Saturday, June 02, 2007

Public-Private Partnerships: "The voter still pays; he just won't have a vote. And the price he pays will be more."


Who's to blame for the sellout?

June 2, 2007

Henry Lamb
Copyright 2007

The nation's transportation experts have identified their top three priorities: a national freight network, urban congestion and connecting new urban centers with the interstate system.

The American Association of State Highway and Transportation Officials, meeting in national conference last month, heard futurists predict that the cost of meeting the transportation needs would be $3.1 trillion over the next 25 years. State and local governments are turning to "public-private partnerships," or PPPs, to produce the funding.

  • The city of Chicago was happy to partner with a Spanish-Australian group that paid $1.83 billion for a 99-year lease to operate the Chicago Skyway.
  • The same outfit paid Indiana $3.85 billion to operate the Indiana Tollway for 75 years.
  • The same Spanish company has partnered with a Texas firm to give the state of Texas $7.2 billion to build and operate the first leg of the Trans-Texas Corridor.
  • And Pennsylvania's Gov. Rendell is expecting a bid of between $15- $18 billion for the Pennsylvania Turnpike.

Most states have already enacted or are considering legislation to authorize this PPP financing of public infrastructure.

Public opposition to PPP financing encouraged the Texas Legislature to adopt a two-year moratorium on the state's PPP projects.

The governor's veto, however, along with threats from the U.S. Department of Transportation, forced the Legislature to pass a watered-down compromise bill that blocks only future PPP projects, but allows the current Trans-Texas Corridor to go forward.

Public opposition to PPP financing encouraged chairman of the House Transportation & Infrastructure Committee James Oberstar and Transit Subcommittee Chairman Rep. Peter DeFazio to issue a May 10 letter to governors and state transportation officials that warned about rushing into PPPs that did not fully protect the public interest.

"We don't need their advice, frankly," said Indiana Gov. Mitch Daniels. He said the letter was "nothing but congressional posturing." Daniels' criticism was typical of the response from state officials.

National Surface Transportation Policy and Revenue Commission Vice Chairman Jack Schenendorf told the conference attendees the federal program no longer has a sense of mission, which has led to competition among the states for federal funds and to the proliferation of "earmarks" for local political advantage.

Regardless of the finger-pointing, the fact remains that driving in urban areas is a nightmare, and driving on the interstate system is like playing tag with 18-wheelers – and it's getting worse, not better. The people want relief, but not at the expense of bondage to PPPs.

Officials claim transportation revenues from traditional sources are barely adequate to maintain existing roads and do not provide for future construction. If this contention is true, the next question to be answered must be: Is this the result of inadequate fuel tax rates, or have the revenues from fuel taxes been siphoned off for other purposes?

This question directed at transportation officials produces an incredible array of slippery answers. Legislators, at every level of government, should insist that transportation taxes be spent on nothing but transportation. If transportation taxes are used exclusively for transportation needs and the revenue is inadequate, then a tax increase is required to meet the needs of the people.

Realistically, with gas prices above $3 per gallon, no politician will suggest increasing the gasoline tax, when it is so much easier to sell off a highway to a PPP and reap billions in new money – without having to ask the voters for a tax increase.

The voter still pays; he just won't have a vote. And the price he pays will be more. Toll roads built or operated by PPPs must pay a profit to the shareholders of the firms that put up the money. If the state builds and operates the infrastructure, that profit does not have to be built into the price, and therefore, the voter saves a bundle.

Infrastructure sales to PPPs are the hottest ticket in town. It's going to take a monstrous effort by the people to reverse this trend that is clearly rushing across the nation like a tidal wave. Transportation officials see PPPs as the answer to their revenue problems. Legislators tend to "go along" with the budget committee, unless they are peppered by contacts from their constituents.

Texas voters tried valiantly to put a moratorium on the sale of the Trans-Texas Corridor to Cintra-Zachry, the Spanish-Australian PPP that wants to pay $7.2 billion to the state. They succeeded in the Legislature, but threats from the governor and the federal government ignored what the people want.

In every state and every community, someone is planning, right now, to sell public infrastructure to a public-private partnership. Chances are better than good that the PPP has its roots in another country. This can't be good for America.

Henry Lamb is the executive vice president of the Environmental Conservation Organization and chairman of Sovereignty International.

© 2007 Inc.:

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TOLLWAY NIGHTS: The Ballad of Ricky Perry

Tollway Nights

© 2007 In The Pink Texas:

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"The Colony will face the highest toll in the nation just to leave the city limits."


Question: What did the Legislature do (or choose NOT to do) in its regular session that will have the biggest impact on your community?


Dallas Morning News
Copyright 2007

The Legislature sat on its hands, as far as I can tell.

Shirley Jackson, Arlington

Nothing, except let any decent bill to control TXU profiteering and pollution languish. Does no one remember California's debacle when it deregulated utilities, then allowed Enron-like companies to send customer costs skyrocketing? Let's hope we don't have blackouts.

Betsy Jo Naylor, Irving

One of the Legislature's last gasps was to restore two needed reservoirs to North Texas. What they failed to address was the mess created by deregulation of the utility monopolies and their obscene profits, while service declines and rates escalate.

Sharon Phares, Irving

Since State Highway 121 is excluded from the moratorium on toll roads, citizens of The Colony will face the highest toll in the nation just to leave the city limits.

Victoria Hynes, The Colony

© 2007 The Dallas Morning News Co. :

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Friday, June 01, 2007

TxDOT, Rep. Krusee, Gov. Perry move to quash eminent domain bill


Eminent domain bill jeopardized by TxDOT, House crossfire


by Christine DeLoma
Volume 11, Issue 40
The Lone Star Report
Copyright 2007

With the flurry of bills passed in the final days of the 80th legislative session, there’s one you might’ve missed, and here’s why it’s important. It’s HB 2006, the eminent domain bill by Rep. Beverly Woolley (R-Houston).

The legislation just reached Gov. Rick Perry’s desk. And there’s some controversy over whether he will sign.

Before the House voted May 26 on HB 2006, Rep. Mike Krusee (R-Round Rock) argued vociferously against a provision in the bill that could require eminent domain entities to compensate property owners for diminished access to their property.

“This could potentially cost up to $1 billion a year,” Krusee said. “This amendment changes the way right of way is compensated for. It says that any change in access in your property now is compensable.”

The provision was added in the Senate by Sen. Glenn Hegar (R-Katy). It was heavily supported by the Texas Farm Bureau, whose members are concerned over the prospect of the Trans Texas Corridor cutting across their farmlands, making access harder.

In some cases, farmers would have to drive up to 20 miles to the nearest overpass to get to the other side of the highway to access their property. It’s an inconvenience many farmers believe they should be compensated for.

When Rep. Rob Orr (R-Burleson) asked how Krusee came up with the $1 billion figure, Krusee fingered the Texas Department of Transportation (TxDOT).

Agency spokesman Mark Cross confirmed TxDOT had provided Krusee the estimate but could not elaborate on how the figure came about.

