"The NTTA can return $3.5 billion more to the region than Cintra."
We would forfeit billions with private partnership on 121
March 23, 2007
Jere Thompson Jr. (Former chairman of the North Texas Turnpike Authority)
The Dallas Morning News
Over the past few weeks a drama has played out in Austin over the future of State Highway 121, a huge roadway that will soon be the equivalent of a 26-mile-long "LBJ Freeway" between Central Expressway and Interstate 35.
The story began over a year ago when the decision was made to obtain badly needed transportation funds by converting Highway 121 to a toll road and then selling a 50-year concession on it.
At the insistence of the Texas Department of Transportation, the North Texas Turnpike Authority – the region's only experienced toll road agency – was ultimately excluded as a bidder.
Last month, Gov. Rick Perry announced with some fanfare that a Spanish company, Cintra, had the winning bid of $2.8 billion for the rights to the toll road. That's when things got interesting.
At the request of state Sen. John Carona, the NTTA responded that it could likely "offer" $6.3 billion using the same general assumptions employed by Cintra.
How can the NTTA produce so much more than Cintra? Because of its lower cost of funds.
The NTTA requires no equity returns and has access to low-interest municipal bonds. This capital structure is significantly less expensive than Cintra's combination of taxable bonds and equity.
Therefore, with the same revenue assumptions, the NTTA can return $3.5 billion more to the region than Cintra. This amount is more than TxDOT spent on new road construction in Dallas, Collin and Denton counties during the past five years.
The contract with Cintra has not yet been signed. By selecting the NTTA, an additional $3.5 billion would become available to the region. By selecting Cintra, that same $3.5 billion would become profits for Cintra and interest income for Cintra's banks.
Which would you pick?
Welcome to the new world of comprehensive development agreements, commonly referred to as CDAs. They involve the sale of a toll road's revenue stream to a private entity in return for huge upfront signing fees and future revenue sharing.
CDAs can sometimes be good. Examples are ventures that the public sector is unwilling or unable to construct, very expensive urban projects with uncertain traffic estimates, and projects in rural areas with no history of toll roads.
The private sector's willingness to accept the construction, financing, traffic and revenue risks in these examples justifies their economic rewards.
On the other hand, a perfect example of a bad CDA is Highway 121. The NTTA is willing and able to finance and construct the project, right-of-way costs are known, construction cost increases are not being assumed by Cintra, noncompete penalties are provided, traffic can be reasonably forecasted, and area commuters have already demonstrated their receptiveness to toll roads. Cintra would capture very high rewards for very little risk.
Because of the controversy over Highway 121 and other projects around the state, a two-year moratorium on CDAs has been proposed in Austin.
Local opponents to the moratorium claim that critical projects will not get built and congestion will strangle our region.
But the proposed moratorium applies only to selling to the private sector the rights to public assets. The NTTA is a public agency and would be exempted from this moratorium. It could build and, with legislative permission, allocate funds to nontoll projects.
If the moratorium halts a flawed selection process, results in more transportation dollars for this region, and permits construction of critical projects without delay, how can it be viewed as anything but good?
How should the Legislature address the use of CDAs and solve the funding crisis?
- First, regional toll road authorities should obtain the first right to build new toll projects and should not have to pay TxDOT for this right to build.
- Second, toll road authorities should obtain the ability to allocate funds to nontoll transportation projects.
- Third, funding raised from tolls should not reduce funding from gas taxes, and all gas tax dollars due this region should be promptly returned here and not spent elsewhere.
- Finally, the only serious long-term solution to this crisis is to index gas taxes. When the pain of the status quo exceeds the pain of change, change happens.
The Legislature needs to increase and index the gas tax to fund new transportation construction.
Jere Thompson Jr. is a former chairman of the North Texas Turnpike Authority and its predecessor, the Texas Turnpike Authority. He now serves as the Transportation Chairman for the Dallas Citizens Council and the Trinity Commons Foundation. His e-mail address is email@example.com.
© 2007 The Dallas Morning News Co
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