Saturday, October 18, 2008

Dirty Deeds: Ham handed Freeport bureaucrats blame their own missteps on citizens defending their property rights

Freeport marina hits new snares


By Nathaniel Lukefahr
The Facts
Copyright 2008

FREEPORT — The new leader of the city’s economic development board said Thursday he found records of potentially improper land transfers, mounting bills and a requirement for a sprinkler system estimated to cost more than $400,000 related to the controversial marina project.

Mayor Larry McDonald said he expects the latest problems to push the project’s cost to $8 million — exceeding original estimates by $2 million — and taxpayers likely will be left to pick up the tab.

Economic Development Corp. President Dan Tarver told a meeting of the group’s board Thursday night he made those discoveries two weeks ago while going through documents in the office of former development director Lee Cameron.

Tarver said he found deeds of sale from the corporation to Freeport Marina LLP on four pieces of waterfront property that were not the corporation’s to sell. He also found bills of more than $6,000 and $3,000 dated in September for two 40-year leases the corporation must pay, Tarver said. Before the marina’s many project delays, the marina was set to open that month.

Board members also were told about a fire marshal’s requirement to install a $400,000 sprinkler system in the marina’s boat storage facility, which Tarver said Lee Cameron had not discussed with the new board.

But the former director, who was fired Oct. 3 after seven years in the post, said prior boards were completely knowledgeable about the actions. He said Tarver and the new board have no idea what went on, so of course everything would be new to them.

“They have no clue,” he said. “Before they got on the board, they had never attended an EDC meeting before. They got rid of me, and I was the only guy who knew what was going on.”

The developments led corporation Vice President Clan Cameron, also a city councilman, to say the former board was tossing money into a shredder. McDonald, who watched from the audience, had a similar take on the marina project.

“It’s basically tossing money into a black hole,” he said.


Freeport Property Manager Nat Hickey presented the board with an overview of 22 pieces of property along the waterfront that make up the marina project. The corporation sold four pieces to Freeport Marina LLP last year, but the land belonged to the city. While the corporation is housed within the city, the two are separate entities.

The boat storage facility is on two of the pieces of property, Hickey said.

“We’ve got a marina that’s built on land that was deeded to the developer that was deeded by an organization that didn’t own the land,” Tarver said. “I think the ultimate authority of that falls back on the city council to see what they want to do. While it could just be a formality of the city re-deeding the land again, we’ll have to get legal advice on this on which way to go. It could be a formality and it may not. I don’t know, a legal authority will have to say.”

McDonald declined comment on what the city’s actions will be until lawyers can research the issue. Tarver blamed the problem on a secretive director and ill-informed board members.

“The deeds, what we had shown here tonight, is a reflection of the director that we dismissed two weeks ago and some members of city council at the time played fast and loose with some things they didn’t necessarily understand,” Tarver said. ”And now it looks like it’s a situation that’s going to involve the city of Freeport as well as the EDC in trying to back out and find where we stand on trying to get the marina to move forward.

“If they had done their homework correctly, if they had followed proper procedures, we wouldn’t be in the mess we have right now,” Tarver said.

Neither board members nor McDonald could say whether former corporation members sold or gave the land to Freeport Marina LLP. Records of the transaction have yet to be discovered, Clan Cameron said.

But Lee Cameron said the land was sold from the city to the corporation in 2003 for between $5,000 and $10,000. The corporation then sold it to Freeport Marina LLP for $75,000.

“He’s crazy,” Lee Cameron said of Tarver. “He doesn’t know what he’s talking about. That board did nothing they weren’t totally knowledgeable about.”

When asked whether Freeport Marina LLP could abruptly stop the marina project and use the land for other things, board members said legal counsel would have to decide that.

Lee Cameron said that was the reason for two 40-year leases signed in the early 2000s. That way, the company would be forced to use the land for the project.


Briarwood Holdings, another company of the developer, sent bills to the corporation in September for the first payments of 40-year leases on the land where the marina is being built, Tarver said.

The corporation will receive two bills each month until the leases are fulfilled. Tarver said the original plan was to have the marina completed and the developer would send equal-priced checks back to the corporation and the two would “wash.” But since the marina is more than one year behind schedule, Tarver said the payments must be fulfilled.

“That has to do with that land transfer that they did,” Tarver said. “The prior council members signed this contract and passed it. It set us up to be in a lease exchange. But since it was all contingent upon the marina being online, well, the marina’s not online because of the past actions of the director and the previous board. So half of the contract is in effect. So we’re having to pay out around $10,000 a month and we’re not getting that other return back because the marina’s not online.

“So we had projected the marina would come online sometime in March or April,” Tarver said. “So in between now and then, the city would still have to pay $10,000 a month to the developer to rent the land that we found out was improperly deeded to him.”

Lee Cameron, however, said city officials knew the bills would be coming because it was approved by city council in 2003.

Tarver plans to speak with Briarwood Holdings officials about the issue, but McDonald expected the cost to be passed on to the taxpayers.

“Hell, who else do you think it’ll get passed on to?” he said. “It’s not right.”


Fire Marshal Chris Motley told the board the 51,000-square-foot boat storage building must have a sprinkler system.

The International Fire Code, which Freeport follows, requires one for storage facilities larger than 12,000 square feet, Motley said. Motley said he contacted Lee Cameron through suspended City Manager Gary Beverly many times about the problem.

Cameron acknowledged he had been contacted by Motley about the sprinkler system but was under the impression one was not needed for the boat storage facility.

“There were exceptions to that law,” he said. “Even now, we’re still trying to make a determination whether one was needed.”

The sprinkler system could cost between $400,000 and $500,000 to install, engineer Rene Damian said.

Tarver said the cost of the sprinkler system adds to the marina’s already increasing project cost of about $7.2 million.

McDonald expected the marina’s price tag to jump to $8 million before completion.


Over the course of the project since its inception in the early 2000s, officials have debated the project’s need. The marina survived six years of political power struggles and court battles. Many opposed the city’s attempted use of eminent domain to secure dockfront property for the marina.

In the ensuing turmoil, former City Manager Ron Bottoms left and former Mayor Jim Phillips was defeated by McDonald.

McDonald reiterated the marina project will go through because that was one of his campaign promises. But the new findings will push the marina further behind schedule. Tarver predicted a summer 2009 opening but said it needs to be completed in a timely manner so the city could start getting money back on the lease.

“It’s difficult for me to say what’s going to happen at this stage,” Tarver said. “I think we need some legal advice to find out where we stand and what our options about the land that was improperly deeded.

“Again, if the previous board had done their homework correctly, we wouldn’t be in this situation and would be racing toward marina completion,” Tarver said.

But Lee Cameron said that is not true at all.

If it wouldn’t have been for people trying to block the marina, it would be completed and creating jobs and revitalizing the city,” Cameron said.

