Saturday, July 31, 2010

FHWA's final Record of Decision on TTC-35: “...the project is concluded ...the project ends...”

Federal Highway Administration pounds "final nail in the coffin" of TTC-35


Susan Rigdway Garry
Anti-Corridor/Rail Expansion (ACRE)
Copyright 2010

Thanks to Marcia Snyder for sending the info below. The FHWA has issued the final Record of Decision on the Trans-Texas Corridor paralleling IH 35 and has chosen the No Action Alternative. Because the FHWA specifies that the “project is concluded” and “the project ends,” it would be very hard if not impossible for the pro-Corridor elements to resurrect TTC-35.

Margaret Byfield, American Stewards of Liberty, cites the following analysis from attorney Fred Grant, who was instrumental in forming the Eastern Central Texas Sub-Regional Planning Commission:

“The Federal Highway Administration has pounded the final nail in the coffin of the Trans-Texas Corridor-35. The Agency’s final Record of Decision, issued on July 20, 2010 selected the No Action Alternative but went further in ordering that 'a study area for the TTC-35 Project will not be chosen and the TTC-35 Project is concluded.' Twice the ROD states that the 'project is concluded', and six times it states that 'the project ends'. If TXDOT attempted to revive the 35 Corridor project and use the same EIS, this ROD would provide the base for issuance by a United States District Judge of a Declaratory Judgment prohibiting the action.”

Margaret says: “The Eastern Central Commission needs to count this as another major victory. They didn’t withdraw the study as requested but wrote the ROD in such a way that TXDOT cannot use this study in the future. Congratulations to all.”

I say, "Champagne for all!"

© 2010 ACRE:

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"When government can create a shadow world of independent agencies able to borrow without consulting voters, abuses become inevitable."

The Muni-Bond Debt Bomb

. . . and how to dismantle it.


Wall Street Journal
Copyright 2010

In the early 1970s, New Jersey officials decided to build a sports facility in the Meadowlands, the state's wetlands just outside New York City. To help pay for it, they formed the New Jersey Sports and Exposition Authority (NJSEA), a quasi-governmental agency with the power to issue debt. The authority floated $302 million in bonds, used the proceeds from the bond sale to construct Giants Stadium and a Meadowlands racetrack, and planned to pay off the debt in 25 years, largely with proceeds from the track but also with some help from the stadium. Horse racing proved a big hit, and the plan seemed bound for success.

But the pols couldn't resist soaking the Meadowlands. They siphoned track proceeds into the state budget; repeatedly refinanced the NJSEA's bonds, pushing repayment dates far into the future; and relied on the authority's good credit rating to launch other building schemes, including a costly but unsuccessful aquarium in Camden. Today, 35 years after its first bonds, the NJSEA is $830 million in hock. Worse, it can't repay that debt because business has cratered at the racetrack, still the Meadowlands' principal revenue source. As for Giants Stadium, it was demolished this year, and its replacement won't be contributing much to the debt repayments. The state, facing its own cavernous budget deficits, has had to assume the authority's interest payments—about $100 million this year on bonds that now stretch out to nearly 2030. "The sports authority is paying the consequences for politicians using it for their pet projects," observes Steve Lonegan, former mayor of Bogota, New Jersey.

Stories like that have become frustratingly common around the country. State and local borrowing, once thought of as a way to finance essential infrastructure, has mutated into a source of constant abuse. Like homeowners before the housing bubble burst, states and cities have gorged on debt, extended repayment times, and used devious means to avoid limits on borrowing—all in order to finance risky projects and kick fiscal problems down the road. Though the country's economic troubles have helped expose some of these unwise practices, the downturn has brought not reform but yet more abuse. Even as Tea Party protesters and taxpayer groups revolt against excessive government spending and taxes, they are paying too little attention to the gigantic state and local debt bomb. If it can't be defused, we're all at risk.

Government debt helped finance the expansion of the American republic. The first municipal bond on record in the United States was an 1812 New York City offering to pay for digging a canal. Six years later, New York State began issuing bonds to finance the $7 million construction of the Erie Canal, whose beneficial impact on the state's economy led other states and cities to rush out bond offerings to pay for new roads, bridges, and waterworks. Total state and local debt outstanding hit $200 million by 1840 and about $1 billion by 1880 ($22 billion in today's dollars).

