New rules that would likely expand private road building, proposed by Texas Department of Transportation officials, would be an end run around the Legislature, add to the agency’s ballooning debt and put taxpayers at risk, four Texas legislators say in letters sent to the agency this month.
State Sens. Robert Nichols, R-Jacksonville, chairman of the Senate Transportation Committee, Kevin Eltife, R-Tyler, John Carona, R-Dallas, and state Rep. Lois Kolkhorst, R-Brenham, asked the Texas Transportation Commission to reject the rules on “pass-through” agreements until the Legislature has a chance to review and act on what the agency has in mind. And Nichols said that trying to do by internal agency decision what the Legislature just declined to do — a failed House bill that would have granted the same authority under different terminology — has hurt TxDOT’s credibility even as the Legislature debates giving the agency more money.
“I am disappointed that TxDOT would even consider proposing rules which arguably require legislative approval,” Nichols, a former Transportation Commission member, wrote in his July 17 letter to TxDOT executive director Phil Wilson. “(T)he proposed rules have already adversely impacted the funding conversation in the Capitol. It is difficult to advocate for funding if these dollars will be used to create additional debt or obligations of the state.”
TxDOT officials said that current law on pass-through agreements — which generally involve a third party, mostly city and county governments, fronting the cost of a highway project and then being paid back all or most of that money by TxDOT over time — already grants them authority to adopt the proposed rules. TxDOT spokeswoman Veronica Beyer said Tuesday that the agency is reviewing public comments and hasn’t decided how to proceed.
A failed bill
State law on pass-through agreements allows private entities to receive “reimbursement” for financing and building a road. The statute doesn’t specify whether reimbursement can include a profit by the private company, which the proposed TxDOT rules would allow. Beyer said that private companies in all TxDOT contracts “make a return on their investment.”
Texas Transportation Commission Chairman Ted Houghton, an El Paso business executive, didn’t respond to a request for comment.
Eltife and other critics said that if TxDOT already had the authority to make the proposed rules, why did the agency support passage of House Bill 3650? That bill, carried by state Rep. Linda Harper-Brown, R-Irving, would have allowed “availability payment agreements” under which a private company could design, finance, construct and operate a state highway (including a toll road) and then receive periodic payments. That model, including much of the language in the bill, parallels what the proposed rules would allow.
Wilson, testifying at an April 2 committee hearing on HB 3650, said availability payments “would be a great new tool in the tool box. … It may spur more competition and interest” in bidding on TxDOT projects.
HB 3650 cleared the House Transportation Committee, but never came up for consideration on the House floor or in the Senate.
“This clearly goes against the will of the Legislature,” Eltife said of the proposed rules in an interview with the American-Statesman. “There was a bill to allow this, and it didn’t pass. And you heard overwhelming discussion about debt this session, that we didn’t want to go into debt anymore. Enough is enough.”
Rising road debt
Voters in the past decade approved three constitutional amendments that, taken together, will eventually accumulate about $18 billion in TxDOT debt. And the pass-through program, under 37 agreements with Texas counties and cities approved by the Transportation Commission since 2006, has the agency on the hook for an additional $1.7 billion in debt.
Under the 2014-15 state budget approved this spring, TxDOT would spend about $2.4 billion on debt payments over the next two years, more than 10 percent of its budget.
When HB 3650 was heard in committee, Harper-Brown argued that because future payments to private companies in such agreements would be subject to legislative appropriations — and thus not absolutely guaranteed — then they shouldn’t be considered debt. But anti-toll road activist Terri Hall said that is a semantic distinction without a difference.
“It is an obligation to the state that we have to repay,” Hall said. “The state is not going to default on their responsibility, because then they’d never be able to get anyone to reach such contracts. What this really is, is off-budget debt.”
Under the proposed rules, that debt could be paid back from any source, including gas taxes, tolls or the oil and gas severance taxes that the Legislature this week is considering directing to TxDOT. And, Hall said, those rules would allow the payment amounts to be independent of the traffic level on the road.
A ‘shifting of risk’
Unlike the concession agreements between TxDOT and private companies signed in recent years, in which the developer and investors take a hit if a toll road draws less traffic than expected (like the Texas 130 tollway southeast of Austin), the financial onus for poor performance in a pass-through toll agreement would fall on TxDOT.
Russell Zapalac, TxDOT’s chief planning and projects officer, at the hearing on HB 3650, told the committee that there would be a “shifting of risk.”
“We’re responsible instead of somebody else being responsible,” Zapalac said.
“This is unacceptable and is dishonest to Texans who are told that private equity is indeed risking (its) own money,” Kolkhorst said in her July 15 letter to TxDOT.
Kolkhorst said the rule also would provide a way for TxDOT to evade a limit on the number of private toll road agreements mandated by the Legislature. Lawmakers, after first imposing a moratorium on so-called comprehensive development agreements during in the 2007 session, in 2011 and this year specified which highway projects are eligible for them.
“This proposed rule change would, in essence, grant TxDOT the authority to enter into a form of (comprehensive development agreement) not authorized by the Texas Legislature,” Kolkhorst wrote, “and one that could put the state on the hook for billions in private pass-through agreements with no oversight by appropriators or the Legislature.”
The Transportation Commission on May 30, three days after the regular legislative session ended, voted to send the proposed rule changes to the next phase of consideration, including the public comment period that ended July 15. The commission, which convenes once a month, is scheduled to meet Thursday, and the proposed rules aren’t on the agenda.