Sunday, October 05, 2008

Building on borrowed time

TxDOT buys time with borrowed funds for Dallas-area projects


The Dallas Morning News
Copyright 2008

State transportation officials are poised to issue billions of dollars in debt to help speed road construction, a move that will keep Dallas-area projects on schedule for now but will do little to shore up the state's long-term road-funding crisis.

The Texas Department of Transportation will likely begin issuing $1.5 billion in bonds within 60 days, pending the recovery of the nation's upended credit markets, and is taking steps to borrow another $6.4 billion over the next few years.

Historic turmoil in the credit markets is already costing the department hundreds of thousands of dollars in extra interest payments each week on some of its smaller loans, and any efforts to borrow much more will be complicated – and likely delayed – if the markets do not improve.

Credit worries aside, the decision to borrow billions enables TxDOT to end months of hand-wringing over whether it will have the money to complete projects local officials throughout Texas have been depending on. Late last year, the agency announced it was going broke and would have to delay some of those projects.

The new borrowing will allow the state to keep projects on schedule. But the big debt will do nothing to reduce the state's long-term shortage of road funds and could make paying for future projects more difficult as interest costs grow.

"Borrowing money does have the benefit of building projects faster," said Michael Morris, North Central Texas Council of Governments' transportation director. "Borrowing money does nothing for building more projects [in the long term]. Some people will be confused that building projects faster solves the problem, but it doesn't address the total funding need."

Mr. Morris says North Texas' transportation needs are $50 billion ahead of expected tax revenues between now and 2030. Some critics call those numbers too pessimistic, but everyone agrees that the number is big. Conservative estimates have said statewide needs will outpace funding by $50 billion to $60 billion.

Meeting last week in Austin, Texas Transportation Commission members said the bond program won't fix a basically busted system – and could make things worse if the Legislature doesn't eventually provide new tax funds.

"The system for funding TxDOT is fatally flawed," said Ned Holmes of Houston, one of five members of the Texas Transportation Commission that runs the department.

A political problem

Few leaders in Austin disagree with Mr. Holmes.

But while lawmakers, the governor and TxDOT all seem to agree Texas needs more money for roads, consensus on a solution beyond more borrowing has proven devilishly difficult to reach.

One camp argues that, of course TxDOT is going broke, given that state gasoline taxes have remained flat since 1991, at 20 cents per gallon. However, efforts to raise the tax rate have been dead in the water for years.

"As far as the gas tax goes, there is simply no appetite in the Legislature for that. None at all," said Allison Castle, press secretary for Gov. Rick Perry, said. "To make a real difference, you'd have to raise it 50 to 55 cents per gallon. Raising it a nickel or two would be just giving false hope."

But even simply indexing the 20-cent-per-gallon rate to inflation would have a huge impact over time, said Senate Transportation Chairman John Carona, R-Dallas. He said he is going to press for that this session.

"If we had had the courage to do that two years ago, we'd be in a substantially better place already," Mr. Carona said.


For the past five years, the governor has pushed instead to build more toll roads and then to borrow heavily against future revenue.

"Toll roads are fair, as they are essentially user fees, and drivers can decide whether to use them or not," said his spokeswoman.

Opposition to tolls, especially private toll roads, was a powerful force during the 2007 session, and even lawmakers who say some tolls are helpful also argue that Mr. Perry has pushed too hard for tolls.

"We have 15 major highways proposed in Dallas-Fort Worth, and all 15 are planned as toll roads," Mr. Carona said. "In that situation, you can no longer say tolls are an option for motorists. If they are all built, you won't be able to drive anywhere in Dallas without using a toll road."

Mr. Holmes, too, acknowledged the governor and the agency under former chairman Ric Williamson had been too focused on tolls as the solution.

"They came up with a solution that did not require TxDOT to go to the Legislature to ask for new funds," he said. "But tolling was never going to work by itself."

Ready to borrow

For now, the only solution lawmakers and the governor have agreed on is to borrow another $8 billion.

It's not a new direction. From 2002 to 2007, the department first went on a borrowing spree – and then a building spree, much to the delight of traffic-clogged regions like North Texas. In those years, the department spent as much as $5 billion a year in construction contracts.

But by 2007 TxDOT had spent the money and was left with flat revenues, rising costs and hefty interest payments. TxDOT says it has about $2.5 billion in tax money to spend on major road contracts annually, about half what it was spending in recent years. It also warns that soaring maintenance costs could soon eat up as much as $2 billion a year.

"We're fast going to be at a place where we simply have to tell the locals, we're out of the business of building new roads," said Commissioner Ted Houghton of El Paso.

To delay that, TxDOT is ready to borrow again. But those new dollars will only delay, not solve, the department's long-term funding crisis.

More time may be what TxDOT needs most of all, said Mr. Holmes, who reluctantly supported the new borrowing.

"It's going to take some time – this next session, the next one and maybe one more after that – before we reach a real solution," he said.

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