Selling off Harris County's toll road system???

[Bob]

The BIG news out of Harris County Commissioners' Court this week is a proposal to monetize the county toll road system.

Sept. 28, 2005
County will study leasing toll roads
Investment bank says private firms would pay billions to operate them

By BILL MURPHY
Copyright 2005 Houston Chronicle

An investment bank concluded that a private firm might pay up to $7 billion for the right to operate Harris County toll roads, prompting Commissioners Court Tuesday to authorize a study of the pluses and minuses of such a deal.

If the plan worked right, the multibillion-dollar windfall could be invested, and interest earned on it would pay for future road projects. Pricey road bonds likely would be a thing of the past, Harris County Judge Robert Eckels said.

"This could avoid the need for bond elections and the need to go to taxpayers for tax increases," he said.

As part of the 50- to 75-year deal, the county would maintain ownership of the toll roads, decide whether the system should expand and possibly set limits on future toll increases.

The county isn't looking to turn the Harris County Toll Road Authority over to an operator that would be interested solely in the bottom line and wouldn't be flexible in helping meet the region's transportation needs, Eckels said.

"I believe it is a good idea to do something like this," he said.

***
The court appointed Dick Raycraft, director of county management services, to report back Oct. 25 on what exactly will be studied.

***
The group that does the study would give its report by April. A deal, if it is approved, could be in place by spring 2007.

Source: http://www.chron.com/cs/CDA/ssistory.mpl/metropolitan/3372858

Surprisingly, this concept was NOT included in the posted agenda for the meeting, and was NOT mentioned at all at the County's agenda briefing Monday morning. So much for public transparency.

This is the same sort of financial gymnastics Governor Perry is pushing for with the Trans-Texas Corridor and the Spanish toll conglomerate, Cintra/Zachery.

[Bob]

Just in case anyone is momentarily excited about this proposed deal, I want to put on my MBA hat for a moment and make sure there's no confusion about what the County is proposing. "Monetizing" the toll road system is NOT the same as "outsourcing" or "privatizing."

"Outsourcing" is when a company or organization pays an outside group to perform a function previously done in-house, because it can be done more cheaply or more effectively by the outside group. "Privatizing" is when a government or public agency outsources functions previously performed by the government to a private operator. Outsourcing and privatizing are popular and can be very good things. One example is when a city government contracts with BFI, Waste Management, or another private waste hauler for solid waste management. Outsourcing and privatizing are most successful when the private sector can deliver a service more cheaply than the public sector.

However, this deal is NOT about Harris County finding a private outfit to operate the toll road system more cheaply. It's about selling off the taxpayers' financial interest in the toll system to a private investor. "Monetizing" the toll road system means finding a way to trade the future cash revenue of our toll road system for cash today. The problem is, no private entity can afford to pay the County what it's really worth. Here's why:

1. The Harris County Toll Road system generated ~$318 million in toll revenue during the last fiscal year. This cash cow currently belongs to Harris County taxpayers. As Harris County tax payers, we are essentially shareholders of HCTRA. We taxpayers already receive the financial benefits from public investments like the Sam Houston Toll Road, and we will for years to come. Some of that revenue is spent servicing HCTRA’s $1.8 billion in debt, and the rest is spent to improve and expand the toll road system.
   
2. In order for the County to receive up front today as cash the benefit of 30-75 years of future toll revenue -- the "multi-billion dollar windfall" referred to by Judge Robert Eckels -- taxpayers will have to pay a significant premium, either in the form of increased borrowing costs, increased tolls or both.
   
3. Harris County is already in the business of borrowing against future toll revenue (i.e. floating toll-backed revenue bonds) to get cash today to pay for road projects. As long as the county's bond rating remains investment grade, the county enjoys a lower cost of capital than that of any U.S. for-profit entity (e.g., bank, hedge fund, toll consortium, etc.).
   
4. An investor (i.e. Cintra/Zachery) will be interested in this deal based on the profits they expect to be able to extract from the toll roads, which must more than cover the price they pay to Harris County and whomever is providing the capital to purchase the tollroads.
   
5. Harris County, as a public entity, can borrow at a lower rate of return than a private borrower can achieve. Given that a private investor will have a higher cost of capital than Harris County does, then basic finance says that the present value of the cash flows from our toll road system will be worth less to them than they are to Harris County. Since the cash flows are worth less to a private investor than the County, that means no private investor can afford to pay the County what the flows are worth to taxpayers.
   
6. Further, this “deal” is a once-only proposition. If we sell our interest in Harris County's toll revenue to a private investor, we can never again borrow against it. We will have to borrow against other, less-desirable assets, which will affect the County's bond rating. So, this "deal" may have the effect on Harris County taxpayers of raising our cost of borrowing to 3-5 times the current rate. It would suddenly be as if we had built the toll road system and then decided to pay for it with high-rate credit cards instead of the low-risk bonds for which the taxpayers voted.

In my opinion, it is NOT in the interest of Harris County taxpayers to allow the County to do such a deal. Frankly, I'd prefer the County did not spend any more money studying the concept either.

p.s. Thanks to Bill for helping with this analysis!

