I hate to say "I told you so," but this one demands it. Rewind to two years ago when the North Texas Tollway Authority (NTTA) was in the midst of a heated push to wrestle the lucrative SH-121 toll road concession away from Spanish toll operator Cintra, who had already won the rights to build and operate the project in a competitively bid procurement process. Long story short, weak-kneed legislators and local politicians chucked any pretense of respectable capitalism and pulled a Hugo Chavez, taking the project away from the winning bidder who played fair and giving it to a government entity that didn't.
The only way NTTA could pull the whole thing off was to top Cintra's $2.5 billion upfront payment with a $3 billion payment of its own, allowing it to make the claim that it was offering the region more money than the private sector was. The problem was that making that $3 billion materialize necessarily involved the NTTA (and the public) absorbing far more risk—risk that Cintra would have borne under its proposal. I warned of these risks at the time here and here, among others. And more importantly, the regional decisionmaking body hired PriceWaterhouseCoopers to do an independent third-party analysis of the two options, which found that only in the most rosy, risk-adjusted scenario could NTTA even equal the Cintra bid. More realistic scenarios came up short for NTTA, as the risks were too overwhelming.
In the end, local politicians took a faith-based approach and gambled on NTTA, thwarting the Cintra/JPMorgan team and making Texas look like a toll road banana republic. [Economically illiterate state legislators also bought into NTTA's government-can-beat-the private-sector nonsense and put in place a statewide moratorium on toll road concessions that remains unresolved today, but that's another story.]
Fast forward to today, and it's clear that the chickens are coming home to roost. The Dallas Morning News' Michael Lindenberger writes:
But just two years later, that future has turned out different from what anyone foresaw. Traffic is slowing across the NTTA toll system, where revenue is down, too. On Highway 121 itself, now known as the Sam Rayburn Tollway, traffic is nearly 20 percent below levels projected two years ago. As a result, drivers will soon be paying more, much more, to drive on NTTA toll roads. The money from higher rates is badly needed to satisfy creditors, who are owed more than $6.1 billion.
Did NTTA simply pay too much for the toll contract? Did the Regional Transportation Council demand too steep a price?
"Yes, it did," said NTTA vice chairman Victor Vandergriff. "Both in what it paid and in the way it was paid."
Paul Wageman, the hard-fighting NTTA chairman who had led the authority in its campaign to wrest the project away from its private-sector competitor in 2007, said it's too early to tell whether NTTA made a good deal with the 52-year contract. Time (and a better economy) may ease many worries, he said.
Still, hindsight makes the decision to pay so much money upfront, leveraged against future tolls, look shortsighted on the part of the agency and the Regional Transportation Council, which insisted on the payments if NTTA was to win the contract over Spanish toll road firm Cintra, he and Vandergriff said.
Hmmmm...Wageman says it's "too early to tell" if it was a good deal? I distinctly recall his bulldog advocacy of the project in meeting after meeting I attended at the time. At least his colleague Vandergriff calls it straight.
So NTTA now is weighing what is sure to be an extremely unpopular 32 percent systemwide toll increase to keep its system afloat, all because it bet the farm—and North Texas mobility—in its zeal to protect its Metroplex toll monopoly. Lindenberger writes:
Talk of higher tolls comes as NTTA seeks to reassure bondholders, who hold $6.1 billion in NTTA debt, that a steep decline in traffic on NTTA's toll roads does not threaten the authority's solvency. Its trust agreement with major lenders requires that NTTA take whatever steps are necessary to ensure that enough revenue comes in to cover debt payments.
Those annual debt payments are already far more than the authority's approximately $92 million annual operating budget, and are projected to get steeper every year. Debt payments will equal nearly $140 million in 2009, and will be $300 million by 2012. By 2020, the figure will likely be a half-billion dollars, advisers said Tuesday.
Those big debt payments are a legacy of the big bet NTTA, and by extension the region, made on the State Highway 121 toll contract, which was awarded to NTTA after fierce political skirmishing in 2007. NTTA won the 52-year contract after promising to build the road and pay $3.2 billion upfront with money it borrowed against future tolls.
A private company had offered to pay nearly as much, and take the risk that traffic – and therefore revenue – would meet projections.
Can we please finally dispense with the myths that (1) public toll authorities can do as much or more than private sector concessionaires, and (2) that public toll authorities are somehow more noble and more concerned with the public interest than private sector operators? NTTA's leadership clearly was (self-)interested in power, control, and $$$$ and conned state and local politicos into helping them achieve it. And along the way, they poured a ton of gasoline on a fire over private toll roads in Texas that continues to jeopardize the state's mobility, quality of life, and long-term economic health.
Had state and local pols not acted like Banana Republicans, they would have honored the market competition, fulfilled the contract with Cintra/JPMorgan, and transferred the downside revenue risks now clearly evident today to the private sector concessionaire. And NTTA wouldn't have saddled itself with so much debt that it's doubtful that it can live up to its pre-existing commitments to build several other needed road projects, much less anything else.
Nice work, NTTA leadership. Way to serve the public interest.
And Texas pols, don't say we didn't warn you. Perhaps the best way to make amends here is to stop playing toll road politics, repair the state's severely wounded toll concession legislation, and get on with the work of keeping Texas moving. Texas may have gotten another #1 for business ranking yesterday, but that will certainly not last long if the state's transportation arteries continue to clog.