Wednesday, December 31, 2008

Legislative report on private participation in toll projects oversells privatization while downplaying government financing and non-toll solutions.

Toll-road privatization study fails to mend tattered debate

View the full report in .pdf format [HERE]


Patrick Driscoll
San Antonio Express-News
Copyright 2008

Last year's legislative clash over how to go about privatizing Texas toll roads promises to spill into the 2009 lawmaking session, a report released today indicates.

After a year of probing, a task force of legislators and experts couldn't resolve some key issues such as local vs. state turf battles, whether private firms consistently outperform public agencies or even if toll rates are being set high enough.

There was consensus on many topics but "irreconcilable disagreement" on others, said Sen. Tommy Williams, R-The Woodlands, and Rep. Wayne Smith, R-Baytown, in a letter accompanying the report.

"This debate will need to be continued and the consequences of any actions fully considered as legislation is developed," they wrote.

Williams and Smith co-sponsored Senate Bill 792 last year, slapping a two-year moratorium on leasing toll roads to private firms, to give lawmakers time rethink potential benefits and pitfalls. The bill exempted 21 projects, including Loop 1604 in San Antonio, but kept dozens of others off the for-rent list.

The rethinking produced the Report of the Legislative Study Committee on Private Participation in Toll Projects.

The 128-page report concludes:
  • Texas can't afford to turn down private financing. State transportation officials say they need another $11.2 billion a year to keep up with growing traffic and aging roads, and global investors have hundreds of billions of dollars they're willing to sink into infrastructure in hopes of reaping steady cash flows.
  • A central agency or government-owned company should be created to advise state and local officials on how to put together privatization deals.
  • A process that forces state and local agencies to negotiate toll rates should be scrapped in favor of setting a threshold for profits and giving private companies a chance to come up with something better.
  • Tempting up-front lease payments of millions or billions of dollars offered by private firms increase the risk of tollways failing. Government should instead take a cut of earnings annually. Such sharing would also cap any windfall profits that go to private purses.

Since only a handful of planned toll projects in Texas could pay for themselves, and just another 30 would be viable with help from public subsidies, there's no danger that tolling and privatization will "take over the state," the report says.

Nevertheless, the report argues, tolling and private capital are necessary to climb out of a highway funding hole.

"The primary advantage to tolling is that it brings new revenue streams beyond the gas tax into the system," it states.

The average Texas motorist pays about 2-1/2 cents a mile in state and federal gas taxes, about $300 a year, according to the report. They end up paying more than that to repair autos damaged by bad roads.

Raising fuel taxes and stopping highway-fund diversions to non-transportation uses would help the road funding crisis but would be far too little, the report says.

Williams and Smith felt the report oversold privatization and downplayed government financing and non-toll solutions. They also said the report casts doubt on local control of toll projects, and assumes public agencies bow too much to political pressure and set toll rates too low.

Task force member Sen. Robert Nichols, R-Jacksonville, who previously served on the Texas Transportation Commission, voiced similar concerns in a separate letter.

"The private equity model should be an option, but only after all publicly owned options have been exhausted," he wrote.

Another study committee member, Robert Poole of the Reason Foundation, which advocates free markets and limited government, said the report didn't go far enough to extol private help.

Private cash and bonds will pay for all of the $1.3 billion Texas 130 tollway from Seguin to Austin, more than twice what government bonds could have raised, he said in his own letter.

"One of the important advantages of the long-term toll concession model is that it can often raise larger sums for a new toll road," he stated.

In all, six of the nine task force members submitted letters to take issue with some of the report's points or suggest plugs for what they saw as holes.

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