Texas Sets the Pace in Highway Finance

State shows how to finance, build, operate new highways

I have seen the future of highway finance and it works.

At a time when many state DOTs are struggling to properly maintain their existing highway infrastructure, Texas is creating a whole new paradigm of how to finance, build, and operate major highways. While few states probably would or could do anything as audacious as Gov. Rick Perry’s 4,000 miles of Trans-Texas Corridor, the state’s other innovations should all be transferable.

The new paradigm is based on several underlying principles. First, it is now declared policy in Texas to look first at tolling for all new limited-access highway projects. This is simply a recognition of reality. As explained on the TxDOT web-site, from 1990 to 2000 vehicle miles traveled in Texas grew by 41%, while lane miles increased a mere 3%. The result was congestion whose statewide cost is estimated at $45.6 billion over the decade. Since Texans don’t want massive gas-tax increases, the only other way to pay for major highway improvements is with tolls. And voters approved constitutional amendments to enable these new toll-friendly policies last fall by a 61% majority.

The second principle is that merely reducing the rate of increase in congestion is not sufficient. Article 19 of the Omnibus Transportation Bill (HB 3588) enacted last year requires the statewide transportation plan to include transportation measures designed to relieve congestion, with performance measures such as delay reductions and travel-time improvements. “This component must not be financially constrained,” says the statute. So the public must be informed what it will cost to reduce congestion, so that there can be real debate about projects that would serve that goal.

Third, Texas has embraced public-private partnerships and streamlined project delivery methods such as design-build. Called “comprehensive development agreements” in local lingo, their use at both state and regional level is intended to speed up project delivery, provide guarantees on cost and completion dates, shift some key risks to the private sector (and hence off the backs of taxpayers), and promote better life-cycle costing (so that projects are built better up front, even at higher cost, so as to reduce ongoing operating and maintenance costs over subsequent decades).

The Texas approach has been evolving over the past decade or so, spurred on by the success of the Harris County Toll Road Authority in Houston and the North Texas Turnpike Authority in Dallas. Legislation in 2001 generalized this approach, allowing for the creation of similar Regional Mobility Authorities in other metro areas, since all face similar problems of rapid growth but limited gas-tax revenues. The 2003 law, HB 3588, gave both the Texas Turnpike Authority Division of TxDOT and the RMAs new powers in toll revenue bonding, land acquisition, and enforcement of toll payment by motorists. One controversial provision, not yet used, permits TxDOT and RMAs to take over certain sections of currently non-tolled state highways and incorporate them into toll projects. It remains to be seen whether local political support can be generated for such conversions.

Land acquisition is often a big obstacle to new highway projects, so HB 3588 introduces two creative new approaches. First, the Texas Transportation Commission may purchase options for possible right of way for a project, before the final alignment has been determined. Second, TxDOT “may offer the owner of the property [needed for right of way] a percentage of the [toll] revenue associated with a particular segment of a turnpike, rather than a single fixed payment for the property.”

HB3588 and several other new laws also move away from the traditional focus on general-purpose lanes. Whether it’s the huge multi-modal Trans-Texas Corridor, state highways, or county highways, all are now legally authorized to designate certain lanes as restricted or specialized, enabling various kinds of Managed Lanes to be used where it makes sense to do so. This could facilitate the development of a statewide network of heavy-duty truck-only toll lanes able to handle the highly productive double- and triple-trailer rigs that are not allowed anywhere on federally aided highways in Texas under a 1991 federal freeze on truck sizes and weights. And it will also clear the way for the kind of regionwide networks of HOT or express toll lanes that are currently under study in both Dallas and Houston.

The new laws do a number of other things, such as creating a state infrastructure bank called the Texas Mobility Fund and permitting the state to issue a limited amount of GARVEE bonds backed by future federal highway revenues. Those can certainly help stitch together creative funding packages for specific projects. But they are relatively minor pieces of the overall new paradigm.

At a recent transportation finance conference in New York City, investment bankers lauded Texas as a model for other states, and I concur in that judgment. Texas Turnpike Authority Division director Phil Russell gave a very impressive presentation. Any transportation commission in a fast-growing state would benefit mightily by flying him in to give this presentation to its members. And TxDOT is doing a good job of educating public officials, opinion leaders, and the general public about its new approach. Check out the Resource Library at for their 2003 Transportation Short Course, which provides details on many of the points discussed above.

At a time when voters in other states are turning down tax increases by sizeable margins, the fact that Texas voters approved the new paradigm by almost two to one is impressive. I think we’ll be seeing adaptations of it in other states.

Robert W. Poole Jr. is director of transportation studies and founder of the Reason Foundation.