Nichols defends two-year freeze on private toll road contracts

Nichols proposes two-year freeze on contracts
by Christine DeLoma
Lone Star Report
March 26, 2007

Responding to the political backlash over the controversial Trans-Texas Corridor toll road plan, lawmakers are seeking to restrict multi-billion dollar highway construction and operation contracts to private companies.

At issue is whether the state should be in the business of leasing roadways to private operators for 50 years in exchange for large upfront concession fees.

Among senators leading the charge is former Texas Transportation Commissioner Robert Nichols (R-Jacksonville). Nichols has 25 co-sponsors for SB 1267, which would put a two-year moratorium on TxDOT’s ability to enter into comprehensive development agreements (CDA) with private contractors.

“I don’t think it was originally conceived certainly by me or the department that we would be selling roads at some point in the future,” Nichols said at the March 21 Senate Transportation and Homeland Security committee meeting.

Nichols, who was on the commission when the Legislature voted to let TxDOT negotiate the Design-Build method in procuring highway contracts, said the move occurred with understanding that the agency would proceed with its newfound authority slowly and cautiously. Four years later, he said, there are more than a dozen planned projects underway that would allow private companies to build and operate toll roads.

Nichols’ bill would squash TxDOT’s recently announced deal with Cintra-Zachry to build State Highway 121 in Collin and Denton counties. Under the 50-year lease agreement, Cintra will build a toll road and get the revenue from the tolls in return for paying $2.1 billion in up-front concession fees to the state.

While more than two-thirds of the Senators have signed onto the bill, including committee chairman John Carona (R-Dallas), Carona has expressed reservations about moving the legislation forward. He has indicated he wants to instead try to fix CDAs, rather than temporarily prohibit the contracts.

Collin County Judge Keith Self said that delaying the project is unacceptable. Collin County is one of the fastest growing counties in the nation, according to the U.S. Census Bureau, he noted. “I really don’t care who builds the road, but we need the road,” Self said. If the CDA doesn’t go through, government agencies would need $1.3 billion to build the road themselves, he said.

Replied Sen. Florence Shapiro (R-Plano): “I think what should be unacceptable to you as the county judge is to accept a bid on a proposal for [state highway] 121 that is going to gouge our citizens over the next 50 years. That’s my concern. And I am not here to kill the road. I have been on city council and [served as] mayor of Plano, and I’m now the state senator in this community. I have never been opposed to roads, ever.

“What I do intend to do is make absolutely sure that every dollar that my citizens spend on these roads is going to be [for] the benefit to my community and the surrounding communities. I am not going to sit back and watch as we give a bunch of money away to allow another entity, a private entity to come in and gouge the citizens of Collin, Denton, Dallas, and Tarrant Counties.

Shapiro and Nichols are particularly concerned with the non-compete clauses within the CDA that may be designed to protect the interests of private developers at the expense of the state. In some cases, TxDOT may have to compensate the developer for lost revenues if the state builds ancillary roadways near the toll road.

They [Cintra] will have a monopoly in the fastest-growing county in Texas, and they can prohibit competition except by the state paying them huge penalties.

Many other local officials testified that the moratorium on CDAs would indefinitely delay or kill their planned transportation projects. “The consequences of eliminating this revenue stream would be absolutely devastating to our communities,” said Burleson Mayor Ken Shetter. “In addition to its immediate impact, I believe Senate Bill 1267 will hamper our efforts to satisfy our transportation needs far into the future.” He urged lawmakers to set reasonable limits to CDAs rather than eliminating the contracts altogether.

Nichols assured local officials that the moratorium does not prohibit toll roads. “The moratorium is against private equity, concession-type toll roads,” he said.

Non-profit, quasi-public local tollway authorities, like the North Texas Tollway Authority (NTTA) and the Harris County Tollway Authority would still be able to build the roads.

Nichols told the committee that his bill contains one exception for Sen. Kim Brimer’s (R-Fort Worth) district that applies to managed-lane projects that are far advanced in the CDA stages. However, TxDOT must receive the permission of the commissioner’s court before proceeding with the project.

Whether the non-profit tollway authorities can currently compete on a level playing field with private companies is another story. Local metropolitan planning organizations (MPO), charged with setting the transportation policy of a particular region, are enticed by billions of dollars in upfront money that they can get from private companies willing to build and lease a toll road.

The moratorium “stops a lot of upfront money,” said Tarrant County Judge Glen Whitley, who is a member of the region’s MPO. The concession fees would be used to pay for other road projects within the region, he said, adding that he believed NTTA would not have the bonding ability to match Cintra’s $2.8 billion concession fee offer. Seventy-five percent would be awarded upfront, with the rest paid over the 50-year length of the lease.

“I think it’s very important that we recognize that we’re not just talking about upfront money only. We have to look at the life of the project,” Shapiro said. Private companies that build toll roads are there to make money, she said. “Their goal and their objective is just to make money, not to build more roads in the community.” The NTTA, for example, does not make a profit, it reinvests the toll road money into the community to build more roads, she said.

Carona, however, is not ready to throw the baby out with the bathwater. He issued a statement March 22 indicating that Nichols’ bill does not address the state’s transportation problems. The bill “does not address the things that we need to change about the Comprehensive Development Agreement laws, such as noncompete agreements, up-front payments, and duration or contracts,” Carona said. “There is no reason to wait years to fix those problems.” For Tarrant County and others, the CDA moratorium “creates a hardship, and we have an obligation to listen to them as well,” he said.

Nichols, however, vowed to press on. “The effort to halt private toll road deals is not over,” Nichols said in response to Carona’s statement. “We will continue working to prevent Texas from entering into bad agreements that will hold our transportation system hostage for the next half century. Pursuing a short-term solution with dangerous long-term consequences is not the answer to alleviating traffic congestion. A two year “cooling-down” period gives us a chance to get these contracts right before we sign away control of our transportation system.”

Sen. Steve Ogden (R-Bryan), one of the primary authors of HB 3588 said that the Legislature did not intend to allow TxDOT to lease the state’s roads to private companies.

Unlike Nichols’ bill, Ogden’s SB 719 would altogether prohibit the state from granting a private interest a lease on a state road.

To address local officials’ concerns the legislation would cut off their revenue stream to build new roads, Ogden has also proposed doubling TxDOT’s bonding authority from $3 billion to $6 billion. A portion of the bonds would be guaranteed by the State Highway Fund.