© 2008 The Facts:

To search TTC News Archives click HERE

To view the Trans-Texas Corridor Blog click HERE


"The time for tough talk and no action is over!"

Good Guy / Bad Guy Report Card

Terri Hall
Copyright 2008

We based our Good Guy / Bad Guy List upon who voted FOR and AGAINST the Governor’s counterfeit private toll morato rium bill, SB 792. It not only didn’t stop the Trans Texas Corridor (TTC-69 was taken out of the moratorium in SB 792), it unleashed “market valuation” where the government now looks at a toll road the way a private toll operator does, which is seeing how much money they can make off the road. All traditional turnpikes have now been replaced with a market-based model.

Market-based tolls determine the highest possible toll “the market can bear.” Market-based tolls do not determine the toll rate based on the actual cost of construction, maintenance, and debt retire- ment but rather on how much profit the government can make off a given roadway. This method of tolling allows the government to siphon money from motorists on one road segment to pay for other road segments.

This method of tolling is to maximize revenue and gouge motorists with unnecessarily high toll taxation. It’s also a way to cut loose the controversial privatization model and replace it with a public one that essentially does the same thing under a different name. Market-based tolls are a way for the Governor to create a cash cow to fund the segments of the Trans Texas Corridor or other projects that aren’t toll viable.

Find out where every candidate stands on the issues of toll roads and the Trans Texas Corridor before you vote. Press them on specifics, don’t let them just tell you they’re opposed. How are they going to stop the Trans Texas Corridor or tolls and how will they give the taxpayers veto power over toll projects and rein-in the mess at TxDOT? The time for tough talk and no action is over!


Exceptional Good Guys
Rep. Garnet Coleman, Dist 147 (Houston)
Rep. David Leibowitz, Dist 117 (San Antonio) (has General Election opponent)
Rep. Nathan Macias, Dist 73 (Hill Country north of San Antonio) (lost
by 17 votes in the primary with evidence of voter irregularities; his op-
ponent Doug Miller’s relatives counted ballots among other problems)

Rep. Ken Paxton, Dist 70 (North TX, Collin County) (called for
legislative investigation of TxDOT’s misuse of taxpayer money for its ad
campaign and illegal lobbying) (no opponent)

Good Guys

Good Guys with General Election opponents –

Jessica Farrar, Dist 148 (Harris County)
Lon Burnam, Dist 90 (Tarrant County)
Ana Hernandez , Dist 143 (Harris County)
Joe Farias, Dist 118 (San Antonio)
Stephen Frost, Dist 1 (Northeast TX)
Sid Miller, Dist 59 (Stephenville area)
Senfronia Thompson, Dist 141 (Harris County)

Good Guys Running unopposed –
Joaquin Castro, Dist 125 (San Antonio)
Jodie Laubenberg, Dist 89 (North TX, Collin County)
Trey Martinez Fischer, Dist (San Antonio)
Ruth McClendon, Dist (San Antonio)
Joe Straus, Dist (San Antonio)
Marc Veasey, Dist 95 (Tarrant County)
Mike Villarreal, Dist (San Antonio)

Mixed Bag -

Rep. Joe Pickett (voted for SB 792, but fights for accountability at TxDOT, insists toll roads more expensive than free roads, outspoken critic of TxDOT - see ) (no opponent)

Rep. Lois Kolkhorst (voted for SB 792, but pushed the people’s moratorium bill, HB 1892; against TTC & opposes tolls on existing roads, but for some toll roads) (no opponent)

Sen. Glen Hegar (voted for SB 792, but fights for accountability at TxDOT and sits on the Sunset Advisory Committee, wants someone FIRED at TxDOT for the $1 billion “accounting error”) (not up for re-election)

Sen. Robert Nichols (voted for SB 792, but authored and pushed the people’s moratorium bill, HB 1892; opposes tolls on existing roads, but for some toll roads) (not up for re-election)

Sen. Dan Patrick (he voted for SB 792 and is generally for toll roads, but he called for legislative investigation of TxDOT’s misuse of taxpayer money for its ad campaign and illegal lobbying) (not up for re-election)

Bad Guys
- Every Senator voted for market-based tolls and the Governor’s counterfeit moratorium bill, SB 792
- Every State Rep voted for market-based tolls and the Governor’s counterfeit moratorium bill, SB 792, except for 19, which are listed above.

© 2008 Texans Uniting for Reform and Freedom:

To search TTC News Archives click HERE

To view the Trans-Texas Corridor Blog click HERE


"A three-legged stool. "

Commissioners consider tolling Grand Parkway


By Debbie Bradley
The Katy Times
Copyright 2008

The Fort Bend County Commissioner’s Court met Tuesday, signing off on a resolution that establishes the terms and conditions that make Grand Parkway a toll road.

The resolution was in partnership with the Harris County Toll Road Authority, the Texas Department of Transportation and the Transportation Policy Council.

“What this is is that, several months ago, we authorized the Harris County Toll Road Authority to negotiate…with TxDOT as a three-legged stool – that’s the Harris County Toll Road Authority, TxDOT and Transportation Policy Council,” Pct. 4 Commissioner James Patterson said.

“The Transportation Policy Council approved these terms and conditions. Harris County Toll Road Authority has approved the part of our original resolution that said we had final veto power so as we agree. All this is is the very first step…to where now they can go through with a market valuation if TxDOT requires it.

"They may not require it, but you have seen some forward movement on segment E, and this is a part of the process.”

These terms will set the bar for the scope of work, the initial toll and toll rate increases along the proposed 180-mile loop around Houston.

According to the terms, Grand Parkway will be a tolled, two- to six-lane road with overpasses at major intersections and direct connections with other major thoroughfares.

“What you are building toward is that these are the terms and conditions for the whole 180 miles,” Patterson said.

“So you hope that at some point you are able to sit down and have TxDOT agree with some entity that, here is how long it is going to take to build this road and put together a contract for, say, 30 years.

“Fifteen or 20 years from now, segment A, B, C might be viable. Segments E and F right now are highly viable. Probably the overpasses on D are viable. But if you take the income from those segments and roll them to C, F too or G, you start making those pieces highly viable. Or, if nothing else, you are able to go out and build some free service roads.”

Under the conditions of the resolution, the initial toll rate can not exceed the average per mile toll rates on the Harris County Toll Roads.

Any method used to increase the toll rates for Harris County will be used on Grand Parkway.

© 2008 Katy Times:

To search TTC News Archives click HERE

To view the Trans-Texas Corridor Blog click HERE


Friday, October 17, 2008

Drivers desert toll roads roads. Orange County toll road agency seeks $1.1 billion bailout

O.C. toll road agency seeks federal bailout


By Susannah Rosenblatt,
Los Angeles Times
Copyright 2008

As the federal government undertakes the largest financial bailout in history, Orange County's toll road agency is asking for its own hefty government handout.