Though the early muni-bond market helped the young country grow, the borrowing could be risky. Some of the toll roads, railroads, and other endeavors were highly speculative and failed to generate enough income to pay back investors. The five-year downturn that followed the 1837 bank panic left eight states, including Pennsylvania, unable to pay off their bonds, prompting William Wordsworth to pen "To the Pennsylvanians," an ode that castigated those in the state who had "ruthlessly betrayed" the legacy of prudent founder William Penn. Realizing that the defaults would interfere with their ability to borrow in the future, some states imposed debt restrictions on themselves, and eventually inserted requirements into their constitutions that voters approve future bond offerings.

Those moves made the market more secure, but they didn't protect investors from occasional bouts of irrational exuberance. After a flurry of municipal offerings in the 1920s, for instance, total outstanding municipal debt in America reached some $16 billion ($250 billion in today's dollars). Then the Great Depression arrived, drying up tax revenues and leaving governments unable to meet their debts. The 1930s would see 4,500 defaults by state and local governments. It wasn't until the 1950s that the muni market bounced back and debt outstanding surpassed pre-Depression levels.

Though the immediate postwar years proved tranquil, they also saw some troubling changes in the market. States and cities began to expand the scope of what bonds financed to include everything from subsidized housing to private hospitals to urban redevelopment to private industrial development, and they found new ways to skirt state constitutional limits on borrowing. The borrowing craze led to a series of spectacular fiscal crises in the 1970s. Beginning in the previous decade, New York City, under Mayor John Lindsay, had rapidly increased spending on an ambitious menu of social welfare programs, borrowing hefty sums to paper over the resulting deficits. By 1975, New York was borrowing $500 million a month just to pay its everyday bills. Eventually, the banks that managed the debt offerings refused to underwrite further borrowing, fearing that in the increasingly likely event of a default by the city, they might be held liable. New York State and the federal government were forced to bail Gotham out.

Three years after New York's crisis, Cleveland actually did default on $14 million in bonds, in the first major municipal bankruptcy since the Depression. Like New York's, Cleveland's budget had swollen rapidly, expanding by 42 percent between 1972 and 1977, even as the city's population and tax revenues were falling. Cleveland funneled millions of dollars borrowed for capital expenditures into day-to-day operations until the banks refused additional credit and the city's money ran out. Cleveland spent two years unable to borrow and had to make big spending cuts before returning to solvency.

These debt crises woke politicians up. By the late 1970s, borrowing had fallen significantly, and state and local debt as a percentage of the country's gross domestic product had shrunk. Over the next 20 years, the country's fiscal picture improved: debt rose only slightly as states used good times to pay their debts.

But such salutary responsibility went by the wayside at the start of the twenty-first century. As memories of the earlier crises faded, politicians, eyeing splashy new development projects and confronted by powerful constituencies like public unions that agitated for plush benefits, began loading up on debt again. Over the last decade, through good times and bad, total state and local debt has soared from $1.5 trillion in 2000 to $2.4 trillion (in current dollars). When that debt is added to other growing obligations that governments are racking up, using techniques like not paying their bills on time, state and local liabilities have increased from 15 percent of GDP in 2000 to an estimated 22 percent this year. In 1980, they were 12 percent.

Even more disconcerting than the crushing debt is what it has paid for: giant development projects, for starters, including many in which the private sector has wisely shown little interest, except when government subsidizes them. These projects trace their origin to the urban-renewal movement of the 1950s, when states and the federal government cleared tracts of supposedly blighted urban slums and replaced them with large, centrally planned housing projects. Over time, such efforts became so widespread that even thriving communities were declaring themselves blighted to justify construction. The nature of the projects changed, too, as politicians increasingly issued bonds to make bets on private ventures whose economic benefits were uncertain, at best.

California's redevelopment regime is an egregious case. Starting in the 1950s, the state gave localities the right to create public agencies, funded by increases in property taxes, which could issue debt to finance redevelopment in blighted areas. A whopping 380 such entities now exist in California. They collect 10 percent of all property taxes—nearly $6 billion annually—and have borrowed $29 billion to pay for projects ranging from sports facilities to concert venues to subsidized shopping malls. Originally designed to expire after they have improved an area, the agencies go on forever by claiming that blight never disappears. Consider San Jose's redevelopment agency, one of the state's biggest, which filed an application last year to increase its allocation of property taxes. Blight was getting worse in the city, the agency argued—52 years after it was created to eliminate it.

