Tuesday, January 23, 2007

Ric Williamson characterizes public TTC and toll road privatization critics as "kooks"

Taking its toll in Texas


New Civil Engineer
Emap Glenigan
Copyright 2007

Texans have a big problem. A £43bn dollar transport problem. Some bold political decision-making – and some UK and European expertise – is tackling it head on. Mark Hansford reports from the Lone Star state.

Texas’ transportation challenge is a straightforward one, and one that can be easily identified with around the world. Quite simply, its transport system has not kept pace with the needs of a rapidly increasing population.

Over the last 25 years, population has increased by 57% and road use by a staggering 95%. Yet over the same period state road capacity grew only 8% while the United States government has transferred $7bn (£3.5bn) in Texas “gas tax” payments to other states (see box).

And over the next 25 years the situation is only set to get worse. Population is expected to increase a further 64% fuelled by immigration from Mexico and road use by a whopping 214% fuelled by trade. Seventy five per cent of US trade with Mexico travels through Texas and a widened Panama Canal will see a surge in container ships using deep water ports at Corpus Christi and Houston. Yet US Congress will still transfer £4bn in gas tax to other states.

The state has identified a colossal £94bn of projects needed to achieve an acceptable level of mobility by 2030. With only £51bn available to meet those needs, it has a funding gap of £43bn. To meet this gap conventionally gas tax would have to rise from 40c to $1.60 per gallon, a political disaster.

The state knows extra funds are not going to come from Federal government. Just as in the UK, transport in the US is a very long way down the pecking order.

So it has a bold plan. Texas is proud to be doing the unthinkable – using private finance to fund to £43bn of public roads and railways. Unions protecting jobs have prevented other states following this route. But Texas has no unions.

Even though, the decision is not universally popular. Tolls in the US are met with even more opposition than they are in the UK. Think London congestion charge but on a much grander scale.

But just as London has mayor Ken Livingstone, Texas has Governor Rick Perry. And just as London has a tough talking transport commissioner in Peter Hendy, Texas has a straight talking chairman Ric Williamson.

“Visible America (those against change) is out on the edge, representing at most the 15% who are left wing kooks and the 15% who are right wing kooks. The other 70% – and it is the same around the world – haven’t got the time to protest. They are too busy doing their job, looking after their families, going to church, keeping the brother-in-law off drugs again. People elect people to make decisions as they haven’t got time for this stuff and if they don’t like the decisions they elect someone else,” says Williamson.

Perry’s decision is to woo the private sector and let it make money from his voters. “We’re not ashamed that companies are going to want to make a profit,” says Williamson.

“There is no magic to this. It needs three things. One, it needs a visionary politician totally committed to the extent that nothing else matters. The Governor of this state said to me six years ago that this was an issue worth losing your career over. He was petrified we wouldn’t move fast enough to control our own destiny.

“Then you need hard knuckle policies and need to get laws changed.” This happened in 2001 when legislation was passed permitting private finance. “Finally you have to accept that a company wanting a legitimate profit is not bad. In particular it is fine to say, ‘it doesn’t matter how much money they are making as they won it competitively.’”

Charged with ensuring that the private sector is competitive is Halcrow. It has been advising the Texas Department of Transportation (TxDOT) on procurement since 2003 (NCE 25 September 2003).

Texas’ transport plan is predominantly being delivered through giant schemes known as the Trans-Texan Corridors (TTCs). Two have been identified. TTC 35 rips north-south through the heart of the state, parallel to the I-35 interstate highway from Dallas Fort Worth through Austin and San Antonio to the Mexican border. The north-south TTC 69 route is further east and runs via Houston (see map).

The form of PPP being used – the “Comprehensive Development Agreement project delivery method” – is innovative and best described as an Early Contractor Involvement (ECI) PPP. A PPP consortium is brought in very early and, like ECI in the UK, guides the project through statutory stages such as Environmental Impact Assessments. Once the project is set to go, a break clause ensures that Texas has the option to seek better value elsewhere. The CDA then lets individual contracts – either to itself (rather in the style of Metronet in London’s Tube PPP) or to other parties (in the Tube Lines style).

The CDA for the £4bn TTC 35 was awarded to Cintra/Zachry in March 2005 (Cintra is an operating division of Spanish construction giant Ferrovial and Zachry is a US firm) and Halcrow is advising on procurement of individual projects. The first to be developed is a 64km section of privately financed tolled expressway, SH 130 Segments 5&6 (see box). This has gone to Cintra/Zachry.

