Monday, October 06, 2008

TxDOT believes credit crunch will "make tolls and public-private partnerships more palatable to opponents."

Crisis on Wall Street affects our streets, too


Copyright 2008
Houston Chronicle

Since the credit crisis came to a boil last week, Houston-area governments have taken notice.

The city restructured $423 million in bonded debt, a move that was planned before the shock, but that certainly proved timely. The crisis also spurred the City Council to draw $100 million out of cash reserves to fund construction projects, rather than use commercial paper on which interest rates had spiked.

Similar increases for bonds also could affect the Houston Independent School District, with a $400 million bond issue coming up, and Harris County, with $3.8 billion in outstanding debt.

Naturally, the Texas Department of Transportation, Harris County Toll Road Authority and Metropolitan Transit Authority are sharing in worried watchfulness.

"If Congress takes action, this might all be moot in a couple of weeks," said John Barton, TxDOT assistant executive director in Austin.

But if worst-case scenarios come true and a major depression follows, then, as Metro CEO Frank Wilson put it, the transit agency's troubles "will be insignificant compared to the rest of the world."

How it hits TxDOT

The credit crisis comes at a bad time for TxDOT, already saddled with cleanup and road repairs after Hurricane Ike.

Until state law changed in 2003, the department was a pay-as-you-go operation. Now, it uses bond funding for 40 percent of the $14 billion worth of projects under contract in a typical year, Barton said.

To retire those bonds and pay $2 billion a year for maintenance, TxDOT relies on the state motor fuel tax of 20 cents a gallon.

Motorists also pay a federal tax of 18.4 cents that funds a large share of federal highway construction.

Although there's not much TxDOT can do about interest rates, Barton said the department is "sort of insulated" from revenue losses as long as Texans keep filling their gas tanks.

On the other hand, he added, they may drive less.

Barton said no TxDOT projects under way would be interrupted by rising interest rates. As to those on the drawing board, he said, "We're just going to have to wait and see."

One likely effect of a continued crunch, he said, is to make TxDOT's policy of financing most new roads via tolls and public-private partnerships more palatable to opponents, "since it does bring private equity to the table."

Moving ahead

County Judge Ed Emmett said the toll road authority has more than $800 million in the bank and, if necessary, could build two long-awaited projects, the northeast quadrant of the Sam Houston Tollway and the Hardy Toll Road extension to downtown, with that money alone. Both projects will break ground soon, he said.

Edwin Harrison, the county's director of financial services, said the authority also has $2.3 billion in bonds outstanding, but the interest rate is locked in at an average of about 4.5 percent and could not be affected by future increases.

These bonds, however, do not apply to the two projects above, nor to construction of toll lanes along Hempstead Highway or U.S. 290, Harrison said.

Metro's advantage

Metro has one advantage over the other two agencies: Its main revenue source is a 1-cent sales tax that rises with inflation and is based on a variety of goods, not just motor fuel or toll road use. The agency has collected $520 million from the sales tax in the past 12 months and has cash reserves of $134 million.

At present, Metro is "pretty much a cash business," said Wilson. Compared to its 2008 budget of about $800 million, he noted, current debt is $143 million.

But the debt will increase sharply next year when construction of five light rail lines and the rest of the Metro Solutions plan get under way.

All of the current debt is in commercial paper, a short-term form of borrowing that is refinanced in segments on a schedule. The interest rate is volatile, but it can come down as fast as it goes up.

Harrison said the commercial paper rate was 1.74 percent a week on Sept. 11 and jumped to 5.25 percent a week later. The county also uses commerical paper.

"If Congress does something about this credit crunch, it could drop right back down," he said.

Wilson said Metro can sustain its present operation and that there are grounds for believing the crisis will pass before Metro Solutions is seriously affected.

"I think the situation is so extreme that it will get itself worked out," he said. "Congress, such as they are, will have to deal with it. There are so many aspects to our economy that will feel the pain in a very serious way before any of that touches Metro."

To an outsider, the credit crunch is just one of several things that must end happily for Metro to realize its plans.

Under a 2003 transit referendum, no more than $640 million in bonds may be issued for Metro Solutions.

To cover the remaining cost — and some estimate the total well over $3 billion — it will need 50 percent federal funding and probably substantial help from private companies seeking joint developments with Metro around transit facilities.

Wilson said he does not expect the federal funding to dry up, even in a major economic setback, since transit infrastructure is an investment that can spur lasting development and send tax dollars back to Washington.

Meanwhile, Metro is buying right of way, clearing a rail route in the East End — and still trying to reach a contract with Parsons Transportation Group to build and operate it all.

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