The agency is seeking a $1.1-billion loan of taxpayer money to shore up the finances of its network of turnpikes. The reason? As gas prices gyrate and the economy flounders, drivers -- and the revenue they bring -- have been deserting the toll roads.

The Transportation Corridor Agencies is seeking to merge its two distinct arms -- separate agencies that oversee different roads but share a single staff. The government loan, the largest of its kind, would help refinance the agencies' $4.6 billion in existing debt.

Critics condemn the effort, saying that the agency is reneging on a promise to never use public money for its highways. They also contend that the loan would divert scarce federal funds away from new transportation projects nationwide.

If the loan and merger go through, the renamed Transportation Corridor System would be more efficient and have stronger finances to better improve the 51-mile network of roads, said agency spokeswoman Lisa Telles.

The request for $1.1 billion from the federal government was not a reversal of earlier pledges to avoid taxpayer financing, she said, because the loan would be repaid with future toll road revenue.

"Certainly in the past we have not utilized tax dollars for the majority of the project," Telles said, adding that the loan would lower the agency's interest rate on the refinanced debt by at least a couple of percentage points. The restructuring would also include the issuance of new toll revenue bonds.

According to the agency's website, current bonds "can only be repaid by future tolls and development fees, taxpayers are not responsible for repaying the debt if future toll revenues fall short."

But foes of a proposed toll road extension through south Orange County labeled the move a "total reversal" of the agency's assurance that toll revenues and development fees would cover the cost of the roads. And they voiced concern that dwindling use of the roads could leave taxpayers footing the bill.

"It's becoming increasingly clear the toll roads are not performing as promised," said Bill White, an attorney who works with the Save San Onofre Coalition, an array of conservation groups fighting the proposed 16-mile extension of the 241 toll road through a state park in north San Diego County. "Things have gone from very bad to much worse."

Use of the 73 toll road last fiscal year was roughly half of what was predicted, and those numbers have dropped further this year. Several years ago the road's bond ratings were downgraded to junk status. The 241, 261 and 133 toll roads have generally fared better, but recent usage has also been slipping.

"Even if there was an economic recovery and even if the toll roads were doing just fine, this would be an unjustifiable use of taxpayer money," White said.

Responding to questions about the system's financial viability, Telles said the agency has "always been able to make our debt service payments, we've always been able to pay our expenses," and is not in danger of defaulting on current bonds. Though she acknowledged the current economic woes have reduced traffic nationwide, she anticipates a long-term recovery in toll road use.

The agency is applying for the money through the Transportation Infrastructure Finance and Innovation Act administered by the U.S. Department of Transportation. The act, which is largely designed to help fund transportation projects of national and regional importance, distributes an average of more than $2 billion in credit help each year.

The largest loan to date was $917 million for the Central Texas Turnpike.

Other loans have included $140 million to build a San Diego toll road and $600 million to update aging equipment of the Washington, D.C., mass transit system.

Because infrastructure companies are likely to be hit particularly hard by the credit crunch, appealing to the federal government for funds makes sense, said Lisa Schweitzer, an assistant professor in the School of Policy, Planning and Development at USC.

The risk, Schweitzer said, is whether those toll road revenues will eventually pan out: "It's actually not that easy to make money on roads."


© 2008 Los Angeles Times:

To search TTC News Archives click HERE

To view the Trans-Texas Corridor Blog click HERE


“This is still not a justifiable use of taxpayer money. The only people who benefit are the original bond holders.”

Toll Road "Bailout" Request Blasted

October 16, 2008

by Matt Coker
Orange County Weekly
Copyright 2008

Groups that have banded together to fight the 241 toll road extension through San Onofre State Park today accused the private agencies that operate Orange County's financially troubled network of toll roads of seeking a $1.1 billion federal bailout.

The Transportation Corridor Systems (TCS) -- a joint powers agency created in 2003 by the San Joaquin Hills Transportation Corridor Agency, which operates State Route 73, and the Foothill/Eastern Transportation Corridor Agency, which runs State Routes 241, 261 and 133, and something of a paper cousin to the Transportation Corridors Agency (TCA) -- has submitted an application for a $1.1 billion loan from the U.S. Department of Transportation under the Transportation Infrastructure Finance and Innovation Act (TIFIA).

“The Bush Administration should not approve this loan to a toll road agency that has boasted that it does not depend on public funds,” stated Elizabeth Goldstein, president of the California State Parks Foundation, in a statement that was released just before she and other members of the Save San Onofre Coalition held a conference call with reporters. “Serious questions surround this request for a bailout. The brakes need to be applied to this billion dollar boondoggle immediately."

“Now, as TCA’s existing toll roads have failed to perform as promised and sharply declining revenues raise the possibility of a default, the toll road agencies are turning to taxpayers to pay off existing private bondholders and have the public assume a substantial portion of the risk of the toll roads’ failure,” added Goldstein.

During the call, Bill White, an attorney with Shute, Mihaly & Weinberger, said TIFIA funds were designed to help acquire financing of new transportation projects that will receive revenues via fees, tolls and rents. “This is not about building new roads,” White said of the TCS application, “it's for existing debt from roads built in the 1990s.”

Back then, as the Weekly's R. Scott Moxley exhaustively reported, the TCA said the roads were desperately needed, there were no state or federal funds to build them, that they would be used heavily, and that they would easily pay for themselves. The agency even went so far as to assure Orange County residents that if its ridership and revenue projections were wrong, taxpayers would not be exposed to any risk.

“This was repeated ad nauseum as the main justification for building the roads,” White noted. “This is a promise TCA has made time and time again to the taxpayers, but on both counts now we're seeing a major retreat. It's becoming increasingly clear the toll roads are not performing as promised.

He said people can discover on TCA's own website that ridership and revenue projections not only have been off the mark nearly from the start, but that the agency is now projecting lower numbers in coming years. The worst is the San Joaquin, which he said “is not meeting its revenue projection, and given the state of the economy, it's difficult to say if it will ever get better.” Numbers are also off for the better performing Foothill Eastern. “As times get worse, the TCA is consistently doing what it said it would never do: put the taxpayers on the hook for its debt,” White said.

White and Michael Fitts, a staff attorney with the Endangered Habitats League, said that the TCS loan should not even be allowed to be considered because it conflicts with federal statutes.

But TCS got a timely assist from Caltrans, which urged the Federal Highway Administration to waive the statutes in this case, according to Susan Jordan, director, California Coastal Protection Network. The feds agreed to consider the application, although the TIFIA committee that considers loans has not made a decision. “This is a breathtaking seizure of power for this highway administration to deviate from federal statutory requirement,” White said. “That is the fundamental problem we have with the application.”