The California agencies' failures have sometimes been spectacular. In 1999, Fresno conceived plans to revive its downtown area with various projects, including a baseball stadium for the minor-league Grizzlies, whom it had lured from Phoenix. The city's redevelopment agency floated some $46 million in bonds to build the stadium, commissioning the world-famous architectural firm HOK, whose résumé includes Camden Yards in Baltimore, to design it. The plan was to repay the debt with help from the rent that the Grizzlies would pay. But the Grizzlies fizzled in their new home, and under financial strain, they have demanded a break in their rent and threatened to skip town if they don't get one—sticking taxpayers with the entire $3.4 million annual bond payment on the facility. Meanwhile, the Fresno Metropolitan Museum has gone bust, defaulting on $15 million in debt that the city had guaranteed for it—which the city is repaying with money from still more borrowing, to the tune of $750,000 a year. As for that downtown blight: "In 1999, experts called [downtown] dirty, outdated, underutilized and disconnected," the Fresno Bee recently observed. "By 2009, many of the same complaints persist, despite the stadium and other additions to downtown."

In fact, California's government-financed stadiums and sports arenas, like others around the country, have frequently failed to produce the economic bounce that politicians promised. In 2008, two reporters for the Press-Enterprise in Riverside surveyed the record of California sports venues built with public subsidies. In Lake Elsinore, a baseball stadium constructed in 1994 with $24.3 million in bonded debt couldn't meet its obligations for six years, forcing the city to dip into its general fund to make up the difference. A San Bernardino stadium that opened in 1996 with $17 million in public funds is paying off its debt, but it has spurred no new development. "There's a huge consensus among economists that there is no economic development benefit to these stadiums," notes economist J. C. Bradbury.

Nor do other projects that seek Californians' entertainment dollars pay much better. A San Bernardino amphitheater that opened in 1993 with financing from a $22 million bond offering hosts only a handful of concerts every year and can't make enough money to meet its debt payments, the Press-Enterprise found. "If there's a need for it, the market will supply it. We don't need government subsidizing it," says state assemblyman Chris Norby.

Cities that use municipal debt to subsidize expensive private projects often get into fierce competitions for the privilege of subsidizing them. Atlanta and Charlotte, for example, recently unleashed a bidding war for NASCAR's Hall of Fame—a private enterprise. Atlanta assembled a $90 million package that included $32 million in subsidies, largely from economic-development debt issued by Georgia. But Charlotte pols—desperate, according to the Charlotte Observer, to "secure a one-of-a-kind attraction that finally answers the question: What's Charlotte got that makes it different from any other city?"—trumped Atlanta with a $154 million bid, promising to build the museum by issuing bonds and to service the bonds with funds from a new hotel tax, despite an economic-development study's conclusion that increased annual tourism from the venture wouldn't equal what a single NASCAR race generates.

The price tag for the Hall of Fame quickly rose to nearly $200 million, and Charlotte was on the hook for all of it. Further, back in 2006, when Charlotte had made its bid, the city was on a roll, with budget surpluses and plenty of ability to issue debt and pay for it; but after the worldwide financial-sector meltdown, Charlotte, a regional banking center, watched unemployment skyrocket from under 5 percent to 12.8 percent, laying waste to tax collections. The city has already had to dip into a reserve fund to pay the debt service on the just-opened Hall of Fame. As the head of the Charlotte Chamber of Commerce observed, "It is a new decade and Charlotte is not the same. Unemployment is stubbornly high. The real estate market is anemic. Public revenues are challenged." Yet he also argued that there was room for optimism. Why? Because of expensive new projects like the NASCAR Hall of Fame!

Charlotte isn't alone. Across America, states and cities have heaped on the debt to build facilities aimed at luring tourists and conventioneers away from other states and cities. For instance, cities have been waging a two-decade-long "arms race," as University of Texas public policy professor Heywood Sanders puts it, to expand convention centers, and have been funding them through billions of dollars in municipal debt. The result: a market with perhaps 40 percent more space than demand warrants, underperforming facilities, operating deficits, and little economic payoff. Washington, D.C., spent $850 million to triple the size of its convention center; its business has since eroded. Indianapolis is in the middle of a $275 million expansion of its convention facility; the center is struggling even to hold on to its current business. Chicago has shelled out $1.5 billion to expand McCormick Place; business there has fallen by a third since 2000, from 3 million visitors a year to 2.1 million. The Orange County Convention Center in Orlando, Florida, which officials expanded at a cost of $748 million in 2003, suffered a record $18 million operating deficit last year.

