Goodbye, Texas

Texas, the perennial market-in-waiting for infrastructure investors, seems poised to demonstrate that when local politics clashes with good public policy, good public policy doesn’t stand a chance.

Look no further than HB 300 – a bill that may land on Governor Rick Perry’s desk any day now and wipe Texas off the map for toll road developers and investors.

The bill features the text of another toxic piece of legislation – SB 17 – that passed the Texas Senate but got stalled in the state House of Representatives. SB 17 grants public entities the right of first refusal for developing toll road projects before they are tendered to the private sector. It also requires private sector operators to set a purchase price up front for their concessions if the state ever needs to terminate the contract early, as opposed to paying fair market value, and limits the duration of non-compete clauses to 30 years.

In short: HB 300 will make these types of public-private partnerships (PPPs) so difficult to pull off that it will effectively smother them to death. This comes despite other language in the bill that officially gives life to PPPs by enabling their use after a two-year moratorium.

Cezary Podkul

There is an added twist. HB 300 is the overhaul legislation for Texas' Department of Transportation, which last year became one of the most unpopular state agencies due to a $1.1 billion accounting error. For finger-wagging legislators, therefore, passing the bill is an easy political victory. Expect the Governor to sign it.

So things look bleak. But how did they get so bleak in the first place?

As the adage goes, all politics is local. In Texas, more so. The state’s urban and rural populations don’t see eye-to-eye on this, or most issues. And the Trans-Texas Corridor – an ambitious plan for a byzantine network of toll roads built across wide swathes of land that would be annexed for the project by the state – exacerbated that rift and energised opposition to PPPs.

Needless to say, legislators responded by turning a sceptical ear to their use. It wasn’t good public policy, but it sure was good politics.

Which brings up the most important lesson of the Texas experience: even if a bill represents good public policy, in the mind of legislators it is subordinate to the wishes of voters. At the end of the day, the number-one priority of legislators is their chance for re-election.

An all-too-common example of this comes from Indiana – another state that’s dabbled with PPPs for toll roads. Go to the homepage of state Representative Ryan Dvorak and you can still see the pie chart of 85 percent of voters in his district that opposed Gov. Daniels’ proposal to lease the Indiana Toll Road. In a 9 March, 2006 blog post, he said in no uncertain terms: they’re not for it, so I’m not for it – regardless of the fact that districts like his in Northern Indiana stood to benefit most from the deal.

So with Texas. It doesn’t matter that HB 300 is loaded with bad public policy. It’s good politics. And unless investors begin to craft their message with this understanding in mind, Texas won’t be the last state to fall off the map.