Ripping a page from the playbook used by those who say federal taxpayers should not pay for the bad decisions of financial institutions, lending companies and homebuyers amid the current mortgage crisis, White said, “This is still not a justifiable use of taxpayer money. The only people who benefit are the original bond holders.”

“The bottom line is this is an unprecedented request,” said Jordan, who urged voters, state legislators and the media to ask how this application came about, how did the toll road agencies “get themselves in this hole” and “why Caltrans has become the TCA's mouthpiece.” She added that people across America should also ask why they are being asked to help reorganize the debt of an underperforming toll road in California, one whose loan request would wipe out about half the TIFIA budget.

“It is absolutely business as usual for the TCA and TCS, which have led us to a project that would be devastating to the natural environment of Orange County and San Diego County,” said Goldstein. “It is very ironic that federal taxpayers could end up bailing out a toll road authority based on destruction of the remaining natural environment.”

© 2008 Orange County Weekly:

To search TTC News Archives click HERE

To view the Trans-Texas Corridor Blog click HERE


Thursday, October 16, 2008

“TxDOT wanted to put the people in East Texas minds at ease, but the new corridor alternative is anything but off the table.”

Groups warn TTC projects still alive


Country World News
Copyright 2008

Recent reports of the demise of the Trans-Texas Corridor-69 have been greatly exaggerated by the state’s transportation department, according to a sub-regional planning commission formed to take on the massive highway project.

Connie Fogle with the Trinity-Neches Texas Sub-Regional Planning Commission said an announcement by the Texas Department of Transportation (TxDOT) that recommended upgrading U.S. Highway 59 to an Interstate, rather than build the TTC-69 corridor, was simply a diversionary tactic.

“They wanted to put the people in East Texas minds at ease, but the new corridor alternative is anything but off the table,” Fogle said. “TxDOT is still very much considering the new corridor.”

The commission recently received a letter from Dennis Cooley, TxDOT’s District Engineer from Lufkin, indicating that the new corridor alternative will remain in the Final Environmental Impact Statement (FEIS) that it will submit to the Federal Highway Administration (FHA) for final approval.

The letter from Cooley states that TxDOT will only recommend advancing the TTC-69 project along existing highway facilities where it is practical.
“The key word is ‘practical,’” Fogle said. “That gives them the leeway to decide where it’s practical and where it isn’t. They’re ready to put that into the Final Environmental Impact Statement, but the truth is, they haven’t made a study of the (project’s) impact on the environment. We had a meeting scheduled with EPA about this very matter, but we had to postpone it because of Hurricane Ike. But we’re not going to let it go.”

Texas Gov. Rick Perry proposed the Trans-Texas Corridor in 2002 as a series of six-lane highways with separate high-speed rail lines, truck lanes and utility corridors criss-crossing the state. Each corridor could be as wide as 1,200 feet.

The Governor and TxDOT have promoted the TTC as a solution to the state’s transportation problems, but the project has met with formidable opposition, particularly in rural parts of the state where the corridors would have the biggest impact on small towns and agricultural interests.

The first leg of the proposed TTC system is TTC-35, which would run about 600 miles from Gainesville to Laredo, roughly parallel to IH-35.

TTC-69 would run generally southwest to northeast along a 650-mile long route first mapped for IH-69, from the Gulf Coast to Texarkana.

In the past year, several sub-regional planning groups have formed under the authority of Texas Local Government Code, Chapter 391, which requires state agencies “to the greatest extent feasible” to coordinate with local commissions to “ensure effective and orderly implementation of state programs at the regional level.”

An Eastern Central Texas commission was formed in August of 2007 to challenge TTC-35. The Trinity-Neches Texas Sub-Regional Planning Commission was formed in February of 2008 in response to TTC-69. There are now nine such planning commissions in the state.

“There is a lot at stake here,” Fogle said. “Once you concrete over that much land, it’s not coming back. You’ve lost all that agricultural land, plus, here in East Texas we have a lot of timber, and hunting is big business here too.”

In a June 11 press release, Texas Transportation Commissioner Ted Houghton said public input on I-69 led the commission to recommend using existing infrastructure whenever possible along the I-69 corridor.

“When needs are identified in the I-69 corridor, we will look at existing infrastructure and work with local officials to upgrade that facility to meet transportation needs,” Houghton said. “It just makes sense. As Texans pointed out to us, a facility built on new location may be unnecessary when an existing one can be improved to handle demand.”

Fogle said the Trinity-Neches sub-regional commission is not buying it.

“We believe, based on the way TxDOT has handled this from the first, that they are just saying that so people will think it (the new corridor proposal) is off the table,” she said. “They’re building this around a plan, not a need. We think they’re going to stick with the original plan if everybody eases up on them because they think they’re only going to use upgrade existing facilities.”

© 2008 Country World News:

To search TTC News Archives click HERE

To view the Trans-Texas Corridor Blog click HERE


The borrow-to-buy infrastructure model "is dead in the water."

End of the Toll Road?


By Roy Eccleston
Time Magazine
Copyright 2008

The financial alchemists at Macquarie Group, Australia's biggest investment bank, never managed to turn lead into gold, but they hit on the next best thing: turning asphalt into cash. In May, the bank's shareholders welcomed a $1.3 billion profit, thanks largely to a new way of looking at highways, airports and power stations.

The idea behind the Macquarie model is to borrow a lot of money cheaply, buy infrastructure assets with a guaranteed cash flow, then sell those assets to the public, letting shareholders take over the debt. Macquarie and imitators like Australia's Babcock & Brown make money at every step, with fees for the deal, for advice, and for managing the assets. Macquarie runs toll roads in America, bridges in Portugal, French autoroutes, a tunnel in Germany, and airports from Sydney to Copenhagen. About 290 million people ride its buses each year, and 17 million light its gas.

For investors, all this looked good, because roads and bridges with little competition should produce a steady return via tolls for generations. But with asset prices falling and easy debt a thing of the past, some believe the Macquarie model is in for a shakeup. JP Morgan's Brian Johnson says it is "likely dead."

Macquarie insists that its distributions to shareholders are paid strictly from cash, but other analysts say they're often funded by new rounds of refinancing. Steve Johnson, a former Macquarie staffer turned financial adviser, says the bank has managed to borrow ever-rising sums against its assets because "credit markets were more and more willing to lend. That game is over."

Macquarie's investments are much broader than infrastructure, and new CEO Nicholas Moore argues that with little exposure to Wall Street's problems and $14 billion in cash, the bank can easily refinance debts. The recent credit crunch, however, has made the market cautious. On Oct. 14 Macquarie Group's shares were trading at around $24 ($A35), two-thirds off their peak of $85 in May 2007. And Babcock & Brown had tumbled from around $28 to $1.20.

