Thursday, June 14, 2007

"In the end, make no mistake, it's all going to come down to politics."

121 toll bids go under microscope

Panel to decide if Cintra, NTTA is best financial deal for region

June 14, 2007

The Dallas Morning News
Copyright 2007

Billions of dollars for North Texas roads could be at stake Thursday when the Regional Transportation Council considers dueling bids for the State Highway 121 toll road project.

Both the North Texas Tollway Authority and Cintra, based in Madrid, Spain, are dangling a king's ransom – about $3 billion in cash – for the 26 coveted miles in Collin and Denton counties.

The two bidders will make final arguments for why they should build what is likely to be the most lucrative toll project in North Texas history.

The rival pitches will cap an emotional eight-year battle over how and when the toll road will be constructed. Each side also argues that its bid will better position the region for billions worth of future toll road projects.

On June 18, the transportation council will vote on which bid to recommend for approval to the Texas Transportation Commission. The commission is due to make a final decision on June 28.

Today's hearing pits two powerful forces – Gov. Rick Perry's initiative to privatize roads vs. a public backlash against selling a state road and its future toll revenues to a foreign company. Some local leaders have already chosen sides, while others say that information delivered today may sway them.

"It's going to be interesting," said transportation council member John Heiman Jr., a member of the Mesquite City Council. "Everybody's really keeping their cards real close to their chest on this one. I think it's an emotional and a financial issue. It's a classic political situation."

What's likely to be most persuasive to the council's 39 members, however, is not be the oft-repeated pitches but a pair of financial studies from experts invited to weigh in today.

Council director Michael Morris invited the two teams to determine which offer is best for the region: the NTTA's, with its higher cash payments, or the one from Cintra, which says its bid will mean more money – and more roads built – in the long run.

Mr. Morris said the council will endorse whichever plan brings the best deal for North Texas, a judgment that he said will depend in large part on the experts' conclusions, which will be presented today.

"The law requires us to pay attention to the numbers," he said. "I don't know why we wouldn't. Wherever the numbers take us is where we will go."

Whatever happens, North Texas is in line to rake in an upfront payment of more than $2 billion to help build other roads throughout the region. The winning bidder also will pay the state at least $700 million in today's dollars over the next 50 years.

Different approaches

The rival plans offer two radically different ways of doing business. Cintra has invested billions in major road projects across the globe and, increasingly, throughout the U.S. It promises to bring nearly $800 million in private equity to the 121 project, and it says a vote for Cintra will help North Texas lure more private money to reduce the backlog of badly needed road projects for which no public money is available.

It was an argument that found success in March, when the Texas Transportation Commission voted to give the 121 contract to Cintra over two other private firms. But the idea of awarding a 50-year lease to a foreign firm to run what will be one of North Texas's most important roads quickly drew opposition in the Legislature.

Under pressure from lawmakers, the transportation council was asked to invite the NTTA to make a rival bid.

Cintra said awarding the contract to a public tolling agency after already selecting a private bidder could make future investors skittish.

"If, at the end, the powers that be decide to choose NTTA, they're sending a very strong signal to the market," said José López, Cintra's U.S. director. "The market will not read it well."

Still, the NTTA's bid has been hard to ignore. It promises to pay about $400 million more up front for the right to build and maintain the road, and an additional $133 million in total yearly payments over the life of the deal.

"We have put forward a financially superior plan that will benefit citizens of our region for years to come," said Paul Wageman, chairman of the NTTA board.

Predicting returns

Thanks to the heavy traffic forecast for the new road, the profits for whoever collects the tolls could be high. Mr. López said that over the 50-year lifetime of the deal, his firm expects it would see an average annual return of 12.5 percent on the equity invested. The NTTA predicts it would earn $1.3 billion in profit, even after paying the interest for the bonds it would have to sell to finance its involvement.

Mr. López said the road's profits will help entice future partners from the private sector – something that he said the Dallas area, like congested regions everywhere, will increasingly need as transportation needs outstrip available public resources.

NTTA's money, he said, should be used to finance other toll projects for which there is no private-sector interest. By working together, he said, the private and public sectors will get more roads built in the long run.

That's not so, said Mr. Wageman. Profits generated by the project will be put to better use if kept in the region, rather than returned to shareholders eager for a dividend, he said.

The NTTA would reinvest the profits in building more North Texas roads, he said.

"We're going to be more aggressive going forward in building more roads, sooner," Mr. Wageman said. "And the revenues from this contract will greatly expand our ability to borrow the money we need to build more projects. It will add billions to our debt capacity."

Weighing each side's numbers and their impact on future road projects is critical, Mr. Morris said.

On Monday, Gov. Rick Perry signed a new transportation law that, among other things, says NTTA should be given the contract if its proposal is of equal or greater "financial value" to the region.

The council has spent $200,000 to hire accounting powerhouse Price Waterhouse Coopers to evaluate the proposals with that in mind, Mr. Morris said.