“It’s very complicated. It’s not that simple, but it is an estimate,” Cross said. “If you look at the legislative [fiscal note]…from the LBB part it says something about ‘unable to be determined at this point,’ and that’s kind of the case. That’s why it’s just an estimate at this point.”

While TxDOT’s numbers are not specifically being challenged, many are wondering how the calculations were made. “Nobody’s quite sure where these numbers are coming from,” said Bill Peacock of the Texas Public Policy Foundation.

Peacock noted this isn’t the first time TxDOT’s estimates have come under question, pointing to the April 2007 State Audit report that criticized the agency for mathematical errors and poor methodology in calculating the state’s estimated transportation funding gap.

Despite the questionable price tag, Orr was unconvinced. “If you’re taking somebody’s property, and all of a sudden they can no longer get to their business, why shouldn’t the private property owner have the right to get compensated for that access?”

Krusee further argued that, if passed, HB 2006 would halt all transportation projects, making the bill a fit object for the governor’s veto pen. “If this [amendment] goes on, the governor may have to veto it, and we lose all of your good work…,” Krusee said.

Katherine Cesinger , spokeswoman for the governor’s office, said Krusee does not speak on the governor’s behalf.

Perry, Cesinger said, believes a proper balance between eminent domain and property rights is important. He has yet to make a decision on the fate of HB 2006, she said.

Woolley defended her bill against Krusee, saying, “I’m trying to protect property owners. We have over the years let our property rights be eroded, totally eroded. It started back early in the ’50s, and we weren’t paying attention. No person should suffer economic damage even if it is for the good of the whole. They should be compensated for their property.”

Non-controversial provisions include:

  • HB 2006 closes a few of the loopholes many believe currently exist in Texas law with regard to eminent domain. Since the Kelo v New London U.S. Supreme Court ruling solidified governments’ power to use eminent domain for economic development purposes, 31 states, including Texas, have moved to limit eminent domain powers in some form or another.
  • Public use only. In 2005, Texas passed SB 7 prohibiting the public taking of private property for economic development under certain circumstances. Yet lawmakers failed to provide a definition of “public use.” HB 2006 closes this loophole by providing a clear definition that “allows the state, a political subdivision of the state, or the general public of the state to possess, occupy, and enjoy the property.”
  • Best offer required. Sen. Kyle Janek (R-Houston), co-sponsor of the legislation, said that one of the biggest complaints among landowners was that condemning authorities did not have to make a legitimate good faith offer to purchase their land before proceeding with eminent domain. “Texas farmers and ranchers have been concerned for some time about the eminent domain process,” said Kenneth Dierschke, president of the Texas Farm Bureau. “It’s far too easy to take property in this state, sometimes without even a good faith offer. Landowners can’t match the deep pockets of the taking entities in legal proceedings.” HB 2006 requires entities with eminent domain authority to first make a “bona fide” offer to acquire property from a property owner voluntarily.
  • Repurchase taken property. The bill requires entities to offer to sell back property to its previous owner if it was not used for the intended public use after 10 years. The legislation also stipulates that the entity must sell the land at the price paid to the previous owner at the time the entity acquired the property. (Current law allows repurchase at fair market value at the time the public use was canceled.)
  • Record vote. HB 2006 requires that government entities hold public votes to condemn parcels of land.
  • Moving expenses. HB 2006 specifies that in calculating costs to owners whose real property is acquired authorities will include moving expenses, relocation payments, and replacement housing.
© 2007 The Lone Star Report:

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"Mike was fabulously cooperative in the transition from the old TxDOT to the new TxDOT."

Transportation chief to retire in August

Michael Behrens has been Department of Transportation executive director for six years

June 01, 2007

By Ben Wear
Austin American-Statesman
Copyright 2007

Michael Behrens, who as executive director of the Texas Department of Transportation since 2001 has led the agency through a period of radical change, is retiring at the end of August.

Behrens, 59, announced that he is leaving the department after 37 years in a May 29 letter to Texas Transportation Commission Chairman Ric Williamson. The announcement comes on the heels of a legislative session in which the department's toll road policies were buffeted by lawmakers. Behrens said there was no connection; he had been thinking about leaving for more than a year.

Behrens, who spent most of his career in Yoakum, about halfway between Houston and San Antonio, before coming to the agency's state headquarters in 1998, said Thursday that it was time to go back down Texas 95 and "paint the house."

"You just know when it's the right time," Behrens said. His sixth grandchild was born Sunday morning, and his wife has continued to live and work in Yoakum. "I want to get back and stay in Yoakum full-time and be closer to family."

Behrens, a Texas A&M University civil engineering graduate, is a quiet man and has not served as a leading spokesman for the agency's controversial toll road push. Williamson has filled that role in large part, and he has been the main target of criticism.

Through the 20th century, the department had been a pay-as-you-go organization, building roads sections at a time as gas tax revenue and fees brought in money. But under Gov. Rick Perry and his appointees to the commission, particularly Williamson, the agency has increasingly shifted to relying on toll roads and borrowed money to speed up construction.

The changes have stirred up public opposition and, this session, concerted pushback by the Legislature.

Behrens, given his long association with the department's traditional approaches, was an appropriate figure to lead the agency in a time of change, Williamson said.

"Mike was fabulously cooperative in the transition from the old TxDOT to the new TxDOT," Williamson said. "He understood wisely that there had to be a link between the two, so that staff and the people who contract with TxDOT would have some comfort."

Behrens wanted to retire a year ago, Williamson said, but stayed on as a favor to Williamson and Perry, who thought his good relationships with legislators would be helpful in the session just ended.

"He leaves on extraordinarily good terms," Williamson said. "The department's door will be open to him forever."

State law requires that the executive director's position be filled by a registered professional engineer "experienced and skilled in highway construction and maintenance," and the 90-year-old agency typically has promoted from within.

Behrens was the agency's assistant executive director for engineering operations before getting the top spot.

That position is currently held by Amadeo Saenz. The deputy executive director is Steve Simmons.

The five-member commission, appointed by Perry, hires the executive director. Officials said the commission, still absorbing changes in transportation law made by the Legislature, will take its time finding a replacement for Behrens best-suited to the evolving transportation scene.

Behrens was asked if he might work in the private side of the highway industry, a common path for those who leave the state Transportation Department.

Behrens wouldn't rule that out for down the road.

"Nobody can predict what's going to happen a year or two from now," Behrens said. "The price of gas may go to $6, and I might to go do something else just to pay the gas bill."; 445-3698

© 2007 Austin American-Statesman: www.

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"As inventive as [Ric Williamson's] mind tends to close when confronted with criticism. He is totally invested in his own ideas."

Behind the Lines

Road Warrior

If Ric Williamson is so smart—and he is—why is he letting the Trans-Texas Corridor take a toll on his reputation?

June 2007

Paul Burka
Texas Monthly
Copyright 2007

“SINCE I STARTED THIS,” Ric Williamson said, referring to his six-year tenure on the Texas Transportation Commission, “I’ve had two heart attacks, and I’m trying to avoid the third one, which the doctors tell me will be fatal.” Imagine yourself as the most hated person in Texas, public enemy number one to a million or more people, the object of vitriol wherever you go, with scarcely a friend in the Legislature, and you will have a pretty good idea of what life is like these days for the man who conceived and executed the most controversial public policy to come out of Austin in my lifetime: the Trans-Texas Corridor.