Recall that many states sensibly require all bond offerings to be approved by voters—who have often defeated new borrowing aimed at financing grand, politically inspired projects. But the requirement has led to a rise in maneuvering by officials, who have created quasi-governmental authorities that can issue debt without voter approval. Such backdoor borrowing has become the most common kind of state debt. In New York, which has 230 of these independent entities, voters have approved only $3 billion of the state's $60 billion of bonded debt outstanding. California's army of redevelopment agencies can likewise borrow without the approval of the voters whose taxes they ingest.

When government can create a shadow world of independent agencies able to borrow without consulting voters, abuses become inevitable. In 2001, after the New Jersey Supreme Court ordered Trenton to embark on a construction and renovation program for schools in poor districts, the state legislature extended the initiative to districts across New Jersey, inflating a $2 billion program to $8.6 billion. Knowing that voters would never swallow the cost, the legislature set up an independent construction authority and sanctioned a massive debt offering without voter approval. Largely unaccountable, the authority became a patronage pit ridden with waste and corruption; investigations by newspapers and the state eventually revealed that it could accomplish only half the job with its huge pot of money. Despite the scandal, the court signed off on a second, $3.9 billion bond offering in 2008 so that the authority could finish the work it had bungled.

Another unaccountable independent agency is the Massachusetts Bay Transportation Authority (MBTA), which runs Boston-area mass transit. In 2000, Massachusetts moved to make the MBTA financially independent. As part of the plan, the authority was supposed to reduce costs and gradually pay down some $5.6 billion in debt; instead, it continued to spend liberally, deferred the debt payments, and borrowed even more money—again, without voter approval. Today, the authority owes $8.5 billion and is paying a staggering $500 million yearly in debt service, which has forced it to neglect maintenance, shelve expansion plans, and cut service. It also needed a $160 million bailout from taxpayers to close a budget deficit last year.

Politicians increasingly use municipal debt to create the false appearance that they are balancing the budget. One feature of muni debt that helps the pols is the sheer complexity of governments' relationship with the independent authorities. Back in 1990, New York State faced a deep budget crisis, but Governor Mario Cuomo didn't want to borrow money to fund day-to-day spending—a fiscal no-no. Instead, he sold Attica Prison to an authority, the New York State Urban Development Corporation, for $200 million—which the authority raised through a bond issue—with the understanding that the state would continue to use the prison over the next 30 years by making yearly payments to the authority. This fiscal trick amounted to the state's borrowing the money itself, of course, but it didn't look as improvident. Then, piling irresponsibility atop chicanery, the authority frequently refinanced the debt, so that it still owes $300 million on the original offering, even after paying bondholders $242 million.

The other way that muni debt camouflages politicians' fiscal extravagance is with repayments on bonds that stretch far into the future. Politicians tend to consider debt more palatable than tax increases or spending cuts. New York's current lieutenant governor, Richard Ravitch, has proposed $2 billion in borrowing this year to close the state's budget gap, even though financing day-to-day operations this way brought New York City to its knees 35 years ago. (Ravitch, ironically, helped engineer the bailout of Gotham back then.) Closing the state's budget gap with spending cuts would be "totally disconnected from reality," Ravitch claimed, in justifying the new debt: voters aren't ready to accept service reductions. He apparently thinks that New Yorkers are okay with adding more debt, even though they've voted down numerous bond offerings when given the chance.

States and cities have also used muni debt to play dangerous games in the stock and bond markets. A particularly potent weapon in the politicians' debt arsenal is the so-called pension-obligation bond, the municipal equivalent of borrowing money on your credit card to make contributions to your IRA. Oakland issued the first pension-obligation bonds, which were tax-free, in 1985, and invested the proceeds in taxable securities, which paid the city a higher interest rate than it had to pay on the bonds. Oakland then banked the difference in its pension fund for city workers. The move proved too slick for Washington, however, which eliminated pension-obligation bonds' tax-free status in the Tax Reform Act of 1986.

