December 08, 2009

Children playing at high finance (a TXDOT primer)

I can't express to you the unalloyed joy I will feel when, in a little more than a year, a Democratic Governor removes Trans Commissioner Ted Houghton from the his seat. Why? Just take a look at this and see what the sneaky little shit is up to...

Last week in Austin, Texas Transportation Commission members told staff to submit plans by January for how to fast-track a roughly $4 billion expansion of Interstate 35E between Dallas and Denton. Officials say the project is a prime candidate for a new kind of financing that they concede looks a lot like the private toll deals ruled out by the Legislature.

“We’ve got to use all of these innovative ways of building highways or we won’t be building,” said commission member Ted Houghton of El Paso in an interview Friday. “It’s a fact of life. If you want us to build roads, then we are going to move forward using these kinds of tools.”

The tool in question is called pass-through toll financing, and is different, though not very, from the private toll deals lawmakers have put on ice.

Here’s how it works: A private company, usually backed by a group of banks and other investors, agrees to use its own money to build a state road, usually with the help of at least some tax dollars. In return for the new road, Texas promises to make payments to the firm based on the level of traffic it attracts. The more vehicles that “pass through,” the bigger the payment the private company will receive.

Officials say such deals involving big toll roads could last 30 years or more. So far, though, pass-through financing has only been a way for Texas to pay for a handful of smaller free roads. The per-vehicle payments simply pay back the investment by the private company, or in some cases a local government, and are not passed on to drivers in the form of tolls.

Houghton, of course, completely omits that there will be minimum guarantee levels from the state for the toll lanes and that these agreements usually prohibit improvements to free lanes, frontage roads and alternate routes. Let's also take special note of how the taxpayer's contribution to this scheme is being downplayed. What do WE get in return, Commissioner? A road we get to pay to drive on? Since the state is providing the lions share of the money, what do we get... Here's the breakdown of the capital structure, just FYI...

NORTH TARRANT EXPRESS MOBILITY PARTNERS plans to sell $400 million of tax-exempt debt this month through the Texas Private Activity Bond Surface Transportation Corp. The borrower is a group led by Madrid-based Grupo Ferrovial SA’s Cintra Concesiones de Infraestructuras de Transporte SA, which Texas awarded the concession to rebuild and operate a highway northeast of Fort Worth. The bonds will be secured by toll revenue from the North Tarrant Expressway, including rebuilt highways Interstate 820 and State 121/183 near Dallas-Fort Worth International Airport. Fitch rated the bonds BBB-, while Moody’s ranked the issue Baa2, one step higher. The $2 billion cost of redeveloping the 13-mile (20.9-kilometer) stretch of highway will be covered by the private-activity bond proceeds, a $650 million federal transportation loan, about $570 million in gasoline tax revenue from the state, and $420 million in equity invested by Cintra and others. (Added Dec. 7)

Let's take special note of the rating... since this is a project backed by what may be uneven (and certainly unproven) toll revenues, these things are rated just barely investment grade. The spread over typical state issued debt (which carries a higher investment grade rating), which is essentially the difference in the interest rate between these securities and safe Treasuries, will I'm sure be pretty large adding still more expense to the capital structure. In other words, this innovative tool is costing us MORE in interest than if the state just did it themselves. We're actually paying MORE to privatize and Houghton is soaking tax payers for the difference.

Cintra, for it's investment totaling LESS THAN 25% of the capital structure, will get the rights to the toll revenue for 50 years. I'm sure there's some sort of profit sharing agreement, right Commissioner? I LOVE that you're selling this as if the private company will make the majority of the investment when in reality they are making only a small portion of it. And, let me guess, the contract specifies that they get the first money out of it, right? Even before the debt is serviced? Come on, Houghton... let us SEE the contract. Let's see what kind of sweetheart deal you've given to Cintra. What's the cap rate for Cintra on this? 12%? 15%? 25%?!?!?! For those of you keeping score at home, this means that if Cintra is due $100 mn per year and the debt service is $135 mn per year and the revenues are only $75 mn per year, then tax payers will cough up $135 mn to meet the debt service AND an additional $25 mn to pay to Cintra for their guarantee.

Reality was, is and always will be that privatization of infrastructure is THE most expensive way to fund our roads. We all know we need roads, but Carona and others continue to allow TXDOT to call the shots instead of forcing them to back off these risky privatization schemes that are essentially nothing more than corporate welfare.

And that, friends, is the dirty little secret. When you hear the words "innovative ways of building highways" or "innovative financing" in a discussion about transportation funding (especially if it's Ted Houghton speaking), you need to hear it as CORPORATE WELFARE.

The reality is simple... we need the gas tax increase. Failing that, we could toll but it needs to be the authorities and the state issuing the debt and collecting the tolls, not a private entity. All adding a private entity into the mix does is create yet another party that has a superior claim on our tax dollars.

Posted by mcblogger at December 8, 2009 12:18 PM

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