"Taking a silk purse and turning it into a sow's ear. "
June 15, 2007
By MICHAEL A. LINDENBERGER and JAKE BATSELL
The Dallas Morning News
The Regional Transportation Council should endorse the Spanish firm Cintra to operate the State Highway 121 toll road project if it wants the best value for North Texas, the Texas Department of Transportation said Thursday.
TxDOT's endorsement of Cintra during a tense five-hour hearing before the regional council represented a setback for the North Texas Tollway Authority's rival bid, and it wasn't the only setback.
The accounting firm Price Waterhouse Coopers also told the 39-member council, which sets transportation priorities for North Texas, that the NTTA bid is inferior to Cintra's.
The regional council will meet Monday to make a final recommendation on the Highway 121 contract.
Price Waterhouse's report gave council members their first independent analysis of the two bids to build what has been called the most lucrative toll project in North Texas history.
NTTA chairman Paul Wageman vigorously rejected the TxDOT and Price Waterhouse assessments. He said his agency's offer includes more upfront money and more in annual lease payments than Cintra's and also promises to share all its profits with the region, rather than shareholders.
"If you're not thoroughly confused, you're very smart people," Mr. Wageman told the council. "It's really almost seemed otherworldly to me today."
Mr. Wageman said he was amazed at how the two teams picked apart NTTA's proposal.
"It was essentially taking a silk purse and turning it into a sow's ear. This is a great project," he said.
Billions at stake
Everyone agreed there is plenty of money to be made building the road and then collecting tolls for the next 50 years. Both Cintra and NTTA are offering billions to win the contract, a novel twist for a region that has for decades built roads the old-fashioned way – by spending huge sums to pay for construction, not by collecting tolls.
But where the agreement ended Thursday was with how to value the two proposals. Cintra, for instance, argues that NTTA's proposal is worth less than the tollway authority says because it makes promises it can't guarantee.
NTTA's promise to reinvest $1.3 billion or more in anticipated profits should be discounted because those profits may never materialize, the firm argues.
The state Transportation Department agreed.
James Bass, the department's chief financial officer, said his team's assessment of the bids did not include NTTA's offer to reinvest the profits because those funds are not certain.
Beyond that, he said, the department is convinced that because NTTA is leveraging some of its existing roads to borrow the money for the 121 project, its debt load could reduce its capacity to borrow money in the future.
As a result, he said, his department will support the Cintra bid if TxDOT commissioners ask for a recommendation at their June 28 meeting in Austin. The state Transportation Commission gets the final say on which bid wins the Highway 121 project.
"We would say, given our observation of both models and the submissions that we've had available to us, that we would support the Cintra model," Mr. Bass said.
Price Waterhouse's take
Price Waterhouse's Arthur Baines said his firm studied both proposals and concluded that Cintra's proposal is worth more than the company previously stated. The company, he said, had not been given credit for the $200 million in federal taxes it could be expected to pay on the profits it anticipates.
"That's just standard practice, to count that as a public benefit," he said.
At least one member of the council scoffed, however.
"That money won't stay here in the region, so I'm having a hard time seeing how I would consider it a public benefit," said Loretta Ellerbe, a Plano City Council member.
But Cintra said its offer is better for North Texas because it brings private money to the region to help pay for the backlog of needed roads. Cintra officials also assert that NTTA would probably have to raise toll rates if the project began to fail financially.
"It's our belief that [the two teams'] findings generally confirm what we're saying – that our proposal has the potential and the ability to deliver greater value to the region," said Glenn Muscosky, a vice president at J.P. Morgan, which is investing in the project as a minority partner with Cintra.
Mr. Wageman said the council is asking NTTA to play a big role in helping build the region's infrastructure. Barring it from one of the few transportation projects that is rich enough to need no government subsidy would leave it handicapped, he said.
"If you want us to build all these other projects – which we want to build and we're committed to build – you've got to give the NTTA a project that will enhance our system's revenue, and give us the ability to leverage it to issue more debt to build more projects," he said. "You can't saddle us with projects that are only financially unfeasible."
Despite the two recommendations in favor of Cintra, the five-hour onslaught of dollar figures and traffic forecasts left several members of the Regional Transportation Council unconvinced.
"It is a little murkier than I thought," said John Murphy, a Richardson City Council member. "I thought that one would come out clearly the winner, and obviously, that hasn't happened."
Even though both the Transportation Department and Price Waterhouse studies favored Cintra, Mr. Murphy said members could find numbers in each analysis to justify a vote for either proposal.
"I'm probably going to spend the weekend holed up with all these numbers," he said. "I don't have a clear position at this point. I think anybody in here that already has their mind made up, if they sift through this, they could actually change in one direction or the other."
Others said they want the independent analysts to reconfigure their estimates based on higher traffic projections for fast-growing Collin and Denton counties.
"I really think they need to look at those traffic counts," said Becky Miller, mayor of Carrollton. "I can never see those traffic counts going down – I can only see them going up."
Regardless of who wins, council members said they face an enviable dilemma of choosing between high-profile bidders willing to fork over billions for the right to build the road.
"We truly have a great position," said Charles Emery, chairman of the Denton County Transportation Authority. "Now we've just got to massage the final numbers and see where that falls out."
The Regional Transportation Council met in Arlington on Thursday to hear the dueling Cintra and NTTA pitches to run the State Highway 121 toll road. Here's what happens next:
• The RTC returns to Arlington on Monday to vote on which bid to recommend to the Texas Transportation Commission, the Texas Department of Transportation governing board in Austin.
• The Texas Transportation Commission is scheduled to meet in Austin on June 28 to make a final decision on which bid to accept. The commission usually accepts the RTC recommendation. But the stakes are particularly high on the Highway 121 project.
© 2007 The Dallas Morning News Co
TTC-35 Toll Corridor Bidding Teams:
Cintra, Concesiones de Infraestructuras de Transporte, S.A. (CINTRA)
Zachry Construction Corporation
Earth Tech, Inc.
Price Waterhouse Coopcrs
JP Morgan Securities
Bracewell & Patterson
Pate Engineers, Inc.
Aguirre & Fields LP
Rodriguez Transportation Group
Railroad Industries Inc.
Public Resources Advisory Group
Southwestern Capital Markets
National Corporate Network
Source: 'Big Money Paves the Way for ther Trans-Texas Corridor'
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