[Ed Browne]

In my opinion, it is NOT in the interest of Harris County taxpayers to allow the County to do such a deal. Frankly, I'd prefer the County did not spend any more money studying the concept either.

Thanks to both of you for the detailed analysis. Now the question is what can we do to prevent this? Is our only recourse to replace elected officials? .. but that is a long-term solution and may be after the damage is done. This seems like a story that should be picked up by a local Sunday morning show or a late night talk show on KUHT.

The lack of transparency is a question we need to ask Commissioners about at Commissioner's Court with cameras running.

[LevinC]

Yet again, a DISGUSTING display of politics and good 'ole boy standards!!

[pledvina]

I don't have an MBA hat so I will put on my Devil's Advocate hat.

Personally, I never liked being a taxpayer/stakeholder in an investment where a decent return depends on everyone driving more. I wouldn't mind seeing the county get out of the business of making money off SOVs - at the expense of the environment and our communities- and really start thinking about smarter ways to move people. The deal doesn't guarantee that the commissioners will suddenly get religion regarding mobility but maybe it will at least make alternative transportation strategies more possible. At least it might make the commissioners feel less conflicted about considering transit and other strategies.

Also, with the price of gas going up maybe the county doesn't see toll roads generating as much revenue as they did in the past or as much as they were initially predicted to generate in the future. Will people be willing to pay more for gas and tolls? Maybe it isn't so stupid for the county to take the 7 billion today while enthusiasm for toll roads is perhaps at its peak.

[Dunlavy]

Robin - nice piece of analysis. "Selling off" the toll roads to private intersts is simply financially inept, in terms of taxpayer cost/ benefits.
Keep you the good work of continuting to pooint out what these proposal really cost and what they really mean!
MN

[MarciP]

My first take was sounds like a lot of money until you look at the number of years involved, then the money is not a lot.

I understand that it is a large sum of money, however even at higher rates of interest earned, the rates are dependent on the economy. Those rates can go down.

I am hoping that the Avian Flu is like the Swine Flu but given the possibility of our loosing one half of not only our but the world's population, the economy might suffer tremendously. Does anyone know what happened to the economy after the Influenza epidemic in the early 1900's when the loss of population was only 1 in 4?

I think another thing is the idea of a govermental agency having such a large amount of money in savings might not work to the general public's best interest as govermental agencies tend to spend most of what they have each year. Does Harris County handled our monies better than the other governmental agencies?

[Ed Browne]

Personally, I never liked being a taxpayer/stakeholder in an investment where a decent return depends on everyone driving more. I wouldn't mind seeing the county get out of the business of making money off SOVs - at the expense of the environment and our communities- and really start thinking about smarter ways to move people. The deal doesn't guarantee that the commissioners will suddenly get religion regarding mobility but maybe it will at least make alternative transportation strategies more possible. At least it might make the commissioners feel less conflicted about considering transit and other strategies.

Also, with the price of gas going up maybe the county doesn't see toll roads generating as much revenue as they did in the past or as much as they were initially predicted to generate in the future. Will people be willing to pay more for gas and tolls? Maybe it isn't so stupid for the county to take the 7 billion today while enthusiasm for toll roads is perhaps at its peak.

Polly, I can agree with you on the premise of your argument - get the county out of the tolling business - but can't understand how privatization would help us. My reasoning is that currently the state doesn't fund roads that are not tolled, so it seems that Harris County passing the reins to private enterprise essentially privatizes our road system for the foreseeable future. If we have no alternative to the toll road (TxDOT's policy is to limit alternatives), then it would seem to me that we would be worse off. Now, if we had an alternative transportation strategy, as you have said, then we would all automatically be encouraged to use it. But is it realistic for us to think that Harris County would provide that alternative? Wouldn't it be nice for them to explain their motivation at Commissioner's Court or to the newspaper before signing on to such a radical plan.

It strikes me as odd that HCTRA would want to privatize their toll road system at the same time that TxDOT is asking for a piece of the take. Are these related or mere chance? Thus far, the toll roads have generated net positive revenues, so why would they want to give that up?

Could TxDOT be asking to recoup some of the money lost on I-10? Has TxDOT said, "You will pay the overage costs on I-10!" or, "you will pay unless..."? Perhaps HCTRA is realizing that once they split the take with TxDOT, their remaining cut doesn't justify the headaches, so it's better to grab the money and let TxDOT negotiate with a private company. Or, lastly, does TxDOT want to show that privatization can work in an effort to ease the resistance to Cintra/Zachary building and running the Trans Texas Corridor ... and is HCTRA willing to support that effort?

[pledvina]

Ed wrote:

If we have no alternative to the toll road (TxDOT's policy is to limit alternatives), then it would seem to me that we would be worse off. Now, if we had an alternative transportation strategy, as you have said, then we would all automatically be encouraged to use it. But is it realistic for us to think that Harris County would provide that alternative?

Is it realistic for us to think that Harris County will ever provide better/alternative transportation and land use strategies if their money and power depend almost entirely on increasing sprawl and Vehicle Miles Traveled?

