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TxDOT May Sweeten Pot to Draw Private Funds to Projects

Citing a lack of public funding, the Texas Transportation Commission voted Thursday to agree to consider changing its rules to allow it to share financial risk with the private sector on some toll projects.

Interstate 45 Gulf Freeway's HOV and Toll lanes exit into Metro's Eastowood Transit Center in Houston Friday, October 19, 2012.

In its first meeting after a legislative session in which requests for transportation funding fell billions of dollars short of requests, the Texas Transportation Commission voted Thursday to open the door to allowing private firms to take on a larger role in some road projects.

“We’re trying to stretch our resources as far as possible,” TxDOT Executive Director Phil Wilson said.

The five commissioners voted unanimously to consider amending the agency’s rules to allow for a new kind of public-private partnership for the agency in which TxDOT would share financial risk with private entities on a project and even agree to reimburse them from the state highway fund if needed to ensure they make a profit. TxDOT will accept public comments on the rule change until July 15. Afterward, the commission will consider adopting the proposal.

Currently, toll projects in Texas range from privately developed ones like State Highway 130 south of Austin, where a private entity takes on all the financial risk, to the DFW Connector Project in North Texas, where public entities are on the hook. Wilson described this latest proposal as allowing for projects that fall in between those two extremes.

“This would be more of a blended model,” Wilson said.

TxDOT Chief Financial Officer James Bass said that such an arrangement might come up in projects where tolling could be instituted but concerns about the overall financial viability remain.

“Unlike a concession where that private entity may take that risk, this might be one where the risk is not worth them taking it,” Bass said. “But from the state’s perspective, this project is critically needed.”

TxDOT officials declined to cite a specific project that might make use of such an arrangement.

Agency documents pointed to “insufficient funding” to address “critical highway improvement projects” as the reason for the proposed change.

“In order to obtain private financing, the department will need to reimburse the private entity’s financing costs and to pay a reasonable return on investment, which is prohibited under the existing program,” the proposal states.

Over the past decade, lawmakers have allowed TxDOT to work more closely with private firms on tolling projects to expand the state's highway system without raising taxes or fees.

During the recent legislative session, TxDOT officials told state lawmakers the agency needed $4 billion in extra funding each year to maintain current congestion. The next two-year budget included $400 million in extra revenue for TxDOT toward that goal. Bass said TxDOT finds itself in a similar position as the start of the session, with “the needs exceeding the revenue.”

Some lawmakers have called on Gov. Rick Perry to add transportation funding to the agenda for the current special session, which for now is focused solely on redistricting.

Wilson said the proposal has been in the works for several months. He and Bass framed the rule change as giving TxDOT another tool to pursue projects.

The Transportation Commission's decision to take up the rule change comes six weeks after Moody’s downgraded its credit rating of the southern portion of State Highway 130, based on traffic and toll estimates coming in lower than forecast. The project is the first privately operated and developed toll road in Texas, an approach that Perry and other lawmakers have championed.

In the report, Moody’s analysts write that, given the SH 130 Concession Company’s current finances, there is “a material chance of a default before the end of 2014 should traffic fail to grow sufficiently and absent any remediation support on the part of the company.”

SH 130 Concession Company spokesman Chris Lippincott said the company is operating and maintaining a "world-class highway. He noted that recent efforts by TxDOT to subsidize truck tolls have increased traffic and revenues.  

"We remain confident that the recently opened SH 130 Segments 5 and 6 will benefit our investors and the people of Texas," Lippincott said.

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Transportation Texas Department Of Transportation