The Corridor, if anyone needs reminding, is a plan to relieve congestion on major highways—Interstates 10, 35, and 45 and U.S. 59 (soon to become Interstate 69)—by allowing private companies to bid for the right to build and operate toll roads. These routes, which will include rail lines for freight and commuter travel and, possibly, pipelines and electric transmission lines, will cut a wide swath through rural Texas, severing farms and ranches.

At the same time, regional transportation planners will be building toll roads as well, many of which will be privatized. These are not really part of the Corridor, but the distinction is lost on the public. If you set out to do it, you could not devise a more unpopular plan.

Rural Texans hate what it will do to their land. Urban Texans hate having to choose between free roads that are choked with traffic or paying to get to work every day. Lawmakers hate that concession payments in the billions of dollars are changing hands without legislative scrutiny over contract provisions. The public thinks that it’s already paid for roads through the gasoline tax and that tolls are double taxation. I know better, but I’m still mad as hell about it.

Unpopular policies are nothing new in state government, particularly lately, but Williamson has broken new ground: He’s an unpopular policy maker. Unlike most citizen appointees who head the dozens of boards and commissions that oversee state agencies, Williamson has escaped anonymity.

He has faced his critics at dozens of forums around the state and has refused to back down in his belief that his transportation plan is the right thing for Texas. He is unapologetic and unyielding. The Williamson that his critics see today is the same person state bureaucrats encountered as a state representative twenty years ago, when he was a member of the House Appropriations Committee.

The Weatherford oilman was the leader of the Pit Bulls, a group of second-termers (one of whom was Rick Perry) determined to challenge the prevailing wisdom that state agencies were entitled to more money than they had gotten in the previous budget without having to justify that they really needed it. His bombastic style earned him the still-appropriate nickname Nitro. The bushy mustache that he sported in those days is long gone. Pulsating eyes and a buzz cut that aptly accents his sometimes bristly personality give him the look of a mad genius.

Which he is. Williamson has the most inventive mind that has passed through the Legislature since I have been covering it. He was the first to suggest that tuition at state colleges and universities ought to be market driven; that notion became law in 2003. He was the first to suggest that appropriations ought to be tied to desired outcomes. Today, when agencies tell budget writers about their “strategies” (for performing their assigned tasks), they are following the budget pattern Williamson conceived.

Like it or not, the highway plan bears the Williamson trademark: It represents out-of-the-box thinking to solve a real problem, which is the inability of the revenue stream to keep up with the demand for mobility. As inventive as his mind is, however, it tends to close when confronted with criticism. He is totally invested in his own ideas.

I had hoped to sit down and visit with Williamson one-on-one—I had spent a lot of time talking with him when he was in the Legislature—but it was not to be.

We had maybe two minutes alone, enough time for me to admire his coffee mug emblazoned with the words “Bob Bullock, Democrat for Lieutenant Governor” and listen to him praise Rick Perry (“The most honest politician I’ve ever met in my life. He won’t lie or abide a lie. He will never abandon a friend. He has a capacity to understand a long view more than most people who aspire to higher office”). Then we moved to a conference room. My heart sank when I saw that there were four Texas Department of Transportation staffers around the table (soon to be joined by another commissioner) and a screen with a PowerPoint presentation labeled “Paul Burka, May 2, 2007.”

The thing that I was most interested in was how his mind works. How did he look at the budgeting process in the eighties and figure out how to fix it? What did he see when he looked at the state’s highway system after Perry named him to the Transportation Commission in 2001 (he became chairman in 2004) and how did he figure out a way to fix it?

“In the thirties and forties we had the Dust Bowl, the Depression, and World War II,” he said. “Disruption was the norm. People lost their homes, people were killed, families were torn apart. Then the war was over, and suddenly the United States had all the world’s gold, all its credit, all its factories—we had it all. Out of this era of struggle followed by great wealth came centralized government, which was designed to prevent deprivation. But there was a tremendous disconnect between the authority to make a decision and the power to act upon that decision. We had the authority to tell people what to do, but we didn’t give the people who had to do it the resources. The budget focus was all on process, not performance. That’s classic central government.”

That was the way it worked, all right. At TxDOT, the focus was on projects. Local communities got behind their projects, sent a delegation to Austin, and begged for their bypass or their loop. Influential legislators helped them get their wish. Politically connected highway contractors helped too. That this system was driven by political influence and dividing up the pie rather than addressing the issue of congestion did not seem to bother anybody. The process mattered more than the long-term issue of reducing congestion.

But it wasn’t just the hidebound system that concerned Williamson. It was the enormity of the mobility problem. I didn’t have to watch the PowerPoint presentation to know the score. The vast majority of the state’s population—84 percent by 2010—lives in the triangle bound by I-10 on the south, I-35 on the west, and I-45 on the east, an area smaller than the state of Ohio.

Outside the triangle, traffic moves relatively freely. Inside the big cities and their surrounding suburbs, the major arteries are overwhelmed. The main source of funds for highway construction, the state gasoline tax, cannot keep up with the demand. Worse, the revenue it produces is declining. The tax is levied by the gallon, and cars are getting better mileage every year (my Suburban excepted). The Legislature continues to raid the gasoline tax for non-highway purposes; in the current budget, for example, the Senate proposes diverting more than $1 billion in gas tax revenue from road building to fund the Department of Public Safety. Without new revenue, TxDOT barely has enough money to maintain the current highway system, much less add to it.

Any critic of TxDOT, including me, must come to grips with the fundamentals of the problem: (1) Mobility is essential for economic growth; (2) the gasoline tax can’t provide enough revenue to build the roads we need, even if it is increased, which it won’t be, because the politicians would rather gripe about toll roads than vote to increase taxes; (3) the cost of new roads is enormous ($8 billion to $9 billion for the proposed loop around the Metroplex); (4) congestion will only get worse (every day, Texas adds an average of a thousand people and eight hundred vehicles).

Privatization was Williamson’s answer to this dilemma. He remembered the 1989 session, when the state didn’t have enough money to meet the demand for new prisons and turned to the private sector. Why couldn’t it work for highways? “What do you care where the money comes from when you need the project?” he asked me. “What difference does it make who owns the road?”

Here is where Williamson and I part company. I think it does make a difference who owns the road, because if the state owns it, I can be confident that the political system will respond to public criticism. I’m not confident that a private company, domestic or foreign, will respond—or that TxDOT will.

I think it matters, too, because I can be confident that TxDOT will build and operate the road in the public interest, but I can’t be confident that TxDOT, with billions of dollars dangled in front of its face, will write a contract that protects the public interest against noncompete agreements that may limit the agency’s ability to build roads in the future.

Another concern I have is that TxDOT has such a strong preference for toll roads that it has tried to bully local transportation agencies into tolling. Williamson denies this, and when I cite the names of legislators who have told this to me, he dismisses them as “part of the old power structure.”