If the CTC looks at transportation (and corresponding land use) decisions strictly on the basis of how much money will be made, then the CTC is not that different from the all of the developer/road building lobbyists that will happily pave over every business, home and green space in the way of turning a profit ? I'm not hearing where quality of life and sustainability come into the calculation? Are you all suggesting that we should make as much money as we can building and operating new toll roads - and then use the money to try to retrofit quality of life back into the equation?

I agree that we don't entirely understand intentions of the county leaders exploring the deal. We can't understand the financial and quality-of-life ramifications of the plan until we do. My main point is that I think it is in nobody's best interest for the CTC to go out swinging against the deal until more is known. There is a lot to be said for removing incentives to promote transportaion/land use policies that will require more driving.

Polly

[Ed Browne]

Are you all suggesting that we should make as much money as we can building and operating new toll roads - and then use the money to try to retrofit quality of life back into the equation?

No, of course not. I'm placing myself in HCTRA's position and wondering why they would consider/want to kill the cash cow. I don't think that selling the County's toll road system to a private company will result in better quality of life for anyone except that company's shareholders.

I agree that we don't entirely understand intentions of the county leaders exploring the deal. We can't understand the financial and quality-of-life ramifications of the plan until we do. My main point is that I think it is in nobody's best interest for the CTC to go out swinging against the deal until more is known.

Couldn't agree more. You had already convinced me that we need to understand the reasons, which is why I was posing questions.

There is a lot to be said for removing incentives to promote transportation/land use policies that will require more driving.

This is where I'm having trouble. I'm assuming that you're expecting privatization to result in a disincentive to drive - that would be counter to a company's profit interests, so they would try to increase ridership. My point, which you didn't comment on, is that if TxDOT only promotes toll roads and if HCTRA is not building the roads, then the private company will be. Will we end up with roads that we need that improve quality of life or with toll roads to exclusive housing developments and a private corporation that "depends almost entirely on increasing sprawl and Vehicle Miles Traveled" for its revenues? Understand that I'm being facetious in the extent of abuse, just making the point that the private sector has even less incentive to do the public's bidding than HCTRA.

[Bob]

I just got back from Vermont. In reading the conversation that ensued from my original post, I realize that I left my principal argument unstated. The county is proposing what is fundamentally a financial deal (and one that probably pays Harris County taxpayers short shrift), when I thought they were supposed to be in the transportation/mobility business. The proposed deal doesn't appear to improve our transportation system at all, and worse, will make the system we have even less accountable to Harris County residents/voters/taxpayers.

We went to the Texas Legislature in the spring because our elected County Commissioners aren't accountable enough for toll road projects. If the County accepts cash up front to hand off the toll road system to a for-profit entity, I don't imagine that public accountability for toll road projects will improve. That sounds something like a CTC issue to me.

Meanwhile, I love the idea that the county should be providing alternatives to single-occupant vehicle (SOV) travel, and I don't believe we need the proposed deal to do it. There's absolutely no reason that the county cannot fund more sidewalks, bikeways, HOV lanes, busways, rail infrastructure, etc. today, except that our four elected Harris County commissioners mostly don't care to do it. I think it's about public demand and political will, not money.

[Bear]

We can't understand the financial and quality-of-life ramifications of the plan until we do.

When Bob called me in my office in NYC, and told me what the idea was, I laughed. I agree that we cannot understand the QOL issues that the plan proposes, but we can very much understand the financial ramifications.

To whit (not to belabor the excellent explanation Bob did, but to add some commentary):
- Interest on Municipal Bonds is tax free for investors. As a result, yields on the investment grade bonds tend to be significantly lower than even those at which the US Treasury can borrow.

- A For Profit firm has two sources of capital: debt and equity. Debt generally requires a lower rate of return, but also tolerates less risk (naturally enough). Invesment grade corporates generally trade 1% - 2% higher than US Treasuries. Equity will cost between 15 - 20% under normal market conditions.

- A financial buyer for a toll road is going to buy based on the cash flows and a hurdle rate (as Bob described). If you hold cash flow constant, and apply HCTRA's cost of capital to the cash flows, the net present value should be higher than for a private borrower because of the tax advantage on the interest it pays. Interest income on corporate debt is taxable in full.

- By "leasing" our toll roads to a third party, we essentially adopt a financing scheme that combines the purchaser's cost of capital AND whatever additional profit margin they have baked into the game. Give or take, I would expect this to come in at about 13 - 17%, or more (i.e., decent credit card rates). That is just the way the math works out. We get the cash up-front, but it is sort of like taking a payday loan.

As one of Bob and my entrepreneurship professors used to say, "Terms, time or money. I can let you pick two and still take you to the cleaners." I would be very wary of any typ of contract that lasts as long-term as we may be talking about. Such terms as minimum guaranteed traffic, expansion on competing routes, etc. would all have to be taken into account if I were on the other side of the table buying a toll road. I doubt I am brighter on this than someone actually on the deal team, so Judge Eckels should count the money in his wallet before and after each meeting.