B&B runs $55 billion worth of infrastructure assets, including ports in Britain, an Irish phone company, real estate across Italy, France, Germany and Japan, a fleet of jets, Australian gas, American rail stock, even a telecom cable under San Francisco Bay. Now the credit crunch is forcing it to sell off assets to cut its debt, estimated to total $35 billion.

"They built their house on the beach," says Tim Morris, an analyst with stockbroker "Now that the storms have come, they can't help but watch their house subside into the ocean." And Macquarie? More diverse sources of revenue mean "it's better built to weather the storm," Morris says. But the borrow-to-buy infrastructure model "is dead in the water."

High debt levels aren't the only problem with the Macquarie-model funds, according to a tough review by corporate governance service RiskMetrics. It found that the funds also pay too much for assets and charge too much in fees, and that their operations lack transparency. "Our real concern is disclosure," says director Dean Paatsch. "The investment funds are asset vehicles that have outsourced 100% of the assets' management to a third-party company, but the terms � are not known."

Paatsch says that in the current market turmoil, the lack of such information erodes confidence. Investors whose shares in a fund lose most of their value would normally want to sack the manager, but with the Mac model, "you don't know what your options are." In the case of B&B Power, for example, "if you sack the manager you'd end up in the ridiculous situation where you'd pay them 25 years' worth of management fees — that's crazy." The review also noted that the funds are allowed to act in ways that normal companies are not, paying dividends, for example, from capital or borrowings rather than profit.

In B&B's case, warnings had been sounded for some time, including from inside the company. In an internal memo published in Australia's Fairfax newspapers in August, a disgruntled executive complained of a "culture of greed." In other companies, he wrote, "acquired projects are actually required to generate a certain benchmark return before bonus payouts take place. Instead, we have created an environment where senior people are rewarded for ... ginning up rosy projections to justify their rewards.''

B&B says it's got the message that it needs to change, but it doesn't agree the Mac model is dead. It is sacking a quarter of its 1,600 staff and selling off assets like Spanish wind farms and a Tasmanian power station. New CEO Michael Larkin says deals will be curtailed and executive pay based solidly on "investment outcomes." It remains to be seen if those remedies have come in time to save the patient.

© 2008 Time Magazine:

To search TTC News Archives click HERE

To view the Trans-Texas Corridor Blog click HERE


“I think you’re going to hear a lot about TxDOT next Legislative session.”

Legislature will take close look at TxDOT

Hegar says agency will be presented a series of reforms


By Stephen Palkot
Fort Bend Herald
Copyright 2008

Saying leaders at the Texas Department of Transportation have been arrogant and have shown disdain for the Texas Legislature, District 18 State Sen. Glenn Hegar, R-Katy, told a Richmond gathering he expects the Legislature to implement changes in the agency.

“I think you’re going to hear a lot about TxDOT next (legislative) session,” said Hegar.

Hegar was speaking before the Rosenberg-Richmond Area Chamber of Commerce Wednesday morning, explaining his involvement in the Legislature’s Sunset Advisory Commission, which issued a scathing report on TxDOT in January.

Hegar and other members of the committee in December will be voting whether to implement a series of proposed reforms, including the replacement of the agency’s five-member commission with a single leader.

Hegar said this reduction could eliminate much of the politics among members of the commission.

Perhaps the most controversial initiative of TxDOT in recent years has been the agency’s push for public-private partnerships, wherein private companies have been offered 50-year contracts to build roads and charge tolls.

Hegar criticized this practice, saying whatever money taxpayers get up-front from private interests will be made up by exorbitant tolls charged by the same companies.

This has been the proposed model for the much-criticized Trans-Texas Corridor.

“There’s no way I’m going to get a contract that’s fair for Texans in the end,” said Hegar.

Hegar also cited instances of difficulties between the Legislature and TxDOT leaders, such as an instance where members of the agency made differing claims on the number of private-public partnerships in place or the agency’s decision to engage in a multi-million dollar ad campaign to drum up support for the Trans-Texas Corridor following the 2007 Legislative session.

“That’s just unbelievable to me. Unbelievable. We just made a statement and then (TxDOT) went around and did something completely different,” he said.

The agency also made headlines for a $1.2 billion accounting error, and on Wednesday Hegar criticized the agency for not being able to name any individual that lost his or her job over the error.

Hegar said he the Legislature will likely make TxDOT go through a sunset review in four years, instead of the traditional 12 years for state agencies, and he said he expects greater Legislative involvement in the agency.

Either way, Hegar said he does not expect “business as usual” in the years to come.

“We can’t afford (business as usual), we don’t have the money for it and we don’t have the time,” said Hegar.

© 2008 Fort Bend Herald:

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Gas taxes to subsidize Texas 161 toll road

State gas taxes to back loans for Texas 161 toll road

Fort Worth Star-Telegram
Copyright 2008

GARLAND — Loans to build the Texas 161 toll road east of Arlington will be backed by state gas taxes, as officials scramble to keep the project going despite a worldwide credit crisis.

The North Texas Tollway Authority accepted a proposal Wednesday by the Texas Department of Transportation to open a line of credit — a toll equity loan — for the $1.44 billion project, using the state’s $6 billion highway fund as collateral. The 12-mile road parallel to Texas 360 in Irving and Grand Prairie will be a vital connection to the new Cowboys stadium in Arlington.

Meeting at Garland City Hall, the tollway authority agreed to contribute up to $400 million of its own equity for Texas 161, and for all 28 miles of the proposed Southwest Parkway/Chisholm Trail connecting downtown Fort Worth to Cleburne.

The tollway authority and Transportation Department also agreed to waive a complicated process of establishing a market value for Southwest Parkway, a process that caused delays and tension between the agencies in the past. Also, the department will no longer be required to use gas-tax proceeds to build Southwest Parkway interchanges at Interstates 20 and 30 — instead, those connections can be paid for with tolls.

The tollway authority’s board of directors approved the deal, despite concerns from some members that the loan would reduce the state’s commitment of gas-tax dollars to the Dallas-Fort Worth region.

TxOT has its own funding pressures, but this commitment will not affect any other transportation project," Transportation Department financial adviser Gregory Carey of Goldman Sachs & Co. assured the tollway authority board.

Meanwhile, $272 million earmarked for other Dallas County projects has been temporarily diverted to the Texas 161 project, so construction could begin this year and be at least partly done when the Cowboys move into the new stadium in 2009.

The tollway authority will repay that money as part of a $458 million payment to the region for use on other projects.

Texas 161, which will connect Airport Freeway to Interstate 20, was once considered a plum project.

But traditional forms of bond funding have dried up in recent weeks because of the economic crisis.

The commitment to build Southwest Parkway/Chisholm Trail could have been handled separately, but tollway authority board Chairman Paul Wageman of Plano said, "It’s really important to us to have a hard asset on the ground in Tarrant County."

