OPINION: Help wanted: sound transportation policy

By William Lutz - Lone Star Report - August 27, 2007
The Texas Department of Transportation (TxDOT) says it needs to spend $9 million in taxpayer money to sell its vision of transportation policy to the public.

Maybe if TxDOT pursued rational transportation policies, the public support would follow, and it could spend that $9 million building and maintaining roads.

Listening to the state's transportation officials, including Gov. Rick Perry and Commissioner of Transportation Ric Williamson, talk is like reading a cheap imitation of a George Orwell novel.

Borrowing money and deficit spending are called "innovative financing techniques." The term "public-private partnerships" is used to describe mortgaging public property. Tax hikes are called "market-based" or "value-based" tolling or "market valuations." Government-sanctioned monopolies are referred to as "introducing competition to transportation financing."

Here's why Texans ought to be concerned.

Borrowing carries a price tag. The Texas Constitution has traditionally eschewed deficit spending and required existing revenue to pay for existing spending. Now, the state wants to build most of its roads by borrowing, either publicly or by getting a private firm to agree to borrow money, build a road, and collect tolls.

There's no such thing as free money, and often bond lawyers request concessions in exchange for the money fronted to the state. Many of these private financing arrangements prohibit the state from building free roads near a toll road, or require it to pay a stiff penalty if it builds a competing free road or wants out of the deal.

Secrecy.
A 2005 transportation bill exempts draft copies of many road deals from public disclosure - even in the face of criminal subpoenas.

Prior to 2007, the terms of these deals weren't even public until after the contracts were signed, and the terms set in stone. In 2007, the Legislature provided some additional transparency, but more sunshine is still needed to ensure informed consent from the public.

No checks and balances. The ability of TxDOT to rent state highways to private vendors without a legislative appropriation basically gives TxDOT a license to print money, without going though the usual appropriations process. The Constitution wisely gives the Legislature the power of the purse, and state assets should be pledged only in response to a public legislative appropriation.

The state also takes some highway spending "off-budget" by allowing the creation of regional mobility authorities to build state highways. Even the state auditor cannot precisely calculate how much the state spends on roads.

No fiscal restraint. TxDOT officials often claim that it would require a $1.20 increase in the gasoline tax to build needed infrastructure without tolling. This figure is a cost estimate of every project that a region might want to build in the next few years. Both the Governor's Business Council and the State Auditor have taken issue with TxDOT's calculations.

It also shows a lack of priorities at the agency. Most Americans would love a longer vacation, a fancier home, and a nicer car. But their wallets get in the way. Every day, Texans take their limited resources and differentiate between wants and needs. The government should do so also.

Tax hikes. Remember when Bill Clinton referred to taxes paid by the well-to-do as "contributions," as if payment of taxes were somehow voluntary? Remember how much fun Republicans had lampooning all the rhetorical games Clinton played to avoid referring to his "deficit reduction" plan as a tax hike?

Well, it's happening again. In the 2007 transportation compromise, Perry insisted on "market-based tolling," whereby the tolls for new highways are set above the cost to build and maintain the road. Perhaps one could call a toll a "user fee" if the amount of the toll reflected the cost of building and maintaining the road (though even that's debatable). But when money is taken from a government-sanctioned toll road monopoly and used to build other free roads, that's a tax.

Simply stated, Perry is raising taxes.

These bad transportation policies are being promoted not only here but also by the U.S. Department of Transportation and in other states like Indiana, New Jersey, and Pennsylvania. But just because George W. Bush likes something doesn't make it right or conservative.

There is a better alternative. It starts with the recognition that building roads is a legitimate function for government, as recognized by the U.S. and Texas constitutions.
Further, user-based fees such as gasoline taxes and auto registration fees are appropriate ways to fund that service, provided that all revenue from those fees goes to roads.

Then, the state should do for transportation what it is already doing in health, education, and welfare policies - look at costs. Why has the cost of building roads increased so quickly? Is this legitimate? Are there ways to reduce these increases?

Registration fees should be adjusted so that overweight trucks pay their fair share. The relationship between damage to a road and weight is exponential, and the registration fees and taxes should reflect that. The gas tax should be adjusted to acknowledge that, on a per-car basis, the gas tax has declined due to improved fuel economy in cars and trucks.