Later,
Bill

[pledvina]

Ed wrote:

I'm assuming that you're expecting privatization to result in a disincentive to drive - that would be counter to a company's profit interests, so they would try to increase ridership.

No. I mean that privatization will remove the incentive to county lawmakers to promote more sprawl and driving (and ultimately more tolls from toll roads).

You are right that disincentive to drive would be counter to a company's profit interests. Just like right now it is disincentive to the county's profit interests. Nothing will ever keep companies from lobbying for bad public policies to serve their own profit interests but removing incentives to lawmakers to promote bad policies should be a given.

[Bear]

No. I mean that privatization will remove the incentive to county lawmakers to promote more sprawl and driving (and ultimately more tolls from toll roads).

Polly - What mechanism are you seeing here? I'm a little too sleep deprived to be very quick on my feet these days.

What my addled brain is telling me is that TxDOT's desire to take a cut of toll road revenues has apparently chilled the county's enthusiasm for new toll projects, or at least several of the ones on the table where they would "partner" with TxDOT. Putting a big lump sum of cash into the county's coffers would probably be an incentive to go ahead and build a bunch of other roads (toll or otherwise) that are self-financed. And, in the way that many people think, finally get ahead of development with road construction.

Now, if Judge Eckels were to put the $7BB into transit infrastructure that makes sense (BRT, LRT, Commuter Rail), then I would applaud the move as a way to pay, expensively, for much needed smart infrastructure when we had both the financing and political will in place at the same time. However, I keep coming back to TTC-like "if it generates revenue, it's good" mindsets among officialdom, and I do not see getting a huge windfall as a disincentive to continue paving. In fact, positive reinforcement may make a "pave and sell" strategy even more appealing.

Later,
Bill

[Ed Browne]

No. I mean that privatization will remove the incentive to county lawmakers to promote more sprawl and driving (and ultimately more tolls from toll roads).

Ok, let me try again. Are you saying that getting the County out of the toll road business removes the incentive for them to want more toll roads -- kind of like cold turkey breaking an addictive habit -- so they're less likely to allow more toll roads? I can see that.

Still, the state seems to have an insatiable desire for more toll roads and they are not at all reluctant to partner with private companies. So I'm thinking it's the devil you can vote out of office versus the devil that you can't.

Another thing just occurred to me... suppose HCTRA sold their interests to a private company and formed an RMA. Then they can have their cake and eat it too. The toll road authority ceases, which everyone thinks is a wonderful thing, then the County forms a brand new, well funded RMA.

One good thing is that an RMA can do transit as well as toll roads; the bad thing is that there would be a new private tolling entity with enough cash flow to build more toll roads. Of course, they would need City, State and County permission. Hmmm... is this what you've been trying to get me to see?

[tmck]

Can anyone find the legislation that created the toll road authority and the advertising that was used to sell it to the public? How about any legislation that might have changed the original that the public approved? All should be reviewed and perhaps a legal opinion sought as to whether the HCTRA can legally do this. I have been under the impression that each toll road was built with a certain package of bonds, and that when those bonds are retired, said toll road would become free and would be turned over to TxDOT to own and maintain.

I use the Hardy fairly often, and it's my opinion that no one is maintaining it! The paving in some areas is failing. Did it meet specifications when the road was built? Testing today could determine that. Who is inspecting the toll roads being built today? Are they designed for long-term heavy-duty use, or for long enough for the taxpayers to forget when they were built. Or, perhaps, until the HCTRA can find a buyer.

[Ed Browne]

There are rumblings that Harris County may actually want to form an RMA so here is a little information. From this URL, written October 4: http://www.tollroadsnews.com/cgi-bin/a.cgi/nlc.4DT3EdqcEIJ61nsxIA

First Southwest in a preliminary report for the county is reported in the local press as saying a franchise could bring in a net $2b to $5b after defeasing county debt of $1.8b.

However a First Southwest guy told us that so far all they have had is general conversations with Harris County officials. Any numbers they have given were very rough back of the envelop calculations of the order of magnitude. To get a good grip on the subject they would need to do a proper study. He said there are many alternatives that could be considered:

* sale to another government agency

* formation of a regional mobility authority

* an initial public offering in which the authority is converted into a publicly held and traded company

* a longterm toll concession granted after competitive bids

"There are a lot of options," he said "and obviously we hope we will be hired to help the county explore them. We have a lot of experience here and we know these toll roads."

Suppose an RMA were formed from the same group of counties that make up the HGAC. A lot of the structure would coincide with HGAC structure so it would streamline the process. An Internet search turned up this news story from our area over 4 months ago. I had missed it before.

Officials eye transit authority

By Ken Fountain
Baytown Sun

Published June 15, 2005

ANAHUAC – Chambers County Commissioners are considering the creation of a regional mobility authority, which would allow the county to exercise greater control over local transportation issues.

John Barton, district engineer for the Texas Department of Transportation’s Beaumont office, gave a PowerPoint presentation Tuesday on regional mobility authority’s, which were authorized by the Texas Legislature and voters in 2001.