GORDON DICKSON, 817-685-3816

© 2008 Fort Worth Star-Telegram:

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"The right to collect escalating tolls forever." NTTA and TxDOT bury the hatchet

Deal paves way for State Highway 161, two other projects


The Dallas Morning News
Copyright 2008

The state transportation department and the North Texas Tollway Authority emerged Wednesday as partners in a complicated deal that clears the way for NTTA to build and operate State Highway 161 and two other high-profile toll projects worth billions of dollars.

The deal won 9-0 approval by the NTTA board of directors, though not without a good deal of public hand-wringing first. The vote came just days before a deadline that by law would have stripped the project from NTTA had it not acted by Sunday.

Wednesday's vote means that barring some kind of extraordinary meltdown in the financial markets – not impossible, given daily developments on Wall Street – NTTA will pay $1.1 billion, plus more than $350 million in interest and other costs, to build and operate the 11-mile Highway 161 in southwestern Dallas County. It gets the right to collect escalating tolls forever.

Immediately after the vote, the board approved nearly $3 million in contracts designed to move forward with the highway, which is already under construction and should be open to traffic by June 2012. By accepting the deal, NTTA also agrees to pay $458 million in up-front toll concessions to the state, money that local officials can use to build other North Texas highways.


The deal likely would not have come together without an unusual offer by TxDOT, which reached out last month with an offer to help after NTTA announced that it was having trouble financing the project.

Global credit markets have all but stopped financing for public projects in the United States. TxDOT will pledge its revenues to help guarantee some of NTTA's debt, a step that will lower the authority's interest burden and make it eligible for loans that will not require payments during the early years of the toll road's life.

NTTA chairman Paul Wageman and others didn't hold back in praising the role played by Texas Transportation Commission members Deirdre Delisi of Austin, Ted Houghton of El Paso and Bill Meadows of Fort Worth.

"We hope this arrangement could signal a new day in the way TxDOT and NTTA work together," said Mr. Wageman, who in recent years has far more often been cast in the role of opponent in the agency's high-stake political battles with TxDOT. "This is a banner day for the agency."

NTTA vice chairman Victor Vandergriff said the new spirit of cooperation proves Gov. Rick Perry, who appointed the current members of the commission, was sincere when he promised that the agency would act more like partners and less like adversaries in the ongoing debate over toll roads in North Texas.

Mr. Houghton, better known for his hard-line advocacy for Mr. Perry's Trans-Texas Corridor and other top priorities than for extending an olive branch, and the others won significant concessions from NTTA, too.

Tarrant projects

As part of the deal, NTTA has promised to move toward developing two much larger toll roads in Tarrant County that will now be developed as a single project: Southwestern Parkway and the Chisholm Trail extension. Construction costs for the two projects are expected to be at least $1.8 billion.

NTTA will use profits off those roads to build two interchanges TxDOT has long promised to build itself – saving the state $500 million in construction costs.

In celebrating the prospect of putting what he called a "hard asset" on the ground in Tarrant County, Mr. Wageman acknowledged that politicians have been talking about a rebuilt Southwestern Parkway since the 1950s, when Mr. Vandergriff's father, former long-term Tarrant County Judge Tom Vandergriff, was mayor of Arlington.

In moving forward with a Tarrant County project, NTTA takes steps in erasing its history as an agency that provided hard results only for Dallas and Collin counties – a significant step in its political evolution.

"This is a pretty good day," said Michael Morris, transportation director for the North Central Texas Council of Governments. "You have to make progress by taking baby steps, and today these are pretty big steps."

Worries remain

Still, Wednesday's agreements come with a very large caveat: If the credit market remains frozen, or if financial costs rise so high that the basic terms agreed upon by the two agencies no longer make the project viable for NTTA, the deal can be revoked.

Even as he voted for the deal he helped draft, Mr. Vandergriff said he would favor immediate withdrawal from the project if worst-case scenarios materialize and NTTA is forced to choose between Highway 161 and other top-priority projects such as the Trinity Parkway.

Still, such an about-face is unlikely, Wall Street advisers to NTTA and TxDOT said Wednesday.

"We're here today to see that these projects don't get delayed," said Gregory Carey of Goldman Sachs, a top adviser to TxDOT. "And without this agreement, considering what's happening in the markets and given TxDOT's funding issues, there is a real possibility that they could be delayed. The effect of that on the area drivers would be devastating."

© 2008 The Dallas Morning News:

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"I didn't even know we had contracts with the state of Texas."

Police camera maker is profitable for politicians

Oct. 16, 2008

Associated Press
Copyright 2008

AUSTIN, Texas — WatchGuard Video, which provides patrol car cameras to state and local police forces across the nation, points with pride to the lawmakers who helped the company grow from a tiny technology startup into a government contracting powerhouse.

And at least two of the lawmakers turned a profit in the process — after the state police began ordering millions of dollars worth of equipment and expanding far outside Texas, interviews and state records show.

Two Texas legislators who made early investments in the booming company said they'd done nothing wrong and never pulled strings on behalf of WatchGuard. But their actions might violate the state constitution and disclosure rules established by the Texas Ethics Commission.

A former Texas legislator and part-time city judge are also investors, the company says.

Government watchdogs say it's an ethical minefield for state lawmakers to have interests in companies with major state contracts.

"When the state representatives are involved it appears like they're greasing the skids with the contract," said Texas ethics watchdog Fred Lewis, who has urged the Legislature to tighten conflict-of-interest laws. "I'm not saying that's what happened, but that's what it looks like."

The state constitution prohibits lawmakers from benefiting "directly or indirectly" from a state contract authorized by the Legislature they serve in, but it doesn't say what happens to lawmakers who violate the provision.

The company president, Robert Vanman, called WatchGuard "squeaky clean" and said he resented any suggestion that the contractor had engaged in any "shady" dealings. The company has deals to sell patrol car video systems to at least a dozen state law enforcement agencies — and hundreds of local ones, according to company literature and state records.

If WatchGuard is an industry leader, Vanman said, it's because of its products, not because of political influence.

But WatchGuard's own Web site touted the company's politically connected shareholders in the first place. A published company profile boasts that WatchGuard, based in the Dallas suburb of Plano, is "privately funded and closely held by an influential shareholder group that includes three state representatives, a judge, and a number of distinguished entrepreneurs."

It doesn't name the politician-investors on the Web site, but Vanman did. They are Reps. Ken Paxton, R-McKinney, Byron Cook, R-Corsicana and former Rep. Bob Griggs, a Dallas-area Republican. WatchGuard's vice president of operations, Dennis Pirkle, is a part-time city judge and jail magistrate, according to company literature.

Cook and Paxton made early investments in WatchGuard Video and Cook sat on the company's board. Founded in 2002, the company grew just as the industry was undergoing a transformation: Digital technology began to replace older-generation analog systems and cameras were quickly becoming a must-have tool for police vehicles across the nation.