Once the state has gone though that process, then and only then should discussion of tolling begin.

It's time to stop pushing public policies that primarily benefit a select few highway contractors and investment bankers at the expense of the motoring public.Instead, let's put a spirit of public service back into TxDOT and enact transportation policies that provide accountability and frugality. Those policies wouldn't take a $9 million PR campaign to sell to Texas voters.

State Highway 121 Project Agreement Completed

By Sam Lopez nnd Lara Rodriguez - NTTA & NCTCOG - Aug. 23, 2007
North Texas – In the true spirit of teamwork, representatives from the Dallas District of the Texas Department of Transportation (TxDOT) and the North Texas Tollway Authority (NTTA) have finalized a historic project agreement. The NTTA will develop, finance, design, construct, maintain and operate State Highway (SH) 121 from McKinney to Coppell for the next 50 years. Staff representatives of the Regional Transportation Council (RTC) participated in the negotiation of the major terms of the project agreement and quantified the anticipated public benefit.

Today, the Texas Transportation Commission (TTC) approved a Minute Order authorizing TxDOT’s Executive Director to enter into the project agreement with the NTTA, subject to environmental clearance of Segments 1 through 4 of the SH 121 toll project. That clearance is expected in September 2007.

The SH 121 project agreement has now been signed by Jorge C. Figueredo, NTTA Executive Director, and submitted to TXDOT. When TxDOT’s Executive Director signs the agreement, the NTTA will then have 45 days to achieve the “financial close” and to deliver a $2.5 billion upfront payment to TxDOT. An additional $833 million upfront payment, representing the current value of 49 future annual payments, will be made at TxDOT’s direction to the RTC for regional transportation projects. The RTC has already received proposals from cities and counties and will decide how the $3.3 billion will be used for additional mobility projects throughout North Texas.

“We are nearing the final execution of SH 121 project agreement and I thank all of our partners who have worked tirelessly and expeditiously to complete it,” said Paul N. Wageman, Chairman of the NTTA Board of Directors. “The NTTA looks forward to delivering the upfront payment to TxDOT and the RTC in the near future. The real work begins when our team of designers and contractors complete this critical roadway for Collin, Dallas and Denton counties.”

“The motor fuel tax can no longer keep up with the growth we are experiencing in North Texas and falls short of meeting our transportation needs. TxDOT has a plan to make up the financial shortfall and it involves doing exactly what occurred on SH 121. This included seeking innovative solutions, working with partners like the NTTA and empowering local communities and the RTC to help fill the transportation funding gap," said Bill Hale, P.E., District Engineer, Dallas District of the Texas Department of Transportation.

“This region, like the rest of the nation, is facing a tremendous shortfall in transportation funding,” said Michael Morris, director of transportation of the NCTCOG. “This agreement with NTTA will mean freeway, thoroughfare, passenger rail and air quality projects can be built years ahead of schedule. Keeping up with the tremendous growth and transportation needs of the region is a high priority.”

On June 28, the TTC, the Board that oversees TxDOT, instructed the NTTA and TxDOT staff, in cooperation with the RTC, to prepare a project agreement term sheet within 60 days. The three partners worked diligently to meet the demanding schedule.

The SH 121 toll project is a 25.9 mile all-electronic toll road through Collin, Dallas and Denton counties from McKinney where SH 121 intersects with U.S. 75 west to near the Tarrant County line. Segments 1 and 2 run east from 0.23 miles east of Business 121 to the ramp pair on the east side of the Hillcrest Road overpass. Segment 3 runs east from the ramp pair on the east side of the Hillcrest Road overpass to the ramp pair on the west side of the Watters Road overpass. Segment 4 is the ramp pair on the west side of the Watters Road overpass through the north, east, and south limits of the construction required to complete the U.S. 75/SH 121 Interchange. Segment 5 is the Dallas North Tollway interchange.

