’s anything but.

Terri Hall is the founder of Texans Uniting for Reform and Freedom (TURF), which defends against eminent domain abuse and promotes non-toll transportation solutions. She’s a home school mother of eight turned citizen activist. Ms. Hall is also a contributor to SFPPR News & Analysis.