Sunday, March 11, 2007

"Privatization, in many cases, is the outsourcing of political will."

Texas toll-road debate still has miles to go

State needs new highways, but is privatization the solution?

March 11, 2007

The Dallas Morning News
Copyright 2007

AUSTIN – Four years of simmering frustration boiled over at a recent Texas Senate committee hearing with just one thing on the agenda: toll roads.

An overflow crowd bashed and booed the Texas Transportation Commission in front of mostly like-minded senators. For eight hours, lawmakers and audience members alike questioned the state's increasing reliance on tolls.

"We can't simply build roads at any cost," Sen. John Carona said to cheers. "We've got to build them smarter."

Some argue that toll roads are the only smart play in a state where the Legislature has refused to raise the tax on gasoline, which pays for roads. In Texas and beyond, officials have turned to private companies like Cintra, which on Feb. 27 won a 50-year contract to operate State Highway 121 in Collin and Denton counties as a toll road. The companies build the roads, and motorists pay them back a trip at a time – for decades.

A growing number of lawmakers are mobilizing against Texas' toll road policy. But barring a legislative roadblock, tolls are coming to plenty of other North Texas roads, and they will be central to the mammoth Trans-Texas Corridor project. Privatization of roads is happening across the nation and, indeed, around the world.

Proponents, who include Texas' governor and Transportation Commission chairman, say it's the only way new roads will be there for motorists who want them. Critics say the deals to build toll roads are too generous – handing over valuable highways in exchange for quick cash – an easy way out for politicians unwilling to raise taxes. Critics also say that motorists will be stuck paying higher-than-necessary tolls.

Toll roads are about tradeoffs. Roads get built sooner, gas taxes are held down and governments sometimes get huge upfront payments ($2.1 billion in the case of Highway 121), which they can use on other projects. But tolls can remain in place for decades after a road is paid for; and concerns have been raised about the dollars in the deals, the openness of the bidding process and the ramifications of private operation of public roads.

"History may very well reflect back on this as one of the defining public policy debates of our time – as consequential as the one that gave birth to the Interstate Highway System some 50 years ago," former U.S. Transportation Secretary Norman Mineta said as he left office last summer.

There's no debating the need for money to build new roads and to upgrade and maintain the ones we have. A $2 trillion shortfall in national transportation spending is coming in the next 20 years, according to Joe Giglio, a transportation researcher at Northeastern University and the author of Mobility: America's Transportation Mess and How to Fix It .

"The pressing issue is the need for additional highway capacity," he said. "The challenge is how do we come up with the capital to address that shortfall."

Mr. Carona, the Republican from Dallas and chairman of the Senate Transportation and Homeland Security Committee, echoed those sentiments.

"The Legislature has not raised revenue to keep pace with transportation needs. I don't think that fact can be denied," the senator said. "But where do we go from here?"

Interest from abroad

The seeds for the growth in privately built toll roads were sown overseas.

Foreign companies have operated toll roads for years, and those projects have consistently made lots of money. Now financiers with foreign roots are eyeing North America's aging highway system. A surge in revenue from retirement funds has left investors looking for places to put their money. And with traffic congestion steadily increasing and harried Americans placing a premium on their time, the potential for profits from toll roads seems enormous.

Private money from overseas is pounding loudly on the door of North Texas. Foreign companies lead or are partners in all the groups vying to build toll lanes on an expanded LBJ Freeway. And foreign companies, including Spain's Cintra, led all three groups vying for the lucrative Highway 121 toll road contract announced last month.

In Texas, the push to privatize roads has roots in state lawmakers' longstanding reluctance to raise the gasoline tax. The 20-cents-a-gallon tax was last increased in 1991, when it rose by a nickel. In the 16 years since, gas tax revenues have not kept up with soaring costs for highway projects, and transportation officials have increasingly bemoaned the lack of new funding sources.

"One tactical decision elected leaders can make is to raise the gas tax," said Ric Williamson, chairman of Texas Transportation Commission. "But nobody has run on that as a platform. It must not be acceptable; otherwise someone would have done it."

Mr. Carona said the move to toll roads here "is the direct result of the Legislature not having the will to raise fuel taxes appropriately."