TxDOT Hearings Scheduled on Transfer of SH 121 from State to NTTA

The Texas Department of Transportation (TxDOT) will conduct two public hearings to receive comments from interested persons concerning the proposed removal from the state highway system and transfer to the North Texas Tollway Authority (NTTA) of a segment of State Highway 121.
The segment is located from just east of Business 121 to the west side of FM 2281, a distance of 7.39 miles, in Dallas and Denton counties. The non-tolled area is just south of the existing SH 121 Tollway currently being run by TxDOT since its opening last year.
TxDOT‚s meetings will be on Tuesday, August 7, 2007 at 6:00 p.m., at Coppell Middle School - North, 120 Neches Trace, Coppell, Texas 75019 and Thursday August 9, 2007, at 6:00 p.m., at City of Lewisville, City Hall Council Chamber, 151 West Church Street, Lewisville, Texas 75057,
State law authorizes TxDOT to lease, sell, or transfer a toll project or system that is part of the state highway system, including a nontolled state highway or a segment of a nontolled state highway converted to a toll project, to a governmental entity that has the authority to operate a tolled highway. In North Texas that agency is the NTTA.
Descriptions, maps and drawings showing the proposed portion of State Highway 121 to be transferred and other information concerning the proposed transfer are on file and available for public inspection and copying by contacting Bill Compton, P.E., Texas Department of Transportation, 4777 E. US Hwy 80, Mesquite, TX 75150-6643, telephone 214-319-4489.

Hold Those Tolls! Lege leaves question: How will we pay for roads?

By Larry Schooler - The Austin Chronicle - July 27, 2007

It was Dec. 16, 2004, and Rep. Mike Krusee, R-Round Rock, was sitting pretty. He was virtually a guest of honor at a meeting of the Texas Transportation Commission, across the street from his Capitol office. A little more than a year before, as chairman of the House Trans­port­ation Committee, Krusee had successfully carried the behemoth House Bill 3588. Among its many and complex provisions, the bill helped smooth the way for Gov. Rick Perry to get the Texas Transportation Commission to approve early plans for the Trans-Texas Corridor. Stretching from Mexico to Oklahoma, the corridor would be a mammoth transportation project running parallel to I-35. As conceived, it would include free and tolled highway lanes, as well as rail and utility lines, and would be built and maintained by the privately held Spanish company Cintra (an international operator of toll roads and car parks) and the San Antonio-based Zachry Construction Corp.

At the Texas Transportation Commission meeting, attended by the governor himself, Krusee didn't say much. Actions spoke louder than words -- and on this day, the commission was acting on a project he had fought long and hard to convince legislators to support. By way of acknowledgment, commission Chairman Ric Williamson duly praised Krusee for his work at the Capitol. Krusee had a flight to catch, but first he took the floor for a brief stroll down memory lane.

"I started thinking about the first time that I met Ric Williamson," Krusee recalled, according to a meeting transcript. It was 1992, and Krusee had just been elected to the House; then-Rep. Williamson invited the 32-year-old Krusee to his apartment. "So I went over there, and Ric had one of his good friends over there, and that was the night I met Rick Perry, who was the ag commissioner, and we talked long into the night about accomplishing great things for Texas, about how to be a great leader for Texas. And we weren't thinking about how to be on Texas Monthly's 10 best [list] -- but you know, Ric, I think we were talking about days like this.

"And you know, governor," Krusee continued, "A little over two years ago when you made that presentation [about the Trans-Texas Corridor] in the auditorium at the Capitol, and I was in the audience, and like everybody else out there, I didn't really fully grasp what the hell you were talking about." The audience laughed.

"You do now, don't you?" asked Perry.

"I do now," Krusee replied. "And I want to congratulate you on your vision and your leadership, and the commission and your staff on your hard work, because you have made this, I think sincerely, the most historic day in transportation, not just for Texas, but for the United States since Eisenhower." With that, Krusee left the meeting.

Flash forward nearly 21/2 years -- to May 2, 2007. Chairman Krusee stood on the House floor, without a single transportation ally. Every House member present, except Krusee alone, voted in favor of HB 1892, which included a two-year moratorium on many of the public-private partnerships such as the one the Texas Department of Transportation had developed with Cintra-Zachry to build the Trans-Texas Corridor. "Who knew that trying to reduce congestion could be such a lonely fight?" wondered Coby Chase, who monitors the Legislature for TxDOT.

