Tuesday, February 02, 2010

Perry's appointed Texas Transportation Commission plans bypass around the Legislature's private toll road moratorium.

Texas Officials Seek a New Path To Private Transportation Funding


By Richard Williamson
The Bond Buyer
Copyright 2010

DALLAS — With a statewide moratorium on new private toll projects still in place after more than two years, the Texas Transportation Commission is planning a bypass around that financial barrier to leverage existing funds.

While the financial constraints exist statewide, the Dallas-Fort Worth Metroplex serves as the incubator in terms of innovative public-private finance, say Texas ­Department of Transportation officials.

“This is, in my view, the premier national laboratory for transportation projects,” said TxDOT spokesman Chris Lippincott. “There’s a lot of interesting stuff going on.”

The latest scheme — one that will require rule changes and exhaustive risk analysis from department staff — would allow a private developer to design, finance and rebuild a 28-mile section of Interstate 35-East from Dallas northward to Denton in exchange for reimbursement from TxDOT.

The finance method, known as pass-through tolling, is relatively new but well established with local governments, particularly counties. The system has never been used with a private developer, according to TxDOT. Nevertheless, current law allows the use of pass-through tolling by private companies.

Under the system, a local government or private developer fronts the money to build a project. The department then pays the developer either a set amount based on the “availability” of the road when it opens or on a per-car toll basis, regardless of whether the highway is tolled.

The developer is guaranteed a set reimbursement, creating an element of risk for TxDOT if use of a tollway falls below projections.

To qualify for the funding, projects must be on the state highway system. In 2009, the Texas Transportation Commission, which oversees TxDOT, approved 21 pass-through projects worth about $522 million.

In December, the TTC told its staff to begin studying how the mechanism could be used with a private developer on the Dallas-Denton portion of I-35.

As laid out in a planning session last week, commissioners would like to decide on a structure for the financing of the $4.3 billion I-35E project by this summer with requests for proposals likely in the fall.

The I-35E widening from the current six lanes to 12, including four high-speed tolled lanes, is one of several major projects in the Dallas-Fort Worth area involving private finance. Meanwhile, south of Dallas and Fort Worth, TxDOT is preparing to widen Interstate 35 using traditional state bond finance.

Also underway is redevelopment of Interstate 635, the Lyndon B. Johnson Freeway that loops Dallas. That project, which will also include managed toll lanes, is under the direction of Spanish developer Cintra, Concessiones Infraestructuras de Transporte.

Cintra and TxDOT are aiming for an April close on $2.7 billion of financing. Completion of the project is expected to cost more than $4 billion.

Cintra’s finance partners include ­Meridium Infrastructure Finance and the Dallas Police and Fire Pension System, which will stake $600 million. They will borrow about $500 million from private lenders and seek an equal amount in government-backed loans from the Federal Highway Administration.

Cintra will maintain and operate the road until 2062, with the public North Texas Tollway Authority collecting tolls. Cintra is also the lead partner on a similar $2 billion project called the North Tarrant Express in Tarrant County, which includes Fort Worth.

Construction is expected to begin near the end of the year and includes 13 miles of widening existing highways from four to six main lanes with four managed toll lanes. The public-private partnership provides two-thirds private funds with one-third public funds to complete the project in five years.

Cintra is allowed to work on those projects because they were already in the planning stages when the Texas Legislature imposed a moratorium on privately owned and operated toll roads in 2007.

In Texas, financings through developers, public or private, are known as comprehensive development agreements, or CDAs. The agreements require the developer to pay an up-front payment for the right to build a tollway and take reimbursement from toll revenue, in some cases for 50 years or more.

When Texas lawmakers imposed the moratorium on private CDAs in 2007, they also wrote a new law that gives public tollway authorities such as the North Texas Tollway Authority right of first refusal on future agreements. In the process, state and local officials stripped Cintra of a $3.5 billion CDA known as the State Highway 121 project and awarded it to the NTTA.

Now, the toll authority and the TTC are seeking a way to allow the NTTA to finance two more projects: State Highway 161 in western Dallas County and the Southwest Parkway/Chisholm Trail in Tarrant County.

With its debt capacity strained by the SH 121 project, the NTTA has said it cannot afford to finance the two new projects without loan guarantees from TxDOT.

For the first time, the department is considering guaranteeing loans up to $8.4 billion to allow the authority to finance the project. The NTTA would, for the first time, issue bonds for the new projects without backing the debt with revenue from its entire tollway system.

While TTC commissioners said last week that they saw little chance that TxDOT would ever be liable for the entire $8.2 billion for the two projects, they expressed concern about how the guarantees might affect the triple-A rating on the department’s senior-lien general obligation debt, known as Proposition 14 bonds.

“We’re working at setting precedents here,” said commissioner Ned Holmes. “I’d like us to set precedents we can live with.”

Holmes asked TxDOT chief financial officer James Bass where the money would come from if the state agency had to lend money to the NTTA for debt service on the tollways.

“To make the cash available in the time they needed it, it would be anything and everything necessary,” Bass replied. “It might be from internal costs and a hiring freeze.”

With the discussion focused on risk management and stressing the credit ratings of the NTTA and the TTC, commissioner Ted Houghton pointed out that the issue wouldn’t exist if TxDOT had the authority to build the projects through private developers who would bear most of the financial risk.

“That pink elephant in the room that no one wants to talk about is that we don’t have CDA authority,” he said. “If we had CDA authority, this would be a moot point. If we had it, it would be a different day, but we don’t.”

© 2010 The Bond Buyer: www.bondbuyer.com

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