Texas plans takeover of toll project under which private investors financed the addition of express toll lanes in the Houston metro area.
by Robert Poole
In a move that surprised transportation experts, on March 28 the Texas Transportation Commission voted to begin planning the termination of a 52-year public-private partnership agreement under which private investors financed the addition of express toll lanes to 10 miles of Texas State Highway 288 in the Houston metro area. If the plan is implemented, the state will create a non-profit corporation (similar to the one responsible for the Grand Parkway—an emerging outer ring road in that part of Texas) that would issue bonds to finance the take-over.
The Texas public-private partnership law refers to such projects as comprehensive development agreements, or CDAs. The CDA for SH 288 was signed in 2016 and the project was opened to traffic in 2020. Like many design-build-finance-operate-maintain (DBFOM) public-private partnerships, the comprehensive development agreement for this project includes two forms of early termination—either for convenience (with compensation) or for cause (with no compensation). Since the Texas Department of Transportation (TxDOT) has no cause for termination, the compensation that will be provided is based on a complicated set of provisions in the long-term CDA. By TxDOT’s calculations, this amount is likely to be $1.73 billion.
My research into this unexpected development found that the idea originated within TxDOT, rather than from anti-P3 legislators. In a private message prior to the commission meeting, I was told that being able to buy the project back for around $1.7 billion would, in effect, be a bargain since the concessionaire’s own valuation is significantly higher. Also, this would give TxDOT more flexibility to, for example, add general-purpose lanes to the corridor. In addition, the state would gain control of the variable toll rates.
After the unanimous vote, Commission Chairman Bruce Bugg noted that the vote itself does not change the CDA but authorizes TxDOT Executive Director Marc Williams “to take further action if it is determined to be in the best interests of the state of Texas.”
In an article in the March 2024 issue of Public Works Financing, Michael Bennon notes that, “A buyout by TxDOT is certainly not a foregone conclusion…TxDOT will now initiate negotiations with [the P3 company] in the coming months to negotiate some concession modifications in lieu of a buyback and all the transition costs that would entail.”
I hope he’s right.
In my testimony at the commission meeting, delivered by a Reason Foundation colleague, I explained my assessment of the TxDOT proposal this way:
“Our message is that terminating the SH 288 comprehensive development agreement would be unwise, with long-term consequences for Texas’ highway infrastructure.
Twenty years ago, Texas pioneered long-term design-build-finance-operate-maintain public-private partnerships. The result was $9.3 billion of new highway capacity, of which only 16% was funded directly from taxpayers.
The Texas model was so successful that six other fast-growing states adopted it: Colorado, Florida, Georgia, North Carolina, Tennessee, and Virginia. They all compete with Texas for new and expanded businesses and they can now expand their highways at 16 cents on the dollar, as Texas used to. Cities like Atlanta and Nashville are also currently developing comprehensive toll lane networks to reduce traffic congestion.
These express toll lanes have produced large benefits for motorists, truckers, and bus riders in every state where they operate. Motorists have a congestion-free travel option, truckers benefit from increased capacity, and bus riders have a virtual exclusive guideway providing faster, more-reliable transit service.
Investors in these projects include public pension funds, insurance companies, and infrastructure investment funds. Nationwide, over $63 billion has been invested in long-term transportation infrastructure projects in recent decades. Nearly all the express toll lanes projects have investment-grade ratings, including SH 288.
To compete with other fast-growing states, Texas needs more express toll lanes. Priorities should include:
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- Finishing the planned network in the Dallas-Ft. Worth metroplex;
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- Developing a network in the Houston metro area; and,
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- Adding express toll lanes instead of high occupancy vehicle (HOV) lanes on I-35 in Austin and San Antonio.
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If the I-35 projects were constructed as CDAs, instead of costing TxDOT $8 billion, the state would likely need to put in only about 15%, freeing up as much as $6.8 billion for non-CDA roadway projects in other areas of the state: urban, suburban, and rural.
Terminating the SH 288 CDA would send a message to investors: your money is not welcome here. Instead, investors will choose Florida, Georgia, North Carolina, Tennessee, and Virginia.”
Originally published by the Reason Foundation. Republished with permission.
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