“Chambers County is growing at an exponentially rapid rate. An RMA may be a tool to help you provide for your transportation needs,” he said.

Barton said an RMA is like a “mini Department of Transportation.”

A county or a group of counties can form an RMA, he said. Under state law, the only Texas city which can form its own RMA is El Paso, he said. Counties that form RMA’s do not have to be contiguous, and the authorities can overlap each other.


Barton said that the formation of an RMA involves a three-step process by which the governmental entity submits a proposal to the Texas highway department, the proposal goes through a series of public comment periods, and the state Transportation Commission gives the final approval.

Among the projects that an RMA can create are turnpikes, toll roads, passenger and freight rail facilities, intermodal hubs, and even conveyor-belt systems that allow containers to be brought directly from barges to industrial plants.

Barton said that the industrial growth in West Chambers County, including the soon-to-open Wal-Mart distribution center in the Cedar Crossing Business Park, is one significant reason the county might consider forming an RMA.

Among reasons Texas communities are forming RMA’s, Barton said, are: to accelerate needed transportation projects; improve mobility; enhance economic development; and create new revenue sources such as toll roads.

Barton noted that the first RMA formed in the state, the Central Texas RMA of William and Jefferson Counties, has received a lot of attention, “both positive and negative.”

“I’m certainly not trying to encourage you to do one thing or another,” Barton told the commissioners. “But your ability to made a decision in the future is time sensitive.”

He said that when the Grand Parkway, a super-loop encircling the greater Houston region, opens, the Harris County Toll Road Authority can be expected to move to control the massive tollway.

Commissioner Bill Irby asked Barton how long the formation of an RMA takes. Barton replied that it typically takes six months or so.

Chambers County Judge Jimmy Sylvia asked what the advantages and disadvantages were to forming an RMA of two or more counties.

Barton said in a multi-county RMA, the risks are shared and the opportunity to create a strong financial base is greater.

“One of the drawbacks is that it’s hard for everyone in just one county to achieve consensus,” he said.

Barton said there were few initial costs to forming an RMA, and administrative costs are typically low since TxDOT employees usually make up the staffs.

Sylvia and the commissioners asked Barton and county engineer Don Brandon to work together in beginning the process of forming an RMA.

Here are the process steps required. We should be able to see if Harris County submits a petition or witness a vote on a resolution from Commissioner's Court. Obviously there hasn't been any public debate on this, and maybe we need to start one, but it would be hoped that Harris County and others would not create this in closed backroom meetings before announcing it to the public.

Step 1: Submit petition to Texas Transportation Commission
• Resolution from commissioners court of each county
• Identification of proposed transportation project
• Description of impact on regional mobility
• Appointment process of board members (i.e., involvement of city, county, or
other local government entities in selecting board members
Step 2: Review petition and schedule public hearing
• TxDOT will review petition to ensure all requirements have been met before
a public hearing date can be set
• County will advertise the hearing in accordance with a public outreach plan
developed with TxDOT
• Legal notice will be posted in classified section of area newspapers
• Hearing information and petition will be posted on county website
• Other innovative outreach activities targeting the general public will occur
Step 3: Decision by Texas Transportation Commission
• Sufficient public support based on information for public outreach activities
must be present
• Benefit to traveling public must be evident
• Project must be consistent with local and state transportation plans
• Local and statewide mobility must be improved

[Ed Browne]

Robin got some good press today. I spoke to her this afternoon after she had attended Commissioner's Court and she said that the commissioners approved the study defined in the article. We really need to watch this carefully and try to understand the implications.

As an aside, Robin described an exchange at the meeting: an argument ensued between Judge Eckels and Commissioner Radack because Judge Eckels proposed cutting the county's tax rate, just prior to the vote to raise it. Steve Radack was upset that Judge Eckels had waited so long before saying anything (4 weeks) and Judge Eckels was upset that his idea wasn't considered. When politicians make suggestions about cutting taxes, particularly late in the game with nary a chance of passing, it smells like politics, but evidently Judge Eckels has made this proposal before and was always defeated. My question, then, is this savvy politics or taxpayer relief?

Houston Chronicle
Oct. 24, 2005, 11:40PM
Banks, firms set sights on 83 miles of toll roads
Harris County commissioners will weigh leasing system to operator
By BILL MURPHY
Copyright 2005 Houston Chronicle

In 1999, the Spanish toll company Cintra paid $3.1 billion Canadian for the right to operate a 42-mile toll road in Toronto.
ADVERTISEMENT

In January, the Cintra-Macquarie Consortium ponied up $1.83 billion to lease operating rights to the eight-mile Chicago Skyway for 99 years.

Astute financiers worldwide have begun viewing busy toll roads that draw hundreds of thousands of drivers daily as long-term investment opportunities, and the Harris County Toll Road Authority is among the systems attracting interest.

Investment banks and private toll-road operators have put out feelers to the county, saying it might be able to lease the 83-mile system for $2 billion to $7 billion.