The system he has created ought to work well in theory: The local agency makes the decision of what roads it wants, and TxDOT offers to provide money and advice about how to meet it. This is the model Williamson extols: The state has the authority to act and the local agency has the power to act—but I worry that in practice it works like the old command-and-control model that Williamson professes to despise.

My last, and greatest, concern is that Williamson wants a system that relies on user fees rather than taxes. I acknowledge that we need toll roads and that user fees are appropriate in many cases. But I also believe that TxDOT has lost sight of the principle that roads are a common good and that we must have superior free roads as well as toll roads.

And there is a way we can afford them. Transportation experts at the Texas Transportation Institute, at Texas A&M University, have determined that by increasing the gas tax by a modest amount, indexing the tax to inflation, and issuing bonds, we’ll have the capability to build free roads again. The state can’t afford to ignore any potential solution. If Ric Williamson would show the same fervor for free roads that he has shown for toll roads, he might actually make a few friends.

© 2007 Texas Monthly:

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Thursday, May 31, 2007

Toll Road confabulator URS lowers the bar for rail construction too

A bridge too low costs Cap Metro $260,000

Agency has to lower track, raise overpass to meet regulations.

May 31, 2007

By Ben Wear
Austin American Statesman
Copyright 2007

Capital Metro, after determining that an overpass being built for commuter rail was not high enough, is spending about $260,000 to lower existing track and raise the bridge.

The changes will add 18 inches of clearance for freight cars.

The problem is not with Capital Metro's main track or the Union Pacific line that form a giant X at the out-of-the-way McNeil junction in Northwest Austin. Rather, in designing the $5.5 million overpass, Capital Metro and its consultant, URS Corp., did not leave sufficient space over a siding track used to transfer freight cars between the two railroads.

Even if the agency weren't elevating the overpass 10 inches and lowering the siding 8 inches, freight cars still would have had several feet of clearance, Capital Metro spokeswoman Andrea Lofye said. The existing design put the bridge at 20.5 feet. The agency's tallest vehicles (locomotives, in this case) are 17 feet high, she said.

The new configuration with the additional foot and a half of headroom, Lofye said, "allows us to meet required state and federal clearance requirements."

Crews had to depress about 200 feet of Capital Metro's main line as well, so that it would encounter the lowered spur track at the same elevation. Freight service on Capital Metro's line, which typically carries quarried rock from the Hill Country, was shut down for two days because of the work, Lofye said.

The main Union Pacific line, whose track is 24 feet lower than the bridge as it passes underneath, was not lowered.

Joe Arbona, a spokesman for Union Pacific, said company officials familiar with the project said they had not been contacted by Capital Metro about the glitch or the repair. Arbona said the railroad's double-stacked container cars are 21 feet high.

The transit agency, asked who was to blame for the original error and who would bear the cost of repair, Capital Metro or URS, said that would be determined later. The agency, created by voters in 1985, is primarily supported by a 1 percent sales tax levied in Austin and a few other surrounding communities it serves.

URS, based in San Francisco, is being paid $3.3 million to design the bridge, a commuter rail repair facility, sidings and track rehabilitation for the 32-mile commuter rail line.

"Capital Metro and URS have agreed to fully resolve this issue at the completion of the project," Lofye said. URS did not charge for the redesign, Lofye said.

Lofye said that $1.38 million had been set aside as a contingency reserve in the bridge's overall $6.9 million construction budget. The overpass project, they said, will be completed in time for commuter rail's late 2008 opening and for less than the budgeted amount.

Capital Metro board member Brewster McCracken, an Austin City Council member, said it is not uncommon for design mistakes to occur in construction projects and require changes on the fly. However, in this case, the error was tied into the very purpose of the bridge — to pass above other trains.

"That was a detail that was pretty important to get right," McCracken said.

He was also unhappy to hear about it from a reporter.

"We don't need to be notified of every problem" by agency staff, McCracken said. "But this strikes me as something that rises to the level that the board would have been typically told about."

Construction on the rail overpass began several months ago. The agency in October awarded the $5.5 million contract to Austin Bridge & Road to build the overpass.

Capital Metro, when it asked voters in 2004 for authority to operate commuter rail on a stretch of its rail line from Leander to downtown Austin, had not planned to build the bridge. But Union Pacific runs about two dozen freight trains on its intersecting track each day. Capital Metro eventually decided that having its high-speed commuter trains stuck at the intersection waiting for long freight trains to clear would be unacceptable.

Capital Metro's freight trains will continue to use the ground-level tracks at the intersection because the grade of the bridge will be too steep for ponderous freight haulers.

Capital Metro chief executive Fred Gilliam, in an open letter in Wednesday's American-Statesman that addressed higher-than-previously-disclosed commuter rail operating costs, wrote that even with the bridge added to the project, it will still come in $5 million under the $60 million construction figure advertised in 2004. The project was approved that fall with 62 percent of the vote.

To date, Austin Bridge & Road has installed 12 concrete bridge supports, eight east of the Union Pacific track, two between the Union Pacific track and the curving siding track that had to be lowered, and two west of the siding. Lofye said the bridge project is about 40 percent complete.; 445-3698

© 2007 Austin American-Statesman: www.

To search TTC News Archives click HERE


Big Brother is alive and well in the Czech Republic

Transport Ministry to declare tender for satellite toll supplier


By Prague Daily Monitor
Copyright 2007

Prague (CTK) - The Czech Transport Ministry will soon declare a tender for the supplier of a satellite toll system for first-, second- and third-class roads, Miroslav Jaros, the Plzensky region's councillor for transport, told CTK today.

The agreement hammered out by the ministry and regional governors is a turnaround in the Czech toll affair. Originally, drivers were expected to pay toll only on major roads in a microwave system built by Austria's Kapsch.

"We will not comment on this. We will make information about the second phase public at the beginning of June," said Transport Ministry spokesman Karel Hanzelka. Kapsch spokesman David Simonik did not comment on the decision either.

Kapsch, which has built the microwave system on motorways and dual carriageways, has a valid contract to build the system on first-class roads.

This means Kapsch would lose a significant part of the contract because of the new tender. The new situation could also postpone the launch of the second phase, scheduled for January 2008.

The original contract says Kapsch will build the system on motorways and first-class roads, but the ministry asked Kapsch to submit a project of a hybrid system with satellite parts last autumn.

Last week, the Czech antitrust office UOHS rejected the solution, citing a breach of the contract. The UOHS also ordered the ministry to declare a new tender for the satellite part.

Jaros said regions had unequivocally rejected toll bridges, an integral part of the microwave technology, on first-class roads.

If toll is charged on all types of roads, the Czech system will be the most extensive in Europe.

It is not certain which vehicles will pay and where, and who will decide on this. The price has not been determined either, although regions want the highest fees on third-class roads and the lowest prices on motorways to make motorways more attractive for heavy trucks.

At present, toll is collected on almost 1,000 kilometres of motorways and dual carriageways in the Czech Republic. Drivers have paid more than Kc2 billion since the system was launched in January this year.

This story is from the Czech News Agency (ČTK).

The Prague Daily Monitor and Monitor CE are not responsible for its content.

© 2007 Czech News Agency (ČTK):

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“Privatization is seen by many as manna from heaven, but I think it s almost an abrogation of responsibility!”