But it was the Texas Department of Public Safety contract in late 2006 that gave WatchGuard its biggest financial boost. Eventually the entire fleet of trooper vehicles in Texas will use WatchGuard camera systems, bringing the company $10 million, Vanman said. WatchGuard also landed a smaller contract for the Texas Parks and Wildlife Department this year.

Both Paxton and Cook voted for the appropriations bills that provided the funds used to purchase the WatchGuard systems, records show.

Paxton and Cook have previously disclosed ownership in Enforcement Video, L.P., (more recently known as Enforcement Video, LLC), the registered company name for WatchGuard Video. But records show Paxton did not disclose his ownership in WatchGuard on his 2008 Personal Financial Statement filed with the Texas Ethics Commission.

Last month, California picked WatchGuard to provide $5.3 million worth of patrol car video systems, but the contract is on hold while two competitors dispute the award, officials said. Illinois, Virginia, North Carolina and several other states also have ordered WatchGuard for state patrol cars, the company says.

WatchGuard is best known for producing in-car systems that record video directly onto DVDs that can be viewed on standard DVD players.

In April, WatchGuard said its net earnings increased 250 percent from the previous year after sales doubled two years in a row. About three months later, just as the company's revenues were blossoming, Paxton and Cook sold a piece of the company for an undisclosed profit, officials said.

Just how big a role the legislator-investors played in WatchGuard before they cashed out much of their stake this summer — or how much they earned from the partial sell-off — isn't clear. Cook and Paxton, who still own a small share of the company, both described themselves as minor, passive investors with zero impact on the direction of the company.

"I didn't even know we had contracts with the state of Texas," Paxton said.

However, CEO Vanman said Paxton was a personal friend and original investor whose ownership was "not insignificant." And Vanman said that Cook, until a few months ago, was "very active on our board" and had been one of the company's largest investors, ranking third or fourth among about 30 individuals.

"Our shareholders . . . certainly do have an impact on the direction and culture of the company," Vanman said.

Lawmakers must list any company board positions with the ethics commission. Cook acknowledged he did not disclose any WatchGuard board positions, but he said he had served only on an informal company "advisory board" that met just once and didn't qualify as a decision-making board of directors.

He also downplayed the size of the Texas contract, saying $10 million was "like a flea on an elephant" in a Texas budget that numbers in the tens of billions of dollars annually.

But Jennifer Peebles of Texas Watchdog, a non-partisan group that promotes government transparency and curbs on conflicts of interest, said $10 million means a lot to "one little company in Plano, Texas." She also said lawmakers should be required by law to disclose whether any of the businesses they invest in have state contracts.

Paxton said he would happily correct any disclosure failures, but he balked at Peebles' idea of requiring lawmakers to list any business interests that might intersect with government contracting work.

"I don't see why it would help taxpayers to know that," Paxton said. "I don't have time to spend tracking every investment I make ... that's the whole point of being a passive investor."


On the Web:

© 2008 Houston Chronicle:

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Wednesday, October 15, 2008

The Solution: "You could pay twice."

Deal brokered to save three toll road projects


Copyright 2008

GARLAND - They are known for not getting along but tonight they worked together to save three North Texas toll roads, including 161. The worldwide credit crunch threatened to delay highway construction projects.

The North Texas Tollway Authority and TxDOT agreed tolls will pay for 161 construction but if toll money runs short, TxDOT will pay the difference with tax dollars, which means you could pay twice.

"It is a critical extension of the George Bush Turnpike with southern access all the way to 20 in Grand Prairie. These folks have been waiting 20 to 30 years for this access," said Paul Wageman, NTTA board chairman.

In return, NTTA officials agreed to combine two projects into one, Southwest Parkway and Chisholm Trail.

The Tollway Authority will build several expensive ramps, saving TxDOT millions of dollars.

"If the worldwide credit crunch continues indefinitely or into next year, that's what's going to happen, not just with NTTA, but with TxDOT, with public entities, the City of Dallas, the City of Fort Worth, the counties. It will just all come into a grinding halt because credit is not available," said Wagerman.

With a deal in place, 161 should be open to move traffic to and around Cowboys stadium for the 2011 Super Bowl.

© 2008 WFAA-TV, Inc.:

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"Quite often the obvious answer is the correct one."

Oregon's Mileage Tax: A Truly Bad Idea

By Mike Moffatt
Copyright 2008

I try not to editorialize when I comment on public policy proposals. I try to give my readers the pros and cons of any potential new law and leave it up to the reader to form their own opinion with the new information they have. But some policy proposals are so outrageously ill-conceived they defy all description. Oregon's "mileage tax" is one such proposal.

The idea, as described in Eric Pryne's article "Oregon to test mileage tax as replacement for gas tax" can be summarized in a few key points:

  1. As consumers buy more fuel efficient cars, they'll use less gasoline.
  2. States collect taxes from gasoline, so if less gasoline is sold, the state will collect less tax revenue, all else being equal.
  3. States can ill afford a drop in revenue as those funds pay for road repairs.
  4. Thus we must find a new way to tax drivers to make up for this lost revenue.
Thus the Oregon government is considering a system where Oregon drivers get taxed for every mile they drive within the state. In the interest of fairness, the Oregon government does not want to tax drivers for miles they put on their cars outside of the state. Thus the tax collector cannot simply look at the odometer of a car and collect revenue accordingly. Instead the Oregon government would like to add a GPS (Global Positioning System) to every car that would track what percentage of a cars miles were driven in Oregon. Such a system could add up to $225 to the cost of a new car.

When examining any tax, there are two criteria you can use to determine the impact that tax will have:

The Net Amount of Revenue Collected

This impact is straight forward. Once you pay for all the expenses related to collecting the tax revenue, how much money will you have left over? Under this criteria, this new tax looks like a loser. Expensive new technology will have to every new car in the State as well as every new gas pump. If 100,000 new cars are sold each year in Oregon, $23 million dollars will be spent in specialized GPS devices. While the government may require that the individual consumer pick up the tab, this is still lost revenue for the government. Instead of requiring the consumer to buy a $225 device, the state could add a $225 tax to every new car sold, thus having the money flow to the State and not to the GPS manufacturer.

The Distortions Caused by Taxation

Taxes are distortionary in the sense that they alter behavior. High income taxes are known to cause employees to work less and high capital gains taxes are a deterrent to investing in the stock market. These distortions are not always negative; often governments will introduce new taxes because of the distortions they cause. High taxes on cigarettes are often promoted as a way to discourage youth from picking up the habit.

The distortions caused by gasoline taxes are threefold.