Such numbers got the attention of county officials. Harris County Judge Robert Eckels is among those who say road bond referendums could become a thing of the past if such a windfall were received and the interest was used to pay for street construction, repairs and other transportation needs, such as commuter rail lines.

But a local watchdog group remains skeptical. Its members wonder whether the toll-road system, which they say has been prone to secrecy for decades, would be less transparent than ever under a private operator.

"Many, many members of our organization are concerned the accountability will be less if the toll roads are run by a private company," said Robin Holzer, chair of the Citizens Transportation Coalition.

Commissioners Court is expected today to give the go-ahead to a comprehensive study that will determine whether it is in the public's and the county's interest to fully or partially privatize the toll road. The plan calls for the county to ask selected investment banks to submit proposals about the toll road's future.

The court also will consider whether it should create a working group that will help review proposals about the toll road's future.

The study will consider which of the following options is best for the toll road users, the county and its long-term financial stability.

The county could:

• Keep the toll-road authority as is.
• Sell parts or all of the system to a private firm or to a partnership between a private firm, the county and a newly created regional mobility organization. Such a sale might net $2.7 billion to $4.4 billion, concluded First Southwest Co., the county's financial adviser.
• Or it could lease the right to operate the system for 50 to 75 years to a private firm or to a partnership between a private firm, county and the regional group. Such a deal could net the county $2 billion to $7 billion, according to investment banks.

Under a public-private partnership, the county could hold no more than a 49 percent interest. A private firm and a regional mobility organization would control the remaining 51 percent.

The organization, Eckels said, would include members appointed by Harris County, surrounding counties and Gov. Rick Perry.

Commissioner Sylvia Garcia said, "The study will explore our options and look at what the future of the toll-road authority ought to be. We would be remiss in our responsibility not to look at this."

The county considered leasing toll-road operator rights in 1999, but the idea died. But Eckels and other influential county figures, such as Dick Raycraft, who oversees the county's budget and long-term financial planning, now want the court to seriously examine privatization.

Some court members already know where they stand. In the past weeks, Commissioner Steve Radack has said he will not oppose the privatization study. But he said he will oppose privatizing the toll road in any way.

Holzer said private firms want to operate the toll road because they know that they can make money on top of whatever was required to be paid to the county. She wondered why the county just doesn't make the money itself rather than give a private firm a cut of its take.

"I am skeptical that the deal makes financial sense. Some people will be tempted by the thought, 'Hey, we can have money now instead of later,' " she said.

Source: http://www.chron.com/cs/CDA/ssistory.mp ... an/3413597

[Bob]

Bill Murphy ran this article in today's Houston Chronicle...
[cropped since Ed has it posted above]

I attended Commissioners' Court this morning to reiterate (in public comment) the need for public accountability, regardless of who owns/operates the toll road system. Almost needless to say, Commissioners' Court voted unanimously to move forward with the study. However, Cmr Lee expressed concern that the RFQ and study would be performed by an investment bank with interest in the business, rather than by the County, and Cmr Garcia expressed concern about making sure the "status quo option gets a fair shake" in the analysis. Also, the Commissioners insisted that Richard Raycraft, the County's head of Management Services, head the internal working group who will review the study.

[Sal@TexasTollParty.com]

Noncompete agreements are the devil in the toll road privatization details.

Odd's are, a reporter will ask for these details in Texas and not get them as other reporters asked for details of the Perry/Cintra deal. Read more about secret noncompete agreements and how they help force people onto toll roads in the link below,

"SR 91 made noncompete agreements anathema. California Attorney General Bill Lockyer described the Hwy. 91 as a “polite form of highway robbery.” The problem is that when there is no “noncompete” provision, the private sector is not interested in funding toll roads."

"The key to success is ensuring that free roads are so congested that drivers are forced to use toll roads."
– Unbossed

Source: http://www.unbossed.com/index.php?itemid=276

Sal Costello
Founder of People for Efficient Transportation
www.TexasTollParty.com

[Ed Browne]

At the CTC Board meeting this last evening, Robin said that the banker's study of the proposed sale of HCTRA's toll roads is complete and will likely be discussed at June's Commissioner's meeting. This may be big news for our area, so we need to be sure to be represented. I believe Robin said the meeting was June 20.

[Bob]

After the Transportation Policy Council meeting this morning, I asked Harris County Judge Robert Eckels about the toll road privatization study. He said he hadn't seen it yet but he concurred that they have to bring it before Commissioners' Court. It's scheduled to be ready by the Tues June 20, 2006 meeting but may show up at the Tues June 6 meeting two weeks earlier.

Judge Eckels assured me again that "no one at the County wants to 'sell off' the toll road system." He says HCTRA is the only agency in town with the money to fund projects like the Eureka hike/bike trails, and they'll need revenue from the west Sam Houston toll road to pay for development of the proposed Hempstead Managed Lanes. However, several questions remain including what the study will say about options for changing the ownership structure (i.e. setting up a Regional Mobility Authority (RMA)), and whether they want to pursue private concession agreements.

I am eager to read the report. I plan to ask for a copy when it's available, and I plan to share it when I get it.

