Friday, November 16, 2007

"A vipers' nest of competing interests makes Highway 161 toll road negotiations especially sensitive."

State threatens to cancel Highway 161 toll project

TxDOT, NTTA must reach deal in 5 weeks or region could face bill

November 16, 2007

The Dallas Morning News
Copyright 2007

AUSTIN – Plans to expand State Highway 161 into Tarrant County as a toll road could collapse over the next five weeks, taking with them hundreds of millions of dollars for Dallas County highways.

The highly anticipated highway – running 11.5 miles through Irving, Arlington and Grand Prairie – has been touted for years as probably the second-richest toll project in North Texas, after the controversial State Highway 121 toll project.

But on Thursday, Texas Transportation Commission Chairman Ric Williamson said if the Texas Department of Transportation's local engineers and the North Texas Tollway Authority can't reach an agreement on basic terms for the toll project by Dec. 21, the state will cancel it.

"If you can reach agreement by Dec. 21, and bring us a Christmas present, then great," Mr. Williamson said Thursday during the commission's monthly meeting in Austin. "If not, then Highway 161 won't be a toll road, and we'll move on to other projects."

NTTA executive director Jorge Figueredo said reaching agreement with TxDOT over how to proceed on Highway 161 by Dec. 21 may not be possible.

"I am going to do everything possible to make this work," Mr. Figueredo said. "But I don't know if it is possible to finish by the end of the year. We have some serious matters to negotiate."

If the two sides fail to reach an agreement, North Texas – and especially Dallas County – would lose hundreds of millions of dollars in cash payments expected to be generated by the Highway 161 project. That could delay work on other needed roads for years, area planners said Thursday.

Drivers, on the other hand, would probably still get a new Highway 161 – and would be spared paying tolls on the road.

Michael Morris, transportation director for the North Central Texas Council of Governments, said Highway 161 is too important not to build.

But building it as a free road would be costly for the region – both in terms of dollars and congestion, Mr. Morris and others said.

Mr. Williamson said the state has no money to spend on the project. Instead, the region would have to spend $600 million of the money it expects to receive from NTTA as part of the Highway 121 contract.

Mr. Morris said the region had hoped to use that money on other projects.

All told, he said, losing Highway 161 as a toll project could cost $1 billion or more in highway funds. TxDOT's lead Dallas engineer, Bill Hale, said the figure could be much higher than that.

At loggerheads

The actual disagreement between NTTA and Mr. Hale is relatively simple.

State laws passed this year require NTTA and TxDOT to negotiate the basic business terms of all toll road projects proposed for North Texas. The two sides have to agree, lawyers for both sides said this week, or the road can't move forward as a toll project.

Those talks on Highway 161 began in the summer and broke down in the past two weeks, according to a series of letters from the parties that were reviewed by The Dallas Morning News.

The two sides disagree over how much access the other should have to the financial modeling software used to project the value of the road. The complex forecasting software takes into account hundreds of variables over the life of the proposed project – some 50 years in the case of Highway 161 – and makes assumptions about traffic, inflation and a litany of other details that help establish how much the toll contract is worth.

NTTA wants access to the software so it can better understand how TxDOT is modeling its expectations for what the project is worth. Mr. Hale said the software is proprietary and should not be shared.

Larger interests

But while the dispute over the modeling software is at the core of the immediate delay, a vipers' nest of other, often-competing, interests makes the negotiations over Highway 161 especially sensitive.

The negotiations are seen in some corners as a proxy fight between Gov. Rick Perry's transportation department and the state Legislature over how Texas will build its badly needed roads in a time of increasingly scarce highway funds.

The negotiations over Highway 161 are required by laws passed last session by a Legislature alarmed over Mr. Perry's plans to increasingly rely on private firms to build Texas highways.

NTTA was given the right of first refusal on any toll road proposed within its jurisdiction. The law also states that if the road is to proceed as a toll road, both sides have to agree on the essential terms – things such as traffic projections, toll rates and the like.

Those terms could prove extremely difficult to agree on, given that TxDOT and NTTA look at the potential value of the road from very different starting points.

Mr. Hale, the lead Dallas engineer, said using private-sector assumptions as the basic business terms of the deal, TxDOT believes the value of the toll contract could be high enough to warrant a private investor paying $1.2 billion – on top of construction costs.

But those figures are based on riskier traffic projections than would be easily accepted by the municipal bond market – and it is those lenders whom NTTA would have to rely on to build the road. As a result, what the road is worth to NTTA may be less than what it is worth to the private sector.

Legislators were aware of the potential conflict when they passed the rule, said Steven Polunsky, director of the Senate Transportation and Homeland Security Committee.

"The Legislature clearly envisioned a negotiation process in which NTTA and TxDOT would work out their differences," Mr. Polunsky said.

He said that by giving NTTA a seat at the table, the Legislature ensured that the toll roads wouldn't simply go, as a matter of course, to the private sector.

"They also believed that the parties would be motivated to reach an agreement by, as much as anything else, the extremely high visibility of these projects," he said. "Whatever the numbers that are put forward by either side, they are going to have to be seen as reasonable."

Sen. Chris Harris, R-Arlington, said the Legislature should have stipulated the starting points for negotiations between NTTA and TxDOT.

"There is no question we should have defined those terms better," said Mr. Harris, who said he has been in discussions with Tarrant County local leaders and TxDOT in the past few days. But he said the project is too important to lose over the "severe battle lines" he sees developing between NTTA and TxDOT.

"If NTTA see things in a way that makes this project not work for them, then they need to step aside and let another bidder come to the table," he said. "The gamesmanship has to end."

Pressure is on

In rebuffing Mr. Morris' proposal to give NTTA and TxDOT's local staff more time to negotiate over Highway 161, the commissioners were probably betting that the pressure of which Mr. Polunsky spoke would work in favor of reaching an agreement.

The stakes are particularly high in Dallas County. Most of the cars that would use Highway 161 are registered in Dallas, Mr. Morris and others said Thursday. That means as much as two-thirds of the money it generates as a toll road would be earmarked for Dallas County road projects.

Because of that, the Highway 161 project could be two to three times as significant for Dallas County as the Highway 121 project has been.

© 2007 The Dallas Morning News Co

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