Perry eventually vetoed HB 1892, but a nearly identical Senate substitute, Senate Bill 792, later handily passed both the House and Senate, and Perry signed it into law. The massive bill forbids TxDOT from negotiating a tolling agreement with a private company until Sept. 1, 2009, exempting some projects already under­ way. Even among those exempted projects, some got swept up in the post-session, anti-privatization maelstrom. For instance, at its June meeting, the Texas Transportation Com­mission awarded a contract for the State High­way 121 project (in the Dallas/Fort Worth Met­ro­plex) to the North Texas Tollway Authority -- after initially awarding the contract to Cintra.

SB 792 also states that if a company paid TxDOT money up front for the rights to build a toll road in a particular region, TxDOT must use that money on other projects in that region. It requires TxDOT to give local tolling agencies preferential treatment over private companies by giving them free right-of-way and the right of first refusal on building toll roads. In essence, the Legislature left private companies interested in transportation on the bench for the next two years.

Politics or Policy?
So what happened? How could Rep. Krusee, four years earlier, convince all but three members of the House to approve legislation that enabled private companies to build highways, only to find that entire concept rejected out of hand this year? Not surprisingly, it depends on whom you ask.

"What happened was," Krusee said after the session, "TxDOT was going not just against the traditional rural opposition to road building but against Dallas and Houston in a turf battle over who would build the roads." In Dallas, Houston, Austin, and elsewhere, public toll-road authorities were getting outgunned by private companies like Cintra, and they weren't happy, Krusee says, so they asked their legislators to give tolling authorities right of first refusal. Krusee didn't take it personally that he seemed to be the only member of the House who wanted private companies to continue building roads. "I think it was a political vote," he said. "Members thought it was necessary to vote that way to get votes back home; they felt like they'd be criticized for voting against it."

Chase agrees with Krusee and points to the larger political context. "During this last election cycle, we had a candidate for governor; she liked to campaign against foreigners and against toll roads," Chase explained, in reference to gubernatorial candidate Carole Keeton Strayhorn, who ran against Perry as an independent. "And then we had the [federal] Dubai Ports issue, and this was such a misleading discussion in the public. ... This Dubai company wouldn't own any port; they were just going to run them, and the government would lease it to them. Then Cintra becomes the successful proposer on the corridor and ... it kind of kick-started the 'no foreigners doing business in Texas' discussion."

But David Stall, of the anti-Trans-Texas Corridor group CorridorWatch, has a less benign explanation. Stall says legislators belatedly did their homework on public-private partnerships. "The Legislature did not recognize the shift in transportation policy that they were creating" in 2003, Stall said. "We started to see some handwriting on the wall in 2005, with some moratorium bills that didn't go anywhere. The reason they didn't go anywhere was we were still educating people. I think if legislators were educated in 2003 on what the corridor was, if they had understood it, they would not have voted to authorize its creation."

Looking for Consensus
Enter former Austin mayor and freshman Sen. Kirk Watson. Watson wasn't around in 2003 for the original vote on the corridor and agreements with private companies to build toll roads. But he came to the Lege with voices ringing loudly in his ear -- those of his new constituents. "Part of the reason there is this vitriolic, partisan [no-toll or toll] debate is that we haven't had a thoughtful, systematic, transparent means of analyzing what we want to do," he says. "There are clearly two agreements in this community -- one, we are too badly congested, and two, we want it fixed. When we get to three -- how to do it -- now it's not as unanimous."

Watson is unconvinced that letting a private company pay for, build, and make a profit on a new road is the best way to go. "I was skeptical of these comprehensive development agreements -- how long they were, their noncompete clauses. ... I happen to be a believer that if you're going to privatize, it should be for the stuff the public can't get done. I wasn't convinced -- at beginning or end of session -- that we weren't going to just have privatization on stuff that we couldn't get done in the public sector."

In other words, Watson didn't want profit-minded private companies building roads that could be built by government -- especially if, under noncompete clauses, the state has to pay the companies back for highways that take traffic (and potential income) away from the private toll roads. "I wanted to allow local communities to have more say," Watson explained. "It struck me that one of the things that was missing in the process was we needed more accountability in the system, and that probably meant elected officials having a role." That potentially means fewer deals with private companies and more for state tolling authorities or transportation commissions.