To further complicate matters, state lawmakers have been unable to resist dedicating portions of the gas tax and vehicle registration funds to other uses, including funding the Texas Department of Public Safety and public schools.

Given the resistance to a gas tax increase, so-called user fee roads began to emerge as an alternative.

In 2002, Gov. Rick Perry unveiled his vision for the Trans-Texas Corridor. Lawmakers paved the way for it in the two subsequent legislative sessions. Transportation bills helped establish agreements allowing private firms to build or lease Texas toll roads. This comes after decades of toll roads in North Texas operated by the North Texas Tollway Authority, a network that continues to grow.

Having embraced the toll road concept, Texas is running with it.

Locally, in addition to the massive 121 project, there's the Trinity Parkway near downtown Dallas; State Highway 161 in southwest Dallas County; and the future Loop 9 in southern Dallas County. Then there are the so-called managed-lane projects, in which new lanes – with tolls – are added to existing roads. That's planned along Loop 12, Central Expressway, Interstate 30 and State Highway 183.

Mr. Williamson said, "We're so far past everyone else, your children are going to look back and say, 'Thank God Texas did what it did.' "

Mr. Carona isn't sold.

"I support toll roads," he said. "But I want to make certain we don't use toll roads excessively. I'm concerned that every major project planned across the state is a toll road. It's out of balance."

Dr. Giglio, the Northeastern University professor, makes clear his opinion about government turning over projects, and hard decisions, to private companies.

He said, "Privatization, in many cases, is the outsourcing of political will."

Public road, private firm

Don't tell that to Mr. Williamson.

"The way that Texas is approaching private dollars is completely and totally different from the way anyone else is approaching it," he said. "I would argue it's the best way."

The Texas Department of Transportation cites a host of reasons it favors contracts with private firms. TxDOT says private involvement gets roads built years sooner, cuts costs and relieves it of responsibilities for road maintenance.

Not only that, proponents say, but the roads are paid for by the people who use them and without raising taxes on everyone who buys gas. They also point to the fact that private companies assume the risk should a construction project become more expensive than planned or not attract enough vehicles.

But the big incentive, state officials say, lies in the deals being offered, specifically their huge upfront payments. That money can be used for other road projects that otherwise would have languished on the drawing board and only gotten more expensive over time.

The 121 contract calls for Cintra to pay the state $2.1 billion. That's roughly the amount the Transportation Department receives each year from state gas tax revenue that goes for highways.

The Cintra money is to be used on a long list of local projects. It could help reconstruct LBJ Freeway, fix bottlenecks on Central Expressway and build the planned Grapevine Funnel. Even rail expansion projects are on the wish list.

"In doing what we've done, we've infused the region with much-needed capital," Mr. Perry said in announcing the Cintra deal Feb. 27. "Today, we're going to see Texas take a giant step forward in combating congestion."

In taking the money now, Texas is acting like a lottery winner who takes a lump-sum payment. Sure, the payments spread over years add up to more, but the state says it needs the cash that badly.

"Ultimately, it comes down to funding for new roads," says Jere Thompson, former chairman of the North Texas Tollway Authority. "TxDOT is out of money."

Many objections

Mr. Thompson and other critics object to toll roads on several levels.

First, they say, a public asset like a highway is too valuable to hand over to private interests.

"We are seeing the rush to sell the crown jewels of the state," Mr. Thompson told Mr. Carona's Senate committee at its March 1 hearing.

Toll expert Dennis Enright also testified that day that handing over highways should be avoided.

"Our bottom line is: Don't give up the road unless there is no other alternative," he said, adding that privatization is not a panacea.

"This assertion of salvation is highly exaggerated," he said.

Second, critics object to toll-road contracts that trade big upfront payments in exchange for tolls that continue long after the road is paid for. The upfront payments, they say, are too low, and the process is too private.

The Governor's Business Council, made up of business leaders from around the state, has said that rather than pay for private companies' profits, it would be "substantially cheaper" to use public funding sources to build roads.

Mr. Thompson told the Senate committee that the tollway authority, a quasi-governmental agency, could have offered a much better deal than the one the state accepted from Cintra.

