Last year saw an epic battle in Texas between the North Texas Tollway Authority (NTTA) and a private consortium for the rights to build the State Highway 121 (SH-121) toll road in the Metroplex. NTTA ended up getting selected for the project and the rest is history. At the time, I brought up an important issue about the implications of giving NTTA the contract on the region's ability to meet its larger mobility needs:
[...] NTTA's risky financing approach would have it borrow against its entire road system to undertake this one project, jeopardizing its ability to undertake the other planned regional toll projects it has already committed to, including the SH-360, SH-170, Trinity Parkway, and PGB Turnpike extension projects.
There's a limit on the ability of public agencies to issue new debt, so tapping into their bonding capacity now for the SH-121 project would likely reduce the amount that NTTA could borrow in the future for the projects they've already committed to. [...]
NTTA's attempt to pull the rug out from Cintra/JPMorganâ€“which won their tentative SH-121 contract through a fair and competitive bidding processâ€“should be viewed by citizens and policymakers with a skeptical eye. And given their strong lobbying for the anti-competitive provisions in SB 792 giving local toll authorities first dibs on most future toll projects, it becomes evident that NTTA's primary interest is in achieving a monopoly on Metroplex toll roads, despite the inherent benefits that drivers and taxpayers derive from true public/private competition. [...]
As much as NTTA would like to run off the private sector and reign supreme over future Metroplex toll projects, this would be counterproductive. The region needs all of the sources of funding it can get, both public and private, to build the new capacity needed to address the ever-growing congestion problem. A rejection of the tentative private sector contract would scare private investors away from the table, sending a strong message that Texas is a bad place to do business.
Before its final selection next week, the RTC needs to think strategically over the long term and carefully consider risk in their deliberations over SH-121. The astute observer would likely conclude that NTTA's bid is full of extravagant promises that will be hard to deliver and would threaten the region's ability to address its future mobility needs.
And now, a little over a year later, we see direct evidence that NTTA may have already overextended itself, casting serious doubt on its ability to not only build the roads it has already promised the region, but also to build the new toll roads needed in the Metroplex in the future to keep pace with rapid growth in the population, as well as goods movement.
Radically shifting fortunes on Wall Street have left the North Texas Tollway Authority scrambling to keep a key promise it made last year when it won the right to pay $3.2 billion for the State Highway 121 toll road.
On Wednesday, NTTA made clear that its ability to keep that promise has been compromised by the nation's financial uncertainties. [. . .]
That the agency would be struggling to borrow money for SH 161 is surprising on a number of fronts, not least because that road, like the larger SH 121 deal, is one of the few toll projects NTTA has promised to deliver that is expected to be profitable.
Some critics, including the executives at the Spanish firm NTTA beat out last year for the SH 121 project, allege the authority is simply overextended. To the firm, NTTA's delays on SH 161 foreshadow problems it will have with finding money to pay for many of the projects it has promised to build.
"They mortgaged every room in the house," said Jose Lopez, North American president for Cintra. "They don't have the leverage left to borrow the money they need for the long list of projects they have promised. Sure, there may be value there in 10 or 20 years, but does Dallas-Fort Worth want to wait that long for those roadways?" [. . .]
NTTA says it's not overextended. Instead, the NTTA is facing a temporary credit crunch that will ease once the credit market rights itself, officials there said. But NTTA president Jorge Figueredo has said that the agency's ability to keep promises made a year ago will probably depend on how soon the credit markets stabilize.
"We have been looking at all the projects on our list, and looking at when will these projects be ready to go, when will we actually need the money to get started?" he said. "But if the markets continue to go sour and TxDOT and RTC and ourselves don't have ability to leverage each other, then what we thought was possible a year will likely not be possible." [. . .]
Michael Morris, transportation director for the North Central Texas Council of Governments, said NTTA's delays are worrisome, especially because other sources of road funds â€“ including the state â€“ are also under increasing strain.
"This is very important," Mr. Morris said, noting that NTTA's original plan included paying billions for SH 121, while still having enough available for additional projects. "If you go back to last summer, when the vote for 121 was held, I think the regional transportation council said, 'We know there are some risks out there, but we want to vote for our partner. And NTTA is our partner.' " Now it's time for NTTA to figure out a way to reward that faith, said Mr. Morris, who was among the fiercest advocates for letting Cintra build SH 121.
This is what happens when politics trumps sound procurement policy. Had the RTC been more interested in metropolitan mobility—its primary concern—than playing politics with toll roads and bestowing de facto monopoly status to a local public toll authority last year, they would have probably chosen a different course. [Wonder how many RTC commissioners would love a mulligan on that vote— the worst kept secret in DFW is that NTTA's burning bridges in their aggressive quest for regional domination, so there's definitely some buyer's remorse setting in.]
To be clear, there's a role for both public and private sector toll authorities. But the NTTA case is a perfect illustration that there's a limit to what government-run toll enterprises can achieve in the real world. They operate in a fundamentally different market than concessionaires and have limits on what they can finance. And the Metroplex's needs list is far larger than what NTTA can finance over the next several decades, I assure you.
If Texas politicians weren't so eager to thwart transportation PPPs, then maybe they'd stop to realize that without PPPs, cities like Dallas, Houston, Austin and San Antonio are never going to be able to meet the mobility needs of fast growing urban populations.