The high-stakes poker game between the North Texas Tollway Authority (NTTA) and a private consortium for the rights to build the State Highway 121 (SH-121) toll road escalated significantly at a Regional Transportation Council (RTC) workshop on June 14.
NTTA’s aggressive pursuit of the toll project leaves no doubt that they’re playing for keeps. However, close scrutiny of their proposal reveals that they’re not playing with real chips, and Metroplex drivers stand to lose.
At first glance, NTTA’s $3.3 billion bid would appear to top Cintra/JPMorgan’s $2.8 billion bid. According to NTTA, their proposal provides more money to the region, would have lower tolls, and would strengthen its ability to build new roads in the future.
But once you dive beneath the surface of NTTA’s proposal, it becomes apparent that there’s less value there than meets the eye and significantly higher risks to commuters and taxpayers than Cintra’s. These are the findings of PriceWaterhouseCoopers, the analysts hired by RTC to give an independent, third party assessment of the two proposals.
According to PriceWaterhouse’s analysis, in the most optimistic case, the value of the two proposals is roughly equal (with NTTA’s falling short in more realistic scenarios). More importantly, they concluded that NTTA’s bid would involve significantly higher risks which RTC should carefully consider in weighing their decision, given that billions of dollars of transportation investment and the quality of life of Metroplex residents is at stake.
For instance, 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.
Moody’s Investor Services, one of the major bond rating agencies, recently warned that “the magnitude of the borrowing NTTA is considering [for SH-121] would significantly alter the Authority’s debt profile and would likely result in a downgrade.” If those planned projects run into financing roadblocks or fail to materialize, the biggest losers will not be NTTA but commuters doomed to worsening gridlock.
By contrast, the private sector proposal would finance the project based on its own revenue stream and would bring billions of new transportation dollars to the region. These dollars come from investors willing to bet on Cintra’s global track record and the upside potential of the 121 project. In the worst case scenario, if Cintra were to go bankrupt, private investors would bear all of the financial losses, not Metroplex citizens. The state would take over the road and would also keep Cintra’s full $2.15 billion upfront payment to invest in other needed transportation projects for which funds are not currently available.
For NTTA the worst case scenario would be a default on their bond payments if the project takes longer to be successful than anticipated and revenue falls short. Agreements written into NTTA’s bonds would require them to raise tolls on all their roads to whatever level is necessary for them to make their bond payments. This means that drivers would effectively face no cap on the amount that tolls could increase, while toll increases under the private proposal would be contractually capped at a level commensurate with inflation.
NTTA’s attempt to pull the rug out from Cintra/JPMorgan-which won their tentative SH-121 contract through a fair and competitive bidding process-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.
The fact that NTTA even made their belated proposal at all is a testament to the power of competition. As recently as 2006, NTTA had no interest in the SH-121 project and was content to let the private sector handle it. As events began shifting their way in the legislature, NTTA evidently realized that the only way their attempted monopolistic power grab would work would be for it to issue a grandiose proposal that appeared to top Cintra’s, whatever the risks and whatever the cost.
All of this certainly undercuts NTTA’s self-portrayal as a “new and improved,” competitive public toll agency with the best interests of the region at heart. This is unfortunate because NTTA is generally regarded as one of the most innovative and well-run public toll authorities in the nation and has served the region well to this point. By forcefully inserting itself into the highly politicized procurement process over SH-121, NTTA is clearly elevating its own interests above those of Metroplex drivers.
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.