Wednesday, December 31, 2008

"The only solution that is presented is that the state must embrace private finance to close the funding shortfall.”

Mixed verdict on public-private partnerships


By Ben Wear
Austin American-Statesman
Copyright 2008

A task force assigned by the Legislature to examine private toll road leases has issued it verdict, making the surprising observation that large up-front concession payments to the state might actually be a bad thing.

But perhaps the most notable aspect of the 128-page report — and something that doesn’t auger well for smooth legislative handling of the issue this spring — was the divided nature of the nine-member team’s report. No less than six of those members submitted what amount to dissents from at least some of what the report itself has to say.

The task force, with three House members, three senators and three private citizens appointed by Gov. Perry, was mandated by a law passed during the 2007 session. The question of whether the state should reach long-term contracts with private companies for toll roads dominated transportation debate during the session. And this time around lawmakers will have to deal with it again, because authority for TxDOT to enter into such agreements will expire (with a handful of exceptions) on Sept. 1, 2009.

Among the conclusions in the report:
  • Although the transportation money crunch could be help through some “conventional” ways to raise funding — raising the gas tax and then indexing it inflation, ending or reducing “diversions” of gas tax money to other state uses, getting more of Texas’ federal gas taxes returned to the state — some use of private toll road contracts will be necessary.
  • However, very few road projects are 100 percent “toll viable” — meaning, profitable and thus enticing to the private sector — so “toll roads and (public-private partnerships) will not take over the state.”
  • Private toll roads are more likely to be done on-time and on budget, and are more likely to be managed more efficiently once they open.
  • So-called “non-compete” clauses, which trigger payments to private companies when government expands roads nearby and thus cut toll road traffic, are necessary in order to enable toll road operators to borrow money to build them.
  • Setting an up-front amount for the state to buy back a profitable toll road might diminish or eliminate the private sector’s interest in Texas tollways.
  • Large up-front payments to the state “can over-leverage a project and set it up for failure … revenue sharing mitigates these problems and is a more financially sound option.”

That last conclusion is particularly interesting, given the history of the debate. Perhaps the primary argument advanced by proponents of private toll roads in Texas over the past few years, especially by the late Ric Williamson when he led the Texas Transportation Commission, was that the state could score billions of immediately spendable dollars by reaching such agreements.

View the full report in .pdf format [HERE]

State Sen. Tommy Williams, R-The Woodlands, and state Rep. Wayne Smith, R-Baytown, submitted a joint letter talking the committee’s “irreconcilable disagreement on some matters.” The report’s tone, they wrote, could be interpreted to say that because measures such as raising the gas tax and ending funding diversions would not solve the entire funding problem, “they should be deemphasized. The only solution that is presented is that the state must embrace private finance to close the funding shortfall.”

Furthermore, Williams and Smith wrote, the report “appears to overstate the advantages of private finance” and unfairly characterizes aspects of government-run toll road operations.

Williams and Smith carried the main toll road legislation in the 2007 session.

State Sen. Robert Nichols, R-Jacksonville, a former member of the Texas Transportation Commission, also had problems with parts of the report. His three-page letter said that the report implied that giving local toll authorities first-shot at toll road projects (known as “primacy” in the debate) is a bad thing. He disagrees. Furthermore, Nichols said, the report is incorrect in arguing that private toll road operators would do a better job of maintaining roads.

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