Watson had more than just his own rookie legislative voice to add to the discussion -- in January, he became chairman of the Capital Area Metropolitan Planning Organization (the group in charge of the region's transportation projects) and vice chairman of the Senate Transportation Committee. At his suggestion, CAMPO indefinitely postponed any talk of a second phase of toll roads until it can take more time to sort out how best to finance transportation projects.

But the Legislature's decision to halt most road-building agreements with private companies leaves Central Texas in a bind, as Krusee sees it, when it comes to decongesting traffic. "To my mind, the bad thing about what the Legislature did this session was it took that option away" -- the option to have a private company get started now on building a given road. The Legislature's action doesn't mean that Austin or the surrounding jurisdictions can't build any more toll roads, but it means they can't call on a private company to do so. So as Krusee sees it, we're back at ground zero: Lacking sufficient up-front public funding, the state, via TxDOT, had been looking toward private companies as ideally positioned to help build roads quickly and efficiently, based on the promise of future toll revenue. Now that option is off the table, at least temporarily.

With toll roads built by private companies, says TxDOT's Chase, "You [the state] give up some future revenue to get a project now. You get a guaranteed price on the project, you are guaranteed the project will be returned to you in a certain condition, and the price you pay is you say the company can realize a profit on this over a certain amount of time. Some people had concerns of unlimited company profits without ever reading what the contracts were -- the companies can't raise tolls any time they want. If the profits get to a certain point, it goes back to the region to build more roads."

Often, as was the case with Cintra and the Trans-Texas Corridor, the company pays a large sum -- generally billions of dollars -- to buy the rights to build a road, which could mean the state could get other projects started more quickly using those advance funds.

Even Watson, skeptical as he is that a private company can handle transportation any better than the state, admits that a moratorium on deals with private companies could make it harder to do anything significant about area congestion for the next couple of years. "We're going to need to be honest about limitations of financing tools," he says. "In the state appropriations bill, there was an effective decrease in transportation money, when you consider inflation. There has been more moving of funds from transportation. Many people say they want an increase in gas tax; the House approved a gas tax holiday that would have taken away gas tax money for three months out of the year [that measure died in the Senate]. The money offered to states from federal government is being decreased; we just got notice that federal money rescinded $72 million more. We're going to have to start being honest about the limitations we have on being able to meet the need to fix the problem."

Stranded on the Highway
To that end, Watson has been meeting every two weeks with a CAMPO's Mobility Finance Task Force, which includes elected officials, outside transportation experts, even the executive director of the Community Part­ner­ship for the Homeless. Meanwhile, TxDOT has given preliminary approval to a set of toll projects in the Austin area, including some "managed lanes" (for use, say, by carpoolers or during rush hour) as well as the second phase of toll roads Watson doesn't want to talk about for now. TxDOT is also holding a series of public meetings later this year to explain the ramifications of what the Legislature did in suspending many of the proposed deals with private companies.

"We're doing things that no other department of transportation is doing," says Chase. "We're learning it as we go, and we have never ever had to engage the public on this large a scale in our 90-plus years of existence. And in many cases, we underestimated that challenge."

That last sentiment could also apply to those who want to do something about Austin's traffic congestion. If the Lege managed to placate the anti-toll crowd, at least for the time being, it didn't do much to make it any easier to travel on Central Texas highways, nor to address long-term projections that show regional traffic only getting worse. More broadly, the moratorium doesn't begin to address larger questions raised by traditional highway approaches to transportation: land use, mass transit options, pollution and global warming issues, or even integrated urban planning that might make transportation issues less intractable and expensive.

Those are the kind of issues that Sally Camp­bell hoped the Legislature would consider. Campbell is the executive director of Envision Central Texas, a 6-year-old nonprofit coalition aimed at addressing regional growth. Campbell wanted to hear more discussion and action on giving counties more control over land uses around future highways and relocating Union Pacific away from rail lines that commuters could use. "When we truly want to see this multimodal transportation system develop, the next step is to look at the transit options. And right now, we're trying to figure out what will work and what's the logical system. If you can think about commuter rail from San Antonio to Georgetown by relocating Union Pacific, that makes a whole other mode within the realm of possibility."

