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Time is Money for Managed Lanes in Texas

FEB 15, 2013 5:00pm ET
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DALLAS — Managed lanes are the way of the future for transportation finance in Texas, but some experts question how far high-speed tollways can go toward closing highway revenue gaps.

“This is not a long-term solution,” Cherian George, managing director of global infrastructure and project finance at Fitch Ratings, told The Bond Buyer’s Texas Public Finance Conference last week. “Indiscriminate use of tolls is not a panacea without some kind of strategy behind it.”

Nonetheless, others in the world of public finance welcome the public-private partnerships in lieu of policy decisions from Washington and Austin.

“From a practical standpoint, they provide a solution in the near term,” said Paul Jack, executive vice president of financial advisory services at Estrada Hinojosa & Co.

With financial resources for infrastructure limited by political gridlock, Texas cannot provide fast-track development of high-demand projects without tolling, transportation officials say. The 38.4 cents in state and federal taxes Texans pay per gallon of gas has not been raised in 20 years and has failed to keep up with inflation and the increasing fuel efficiency of new vehicles.

“I see these managed-lane projects as the way mileage-based user fees get introduced to ever-larger fractions of American drivers,” said Robert Poole, director of transportation policy at the Reason Foundation. “A second way is to finance the reconstruction, widening and modernization of aging Interstate highways with per-mile tolls, collected by all-electronic toll collection.”

However, critics of tolling such as Terri Hall, founder of Texans Uniting for Reform and Freedom, call the deals with private developers “corporate welfare.”

“Taxpayers subsidize the construction of the privately operated tollways with gas taxes and others public funds,” Hall said. “So everyone is paying for the roads, but very few will be able to access them since toll rates in peak hours will be 75 cents a mile. That’s like adding $15 to every gallon of gas you buy.”

State Rep. Rafael Anchia, D-Dallas, said he fields complaints from working-class constituents in the south end of his district who drive to work in the northern suburbs via tollways. While free roads are available, using them would dramatically extend commuting time, he said.

“It’s really not a good deal for my constituents,” Anchia said of the proliferating toll roads in North Texas. “It’s an important tool to have in your toolbox, but it’s really not a good basis for a transportation plan.”

In Georgia, political pressure led Gov. Nathan Deal to reduce tolls by more than 40% on Interstate 85 managed lanes after protests and lack of usage in 2011. Shortly after that, the state canceled a P3 managed-lanes project that had already qualified for a $275 million Transportation Infrastructure Finance and Innovation Act loan from the Federal Highway Administration. The $1 billion project is back on the boards with requests for proposals after officials reconfigured the 30-mile corridor with a more traditional approach.

Poole, an advocate of tolled lanes, called Georgia’s decision to back off managed lanes a hasty move and said the new system requires a more generous learning curve.

More than $6 billion of P3 deals involving managed toll lanes are already in the works in Texas, primarily in the Houston, Dallas-Fort Worth and Austin areas. The Harris County Toll Road Authority opened the first managed toll lanes in Texas in 2009, leveraging $250 million of toll revenue.

HCTRA’s managed lanes on the Katy Freeway include two in each direction between State Highway 6 and Interstate Highway 610 West that replaced a single, reversible high-occupancy vehicle lane.

The former HOV lanes are now known as HOT lanes for “High-Occupancy Tolled.” Tolls on the Katy managed lanes vary by time of day and follow a schedule that reflects traffic volumes, but vehicles with two or more passengers are exempted.

HCTRA says its partnership with the Texas Department of Transportation made it possible to fast-track the project, cutting construction time in half.

The Metropolitan Transit Authority that provides mass transit in Harris County is leading plans to develop an 83-mile HOT-lane system will also have tolled lanes on three major highways. Future systems are expected to use real-time technology to monitor activity on the managed lanes, with tolls increasing for single drivers as traffic increases in the lanes.

Evolving technology is a key element in planning for managed lanes, providing new efficiencies that private investors believe can improve returns on their investments. High-tech devices that register motorists’ fees per-mile are often pitched as a substitute for the inefficient fuel-tax system.