Land Transportation:

What Truckers Want From National Transportation Policy

May 31, 2007

by Gail Dutton
World Trade magazine
Copyright 2007

Talk to truckers and you’ll hear tales of sitting stuck in traffic watching hours of service click eat away; talk to Senate staffers, and you’ll hear talk of nebulous safety concerns that they’re convinced can be addressed by more regulations.

Different problems depending on your perspective. But one issue they both agree needs to be addressed is congestion. “Congestion is the biggest transportation issue in the next decade or two,” notes former secretary of transportation James Burnley, now a partner at Venable LLP in Washington, D.C. “The trucking industry doesn’t control its production line—highways—and there are severe bottlenecks that are only getting worse.”

Traffic congestion costs the U.S. hundreds of billions of dollars—1.5 percent of the GDP, according to Jeffrey J. Shane, under Secretary of Transportation for Policy. By 2050, expectations are for a 250 percent increase in freight and passenger traffic, yet miles of highways are only expected to grow by 10 percent. The national transportation system is stressed and running out of funding.

“In two years, the flow of revenue from the Highway Trust Fund will be less than necessary to meet existing obligations,” Burnley says. The Congressional Budget Office and the Office of Management and Budget agree.

To make matters worse, the U.S. Department of Transportation (DOT) notes that highway construction costs have increased three times the rate of the consumer price index, increasing 31 percent between 2002 and 2005. According to the June 2006 USDOT presentation, “Congestion Initiative: Unleashing Private Sector Investment Resources,” each new mile of highway costs $30 million, so the $25 billion allocated to highway from federal state and local funds buys less than 900 miles of highway.

The vision

“Everybody is talking about funding, but they have no clear vision of what we need to do to keep commerce rolling,” emphasizes Doug Duncan, president and CEO, Fed Ex Freight. “We’ve got the cart before the horse.” First, he says, “We have to frame our business case. What do we want the business to look like and how do we get there?” Only then, he says, can we address how much achieving that vision will cost and how it can be financed.

The Mineta Commission, headed by the former Secretary of Transportation, had the goal of developing a vision for highway infrastructure but, according to industry sources like Duncan, smooth handling of traffic involves more than roads. More and more freight comes from offshore, straining port infrastructure and requiring a coordinated effort to move beyond the entry port. APL’s Bowe agrees. The transportation network—highways, ports, rail, air and marine terminals—must begin to work seamlessly. “Therefore,” he says, “we need to create an environment for investment, pricing mechanisms and a role for individual companies.”

That renews emphasis on intermodal transportation and, as Con-Way’s Mullett says, “that means between different types of trucks, too.” Freight, he explains, is fluid—“hydraulic,” in his lexicon—with many alternate routes and modes. Using those resources in the best ways possible, with a creative blend of policy, technology and investment, is inherent in developing an efficient, affordable transportation policy for the 21st century.

The technologies to help do this have been available for at least a decade. Electronic toll collection technology and intelligent transportation systems (ITS) that can alter traffic flow on roads and provide better information to help traffic reroute itself have been deployed successfully in heavily congested areas throughout the country. Automatic collision avoidance systems hold promise.

So what’s holding back freeing the transportation corridors? It has less to do with technology than the problem of integrating historically distinct services and facilities. “We’ve always approached ports, rail and highways as separate entities,” FexEx’s Duncan says, “but a cohesive transportation network is really what’s needed.” And, Burnley emphasizes, it’s vital to talk with the entities involved. Burnley cites the example of how Virginia introduced “trucks only” lanes on I-81. “They made a fundamental mistake. They didn’t talk to the trucking industry.” The result? “They got no extra capacity because the plan was fundamentally flawed.”

“We’re very worried, because highways are our assembly line,” notes Mullett. “We need a holistic approach. It’s unfortunate, but you can’t decouple economic growth from transportation growth.


Highway capacity is the overarching issue. “When most talk about capacity, they mean specific bottleneck areas, but by narrowing the focus, we miss a lot of issues,” Mullett says. How to avoid this? Broaden potential solutions to include such things as highway privatization, congestion pricing and other highway payment schemes and, to a lesser extent, increasing the use of technology to even out congestion. Then, of course, industry sources cite onerous trucking regulations.

“There are two kinds of opportunities,” explains Gabriel Roth, research fellow, The Independent Institute and author of the Street Smart: Competition, Entrepreneurship and the Future of Roads. The first is to make existing roads run more efficiently. The second is to create new road capacity.

“The current Secretary of Transportation Mary Peters is very keen on using private sector incentives for roads and has launched various incentives,” says Roth. That includes toll express lanes. The U.S. DOT action plan calls for encouraging state legislation to allow private sector infrastructure agreements, education stakeholders and forming public-private partnerships. “There is a feeling in transportation departments,” Roth emphasizes, “that road capacity has to be priced.”

But not everybody agrees with this approach. “One hears the new ruling party (the Democrats) is not keen on toll roads and even less on privatization,” intones Roth, a former World Bank transportation economist. Personally, he believes privatization may well resolve many of the congestion issues.

The premise is that those owning the roads will take the initiative to help them operate smoothly, with minimal congestion in an effort to continue attracting drivers. The 7.8 mile Chicago Skyway, for example, became the first existing toll road in the U.S. to be privatized. In January 2005, Skyway Concession Company (formed by Australian and Spanish companies) leased the operating rights from the City of Chicago for 99 years, paying the city nearly $2 billion. One of the first things the new owners did was introduce three reversible, electronic payment lanes to relieve congestion on this notoriously clogged artery into Chicago and increase tolls by fifty cents to $2.50. In ten years, those tolls will double to $5.

Right now, only a handful of states have comprehensive laws governing highway privatization. As more add those laws, investment is likely to increase. “There are many funds around the world that are interested in investing in transportation projects,” APL’s Bowe says. “Private investors see it as an opportunity. So, an ideal partnership can exist, empowered by government policy. It’s a good thing overall.”

Mullett, at Conway, adamantly disagrees. “Privatization is seen by many as manna from heaven, but I think it s almost an abrogation of responsibility!” He’s not alone. Bill Graves, president of the American Trucking Associations and former governor of Kansas, this spring announced the formation of a coalition—Americans for a Strong National Highway Network—to fight privatization.

One of his concerns is non-compete clauses that prohibit or restrict improvements to competing roads. Such a clause thwarted the Orange County (California) Transportation Authority (OTCA) when it sought to improve the Riverside Freeway (state highway 91), ending in the OCTA buying back the lease on the express lanes on that freeway for nearly 1.6 times the cost of building the eight year old freeway.

Other concerns include “double taxation” as motorists are charged highway tolls and traditional taxes, the lack of public accountability for the social impacts of toll rates on workers and the costs to businesses that depend on those highways, and the demise of federal standards for privatized highways. Lawmakers given to privatizing our infrastructure also must account for the fact that many of the highways being considered for privatization are “critical links in our freight and military logistics chains,” as ATA briefings say, and the companies most active in operating highways are foreign.