But that didn't end their use. During the early 1990s, governments started playing a risky arbitrage game in which they issued bonds and then invested the money in the stock market, hoping that the market would outperform the bonds. For a while, the strategy worked: the market was rebounding from the 1989–90 recession, and returns were good. But over the long term, it proved impossible for the stock market to keep up with the returns that the pension bonds were offering. As the Center for State and Local Government Excellence noted in a report earlier this year, most pension bonds issued since 1992 have been money losers for states and cities.

Take New Jersey, whose fall into fiscal chaos has been accelerated by pension bonds. During the mid-1990s, the pension system for state and local employees needed shoring up because the previous governor had overvalued the system's assets. Governor Christine Todd Whitman took the easy way out, deciding to finance the state's payments into the system by taking the proceeds from a pension-bond sale and investing them in the stock market. The market was near its peak; since then, of course, it has endured a decade of essentially zero growth. So Jersey's returns were dismal: the state now has so little cash that it has been skipping its payments into the pension system. Now, to add insult to injury, it must start paying back the bonds that it issued. Some actuaries say that the state's pension system will either go bankrupt in the next several years—testing the limits of guaranteed public-employee pensions—or need a federal bailout. "These pension funds are often run for a political rate of return to keep the pension benefits high and put off the costs," says Rick Dreyfuss, an actuary and a fellow at the Commonwealth Foundation in Harrisburg, Pennsylvania. "It's a recipe for disaster."

Or look at Oregon. Seven years ago, officials there began to push for a change in the state's constitution to let its pension funds issue bonds, saying that it would save millions of dollars. The Statesman Journal in Salem called the idea "a no-brainer," while the Oregonian claimed that it constituted "state government acting prudently, like a business." The measure passed, and Oregon municipalities loaded up with billions in pension debt, which they invested in the market—often using risky investment strategies in an attempt to beat what the bonds paid out in interest. That approach proved ruinous during the financial crisis. In 2008, Oregon pension funds lost 27 percent of their value, the largest decline in the state's history. Oregon taxpayers are now staring at a $1.2 billion hike in the state's contributions to the pension system. "That could force school districts, cities and counties to lay off workers or cut services as they struggle to pay higher pension contributions," the Oregonian noted, conveniently omitting its earlier support for the bonds.

All these debt-enabled abuses—extravagant spending, concealments of budgetary problems, and risky investment strategies—came to a head in the second half of 2008, when spooked investors withdrew from the muni-bond market in droves. A downturn in tax revenues had revealed how little breathing room some local governments had left themselves to pay their debts; also, several insurers that typically backed muni bonds had exited the market, leaving buyers unprotected against defaults. The investors' flight should have signaled to cities and states that it was past time to reform their debt practices.

Instead, the federal government reopened the muni-bond business by stepping in with a new kind of municipal offering, the Build America Bond, which is taxable but can offer an attractively high interest rate because it's partly subsidized by Washington. Municipalities enthusiastically embraced the new bonds, racking up another $58 billion in debt in 2009. It's no surprise that the states in the worst fiscal shape, thanks partly to previous borrowing, made the biggest use of the bonds; California led the pack.

Build America Bonds have worsened what economists describe as a misallocation of resources that results from municipal debt's favored status. Muni bonds are usually tax-free, and numerous studies have estimated that of the enormous tax revenues forgone by the government, 20 to 33 percent goes to the bond buyers, who tend to be high-income individuals. That's a huge incentive not to invest in the private sector by buying, say, corporate bonds or equities. Economist Peter Fortune estimated in the early nineties that the misallocation reduced private-sector output by billions of dollars a year; the amount is obviously far larger now. The introduction of Build America Bonds, attracting a whole new class of investor with subsidized interest rates, will make the misallocation even greater.

The current crisis in state and local budgets may be the best opportunity in ages to bring reform to the muni market. Critics have argued in the past that the government should abolish the federal-tax-exempt status of municipal bonds. Those arguments have gone nowhere because the market has powerful defenders: the Wall Street firms that earn underwriting fees selling bonds; the investors benefiting from subsidies; and state and local politicians making liberal use of the debt.