[Bob]

At the Commissioners' Court agenda briefing this morning, I asked Peter Key, Assistant Director of HCTRA, whether the bankers' toll road reports are available yet and he said not yet. The Tues Jun 20, 2006 Court meeting will include the annual Capital Improvement Program update, so it's still the most likely occasion to deal with the toll road reports.

The hot question is whether Harris Cty. Management Services, headed by Dr. Richard Raycraft, will simply present the reports for consideration or include an action recommendation. We'll find out soon.

Harris County's Commissioners' Court agendas are typically available here: http://www.co.harris.tx.us/agenda the Friday afternoon before each Tuesday meeting. Look for the next one on Fri Jun 16.

[Ed Browne]

At the Commissioners' Court agenda briefing this morning, I asked Peter Key, Assistant Director of HCTRA, whether the bankers' toll road reports are available yet and he said not yet. The Tues Jun 20, 2006 Court meeting will include the annual Capital Improvement Program update, so it's still the most likely occasion to deal with the toll road reports.

The hot question is whether Harris Cty. Management Services, headed by Dr. Richard Raycraft, will simply present the reports for consideration or include an action recommendation. We'll find out soon.

Harris County's Commissioners' Court agendas are typically available here: http://www.co.harris.tx.us/agenda the Friday afternoon before each Tuesday meeting. Look for the next one on Fri Jun 16.

There was a story on KUHF that quoted Judge Eckels on this subject:

Elected officials from Harris, Galveston and Brazoria Counties are discussing ways to improve transportation in the region. Harris County Judge Robert Eckels says the rapid growth in the region means jurisdictions must work together on transportation. He says Harris County is working on using the toll road authority to provide a method of finance for area transportation projects.

We're going through now a study on the toll road authority on how we pay for things in this community and the value that can come through that. I believe that we should maintain local control, to the extent that we can, on our financing and it's important because we need to look at issues beyond the pure economics of that system. We need to be able to finance projects like the East Belt of the Sam Houston Tollway, which may or may not make economic sense, pure economic sense today, but needs to be built and will in the long term be paid for through the tolls and the system that's there.

[MikePH]

which may or may not make economic sense, pure economic sense today, but needs to be built and will in the long term be paid for through the tolls and the system that's there

Motor fuel prices are still quite cheap, in fact, but the chance of them remaining low is slim to none. Whether the HCTRA is privatized is largely irrelevant. Privately owned or not, the bondholders will lose their entire investment within the next ten years. Financing any entity that depends on gasoline selling at 19¢ a cup, whether it is a tollway, an automotive company, or a real estate development firm, this late into the cheap oil fiesta, is economic suicide. The only thing keeping the present system going now is denial of the obvious. There is abundant historical evidence that, over the long term, the overwhelming majority of investors are suckers.

[m1ek]

Financing any entity that depends on gasoline selling at 19¢ a cup, whether it is a tollway, an automotive company, or a real estate development firm, this late into the cheap oil fiesta, is economic suicide. The only thing keeping the present system going now is denial of the obvious. There is abundant historical evidence that, over the long term, the overwhelming majority of investors are suckers.

They "depend" on 19c/cup gasoline in the sense that every financial document must make worst-case assumptions about anything and everything whether they are actually even astronomically likely to have the impact asserted, so that if the 1-in-a-million case DOES happen, they have ammunition to use in the inevitable lawsuit.

Toll roads are money-makers in European countries with fuel prices higher than we (can currently) dream of. Without alternatives for the daily commute, it's far more likely commuters would move to smaller cars rather than spending an extra hour or two a day trying to use transit that doesn't serve their exurbs well if at all. And those small cars will still pay the tolls.

Alarmism on this particular front is stupid - it would be far better to push for redirecting toll revenue to developing fixed-guideway transit in the same corridors.

[Bob]

Alarmism on this particular front is stupid - it would be far better to push for redirecting toll revenue to developing fixed-guideway transit in the same corridors.

To restate where CTC started this issue, the critical issue is accountability rather than tolling. Many of us like the idea of using single-occupant vehicle (SOV) toll revenue to fund transit (bidirectional HOV lanes) and bike/ped (trail, lane) improvements. But under current state law, Harris County taxpayers have little visibility and less control over which projects get tolled or what the toll revenue is used for.

Judge Robert Eckels talks a good talk about how the toll road authority is the only agency in town throwing off cash and how we could use that cash to fund quality of life projects like the Eureka bike/ped Trail or more transit. Right now, we can't actually see whether that happens, and voting for a new county commissioner is the only way to increase that likelihood. If HCTRA goes to private ownership or a long-term lease arrangement, Harris County voters will have less visibility and less accountability, not more.

[Bob]

The standing-room only audience spilled into the hallway Tuesday morning to hear Mike Bartolotta from First Southwest and others attempt to present the findings of the three toll road alternatives studies to the Harris County Commissioners Court.

But Judge Robert Eckels and the Commissioners said they didn't need to hear all of the presentations because, reading the 200+ page report, they were already comfortable NOT considering selling or leasing the toll system at this time.