A bedeviling detail may well be how "financial value" is defined. Mr. Morris, for instance, insists that the law means the council should consider more than just the dollar figures attached to the rival bids. If Cintra is correct in arguing that NTTA's victory would mean either higher toll rates in the future or fewer roads being built down the road, the council should consider that, too, he said.

Mr. Wageman said neither of Cintra's claims is true. In any case, he argues, the language of the law should be read on its face – that the contract should go to NTTA if its offer for the 121 project is better than its private-sector rival's.

Also making a short presentation today will be the review team from the Texas Department of Transportation that selected Cintra for the project initially.

That puts NTTA in an odd predicament, Mr. Wageman said. The Transportation Department, which has already awarded the contract to Cintra once, will make a recommendation to the regional council. And the Transportation Department reports to the Texas Transportation Commission, which will make the final decision on the project.

"Obviously, there has been a lot of stuff going on that has given us pause," Mr. Wageman said. "I have a lot of concern about the objectivity of the selection process."

Still, he said, he trusts the word of state transportation commissioners.

Ric Williamson, chairman of the governor-appointed commission, repeatedly has said that state leaders will almost certainly defer to the Regional Transportation Council's decision.

"We just believe that if you have a strategy that says empower local and regional government ... you stay out of it, other than making sure the law is followed and making sure good engineering practices are used," Mr. Williamson said this year.

Tollway authority leaders contend they were muscled out of the 121 bidding process last year by state officials fixated on awarding the deal to a private bidder. Critics of the NTTA, meanwhile, say the agency hasn't been aggressive enough in meeting the region's transportation needs, particularly in Denton and Tarrant counties. They also point out that the tollway authority has passed on previous chances to build the 121 toll road since first exploring the project in 1999.

Mr. Wageman concedes that the authority has been perceived as too cautious in the past. But he said that's no longer the case. With construction costs rising so quickly, the NTTA is determined to build as many roads as quickly as it can. The revenues from the 121 project will help accomplish that, he said.

Even if today's meeting is all about the numbers and financial models, other considerations between now and Monday will have the greatest influence, suggested Mr. Heiman, the council member from Mesquite.

"In the end, make no mistake, it's all going to come down to politics," he said.


A Spanish-based construction company that manages and runs toll road projects across the world. Last June, Cintra and an Australian firm agreed to pay $3.8 billion in cash for the right to build and collect tolls on a 157-mile highway in Indiana for the next 75 years.

The North Texas Tollway Authority is the public entity that builds and manages toll roads in Dallas, Denton, Collin and Tarrant counties; it has seven board members.

The Regional Transportation Council is the transportation policy board for the North Central Texas Council of Governments; it has 39 members.

The Texas Transportation Commission is the policy-setting board for the Transportation Department. Made up of five members appointed by the governor, it has final say on major transportation decisions, including the awarding of the State Highway 121 toll contract.

The Texas Department of Transportation builds most of the major roads in Texas, carrying out the policies set by the Texas Transportation Commission.


NTTA's pitch:

• In both upfront payments and in payments over the length of the contract, the North Texas Tollway Authority offers more in cash payments to the region. That alone, the agency argues, means it's a better financial deal than Cintra's.

• The State Highway 121 project is too rich to sell to a for-profit company. NTTA argues that private-sector money should be used in high-risk projects, not all-but-certain moneymakers like the 121 toll project. NTTA forecasts profits of $1.3 billion over the life of the contract, money that agency officials say will expand its borrowing capacity to build more roads sooner for North Texas.

• Gov. Rick Perry this week signed S.B. 792 into law, giving NTTA the preference for the 121 contract provided it can meet or exceed Cintra's proposal.

CINTRA's pitch:

• With transportation needs running at least $50 billion ahead of available money to pay for them, Cintra says North Texas urgently needs private capital. If Texas picks NTTA this time, after having first given the nod to Cintra, the investment community will be reluctant to bid again in the future.

• NTTA can only borrow so much money and shouldn't waste that capacity on a project where there is already a private company offering billions to take on the project. North Texas will have a better chance at narrowing the funding gap if NTTA uses its borrowing capacity to build other roads.

• NTTA's involvement is riskier for commuters than Cintra's. Cintra argues that if the 121 toll project somehow fails to make as much money as thought, the effect on area drivers would be less if Cintra managed the road. Cintra says NTTA would make up the revenue by raising toll rates on 121 and other roads. Cintra would be barred from doing so by contract and would simply lose money.

The Regional Transportation Council meets in Arlington today to sort out dueling proposals for the State Highway 121 toll road. Here's what happens next:

• June 18: Council members will return to Arlington to vote on whether to tap Cintra or the North Texas Tollway Authority for the contract. The council will send its recommendation to the Texas Transportation Commission in Austin.

• June 28: Transportation commissioners probably will take action on the council's recommendation.,

© 2007 The Dallas Morning News Co

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