“Is this the correct thing to do for the good of our nation?” Graves asked. “The U.S. can’t maintain a highway network if key parts are leased or sold to the highest bidder.” The long-term effects must addressed, he says, and all available options must be explored.

Congestion pricing

As on the Riverside Freeway, privatization sometimes involves only express lanes and allows congestion pricing. Adding tolls to express lanes of traffic or adjusting the amount of the tolls depending upon congestion has been successful, Roth says, in California, Denver and Minneapolis.

In the U.S. in 2005, approximately 80 percent of the highway projects budgeted at more than $500 million involved toll roads. About 60 percent of those involved privatization.

The Utah Department of Transportation, for example, is discussing congestion pricing for sections of Interstate 15 and for a new corridor between Salt Lake City and Ogden. Tolls could vary from 25 cents to $6 per mile.

Singapore adopted a form of congestion pricing in 1975, based on a proposal the World Bank originally developed for Caracas, Venezuela that involved purchasing daily or monthly stickers to access certain roads. “Caracas didn’t proceed with the recommendations, and congestion is as bad as ever,” Roth says. “Singapore adopted that scheme and is getting richer.” Similar plans are considered successes in London, Stockholm and Bergen, Norway, too.

Congestion pricing would affect freight transportation by giving carriers the choice of running more quickly, but for a price, or sitting in traffic. Additionally, says Duncan, toll roads aren’t seen as a new tax, so have some political appeal. Likewise, “Privatization, in a perfect world, is not a good idea,” but “when they see the size of the bill (for upgrading our transportation system), it may look pretty good.”

The other benefit, Roth says, is that companies operating roads do so with professional transportation management, taking the decisions for their roads out of the hands of politicians. Political give-and-take worked until about 20 years ago, Burnley says, until Congress began planning on a project-by-project basis, adding earmarks to bills (thus designating how revenue from those bills should be spent). Earmarks have grown from 154 in 1987 to more than 7,000 in 2005. “It’s out of control,” says Burnley, “and we need rational planning.”

Trucking issues

Privatization and congestion pricing may be the most-discussed issues, but they are far from the only ones.

An issue for truckers that’s been put on the back burners by the ATA and rail concerns involves increasing truck weight and size. Duncan says the strategy is working well in Canada, letting the Canadians get more use from their existing roads by increasing the size and weight of the vehicles on those roads in certain areas.

In the U.S., size and weight restrictions vary among the states. Florida allows twin 53-foot trucks on the Florida Turnpike and truckers in Montana and Wyoming can run with a 53-foot truck and 28 foot trailer. Some other states also allow longer or heavier loads.

“We’d really like to see states open roads to larger vehicles,” adds Sam Faucette, manager of safety and compliance at Old Dominion. “For every triple, you’ve eliminated one set of doubles,” which makes sense in areas of open roads. And, if those trucks could run to a marshalling yard outside major cities and transfer goods to trains to finish the runs to or from major ports, a lot of congestion could be relieved, Con-Way’s Mullett opines. None-the-less, Senate sources consider truck size and weight restrictions “a dead issue in the Democratic Congress.”

They’re more focused on further reducing hours of service and championing wider use of electronic on-board recorders, much to the dismay of the National Association of Small Trucking Companies (NASTC). The new hours allow a 14 hour service window and mandate a stop for 10 hours “even if you’re 30 minutes from home,” according to David Owen, president, NASTC. “The new hours of service don’t allow the driver flexibility. If drivers don’t have the flexibility of driving when they need to drive and sleeping when they need to sleep, they can’t do their jobs,” he says.

“Freight transportation should take a higher political agenda at the federal and state levels,” insists APL’s Bowe. Senate staffers say any streamlining of regulations is unlikely. In fact, they’re likely to add more regulations and tinker with others. It’s a mistake, though, to try to oversimplify the industry to make one regulation fit all, Owen says. “Line haul companies have different issues than less-than-truckload or courier services.”

Uniform regulations, that ignore operational differences between line-haul companies, LTLs and courier services contribute to the driver shortage.

Federal policy can affect the fringes of the driver shortage, Burnley says, particularly in terms of making it harder or easier to hire drivers. For example, should we change licensing requirement to allow military-trained drivers to enter the trucking workforce directly? Should we allow younger people?

Standardize laws

Trucking companies haven’t mentioned this as a concern, but Jay Barry Harris, national director of DRI (Defense Research Institute) in Chicago, suggests that a new transportation policy, ideally, would remove the variances in law among the states. For example, Pennsylvania, where he practice as a partner at Fineman Krekstein & Harris, “is a no fault state, with an exception” that allows a party in an accident to sue if the trucking company is from out of state. Likewise, Pennsylvania allows a party that was even one percent negligent in an accident to bear the full brunt of the damages, under the deep pockets rationale. Laws like these, Harris says, “are killing the golden goose,” because “legislators fail to realize how important the trucking industry is to the welfare of state economies.”

The transportation policy must address some vexing issues, and the solutions are unlikely to please. What all agree on, however, is that the transportation network—highways, ports, rail, air and marine terminals—must begin to work seamlessly.

Overall, as Jill Ingrassia, director of government relations, AAA says, “We’ve lost sight of the fact that the federal transportation system is broken and needs reform. We need to formulate a new vision of how to address our needs.” wt

Sidebar: Who Owns America's Roads?

Once they’re privatized, it’s generally not the U.S. The Australian firm Macquarie Infrastructure Group has teamed with the Spanish firm Cintra Concesiones de Infraestructuras de Transporte SA to operate the Indiana Toll Road and the Chicago Skyway. Macquarie also owns the Foley Beach Expressway in Alabama; much of the California’s Route 125, which serves international truckers; the U.S. side of the extremely busy Detroit-Windsor Tunnel border crossing; and most of the Dulles Greenway between Leesburg, Virginia and Washington’s Dulles International Airport. Another Australian firm, Transurban, operates the Pocahontas Parkway in Virginia, connecting the Richmond airport with highways south of the city.

In Texas, San Antonio-based Zachry Construction Co. teamed with Cintra to build and run a toll road in the Austin area, as well as a 600-mile toll road linking Oklahoma to Mexico. In Virginia, Dallas-based Fluor teamed with Transurban to build new toll lanes of the Capital Beltway. Privatization and leasing agreements also are being considered for the New Jersey Turnpike, Garden State Parkway, Atlantic City Expressway, Pennsylvania Turnpike and several highways in other states.

Gail Dutton

Gail Dutton is a veteran journalist, covering national and international business and technology issues from her office in Montesano, Washington.

© 2007 World Trade Magazine (BNP Media):

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Sen. Nichols: Bill 'brings major protections and is a good first step to ultimate reform.'

Nichols is pleased with first session


By Kelly Young
Jacksonville Daily Progress
Copyright 2007

AUSTIN – The 80th Texas State Legislature ended Monday night, bringing a close to Senator Robert Nichols’ first session as a law maker. Nichols looks back on his freshman session as a success.

“I thought the session went real well. I think we made a mark on several statewide issues, and still managed to do a lot of good things on the local level,” said Nichols.