Mr. Thompson isn't the only one raising questions about dealings between the state and Cintra, which declined to comment for this story.

A February report from the State Auditor's Office questioned the Texas Department of Transportation's work on the highest-priority project of the Trans-Texas Corridor, a highway to parallel Interstate 35 dubbed TTC-35.

The report says "weaknesses in the Department's accounting for project costs create risks that the public will not know how much the state pays for TTC-35 or whether those costs are appropriate."

It goes on to say, "There is a lack of reliable information regarding projected toll road construction costs, operating expenses, revenue and developer income."

The state auditor also criticized the Transportation Department for initially refusing to make public its agreement on TTC-35 with the claim it contained proprietary information. The report called on the Legislature to increase public access to such information, have a third party project toll revenue and require annual state audits of toll roads.

Sen. Eliot Shapleigh, D-El Paso, and Mr. Carona said that they would seek more financial data and toll increase schedules for private toll road deals.

"I want to understand how these formulas work," Mr. Shapleigh said.

Finally, there are questions of control, especially over toll rates that can rise without public input.

The 121 contract, for example, anticipates that tolls that start at 14.5 cents a mile will climb 3 percent a year and reach 58.2 cents a mile when the 50-year deal ends in 2057. At that toll rate, the 23-mile trip from Central Expressway in Collin County to Coppell in Denton County would cost $13.39.

Opponents also worry about toll road deals that include clauses that limit widening of nearby roads. Regional leaders emphasize that in the 121 contract all road-widening projects planned through 2030 will be allowed, but opponents counter that the 2030 provision doesn't cover the time beyond that.

Capitol interest

A toll road battle has been joined in the current session of the Texas Legislature.

Lawmakers in both houses have filed bills calling for a two-year moratorium on new toll-road contracts. Dozens of lawmakers have signed on to the House bill, and the Senate version has the support of 25 of 31 senators.

"I don't think it's too much to ask to take two years to look at contracts that will cover our grandkids 50 years from now," said Rep. Lois Kolkhorst, the Brenham Republican sponsoring the House bill. The Senate bill is sponsored by Sen. Robert Nichols, R-Jacksonville, a former Transportation Commission member.

"When a former commissioner of the Texas Department of Transportation and head of the subcommittee on the Trans-Texas Corridor introduces this kind of legislation, it makes a very huge statement that we need to slow down," said Ms. Kolkhorst.

Other bills would lower the maximum contract length for a privately operated toll road to 30 years and set limits on the amount of tolls collected on new toll roads.

The debate is having an effect on other proposed legislation. For the first time in years, a bill that would raise the state gas tax stands a chance of getting a full hearing.

Both Mr. Carona and his House counterpart, Rep. Mike Krusee, R-Round Rock, have filed bills that would automatically adjust the gas tax rate annually based on measures of inflation.

Mr. Carona, meanwhile, has asked the North Texas Tollway Authority to prepare an informal bid for the 121 contract for comparison purposes.Speaking of his Transportation Committee, he said, "All we could do would be to analyze the competing bids and try to understand whether the taxpayers received a good bid, and use the results of our analysis for legislation affecting future contracts."

Looking for alternatives

Is there another way?

Experts in the transportation finance field say that technology may eventually bring an alternative to toll roads: a tax based on the number of miles driven. Pilot studies in Oregon have tested odometer-based mileage taxes, but privacy concerns and technical limitations mean a mileage tax is still more than a decade away.

In the interim, the solution may be a mixture of funding increases from fuel taxes and toll roads.

Dr. Giglio, the Northeastern University professor, sits on a taxation and finance committee for the Transportation Research Board, a leading policy group for national transportation issues. He argues for an expansion in the next 15 to 20 years of electronic toll collection that would be virtually unnoticeable.

But before then, Dr. Giglio said, political leaders should consider raising the federal gas tax. A one-cent increase in that tax could generate $1.8 billion in needed revenue nationwide, he said.

Texas' options for highway construction funds – other than gas taxes and tolls – appear limited. Not only does the state constitution forbid a state income tax, but many Texas cities are already at the 8.25-percent sales tax cap. Property taxes are used primarily by cities and counties for construction on local roads, not major highways. And the Transportation Department doesn't issue bonds based solely on gas tax revenue.

