Monday, July 26, 2010

Mike Krusee Cashes In: Former Texas legislator and TTC enabler scores big on Dallas rail privatization scheme

COG to pay Krusee, three others $1.3 million to find 'innovative' funding for Cotton Belt line


Michael Lindenberger
The Dallas Morning News
Copyright 2010

North Central Texas Council of Governments' executive board hired a four-person team that includes a retired lawmaker and a leading urban planner from North Texas to develop a plan to fund the Cotton Belt commuter rail line, a 62-mile corridor officials hope could be open to service by 2013.

The group, which includes former House transportation chairman Mike Krusee, will be paid up to $1.3 million for a plan, which is expected by year's end.

COG officials need a plan because DART has said it can't spare a single dime from the sales taxes it collects to pay for construction, which is estimated to cost $1 billion or more. (The western portion of the route is already planned for development by The T, but it can't move forward unless it gets a very large federal grant -- something it hopes to get but can't guarantee. The Star-Telegram has more about that.)

So instead, Michael Morris has won approval from DART and The T to have the Regional Transportation Council take responsibility for finding a way to pay for the line.

To do so Morris and the RTC leaders plan to borrow a page from the private toll road playbook and find a way for private investors to help pay for a major rail line. From the COG's press release:

As funding for transportation has become scarce, leaders from across the DFW area have begun looking to innovative partnerships and funding. There has been great success on roadway projects through partnerships with the Texas Department of Transportation (TxDOT) and the North Texas Tollway Authority (NTTA), such as the Sam Rayburn Tollway, SH 161, the North Tarrant Express, and IH 635 LBJ. The Regional Transportation Council is looking to repeat this success for a public transportation project. This will be the first time the private sector has been asked to develop an innovative financial plan for a passenger rail project and it could become a model of how to expedite rail corridors throughout the region.

It's ambitious, and nearly without precedent in this country. Financial advisers, senior government officials and toll road experts have all told me in conversations going back nearly three years that privatization and rail lines don't mix.

No one says it's impossible, but they consistently point out the basic problem: The math.
Toll roads make money, sometimes so much of it it's hard to count it all. As a result private companies are willing to put up big investments through a mix of equity and debt to win the right to collect the tolls there for long periods of time, usually 52 years in Texas.

Sometimes, the profits are expected to be so big, the private companies will pay all of the construction of the road upfront, and sometimes -- on the juiciest of big toll roads, like the Sam Rayburn Tollway for instance -- they even agree to pay those construction costs and much, much more. All up front, just for the right to collect all those billions of tolls for generations to come. More frequently, however, the tolls don't promise enough future profits to justify the investors paying all the costs of the road, and therefore -- as on the LBJ Freeway reconstruction -- some kind of mix of tax dollars and private dollars are used for the road.

But rail is different. Rail lines lose money -- every single trip on a DART rail car costs the agency money. A lot of it, actually.

So with no future profits, no private firm is going to want to put up money now to help pay for the rail line. In fact, we could build the rail lines for a company like Cintra for free, and provide brand-new rail cars and exquisite stations -- and a private company would still walk away from a rail deal, since fares as we know them would not even cover operations.

Now, Morris knows this and so does RTC chairman Ron Natinsky, who has been involved in laying the foundation for success on the Cotton Belt nearly as long as he has been on the Dallas City Council.

So what's their plan?

What the COG has hired the new firm to do is develop a plan for funding a rail line that would involve all sorts of new public revenues to help pay for the line. Those new dollars -- let's just call them taxes -- would be put into a big bucket, along with money from fares.
Once there, that big bucket of money could either be used to support traditional debt taken out by DART or The T or some other entity to pay for the line's construction. The debt payments would be paid as the money fills the bucket over time.

More likely, though, the new bucket would be dangled before private firms who would be asked to pay for the construction in exchange for payments made out of the bucket over time.

As I said before, unlike tolls, fares by themselves would never fill the bucket fast enough to make the debt payments or the payments to the private firms. So what gives?
The new firm hired last week will be charged with finding new sources of money to dump into that bucket. Among the many options will be paid parking receipts from DART, new property taxes that cities would agree to let flow into the bucket, new hotel/motel taxes that come in as a result of that development.

In addition, fares could be priced according to the market -- under the same principles that has led the RTC to push the NTTA to raise its toll rates over the past few years. The idea there is that if riders are willing to pay more, DART should charge more.

This is especially true since the Cotton Belt would connect to the airport, Natinsky told me last month.

None of these ideas are set in stone. After all, that's what the new firm is being paid to develop. Morris and RTC chairman Ron Natinsky have said previously that they have lots of ideas, and are optimistic the the firm they select will help identify real solutions -- and a road map for how to build the rail line more than a decade faster than if everyone had to wait until DART can afford to do it with its sales taxes. (They also hope they can substantially lower the cost of the Cotton Belt line by using cheaper rail cars still being developed.)

That's why the COG is paying the firm $1.3 million. (About $900,000 payment, plus about $400,000 in "retainage." I haven't checked with Morris's staff, but it's likely that that means the latter amount won't be paid unless the firm delivers a workable plan.

So what is the Partnership for Livable Communities? I never heard of it before, but its made up of very connected folks. (It also will be working with a team of subcontractors charged with some of the numerical heavy lifting.) It also beat out some of the heaviest hitters in the infrastructure financing world, so I'll be eager to see its proposal once the COG signs the contracts and can release the proposals.

For now though, I can tell you that the COG says the partnership is made up of four individuals, including economic and public policy consultant Jon Hockenyos of Austin, and John Richardson, someone I don't know.

In addition, Scott Polikov, a principal at Fort Worth's Gateway Planning Group, will be on the team. Gateway is behind transit oriented development projects all over North Texas and beyond
Adding some political muscle is former Rep. Mike Krusee. He's a former transportation chairman and was a big supporter of Gov. Rick Perry's toll road push in previous legislatures.

The four guys just won a big pile of money, but have promised to solve a really big puzzle. I'm eager to see what they come up with.

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