But rail relocation, and most other proposals for broadening the state's transportation options, remained stuck at the station during the 80th Legislature. What most legislators wanted to discuss was how to pay for new roads and where to put them. Whether Krusee's interest in more privatization or Watson's desire for greater accountability in transportation policy ultimately win the day in the current discussions, it could be two years -- or more -- before getting around seems much easier, even though commuter rail could start running through the region by the end of 2008.

That will be just in time for the 81st Legis­lat­ure -- and a whole new set of political detours during the next round of transportation debates.
Read more

Double edged sword of private infrastructure financing

By Faith Chatham - July 24, 2007

Crossposted on EPLURIBUS MEDIA

Many lawmakers and local/regional governmental officals erupted in glee at the prospect of transferring financing of public infrastructure projects to private equity partners. The traditional group of public works hogs at the public money bins jumped cartwheels anticipating funding to flow more rapidly out of other pockets into theirs. Governor Rick Perry spent Texan's hard earned tax money to fly to Europe to court potential European and Australian partners. TxDOT repeated the same old lies: "There is no way to finance roads without tolls."  

To the public CDAs or Private Public Partnerships for toll roads is presented as being financed by private partners. When we look up close and get real personal and examine specific projects however, the facade doesn't hold up to scrunity. For example, Cintra, if awarded SH 121, would have invested about the same amount of money which Texas taxpayers have already invested in the project (state, federal dollars and local governments investment in right of way). The Federal Government would also loan the private partner additional fund and faciliate borrowing of billions of dollars of tax exempt money from other private lenders. A key phrase to note is tax exempt. That is another way of saying that the tax liabilty will be passed from these lenders to the rest of the taxpayers. Taxes never go away when they are "exempted". They are merely passed along to the next guy up (or more probably) down the ladder!

I've made a number of inquiries about these US government faciliated loans which the changes to U.S. Law allows to enable private equity partners to utilize on public works (highway toll roads) projects. I want to fully understand who holds the bag if the project fails and the "borrower" defaults on the loan. What happens if there isn't the anticipated traffic on a toll road? If the U.S. Government faciliates these tax exempt bonds for the private partner (such as Macquarie or Cintra), does the US Government (i.e. U.S. Taxpayer) stand behind the loan as is the case when a bank forecloses on an FHA home loan or a VA home loan or a Federal Guaranteed Student Loan?

I've asked this question to numerous engineers and officials at TxDOT and RTC meetings and to date have yet to have anyone show me in writing where the US Government isn't standing behind these loans. If a private partner is going to make the profit I think the private equity firm should take the risk. However, I am suspicious.  There is a rush across the pond to court American lawmakers and acquire toll road deals. Is one of the edges of the sword that somewhere there are clauses buried in those mountains of fineprint and legalize which transfer the risk to the taxpayers?

Examining Australian sources, another edge to the sword emerges.  Most of these equity firms are borrowing from retirement funds. The retirement accounts of working men and women and retirees from all over this nation are invested in bonds and stocks.  John L. Goldberg, in "The Fatal Flaw in the Financing of Private Road Infrastructure in Australia" wrote a paper last year which analyzes the cash flow of four private public road infrastructure projects in Australia and probability of solvency/insolvency.

Goldman wrote:

The repayment of debt is clearly on the minds of the toll road owners and operators as revealed by the recent release of a draft prospectus for the so-called Sydney Roads Group (Macquarie Infrastructure Group, 2006). This group consists of three existing toll roads, the M4, M5 and Eastern Distributor. The financial arrangements are similar to those of the M2. In February 2009, the debt of the M4, currently at about $57.6 m must be paid. The method of doing this is said to involve the use of reserves and a securitization arrangement (Alles, 1999) involving the M4 and M5. This means that future cash flow receivables and/or the asset value of the M5 is to be used as collateral for a new financial structure for refinancing. It should be noted that the M5 has a debt of $515m which has to be repaid or refinanced by June 2010. But in the final prospectus, serious doubts have now been raised about the ability to repay the debt or refinance it on

favourable terms (MIG, 2006).