TTC 69 follows the I-69 for 1,280km and Halcrow is again advising, this time in joint venture with local firms Carter Burgess and RS&H. Two concessionaires have been shortlisted.

The financing for both is cunning, with TxDOT taking an upfront concession fee and a minimum 5% share in all revenues.

On the £680M SH 130 that is a £12.5M upfront fee and £123M of revenue sharing over 50 years. For the TTC 35 overall, TxDOT will receive £1bn in upfront fees, not to mention the 5% cut on revenues, rising to 9% as profits increase.

“With revenue sharing there is always a nervousness that the private sector is going to make money,” says TxDOT divisional director Phil Russell. “It will, and that’s OK, that’s what we expect. Super profits are where we have to be wary, which is where the profit share increase inoculates us – it’s kind of win-win.”

Tolls are set by market forces, with an annual price cap based on Gross State Product. Risk is shared according to who is best placed to deal with it and the return on investment will reflect that.

“The big thing is partnership,” says Halcrow associate director Brian Howells. “For these partnerships to work you have got to have just that. It is essential that you go in there with a positive view of the long term strategy.”

The process for both projects is the same – a very broad 80km wide study area is refined to a 16km wide corridor. “That’s why it is important to have a concessionaire in first,” says Russell. “Do you build a road first and get the revenue or do you build a transit first and get fares?”

“On TTC 35 we asked the concessionaire to build up near, medium and long term plans for 50 years. Most near-term plans are all roadway. There is one commuter rail and one freight rail. Do we have the density and mindset for rail? Most rail is long term,” says Russell. Despite this, public transport will play a major part – eventually (see box).

Williamson is certain the plan is right.

“People are reacting well to tolls, if only in sense that they have concluded that if there is going to be decongestion they are going to have to be tolled. They can then choose between going fast and paying or going slow for free.

“We perceive we have an opportunity. We have a robust road tax system which will pay to maintain the public roads for another 30 to 40 years. Our challenge is to expand with a toll policy that is full cost recovery from day one and revenue generating.

“We are not holding down the charge, we will let the market determine the cost. We will then use our part of the excess revenue to build a modern public transport system to compete with public road and toll road network.”

Gas Tax

The US has a refreshingly honest approach when it comes to funding transport schemes. What people pay in tax on fuel is what is made available to spend on transport. In theory. But it is not quite that simple. Of the 40c per gallon tax, around 20c goes to the Federal government. There it pools the money with that from every other state and redistributes it as it sees fit, typically with the richer states giving to the poorer. Texas gets 80% to 90% back. Furthermore, of the 20c held by the state, around a nickel (5c) goes to education. So for every $1, TxDOT gets around 65c to spend on transport. Which basically covers maintenance. It’s simply not enough.

Toll types

Toll roads:
New freeways, completely tolled Tolled mainlanes. The mainlanes of the freeway are tolled, while the access roads or “frontages” remain toll free.

Tolled managed express lanes:
The existing mainlanes remain free, but new express lanes built in the centre of the freeway are tolled. These lanes are barrier-separated and have limited entry and exit points. They can double as High Occupancy Vehicle and/or bus lanes, known as HOT (High Occupancy/Toll) lanes.

Tolled elevated lanes:
A tollway is built elevated over an existing free roadway.

Tolled interchange:
Ramps between a roadway and an intersecting roadway are tolled.

Public transport alternatives

In Texas transport means cars and trucks. “In the last two years gas has gone from $1.40 to $3 per gallon. I thought we’d see some changes. But actually we have seen none,” says Russell. “In Texas we have very low land prices and people want low housing density. Public transport is going to take time to come to fruition and its not going to come from an economic drive.”

But public transport is part of the equation, insists Williamson. “Solving the problem is more than building roads. Our state was populated after the automobile age. As a result we didn’t need public transport. So we’re not burdened with a public transport system that doesn’t work. We are burdened with the absence of a system that works.

“All decisions are made in self interest of the decision maker. Anyone who makes a decision does so in their own self interest. Its not that we are all evil and bad, but that we will inevitably decide in our own self interest. We think public transport ought to be a self interest decision.”

“We know we can’t continue to build only highways,” says Russell. “Ten years ago everybody would have thought you were daft if you started talking about commuter rail. But in Dallas more people are getting on light rail and not because of the costs – but because of the stress of traffic.

“Americans don’t like to be pushed. Our strategy will be to give options.”

© 2007 EMAP: www.nceplus.co.uk