Nichols proposed a two-year moratorium on private equity toll roads, legislation which became one of the foremost issues of the session. As a former commissioner for the Texas Department of Transportation, Nichols was uniquely suited to author vital transportation legislation.

“The moratorium is the wind in the sails of this session's transportation reforms,” Nichols said. “In January, Texas faced advancing private toll road contracts that would hold our transportation system hostage for the next half-century. Now, a bill sits on the governor’s desk which brings major protections and is a good first step to ultimate reform.”

Working as transportation commissioner served him well once the legislature begin, thanks to his familiarity with Austin’s inner workings.

“I felt fairly comfortable coming in because I had sat through five sessions as commissioner, and I had watched the process. It was very helpful that I had already somewhat developed a working relationship with many of the legislators in both houses that I would be working with,” he said. “I think the thing that some people don’t understand is the vast number of different issues that we get to work on. They ask why I didn’t focus on one issue or another, and they don’t see the hundreds of different topics we face.”

Nichols was a key supporter of Texas state parks, tougher penalties for child predators, the Castle Doctrine, increased benefits for retired teachers and additional property tax relief for senior citizens.

“I think the state parks system was one of the big winners in this session. I think everybody came to Austin hoping that we could do something to help the parks,” he said. “I found that no matter where I went in the district, people understood that our parks needed to be made a priority. Now the parks have the largest single budget that they have ever had.”

Despite the state’s decision to drop the Texas State Railroad as a state park, legislation authored by Nichols will allow the trains to continue operation as a private entity. He also helped secure $12 million in funding to pay for the privatized train’s initial operating costs.

Nichols also created a statutory authority for the Texas Parks and Wildlife Department to combat hydrilla and other noxious weed populations in Texas lakes.

© 2007 Jacksonville Daily Progress:

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Portuguese highway operator beats the usual suspects in bid for Denver area toll road

Brisa, CCR Win Colorado Road, to Invest $543 Million


By Anabela Reis and Jim Silver
Copyright 2007

Brisa-Auto Estradas de Portugal SA and Companhia de Concessoes Rodoviarias won a contract to run an 11- mile (18-kilometer) stretch of highway in Colorado, marking the toll-road companies' entry in the U.S.

The partnership led by Brisa, Portugal's largest highway operator, will invest about $543 million in the Denver-area Northwest Parkway. Brisa will invite "financial'' and "construction'' partners, reducing its stake in the project to as little as 50 percent from 90 percent, Chief Financial Officer Joao Azevedo Coutinho said in an interview today.

Brisa, based in the Lisbon suburb of Sao Domingos de Rana, is pursuing expansion in Brazil and in faster-growing U.S. states such as Colorado to compensate for slower growth in its home market. The company bought a stake in 2001 in Companhia de Concessoes, or CCR, Brazil's biggest toll-road operator, whose sales rose six times faster than Brisa's last year.

"This shows Brisa's ability to win contracts abroad and increases expectations it will be able to win other concessions,'' said Bruno Almeida da Silva, an analyst at Banco BPI. Brisa is seeking other contracts in the U.S., Latin America and Poland, he said.

Shares of Brisa rose 18 cents, or 1.8 percent, to 9.89 cents in Lisbon today, giving the company a market value of 5.9 billion euros.

Contract Terms

The 99-year Northwest Parkway concession includes about 8.7 miles of highway already in operation, with another 2.5 miles to be constructed by 2020. The contract sets minimum toll increases of at least 2 percent a year, with the maximum tied to economic growth and inflation rates.

Winning the project opens the way for Brisa and partners to bid on other stretches of highway around Denver, and will help the company's chances in other U.S. states it's looking at, including Texas and Florida, Azevedo Coutinho said. "We're starting to be on the radar,'' he added.

Brisa hasn't decided on future bids in the Denver area, though "it's a strong possibility,'' he said. Brisa forecasts average annual traffic growth of 9.5 percent on the Northwest Parkway in the next 10 years, driven by the area's population and economic expansion, he added.

Other bidders for the contract included Madrid-based Cintra Concesiones de Infraestructuras de Transporte SA; Barcelona, Spain-based competitors Abertis Infraestructuras SA and Fomento de Construcciones & Contratas SA; Goldman Sachs Global Infrastructure Partners; the Macquarie Group, and Morgan Stanley, according to the Northwest Parkway's Web site.

CCR Partnership

Abertis is Brisa's second-biggest shareholder, with a 10.2 percent stake. Azevedo Coutinho said Brisa doesn't exclude partnerships with Abertis, though it's focused for now on expansion with Sao Paulo-based CCR, in which Brisa is one of four investors with stakes of almost 18 percent.

Cintra, controlled by Madrid-based construction company Grupo Ferrovial SA, already runs toll roads in Chicago, Indiana, and Toronto. Cintra won a contract in March to invest $5 billion over the next 50 years to construct and run a toll road linking Dallas and the nearby city of Fort Worth, an agreement challenged this month by the North Texas Tollway Authority, a regional agency that said it can spend less on building the road.

To contact the reporter on this story: Anabela Reis in Lisbon at ; Jim Silver in Lisbon at .

© 2007 Bloomberg:

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"He's looking forward to learning the secret handshake."

Perry off to secret forum in Turkey

He'll speak about federalism at elite global conference

May 31, 2007

The Dallas Morning News
Copright 2007

AUSTIN – Gov. Rick Perry is flying to Istanbul, Turkey, today to speak at the super-secret Bilderberg Conference, a meeting of about 130 international leaders in business, media and politics.

Gov. Rick Perry leaves today for the Bilderberg Conference, an exclusive, hush-hush meeting of global leaders in business, media and politics.

The invitation-only conference was started in 1954 and named for the Dutch hotel where the conference was first held. Those who attend promise not to reveal what was discussed, security is tight, and the press and public are barred.

The conference has been the subject of conspiracy theorists and even Christian groups who wonder about its influence.

Robert Black, the governor's press secretary, said the governor was invited to attend and speak about state-federal relations. Mr. Black dismissed the conspiracy theories.

"He's looking forward to learning the secret handshake," Mr. Black joked.

He said that Mr. Perry is paying for the trip and host hotel, usually among the top in the world, out of campaign contributions from his Texans for Rick Perry committee.

Previous speakers at the conference have included such GOP stalwarts as outgoing World Bank chief Paul Wolfowitz and former U.S. Defense Secretary Donald Rumsfeld.

Last year, the conference was held in Ottawa, and the Toronto Star reported that it had received an unsigned press release saying that the 2006 group included David Rockefeller, Henry Kissinger, Queen Beatrix of Holland, New York Gov. George Pataki, media moguls, high-level officials from Spain and Greece, and the heads of Coca-Cola, Credit Suisse and the Royal Bank of Canada.

Bilderberg chairman Etienne Davignon, a former Belgian diplomat, granted the British Broadcasting Corp. a rare interview two years ago in which he brushed aside myths surrounding the organization.

"When people say this is a secret government of the world, I say that if we were a secret government of the world, we should be bloody ashamed of ourselves," Mr. Davignon said.

Mr. Black said that the governor was going because he was invited. "He looks forward to talking to them about the system of federalism here in the United States," he said.

