Texas Senate to vote on reforming toll road contracts

A bill that would grant public entities rights of first refusal for toll road development projects and mandate up-front re-purchase prices for concessions will go to a vote on the Texas Senate floor next week. The bill's sponsor, Robert Nichols, also backed a two-year moratorium on PPPs in 2007.

A controversial bill to reform toll road contracts between the public and private sectors in Texas is one step closer to becoming a reality.

On Wednesday the state Senate’s Committee on Transportation and Homeland Security voted 8-1 to move Senate Bill 17 to a vote in the 31-member chamber. The bill would give local tolling authorities and the Texas Department of Transportation the option to develop toll road projects before the private sector is invited to do so.

This is a terrible bill. It promises to kill competition and I believe that to my very soul.

Grady Smithey

When private sector operators do win a contract to develop a toll road, the bill would require them to set a purchase price up front for their concessions in case the state ever needs to terminate the contract early – as opposed to paying fair market value.

The so-called right of first refusal for public sector entities and defined buyback provisions run counter to the recommendations of the Legislative Study Committee on Private Participation in Toll Projects.

That committee, which published its final report in December 2008, argued private sector proposals should be compared with the public sector to determine who can provide the best value to taxpayers, and that the private sector should receive fair market value if the state wants to buy back a toll road concession.

“This is a terrible bill. It promises to kill competition and I believe that to my very soul,” said Grady Smithey, a member of the study committee and a city councilman for Duncanville, Texas.

Transportation and Homeland Security Committee member Wendy Davis, who cast the only “nay” vote against SB 17, said she did so because competition assures that the public will get the best value for their money.

Robert Nichols

Both the new proposal and the bill that created the study committee were sponsored by Republican Senator Robert Nichols. The latter bill also imposed a two-year moratorium on public-private partnerships in Texas, which expires this year.

Nichols, a former member of the Texas Transportation Commission, could not be reached for comment, but in a 4 December 2008 letter to the chair of the Senate’s Committee on Transportation and Homeland Security, Nichols argued that the public sector is a better steward of toll roads than the private sector due to their diverging incentives.

“I believe while private entities must answer to shareholders, public entities must answer to affected citizens,” Nichols wrote. “Public entities have as much incentive, if not more, to maintain the long-term condition of a project.”

Nichols also argued that local tollway authorities are better able to deliver projects than the private sector. “Local control builds local support and therefore a greater likelihood of a successful project,” he said.

Private sector participation in toll road development has been a source of much controversy in Texas, where local authorities have estimated that the state’s funding shortfall for transportation could be as high as $86 billion over the next 20 years. Despite the moratorium, some high-profile toll road projects – like the $1.6 billion North Tarrant Expressway and the $4 billion LBJ Freeway expansions – have been awarded to investors in recent weeks.

If passed by the Senate next week, SB 17 will be sent to the Texas House of Representatives, where a version of the bill is also under consideration. It would then be referred to Governor Rick Perry for enactment into law.

Gov. Perry’s office did not return calls seeking comment. A spokesperson for the Texas Department of Transportation also said the department does not comment on pending legislation.