In a recent report, the Government Accountability Office suggested satellite surveillance devices or other, less invasive techniques could be used to more than double the amount of money motorists currently pay in federal gas tax fees.

While other states, particularly California, are already fine-tuning tolls for higher speeds, Texas will not open most of its managed lanes that require major construction until 2015.

The highest profile system in development is the Interstate 635/LBJ Freeway project that arcs across north Dallas.

The total cost of the project, including maintenance and operations is $2.7 billion with a construction cost estimated at $2.1 billion. The LBJ Express is expected to take five years to complete.

When the original 10-lane LBJ Freeway opened in 1969 it was designed for about 180,000 vehicles per day. Current traffic counts put that number at 270,000 vehicles per day. Based on today’s traffic count, by 2020 demand will increase to 500,000 vehicles per day, TxDOT estimates. Without private funding, the project would be delayed for years or possibly never be built, developers say.

The LBJ Infrastructure Group that is building the project was chosen by the Texas Transportation Commission after a competitive public-bidding process. The consortium’s lead partners are Cintra US, a Texas-based division of Spanish tollway developer Cintra, Meridiam Infrastructure, a global public-private partnership investor and developer of public facilities, and the Dallas Police and Fire Pension System.

The funding arrangement combines public funds, federally backed loans, private-activity bonds, bank debt and private-sector equity.

A recent failure to find more than one qualified developer for a managed lanes project for the nearby State Highway 183/Airport Freeway tolled lanes, the Texas Transportation Commission recently agreed to expand the parameters of the nine miles that would compete with surrounding free lanes.

The lone qualifier for the $1 billion project was Cintra, which has scooped up virtually all of the private toll projects in Texas, including the State Highway 130 project that provides an 85-mph bypass of congested Interstate 35 in Austin.

Cintra is leading development of the North Tarrant Express, a 13.5-mile, $2.5 billion project in Northeast Tarrant County that will serve as the western version of the LBJ Freeway project and intersect with SH 183. NTE will include four managed toll lanes and, like the LBJ project, is expected to open in mid-2015, marking five years from ground-breaking to completion.

Financing includes $573 million in public funds, $427 million in private equity, $400 million in unwrapped private-activity bonds, and a $650 million TIFIA loan.

Managed lanes require a consumer-oriented approach to traffic that usually includes concerted public relations campaigns, sophisticated websites, electronic toll tags that can be easily updated and an exhaustive list of “frequently asked questions.”

The FAQ’s invariably address issues around class status and so-called Lexus Lanes, implying that only the wealthy can afford to travel at high speeds.

Often cited by advocates of HOT lanes, a 2001 San Diego poll showed that fears of “class road rage” might be overblown. The telephone survey of San Diego Interstate 15 Express Lane users revealed that 80% of the lowest-income motorists in the corridor agreed with the statement that “People who drive alone should be able to use the I-15 Express Lanes for a fee.” Among richer motorists, the statement did not receive as much approval.

In the Washington, D.C., area, an ABC News-Washington Post survey found that 58% of residents approved of the lanes.

But a 2011 poll in the Atlanta area produced different results, with only 4% of respondents calling toll lanes on Interstate 85 effective in reducing congestion and 45% saying the lanes made traffic worse. The poll was conducted by InsiderAdvantage/Channel 2 Action News.

“This is the most hated concept probably ever created in the history of government. I’ve never seen anything like it,” said InsiderAdvantage CEO Matt Towery. “It says they need to take those lanes and immediately eliminate them.”

Texas toll-road activist Hall, who has called for a boycott of Cintra’s recently opened Highway 130 tollway, disparages the public-relations efforts as “propaganda” designed to benefit Cintra and other private toll developers.

On the two big managed lanes projects in the Dallas-Fort Worth area, the developers sponsored a “Name the Lanes” contest in hopes of developing less bureaucratic-sounding monickers. The person who comes up with the winning name for the managed lanes will win $2,500 in free gas.

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