Still, Congress has narrowed muni debt's tax-free status in the past to eliminate egregious abuses, and it's time to do so again. One place to start is municipal debt used to finance for-profit businesses, a job that governments are ill equipped to perform capably. Take the city of El Monte, California, which subsidized the opening of a handful of local car dealerships and watched three of them go bust. When cities take the process a step further and get into bidding wars with one another for things like the NASCAR Hall of Fame, they drive up the price of the attractions, ultimately at a heavy taxpayer cost. Congress should revoke the tax exemption for bonds in all these cases.

Another key reform is to restrain or eliminate the independent authorities. New Jersey has already moved in this direction with a 2008 referendum, approved by voters, constraining the authorities' ability to issue debt without voter approval. Meantime, in California, critics of local redevelopment authorities are intensifying their efforts to rein in or eliminate these bodies. Taxpayer groups point to studies showing that regions of the state that have created the authorities don't do much better than regions that lack them. If that's true, much of the real-estate tax money that they collect winds up wasted, including money that could help fund basic services like schools. "Redevelopment is an ever-growing blight on education finance" because of the tax dollars it siphons away, argued Doug McNea, president of the Silicon Valley Taxpayers Association, in the San Jose Mercury News recently.

Finally, states and cities need to limit debt-related fiscal maneuvers. They could begin with sophisticated investment vehicles like swaps, which few politicians understand. In recent years, some municipalities tried to insure their bonds against rising interest rates (and, consequently, rising payouts to bondholders) by purchasing swaps contracts with Wall Street firms: if rates rose, the firms would pay the governments; if rates fell, the governments would pay the firms. The arrangement would have worked if rates had risen or fallen modestly. But what has happened since 2008, of course, is that interest rates have plummeted, leaving some governments on the hook for huge payouts. According to Pennsylvania's auditor general, 107 of the state's 500 school districts entered into swaps, some approved even though local school board members didn't understand the deals. One district, Bethlehem, had to pay a $12.3 million fee on a deal gone bad. The state has since proposed banning school districts from buying swaps.

Taxpayers are slowly realizing that their states and municipalities face growing costs—above all, debt and pension obligations—that will be hard to reduce. The squeeze is already forcing cities and states to cut basic services, since they can't risk defaulting on their debt. But these politically unpalatable moves are troubling more and more observers of the muni market. Nicole Gelinas has warned in these pages that "once state and local governments have borrowed too much, they may well find a way not to pay their lenders back" (see "Beware the Muni-Bond Bubble," Spring 2010). Similarly, Rick Bookstaber, a senior policy advisor to the Securities and Exchange Commission, shook the market recently by observing that it has all the characteristics in place for a crisis that might unfold like the home-foreclosure mess: a few municipalities could declare bankruptcy, decline to honor their debts, and unleash "a widespread cascade in defaults." If that painful scenario emerges, it will be because we have too long ignored how politicians have become addicted to debt.

Mr. Malanga is the senior editor of City Journal and a senior fellow at the Manhattan Institute. He is the author of the forthcoming Shakedown: The Continuing Conspiracy Against the American Taxpayer.

© 2010 The Wall Street Journal:

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Thursday, July 29, 2010

"Equity" Means Even Higher Tolls for Texas Commuters

Houghton: State should be 'equity' partner in toll roads it helps fund


Michael Lindenberger
The Dallas Morning News
Copyright 2010

In a remarkable development a few minutes ago, the Texas Transportation Commission has signaled that it will expect to be treated as an equity partner in future public or private toll road projects for which the state provides right of way or other contributions.

In approving new toll projects in Travis County and in El Paso, Commissioner Ted Houghton of El Paso that the word grant be replaced with the word "equity."

He said he would like Texas to get a share of revenues from every toll transaction, an arrangement he said would recognize the significant tax contributions -- $80 million in bond money in the El Paso example -- the state makes to these toll roads.

The money is slated to allow the Camino Real Regional Mobility Authority reconstruct two main lanes (without tolls) as part of its overall project to add the managed lanes that will toll drivers seeking a faster commute much like the paid HOV lanes on LBJ Freeway will do once that highway is rebuilt. (Houghton says, and I haven't been able to get anyone at the CRRMA to actually pick up the phone to confirm, that the $80 million wanted for this project would pay for all of its costs. He raises a valid question, at least to my mind, If the state is paying outright for a project that will be tolled, then why shouldn't the resulting toll revenues be shared with the state?)

Still, the idea of having to treat the money from the state as an investment, rather than a grant, brought immediate concern from CRRMA folks and its lawyer. If TxDOT expects a cut off the top of toll revenues, then traffic and revenue studies "on which we have spent millions" will have to be redone, they said.