Regarding the secrecy surrounding the event, Mr. Black said: "It's their conference, and I suppose they can run it anyway they want. The governor was honored that they would ask him to come speak on the American experience, and he's happy to do it."

Mr. Perry returns to Texas on Monday.

© 2007 The Dallas Morning News Co

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Behrens' letter does not include his reason for leaving

TxDOT executive director to resign in August

May 31, 2007

The Associated Press
Copyright 2007

AUSTIN — Texas Department of Transportation Executive Director Michael Behrens, who has led the agency since 2001 through a period of radical change, will retire at the end of August.

Behrens announced he will leave the agency after nearly 37 years in a letter Tuesday to Texas Transportation Commission Chairman Ric Williamson.

The letter does not include a reason for leaving. State lawmakers heavily criticized state transportation policy on toll roads and private contracts during the legislative session that ended Monday.

The agency has traditionally been a pay-as-you-go organization, building roads with money collected from gas taxes and fees.

But under Gov. Rick Perry and his appointees to the commission, notably Williamson, the agency has increasingly shifted to relying on toll roads and borrowed money to speed construction. The change has prompted intense criticism from the public and lawmakers.

"I will always be an advocate for the Department and the need for providing adequate transportation infrastructure for this state," Behrens said in his letter. "I will continue to inform and educate."

© 2007 The Associated Press:

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Wednesday, May 30, 2007

Macquarie Bank: A 'house of cards.'

Macquarie Bank model cannot last: Chanos

House of cards


Reporter: Stephen Long
Transcript (PM)
Australian Broadcasting Corporation
Copyright 2007

MARK COLVIN: Jim Chanos was the first big US investor to expose Enron as a fraud.

Tonight, he's told PM why he thinks that Macquarie Bank is a 'house of cards'.

Macquarie's staff have made billions by buying assets around the world and spinning them off into funds and trusts controlled by the bank. The bank collects fees all along the line.

But Mr Chanos says this economic model can't last. His key concern is that the Macquarie Bank funds pay their shareholders not out of income they earn, but from borrowed money.

They continually revalue their assets, then borrow against the asset values to fund payments to investors.

He also says the structure encourages serial overpaying for assets, and that Macquarie is relying more and more on unsustainable self-dealing between the bank and its funds to make money.

This report from our Economics Correspondent Stephen Long.

STEPHEN LONG: Jim Chanos has made a fortune picking stocks that are ripe for a tumble.

He was the first big investor to say Enron was a fraud.

He's not saying there are crooks at Macquarie Bank. Simply, that the model that's made the bank billions is unsustainable.

JIM CHANOS: I guess the heart of our criticism of the bank is the model itself, this so-called Macquarie model.

STEPHEN LONG: The Macquarie model is now world famous. The bank scours the world buying assets, everything from toll roads to bowling alleys, and selling them into separate trusts that the bank controls.

This generates triple fees for Macquarie Bank: one for the up-front purchase; a second for selling the assets into the trust; then ongoing management and performance fees from the funds.

There's been much discussion in Australia about whether this raises a conflict of interest.

Jim Chanos' critique is more fundamental.

JIM CHANOS: The underlying economics, in my opinion, are flawed. Being the top bidder for these assets and then flipping them into the trusts leads to an unsustainable economic engine at the trust level. And when that breaks down all of the fees and whatever's being paid begin to break down.

STEPHEN LONG: Macquarie's funds pay their investors out of borrowed money and that's one of Jim Chanos' key concerns.

They revalue the assets they own then borrow money against the re-valuations to fund the payments to investors, a strategy that could found a wane inevitably, the period of cheap credit and asset price inflation comes to an end.

JIM CHANOS: And this is the real crux of the problem on an ongoing basis. If you look at the financial accounts of the trusts you'll see that in almost all the cases the companies are using Australian re-valuation accounting which is legal under gap in your country to write up the value of the assets annually and put that through operating income and into equity.

STEPHEN LONG: And your worry then is that the payments to the stockholders are being funded essentially by debt and re-valuation not out of income.

JIM CHANOS: Re-valuating and borrowing against that stream. So you need willing lenders, you need a credit environment that looks the other way, or you need a credit environment where the people lending are just lending on reputation and not numbers.

STEPHEN LONG: The man who blew the lid on Enron has other concerns, too. He says the fee structure encourages serial overpaying for assets because Macquarie gets fees based on the size of the assets it spins into its trusts.

He says the Macquarie model relies increasingly on unsustainable self-dealing between Macquarie and its funds.

And then there's the huge levels of debt and leverage.

JIM CHANOS: Capital gains alone in the fiscal year 2007, the year ending March 2007, capital gains alone of Macquarie flipping these types of assets into the trusts and elsewhere accounted for half, roughly half, of the pre-tax income of the bank. And that alone should be enough to call into question the quality of earnings.

STEPHEN LONG: If we came to the end of this extraordinary period we've been in, of cheap credit and escalating asset prices, asset price inflation, where would that lead Macquarie in terms of those capital gains?

JIM CHANOS: Well, I think that they would be greatly diminished or non-existent.

STEPHEN LONG: Although they're perfectly legal and transparent, Jim Chanos says the techniques Macquarie Bank uses have some similarities to those used by Enron.

JIM CHANOS: Let's just say, Stephen, I'm apparently not the first one to make those observations. That's exactly what they appear to be doing.

STEPHEN LONG: Macquarie Bank's boss Allan Moss says short of complete disaster, people will keep driving on toll roads no matter what.

Jim Chanos says that misses the point.

JIM CHANOS: All I would tell your listeners, Stephen, is simply just go in to the trusts, financial statements, and simply extract out the asset re-valuation number which is basically management's guess as to how much, what the asset's worth and just see what the cash flows look like if you take that out.

In many cases the cash flows are diminished or actually go negative. That's the simple litmus test to the Macquarie model.

STEPHEN LONG: Well, Jim Chanos, how concerned should we be that pension funds in Australia are major investors in the Macquarie Bank trusts?

JIM CHANOS: Well, if I was a pensioneer, in your country and my pension fund accounts owned some of these trusts, I would urge the managers to look at the financial accounts closely and not just look at the yield they're getting but look at how that yield is being received.

Is it actually from the economic output of the assets or is it from asset re-valuation which is simply writing up the paper value of the assets and borrowing the money against it.

These pension funds, which are answerable to the pensioneers in your country, if they're comfortable with that, well, great. If I was a pensioneer I wouldn't be.

STEPHEN LONG: Plenty of people disagree. Brian Johnson of JPMorgan is Australia's top rating banking analyst. He says Jim Chanos will join a long line of people who've lost money betting against Macquarie.

BRIAN JOHNSON: A lot of money is being lost basically shorting Macquarie Bank over the years. And while the model is certainly not without risk, the fact is the size of this potential market is absolutely massive.

STEPHEN LONG: So take your pick. Macquarie is either poised to run the world or heading for trouble.

MARK COLVIN: Stephen Long.

We were told Macquarie Bank's Chief Financial Officer, Greg Ward, would respond to Stephen Long's story, but he is yet to call.

© 2007 Australian Broadcasting Corporation:

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