He concludes that the private investors are using various public private road projects as collateral for other projects, creating a " financial house of cards".  Macquaire and Cintra are partners in many projects around the world and have bid on numerous projects in Texas and the DFW area. They are presented to citizens as private partners who will take the responsiblity for risk from the government and taxpayer in exchange for tolls. Citizens' protest that the cost for tolls is higher than those projected if citizens finance road construction with gas tax and public bond financing the old fashioned traditional way goes are unheeded by lawmakers and transportation policy gurus and state and US DOT bureaucrats.

Goldman analyzed their business methodology in Australia and reported:

The data in the financial models attempt to portray the best possible outcome for the consortiums promoting the projects using for example, unrealistic traffic projections, and creative accounting. Despite this attempt the probability of financial failure has been shown to be 100% in every case, in the sense that cash flow will be insufficient to amortize debt. Not only do the models specify unattainable rates of return to investors but the true financial position of the projects is being masked by financial engineering leading to increased debt out of which equity dividends are being paid. Such an approach is unlikely to be sustainable, but may nevertheless lead institutional investors and others to erroneously believe in the long term outcome portrayed by the promoters.

Why does this matter?  It matters because citizens deserve to be able to trust the reliability of financial institutions. It matters because retirement accounts are being invested in bonds to finance private equity firms share of investment in public private partnerships for toll roads (and toll bridges and other infrastructure). If the cards begin to fall, and the toll road private investor public partnership CDA financial house crumbles, then as each card will take down an adjacent investor and that one will take down the next. If the model used to predict traffic, fees, maintenance costs for a 50 year toll road project are faulty and the private equity partner does not get the anticipated return on investment, everyone who loaned money on the project will lose. It is very likely that much of those loans will be held by retirement funds! Ouch! When you lose your retirement account, it is difficult for many people to recoup before they are out of the job market. I know. My 401K account dried up a few years ago when utility. telops stocks switched from reliable investments to swindles!

With retirement account investment in private public infrastructure equity partnership (toll roads) we may see scandals which reek of the hot sultry days of Enron investigations and energy sector manipulation which cost trusting investors and employees their life savings and retirement incomes. As the energy grid spread from state to state, we are watching a network of toll corridors spread throughout the North American continent, attracting international partners who are not totally without controversy in their home countries.

Possible remedies

Protection for retirees who invest in PPP/CDAs presents a classic catch-22. Private partnership who claim to remove the risk from taxpayers on infrastructure projects in return for receiving tolls (retrn on investment) should not have their loans guaranteed by the US Government.  That is unfair to taxpayers!

Goldberg pointed out:

Recent statements about the use of securitization as a means of debt amortization are unconvincing. In the event of corporate collapse, and in the absence of government guarantees, the trust/company structure of these projects will be used to claim limited liability for the entire structure. But such a claim may be rejected by a court, leaving investors liable.

That brings me back to my original quest. Are there guarantees written into these volumes of contracts, bills, agreements, which transfers the risk from the private partner to the U.S. taxpayer?  If you know where the guarantee is that the US Government will not back the tax exempt bonds they faciliate for private partners in public infrastructure projects, please share that with me. I need to see it in writing and be able to verify the source.  There are too many inconsistencies in what transportation engineers and TxDOT and regional transporation policy boys have told me about toll roads, CDAs and the benefit to the public for me to really rely on what they tell me without being able to evaluate it and verify it. This is an instance when if it isn't on paper, published in government documents within the public domain then it is probably more urban legend than reality.

Additional articles on these topics are posted on Grassroots News U Can Use

NTTA Takes $5 Billion Tollway From Cintra - NCTCOG regret at not mentioning that Price Waterhouse Cooper worked for Cintra on TTC Bid

"Eastland said that he regretted that he had not mentioned that Price Waterhouse Cooper had worked for Cintra on the Trans-Texas Corridor."
by Richard Williamson - The Bond Buyer - June 19, 2007 Copyright 2007

DALLAS — In a dramatic reversal, the North Texas Regional Transportation Council yesterday handed a $5 billion toll project to the North Texas Tollway Authority less than four months after it originally selected private development team Cintra/ JPMorgan.

The vote must be seconded by the Texas Transportation Commission, which had already approved Cintra’s bid in February — before the competition with the NTTA.

Despite the NTTA’s late-entry to the bidding, top officials said the authority could quickly catch up to Cintra’s plans for completion of the road by 2010.