June 20, 2006, 2:42PM
Harris County's toll roads not for sale
By BILL MURPHY
Copyright 2006 Houston Chronicle

Rejecting the temptation of a multibillion windfall, Harris County Commissioners Court voted unanimously today to continue running the county's lucrative toll road system rather than selling or leasing it to a private entity.

"Now we can erect a sign on the toll roads: 'Not for sale, not for lease,'" said Commissioner Steve Radack, who had never been enthusiastic about the idea, even as the county conducted studies of the leasing and selling options.

The action means the system, which comprises the Hardy, Sam Houston and Westpark toll roads, will continue to be operated by the Harris County Toll Road Authority.

The county could have gotten as much as $20 billion if it sold the system and ceded all control over tolls, reported JP Morgan and Popular Securities, which studied that option for the county.

Goldman Sachs and Loop Capital, which studied the leasing prospects, concluded that a lease, depending on its length, could bring in $7.5 billion to $13 billion.

The third consulting group, Citigroup and Siebert Brandford Shank & Co., recommended that the county keep the system but study ways to better leverage its finances for other future expansion.

The toll road system had $373 million in revenues in fiscal year 2006.

The county's Office of Management Services and its financial consultant, First Southwest, oversaw the studies.

Private firms and investment banks have taken over a number of toll roads worldwide. The Spanish toll company Cintra paid $3.1 billion Canadian in 1999 to operate a 42-mile Toronto toll road. The Cintra-Macquarie Consortium last year paid $1.83 billion to lease operating rights to the eight-mile Chicago Skyway for 99 years.

A consortium led by Cintra is negotiating to develop a segment of the Trans-Texas Corridor, a proposed statewide system of toll roads, pipelines and railroads.

Source: http://chron.com/disp/story.mpl/metropolitan/3986444.html

Dr. Raycraft, the County's Director of Management Services, told me Monday that he expects the full toll study report to be available online within the week. Here's an overview graphic from the report that lays out the three "tracks" the investment banking teams were assigned to study:



First Southwest's Mike Bartolotta reported that all three "tracks" provide opportunity for Commissioners to maximize the value of the toll road system and fund additional projects going forward.

Art Storey, the County's Public Infrastructure Director, supported the Commissioners decision, saying, "I personally believe track A – County owned and operated – can deliver anything – efficiencies, cash on hand, revenue – that the other tracks can do and leave you more control. The only things the hybrid system can do are things I do NOT recommend you do."

Bartolotta said that tracks "B" and "C" -- sale and concession -- face hurdles: new legislation is needed, questions over sales and property taxes, and control issues. With track "A," the County can move forward today. But he also said that with the County-owned track, operational efficiencies cannot achieve enough growth. The County must manage toll road revenue and toll rate schedules.

Storey also emphasized Bartolotta's point: "it’s not about efficiency, it’s about toll rates... I said the existing toll road system can deliver as much revenue, but that's only true if we do some of the business practices that a private concessionaire would do. With an aggressive toll schedule we could give us some room under our credit limit to do other 'must do' projects."

Bartolotta explained further, "the credit rating agencies value toll policy as an indication of managing the investment." With a good credit rating, the County can borrow more to fund more projects.

The Commissioners asked Director Raycraft to prepare new toll policy recommendations, including recommended rate increases over a period of years. It wasn't clear to me how quickly Raycraft will come back with those recommendations.

To me, the most interesting part of the exchange came a bit later when teh Commissioners were discussing capital projects for the Flood Control District. Cmr. Eversole asked whether the County should be looking at another bond issue, quick to point out that was Cmr. Radack's proposal last fall. Art Storey said they may be able to use money from a [toll-backed] "enterprise fund." Eversole said he thought the County would have to go to the Lege to do that, and Storey acknowledged: "I probably gave you that idea, but I learned some things in this study, some of the things we’re able to do; we’re not as tightly bound in what we use our toll revenues for as I once thought we are; we’re talking about county mobility."

So it sounds like the County may already have the ability to use toll revenue to fund non-toll road projects, using their existing organizational structure. Very interesting.

[Ed Browne]

To me, the most interesting part of the exchange came a bit later when the Commissioners were discussing capital projects for the Flood Control District. Cmr. Eversole asked whether the County should be looking at another bond issue, quick to point out that was Cmr. Radack's proposal last fall. Art Storey said they may be able to use money from a [toll-backed] "enterprise fund." Eversole said he thought the County would have to go to the Lege to do that, and Storey acknowledged: "I probably gave you that idea, but I learned some things in this study, some of the things we’re able to do; we’re not as tightly bound in what we use our toll revenues for as I once thought we are; we’re talking about county mobility."

So it sounds like the County may already have the ability to use toll revenue to fund non-toll road projects, using their existing organizational structure. Very interesting.

I wonder if they can also fund rail systems without going to the legislature. That may be a good thing, but under current state law, Harris County is NOT required to hold public meetings to inform the public or gather input regarding their concerns and preferences. I'm presuming that lack of oversight would continue with their newly found capabilities, and that's a bad thing.