Texas SB17 'Stay Away' sign to private tollroad investors, public authority tolling favored

March 27, 2009
By Peter Samuel

Legislation is moving through the Texas legislature to virtually preclude further private tollroad development in the state. SB17 sponsored by state senator Robert Nichols (Republican) builds on SB792 the 'moratorium' bill of 2007 and is even more hostile to private toll concessions. It abolishes SB792's "market valuation" under which public toll authorities were required to pay a negotiated equivalent to an upfront concession fee for profitable projects. And at that market value they had a first right of refusal.

Nichols says the valuation process is "unduly expensive, contentious, and time-consuming" and simply abolishes it, allowing public toll authorities to develop toll projects for free.

That is called "streamlining" the process.

Only toll projects that public toll authorities don't want at $0.00 can be put up for bid by concessionaires under SB17.

Only as "last resort" will private investors be called on

The sponsor's statement of intent accompanying the bill says it "creates a first right of refusal guarantee for local and state entities to build future toll projects; and ensures all methods of public transportation finance are exhausted before a private entity can finance, build, and operate a toll project."

Only reject projects will be available for private sector bid.

Heads we win, tails you lose buy-back provisions

Further SB17 requires all concession contracts to provide take-back provisions that seem likely to discourage private sector bids by providing virtual confiscatory powers to the government at five year intervals.

Each concession agreement must contain a schedule of contracted take-back prices for the concession at not more than five year intervals throughout the maximum 50 year life of the concession.

At each of these five year or less intervals the government will be allowed to buy back the concession at the lesser of the scheduled take-back price and a market valuation of the concession. This allows the government to takeover a concession doing better than expected and having a higher market valuation than the schedule at less-than-market price.

In case of toll projects that do poorly and have a low market valuation the government gets to terminate the concession and takeover the pike at a lesser price than the scheduled price.

"You'd be insane..."

One investor rep told us: "You'd be insane in invest in Texas roads under this law. If you do well and establish a great tollroad the government can buy you out sub-market at any five year interval, confiscating a large chunk of the value you created, and leaving you no reward for risktaking and success. If the road does poorly the government has invested no capital and taken no risk and gets to buy it at the firesale price at a time of its choosing. It's heads they win, tails you lose."

Senator Nichols claims to be a supporter of private enterprise but he does not believe that the private sector serves the public as well as government. He says in a press statement announcing the bill: "State and local entities will build and operate a road in the public's interest, not the shareholder's."

Senator John Carona (R-Dallas), chairman of the senate committee on transportation is a joint author of SB17. Other joint authors include senators Jane Nelson (R-Flower Mound), Dan Patrick (R-Houston) and Florence Shapiro (R-Plano).

Republicans in the Texas House are just as sandinista-inclined as those of the state Senate. HB2929, an identical bill to SB17 is moving through that house of the 'legee.'

Nothing seems to have been heard from Governor Rick Perry's office.

for details on the bill see

http://www.legis.state.tx.us/BillLookup/History.aspx?LegSess=81R&Bill=SB17

TOLLROADSnews 2009-03-26

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