The report from the Governor's Business Council suggests that the use of toll roads "where possible" could play a prominent role in paying for Texas' future highway construction.

But it makes several other suggestions, the most prominent of which is a fuel tax increase of 8 to 12 cents per gallon. That would then be followed by roughly a penny-per-gallon gas tax increase each year, with the actual hike tied to the rate of inflation for highway construction projects.

State Sen. Florence Shapiro, a member of the Transportation and Homeland Security Committee, said that rather than sell away the rights to the road, Texas should seek a share of future toll revenue that will help it pay for projects decades into the future.

"The division of the revenue stream and the benefit to the citizens and the state of Texas should be reviewed and studied carefully with TxDOT," said Ms. Shapiro, R-Plano.

"Unless the taxpayers and toll payers of Texas are the beneficiary of private toll roads, I'm not in favor of them."

Backing privatization

Proponents such as Mr. Perry say critics of privatization haven't offered any real alternatives.

"Ever since we came up with this concept, there were those who didn't have any good ideas of their own," he said the day he announced that Cintra would build the Highway 121 toll road. "So they would come up with issues to deflect from the real important issues at hand and say things like they're going to sell the land to foreign countries and play a lot on misinformation and old fears that really don't hold water."

So are Texans mortgaging their future for an easier commute now?

"I would prefer to ask the question: 'Are we willing to put up with traffic congestion that will only get worse over the next 50 years?' " Denton County Judge Mary Horn said at the announcement of the 121-Cintra deal. "We can't wait that long. We've got traffic congestion today."

With gas tax increases unlikely, those who question the toll road push should provide a better alternative, the county judge added.

"If someone's got a better method of funding transportation," she said, "we want to hear it."



Arguments that proponents of toll roads make:

• Highways get built sooner.

• Upfront payments from private toll road operators help pay for other projects sooner.

• Private companies take the risks on investment and potential cost overruns.

• Users of the road pay for its construction and maintenance.

• The state can spend money it would have used on maintenance on other projects.

• Lawmakers have not supported gas tax increases, leaving few options.


Arguments that toll-road opponents make:

• Tolls continue long after the road is paid for.

• Tolls rise automatically, with no public input.

• Residents nearest urban toll roads are hit the hardest.

• Road costs should be shared by all taxpayers.

• Lawmakers are considering a gas tax increase tied to inflation, reducing the need for toll roads.



Texas rate: 20 cents per gallon

National average: 20.3 cents per gallon*

Texas' rank among states: 21*

Nation's highest rate: Washington, 31 cents per gallon*

Nation's lowest rate: Georgia, 7.5 cents per gallon*

Year first levied in Texas: 1923

Year last raised in Texas: 1991 (5-cent increase)

Amount generated in fiscal 2006: $3.034 billion

Amount dedicated to highways: $2.19 billion (72 percent)

Amount for public education: $738 million (24 percent)

Amount for refunds, collections and other expenses: $106 million (4 percent)

* 2005 figures, the most recent available

SOURCES: Texas Department of Transportation, Federal Highway Administration


The $2.1 billion Cintra payment is expected to help fund numerous area transportation projects, though none would be paid for solely with the Cintra funds. Detailed plans will be worked out in the next several months, but at the Feb. 27 announcement of the contract, regional leaders listed numerous projects that could receive money. Among them:


• Central Expressway bottlenecks

• Bush Turnpike bottlenecks

• Possible contribution for Carrollton-to-Frisco rail service

• LBJ Freeway reconstruction

• Interstate 35E south of downtown Dallas

• Light-rail extensions

• Trolley line extensions into downtown Dallas

• Interstate 35E from LBJ Freeway to the city of Denton

• FM423 around The Colony

• FM720 in Little Elm

• Passenger-rail construction between Denton and north Carrollton

• State Highway 121/Highway 114 north of D/FW Airport (Grapevine Funnel)

• Interstate 35W north of downtown Fort Worth

• State Highway 183/Highway 121/Loop 820 in north Fort Worth

© 2007 The Dallas Morning News Co

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