Texas session adjourns with no action on PPPs(2)

Comprehensive development agreements between the public and private sectors that have a concession component are now effectively outlawed in the state until further legislative action. Texas' next regular legislative session is in 2011.

The Texas legislature has adjourned a two-day special session without passing legislation to extend the state’s authority to pursue public-private partnerships (PPPs) for toll roads.

That authority, already cut short by a moratorium imposed on such deals in May 2007, will now formally expire on 31 August and, absent another special legislative session called by the governor, will not be reconsidered until 2011.

As a result, PPPs with a concession, or a long-term lease component, are effectively outlawed until further legislative action. Non-concession-based PPPs, or more traditional public procurements that ask the private sector to design and build infrastructure assets without lease rights to their ownership or operations, will still be allowed under Texas law, according to a spokesperson for one of the senators who sponsored the PPP legislation.

It was better to have no bill than an unworkable bill

Bob Poole

Texas governor Rick Perry called a special session late last month to, among other things, breathe new life into the state’s PPP program for toll road developments, known as comprehensive development agreements (CDAs) between the public and private sectors.

Texas legislature:
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Republican state senator Robert Nichols introduced legislation known as Senate Bill 3 during the special session which combined the language of two previous CDA-related bills introduced during the regular session: Senate Bill 404 and Senate Bill 17. Bill 404 extended by four years the state’s authority to enter into CDAs, while bill 17 gave public entities rights of first refusal for developing projects and required them to set prices up front for buying back toll road concessions upon awarding them.

Nichols’ combined bill had a hearing in the finance committee during the special session but never had a vote in committee. The legislature adjourned on Thursday with no action on the bill.

Nichols said he was not disappointed by this outcome.

This whole thing comes down to 'everybody wants something for nothing', and that's certainly the attitude of the Texas legislature

Grady Smithey

“If the Legislature does not reauthorise CDAs during this very short special session, I don’t think it will cause any problems for the state,” he said in a statement on 2 July, the second – and last – day of the special session. “My only goal in authoring Senate Bill 3 was to make sure that if the Legislature decided to allow CDAs, we would only do so in a way that returned local control of transportation projects and established important protections for Texas drivers and taxpayers,” he added.

Those protections, critics had said, would stifle private sector interest in pursuing CDAs. “[SB 17] might have chilled investment all together because it said the private sector takes all the downside risks and the state takes all the upside,” said Bob Poole, director of transportation studies at think tank Reason Foundation. Poole was a member of the Texas Legislative Study Committee on Private Participation in Toll Projects, which recommended last year that the state lift its moratorium on CDAs.

Prior to the 2007 moratorium, the state had initiated CDAs for several large PPP projects, such as the recently signed $2 billion development of the North Tarrant Expressway in Dallas-Fort Worth with private and public sector capital. Several other CDAs, such as the $1 billion DFW connector and the $4 billion LBJ freeway project, both in North Texas, have also been conditionally awarded this year.

Critics warn the state is unable to fund new construction from its tax base and, with the legislature unwilling to raise gas taxes, there will be no money for large projects such as these unless the private sector is invited to participate in their development.

“This whole thing comes down to 'everybody wants something for nothing', and that’s certainly the attitude of the Texas legislature,” said Grady Smithey, a former member of the Texas Legislative Study Committee on Private Participation in Toll Projects.

Still, observers are not all together disappointed by the legislature’s failure to pass Nichols’ bill.

“Frankly, I’ve spoken to a number of industry people over the last few weeks and the general sense that I got was that it was better to have no bill than an unworkable bill,” Poole said. He hopes that by 2011, when the North Tarrant and LBJ projects are well under way, politicians will see the positive example set by these and other projects exempt from the moratorium, such as the Houston beltway and State Highway 161. That may encourage them to pass a better re-authorisation bill than the one offered by Nichols, Poole said.

In the meanwhile, Governor Perry, who had stood in favor of re-authorising CDAs as a way to “reduce uncertainty regarding several major transportation projects across the state”, vowed to look for other solutions to the state’s transportation funding needs.

The governor did, however, claim victory on two other fronts. Lawmakers passed legislation to extend the life of the Texas Department of Transportation, Department of Insurance and three other state agencies scheduled to expire this year. They also authorised the issuance of $2 billion in transportation bonds that were approved by Texas voters in 2007.

Perry had requested action on both of these measures in his call for the special session.