That's not certain, given that it will depend on how firmly TxDOT digs in its heels in the negotiations over what "equity" will mean for the state.

But Houghton was clear that he thinks TxDOT should share in the revenues of toll roads it helps build. The impact will be certain: Either toll rates on the project must be raised or the amount of money investors or lenders are willing to provide for the project will be reduced. Houghton said he believes most toll rates in Texas are already set below market rates -- the amount drivers really think the faster commuters are worth -- and so higher toll rates to make room for revenue sharing with TxDOT makes sense, he said.

This idea, championed in North Texas by the Regional Transportation Council, is why NTTA now regularly raises its toll rates. But El Paso tolling officials said their regional rates are closer to that market rates than in some wealthier areas of the state, and they said TxDOT's insistence on equity could spoil the deal they've negotiated.

The El Paso concerns may not materialize, however. The wording change pushed through by Houghton does not impose any particular terms on the project. It merely requires a negotiation and the next step will be for the El Paso officials to decide what the word "equity" will mean.

(The past is never a sure guide to the future, but if the North Texas experience is predictive, they'll be arguing about this for months. Just saying.)

But the vote, which was unanimous despite hesitation by some commissioners, is important for another reason, and could significantly change the terms of future toll road financing in North Texas.

Houghton said "I've been thinking about this for a very long time," and feels strongly that if the state provides right of way or other assistance for a toll road, it should be brought in as an investor -- with ownership rights in the toll revenues.

It's not unheard of here.

The state chipped in $160 million to make possible the eastern extension of the President George Bush Turnpike, a 10-mile, six-lane extension from SH 78 to Interstate 30 that will cost $1.04 billion and open late next year.

In return NTTA will charge tolls that are 20 percent higher than the rate for the rest of the system, and that money will be paid to the state, NTTA spokeswoman Sherita Coffelt said. By law will let RTC spend it on other projects in North Texas.

Still, it's all but certain to create another layer of complication for already tense deals with NTTA and TxDOT, and potentially local officials as well -- especially in an area where even the toll authority leaders are saying drivers are tolled too much.

Just before the meeting adjourned, Commissioner Ned Holmes of Houston suggested the commission needs to give the staff guidance about
what it meant by "equity." He said insisting on a slice from the top of revenue would be onerous for some smaller toll authorities, and said instead they ought to have a share of net profits.

But what impact his feelings will have is far from clear. After he made his comments, his colleagues adjourned the meeting without discussion.
Update: Just spoke to Commissioner Ted Houghton, who insisted it's only fair to point out that even if "the state" gets a cut of local toll revenues, the money will be spent locally -- and in most cases according to decisions made by the regional planning agencies, such as the Regional Transportation Council.

Fair enough.

He also says he's less worried about the specifics of the deals between the state and the local toll authorities, than in the change in approach he says is long over due. "It's a philosophical difference. We need to let the (locals) understand that you can't just assume you come here and we'll hand you money and that's the last we ever see of it. It ought to be looked at as an investment. The taxpayers are paying, and in return they get an asset. But they ought to get more than the asset. These are revenue-producing assets, and they ought to produce a return (back to the taxpayers.)"

Of course, if by insisting on a revenue-split, you end up jacking the toll rates up, then the toll payers are the ones who are paying that return -- in a sense like asking some shareholders to pay extra for their shares, so that the dividends to everyone can be bigger. But he makes a valid point to say these questions ought to be debate. "We need more revenue sources. It's got to come from somewhere," he said, noting that neither the state nor federal government is likely to raise gas taxes anytime soon.

© 2010 The Dallas Morning News:

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Wednesday, July 28, 2010

Development talks proceed for I-69 Trans-Texas Corridor

Local leaders discussing Trans-Texas Corridor today


KTRK (Houston)
Copyright 2010

HOUSTON-- Leaders involved in a local stretch of the planned I-69 Trans-Texas corridor will meet today to move along development talks.

Regional leaders of the corridor's Segment Committee Number 3 will discuss the mass roadway project with local residents this afternoon. The meeting will cover the planned stretch from Harris County out towards Beeville and Bee county.

The meeting takes place in Victoria, beginning at 1pm and is open to the public.

© 2010 KTRK-TV:

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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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