Tolling Texans by ‘rule change’: TxDOT’s end run around the legislature

The key to this new rule change is it obligates the ‘state highway fund’ to reimburse the private toll concession companies, but not from the collection of toll revenues. So every Texas taxpayer will be paying for these privatized toll roads, even if they can never afford to drive on them.

By Terri Hall | July 18, 2013

Graphic by: Todd Wiseman / Ryan Murphy/The Texas Tribune

Question: How do you know when a public agency is out of control?

Answer: It tries to bypass the legitimate branch of government, in this case the Texas legislature, to make an administrative ‘rule change’ instead.

At a recent meeting of the Texas Transportation Commission (the body that governs the Texas Department of Transportation or TxDOT), it proposed a rule change that would, in effect, give the agency a blank check to enter into unlimited numbers of controversial public-private partnerships (also known as P3s, called Comprehensive Development Agreements or CDAs in Texas).

Indeed, they’d do it using the so-called ‘availability payment’ model, which they initially tried but failed to get passed as legislation, House Bill 3650, during the 83rd regular session of the legislature that ended Memorial Day. So, it appears TxDOT is attempting to do through a rule change what they couldn’t get done legitimately through the legislative process.

So the real question is, why were they seeking a law for what they could already do through a rule change? The answer is they likely do not have the ability to give themselves such authority without the legislature’s blessing. This sneaky attempt to bypass the legislature shan’t go unnoticed.

The Commission Minute Order essentially brings the CDA chapter of the Texas Transportation Code into the pass through financing rules. This CDA authority expired in 2009 except on a very limited number of toll projects specifically authorized by the legislature. TxDOT has not been granted blanket authority to enter into such private toll contracts, so the agency is seeking to give itself this authority by making an end run around lawmakers.

Availability payments primarily involve toll projects. The public sector collects the tolls and is obligated to make payments to the private sector as revenues are available. However, the obligation for payment (the debt) remains even when toll road revenues are insufficient. Whether or not it’s a toll project, the state highway fund, which is already inadequately funded, would be tapped for re-payment. This new funding model deliberately moves Texas away from traditional turnpikes paid for with toll users to one where all taxpayers are encumbered to re-pay the private investors even when toll road revenues are insufficient.

Sweetheart deals

One of the provisions carried into this section of TxDOT rules includes replacing competitive bidding with ‘best value’ bidding, which allows the Department to dole out these contracts to the well-connected, not necessarily to the lowest bidder. Texas Governor Rick Perry has earned a reputation for being cozy with highway interests. One of his former legislative aides, Dan Shelley, had previously worked for a Spain-based private toll road firm, Cintra, then went to work for Perry and served during the time that Cintra was awarded the development rights to the Trans-Texas Corridor – a 4,000-mile network of toll roads cris-crossing the state. Shelley then returned to work for Cintra, by which time, Cintra has landed three of the four CDAs in Texas.

Other CDA contract provisions include non-compete clauses that limit and/or penalize the state for building or expanding competing free roads. The new rule also carries over the controversial payments to losing bidders. Who knows what other sweetheart provisions could be included since there’s literally no oversight by any elected official.

New twists = Taxpayer bailout

TxDOT has added several new dimensions in this new form of CDA beyond what’s ever been permissible up until now, making it a full-fledged taxpayer bailout for the ubiquitis failing private toll road model. The key to this new rule change is it obligates the ‘state highway fund’ to reimburse the private toll concession companies, but not from the collection of toll revenues. So every Texas taxpayer will be paying for these privatized toll roads, even if they can never afford to drive on them. Plus, paying a toll to use a road that’s already paid for with tax money is a double tax. There’s virtually no limit on how much state taxpayers could be obligated to pay back if this rule change goes through. It’s a form of off-budget accounting that will have generations indebted well into the future Texans.

It also authorizes the state to compensate private concession companies based on ‘projected’ usage of the road, not actual usage:

“(10) Pass-through toll – A dollar amount that is tied to a measure of actual or projected usage of a highway…” (Page 2 of proposed rule change)

So, Texas taxpayers would be on the hook for ‘projected’ toll traffic, not the traffic that actually shows up. Toll forecasts can be wildly off. The San Diego South Bay Expressway P3 project went bankrupt in less than three years and was off in its traffic projections by nearly 40,000 cars a day. Cintra’s SH 130, just south of Austin to Interstate 10 in Seguin, is only attracting half of the forecasted traffic, necessitating Moody’s recent downgrade of their bond rating four steps, predicting default by the end of next year.

Pocahontas Parkway, a Virginia P3 toll project operated by Australian firm Transurban, was persistently in a sea of red ink, recently caused the company to dump the project and hand it over to its creditors. A privately-run toll road in South Carolina went belly-up in 2010. So if a company gets paid based on traffic projections versus the actual traffic usage, it’s obviously pure graft by the politicians and the private corporations. It takes corporate welfare to a whole new level.

One of the arguments in favor of privatizing our public roads is transferring the risk of default from the taxpayers to the private entity. Under this new scenario, the risk is retained by the taxpayer. With so many failing toll projects nationwide, special interests in Texas have found a way to have profit guarantees and never lose money on the deal – courtesy of taxpayers. It’s a taxpayer bailout with a fancy new term attached to make it appear acceptable.

The availability payment model would not only increase the cost of projects to taxpayers by compensating private entities for return on investment (which a publicly-run toll project doesn’t need), it would also make taxpayers pay for the private entity’s financing costs (which current statute does not allow). If the state highway fund pays for these projects, why involve the private toll operators at all? The driving public certainly shouldn’t be charged a toll to use a project paid for with tax revenues. Just have our public entities put the projects out for traditional competitive bidding and keep them as freeways. The reason they can’t is all about lack of credit worthiness.

Maxed out the credit card

Texas state lawmakers have habitually raided gas tax revenues for non-road purposes to the tune of over $20 billion. The federal and state gas tax is a fixed amount and hasn’t been adjusted in more than 20 years – so it hasn’t kept pace with inflation much less fuel efficiency standards. Texas taxpayers also pay vehicle sales tax, a massive $3.3 billion/year pot of money, but it, too, isn’t getting allocated to roads. It gets sent to general revenue where it’s spent primarily on education and Medicaid. Rather than direct road taxes exclusively to benefit roads or adjust road taxes for inflation, lawmakers have instead turned to incurring more debt, lots of it, to fill the funding gap which has now reached $4 billion a year. Texas leads the nation in road debt – $31 billion in principle and interest, amassed in just 8 years.

So the state has now maxed out its credit card. It cannot borrow anymore money. So this new availability payment CDA is a way to use the private entity’s bad credit position to offload the debt to the private sector and make the Texas taxpayers pay it all back with interest plus return on investment and any other guarantees (like compensation for projected traffic that doesn’t even have to show up), for a half century or more.

TxDOT’s intentions are clear – it’s using a rule change to do backdoor CDAs without the statutory authority for doing so and with no oversight by anyone accountable to the people. The public has never wanted CDAs nor has it had the opportunity to vote on it. It’s the most expensive way to fund roads and the most sovereignty-eroding public road policy ever conceived. It puts private interests above the public interest and places special interests in the driver’s seat with regards to public road policy.

Availability payment P3s are just plain bad public policy. Texans and their elected representatives are duty-bound to put a stop to this policy and the precedent it sets.

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.