“We’ve already commenced work to ensure on-time delivery,” said NTTA executive director Jerry Hiebert. “We’re certain NTTA will be on time for the financial close.”

The battle between the NTTA and Cintra was set up in March, just days after the 23-mile tollway in Denton and Collin counties north of Dallas was awarded to Cintra. Cintra emerged as the favored bidder after three years of developing its proposal.

By contrast, the NTTA developed its 800-page proposal in less than a month after state Sen. John Carona, R-Dallas, persuaded the RTC and Texas Department of Transportation to reopen the bidding to the toll authority, a division of the state.

While the NTTA proposal appeared to trump Cintra’s bid by about $100 million, analysis by TxDOT and the auditing firm of Price Waterhouse Coopers showed that Cintra’s proposal netted out as the better value due to a variety of factors.

In its presentation to the RTC board Thursday, NTTA board chairman Paul Wageman and Hiebert sweetened their original offer of $2.5 billion in an up-front payment and $833 million over the life of the project. At the board’s request, the NTTA would make the entire $3.3 billion payment for the project up-front, they said.

The authority, which operates 64 miles of toll roads in the Dallas-Fort Worth area, has complained of unfair treatment of its proposal and of conflicts of interest involving Price Waterhouse Coopers. After PWC issued its report favoring Cintra, it was revealed that the firm was working as auditor for Cintra, the Spanish developer whose full name is Cintra, Concessiones Infraestructuras de Transporte.
PWC and Cintra claimed that there was no conflict because the PWC auditors in Spain were a separate team from those who conducted the analysis for the RTC.
But Wageman disagreed, pointing to the fact that PWC also worked with Cintra and its partner Zachary Construction of San Antonio on development of the Trans-Texas Corridor, a proposed network of tollways in Central Texas whose final cost could reach $150 billion.

“How can Price Waterhouse Coopers possibly be unbiased and fair in evaluating its partner’s proposal against a competitor’s?” Wageman asked.

The NTTA originally passed up the SH 121 project when the 23-mile toll project was under discussion for financing in 2004, according to TxDOT. Cintra was one of the private developers that responded to financing proposals.

The NTTA has acknowledged comments from the three rating agencies that its credit rating will likely fall as it more than doubles its debt to build SH 121. But officials say they can stay within an A-range.

“We’re going to see a decrease in our credit rating,” Hiebert said. “But the inverse of that would be to just take our money and sit on it.”

Under a protocol agreement with TxDOT and Cintra last year, the NTTA was designated the toll collector and operator for the SH 121 project while Cintra was in charge of construction and financing.

Asked at Thursday’s RTC meeting why the authority earlier had ceded the project to Cintra, Wageman pointed to legislation favoring comprehensive development agreements with private developers in order to preserve bonding authority for government entities. That position was reversed last week with Gov. Rick Perry’s signing of SB 792, which gives toll authorities first shot at projects in their regions.
“We thought the better part of valor was to step back and accept a process that SB 792 has now extinguished,” Wageman said. “This has been an imperfect process.”

Mike Eastland, executive director of the RTC, said at yesterday’s meeting that PWC was the only viable contender to accomplish the analysis of the bidders in a short period time.
Eastland said that he regretted that he had not mentioned that PWC had worked for Cintra on the Trans-Texas Corridor. “We made a mistake,” he said. “We admit the mistake, but I do not think it is material.

© 2007 The Bond Buyer:

Spanish company picked for SH 121 toll contract

By Brandi Hart and Penny Rathbun, The Frisco Star
Friday, March 2, 2007 4:28 PM

Gov. Rick Perry announced Tuesday that Cintra Concesiones de Infraestructuras de Transporte, the Spanish company that is half of the partnership the state contract for the Trans-Texas Corridor, won the bid to build, operate, and maintain State Highway 121 toll lanes in Collin and Denton counties.

Perry joined officials from Collin and Denton counties on Tuesday to announce the award. On Wednesday, Texas Department of Transportation recommended that the Texas Transportation Commission grant conditional award of the CDA to Cintra - who partnered with Zachary Construction Company of San Antonio for the Trans-Texas Corridor contract - based upon the TxDOT staff review and scoring of the proposals.

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