  1. High gasoline taxes reduce the amount people drive
  2. High gasoline taxes increase the marginal cost of goods shipped by truck
  3. High gasoline taxes cause people to buy more fuel efficient cars
The first effect is ambiguous. If I'm stuck in rush hour traffic, I'd like to see less cars around me, but at the same time, high gasoline taxes may discourage me from taking trips I'd otherwise embark on. The second effect is most certainly negative. As a Canadian who loves orange juice, I certainly don't want to see a rise in the shipping cost of Florida oranges. As for the third effect, a good argument can be made that this is a positive distortion. Fuel efficient cars give off less pollution than non-fuel efficient cars. Since the air is a public good, we will see far more air pollution than is socially optimal unless governments find a way for individuals to pay for the costs of their pollution. The gas tax is one way of doing so.

When we consider these distortions, we see that the mileage tax is a poor substitute for the gas tax. It has all the negative features of the gas tax, such as decreasing the number of trips taken and increasing the marginal costs of products shipped via truck. It, however, does not have the positive impact of causing consumers to buy less polluting cars. Any proposal that has less benefits but just as many drawbacks as existing methods can hardly be seen as a positive change.


In the summary of the mileage tax, we saw that "if less gasoline is sold, the state will collect less tax revenue, all else being equal." However, this is absolutely no reason for "all else to be equal". If revenues are falling, why not simply raise the gas tax? The ability of consumers to buy gas from other jurisdictions, as well as the price elasticity of demand for gasoline will limit the amount the Oregon government can raise the tax, but it appears to be a far better option than this ill-advised scheme. Raising the rate of taxation in order to combat declining revenues is the obvious answer to Oregon's problem. Quite often the obvious answer is the correct one.

© 2008

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"We will send them kind of a make-believe bill."

"Tax by Mile" Idea to be Tested in Texas

Proposal could replace the gasoline tax


By Jim Forsyth
WOAI (San Antonio, TX)
Copyright 2008

Residents of five central Texas counties have been invited to participate in a study to determine whether it is feasible to tax motorists by the mile, 1200 WOAI news reports.

Texans now pay 38.4 cents a gallon in gasoline taxes, which are used to fund highway construction and repair. But as we drive fewer miles and buy more fuel-efficient cars, gas tax revenue is dwindling, and after electric cars become a reality on the road in 2010, that revenue may begin to dry up altogether. So transportation officials are trying to come up with an alternative to the gasoline tax, and a tax per mile driven appears to be the most popular option.

Residents of Travis, Hays, Bastrop, Caldwell, and Williamson counties have been asked by the University of Iowa, which has been hired to test the feasibility of a mileage tax, to participate in a three year experiment.

"We have chosen places with different sized metropolitan areas," the University of Iowa's Lori Jarmon told 1200 WOAI news. Some places are familiar with toll roads, others are not."

She says motorists selected will have GPS devices placed in their cars and will drive around with the devices mapping their every move for eight months.
"We will send them kind of a make-believe bill, so they can see if the system were to go live in the future, perhaps, what their road use bill might look like."

She says participants will be paid $895 for their trouble.
"We want to find out if vehicle operators accept this or if they don't accept this kind of a system," Jarmon’s aid.

To participate, motorists also have to be at least 18 years old, and be legal U.S. residents. If you live in one of the five counties, call 866-363-1975 or go to for more information.

© 2008 WOAI:

Related Link: Oregon's Mileage Tax: A Truly Bad Idea

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Toll road fines boost career of Harris County Attorney's girlfriend

Elected official on the defensive


By Wayne Dolcefino

KTRK-TV (Houston, TX)
Copyright 2008

We have a hidden camera investigation that has the elected county attorney on the defensive.

Mike Stafford doesn't have to post job openings at the Harris County attorney's office...and he doesn't. They can hire who they want and that's one of the reasons we put our hidden camera to work.

It's sunrise and Harris County Attorney Mike Stafford is starting his work day, not from home, but from a house on Pine Lake in west Houston. It's the home of woman named Donna Lightfoot.

"How would you describe your relationship with her?" we asked him.

"Wayne, that's personal and I'm not going to get into that," said Stafford.

We asked because at the time of our surveillance, Lightfoot was a $47,000 a year aide in the county attorney's office.

On surveillance video, we saw them at Los Cucos Mexican restaurant on Memorial. And there's me.

"Do you think it's appropriate for someone sitting there to have a relationship with someone who works under you?" we asked him.

"I don't know," he answered.

"You don't have an opinion?" we asked.

"I don't know," said Stafford. "It would depend on a lot of things you haven't put out there."

"Like?" we asked.

"I don't know," said Stafford.

We know Donna Lightfoot used to be Stafford's neighbor in Indian Shores near Crosby. She lived a couple of doors down. There is no county policy forbidding hiring personal friends, but five weeks after she was hired, she got a 65 percent raise, six raises in two years. Her salary was in line with more senior assistants.

"There is no favoritism that's been practiced, regardless of any relationship," said Stafford. "The numbers don't lie."

In early 2007 Mike Stafford had to argue one of the county's biggest lawsuits in front of the New Orleans appeals court. It was the fight over the Bible that used to be in front of the courthouse. Part of the travelling legal team included Donna Lightfoot. She'd been with the county attorney's office just months as an administrative assistant.

"Her specific purpose was research," said Stafford. "She researched, found all the cases, collated the cases, digested the cases and set them up."

Lightfoot didn't have her paralegal certificate yet. Her previous job -- dental hygienist.

"In this case, yes, she did a great job," said Stafford.

Months later, the county attorney's office agreed to repay half her paralegal school tuition -- $2,300.

But how? Harris County does not allow tuition reimbursement. So where did the money come from?

Toll road fund 2315, money raised from fines imposed on unpaid tolls, the fund that paid for parties, the free parking and the bonuses for Mike Stafford's employees, instead of anything having to do with the toll road.

Seven hundred and sixty thousand dollars has been spent from the fund in a little more than two years. It's all legal thanks to the way the law was written.

More than $41,000 has been spent to pay for education for a number of employees, like Donna Lightfoot. They all got half their tuition paid, tuition reimbursements of up to $7,000.

"It's an investment in the future of this office," said Stafford.

But there's no requirement the people getting the tuition stay in Harris County government at all.

"In the private sector, that's just plain dumb," said taxpayer advocate Bob Lemur.

The same day we asked for records from Stafford's office, Donna Lightfoot interviewed and got a new job in another county office.

"You don't know if it's a coincidence?" we asked.

"No, I don't," said Stafford.

Lightfoot has refused to talk with 13 Undercover and even though she doesn't work in the county attorney's office anymore, look who was driving Lightfoot's car this week when we tried to talk to her -- Beverly Chambers, Mike Stafford's chief of staff and campaign aide.

Tomorrow, something else Mike Stafford doesn't want to talk about -- who he spends campaign cash on.

©2008 KTRK-TV:

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