DALLAS – Once a champion of public-private partnerships, Texas has turned against the most common form – tolled highways – amid increasingly organized resistance.

A 13-mile section of Interstate 635/LBJ Freeway was redeveloped as a $2.7 billion P3 with managed toll lanes completed in 2015.  The next section to the east was expected to be rebuilt using similar financing, but Texas lawmakers rejected that project and 17 other tolled projects in a May 5 vote.
A 13-mile section of Interstate 635/LBJ Freeway was redeveloped as a $2.7 billion P3 with managed toll lanes completed in 2015. The next section to the east was expected to be rebuilt using similar financing, but Texas lawmakers rejected that project and 17 other tolled projects in a May 5 vote.

With the defeat of House Bill 2861 on May 5, Texas lawmakers slammed the door on 18 major toll projects valued in the billions of dollars. The bill was designed to speed funding for redevelopment of major thoroughfares in the state’s largest metro areas by tapping private investment. Proponents promised to deliver projects in a decade rather than decades.

Conservative politicians in the early 2000s led by former Gov. Rick Perry promoted toll roads as a palatable alternative to raising fuel taxes for funding new highways and lanes and as a way to accelerate the state’s economy.

Perry’s advocacy for the $184 billion Trans-Texas Corridor, a proposed swath of toll roads, rail lines and utilities from the Texas-Mexico border en route to Canada, was designed to service the North American Free Trade Agreement that was filling Texas highways with truck traffic. But the corridor faced angry opposition in 2010 and was officially killed by the Legislature in 2011.

Now Perry is Energy Secretary for President Trump, who promised to rewrite or kill NAFTA, and the conservative consensus in Texas appears to be rock-solid opposition to any privately developed tollways.

“This is not a right or left issue,” Rep. Jonathan Stickland, R-Bedford told fellow lawmakers in opposing the bill that would allow P3 funding for the projects. “I feel there are a lot of members who will take the wrong vote today and it’ll cause you to lose your seat. Think about if you want to run home and defend this to your constituents.”

The bill was rejected by a 79-52 vote.

One of the most persistent opponents of tolling on existing highways, Terri Hall, a San Antonio Republican and founder of the organization Texans Uniting for Reform and Freedom, lobbied hard against HB 2861.

"Special interests continue to push these 'innovative' financing schemes despite the public opposition,” Hall said after the bill was defeated. “Because private toll contracts and design-build procurements drive up the cost to build, putting more money into the pockets of road builders at great expense to Texas taxpayers. Our elected representatives just said, 'No more.' You're not going to gouge our citizens just to get to work."

Hall and TURF were instrumental in winning passage of a legislative moratorium on public-private partnerships on highways in 2007. Despite the moratorium, some of the largest P3 projects in the state’s history, such as the Sam Rayburn Tollway north of Dallas, the Interstate 635-LBJ Expressway managed lanes in Dallas and the Houston area’s Grand Parkway, were allowed to go forward.

Another project that went forward, State Highway 130 that bypasses Austin on its eastern perimeter, became an emblem for failure when its operators declared bankruptcy last year. The $1.35 billion, 41-mile, privately operated highway was taken over by creditors at no cost to the state.

Advocates for P3 projects say the SH 130 failure proved only that tollways should be built through existing, highly traveled corridors rather than in undeveloped areas.

For some members of the municipal bond world, the current concern is that lack of funding, either through traditional debt or P3s, could leave Texas and the U.S. lagging the rest of the world in infrastructure development and maintenance.

“Over the last 12 years, there’s been about $650 billion in P3s around the world,” said Jonathan Leatherberry, an attorney in the Bracewell law firm’s public finance practice in Dallas. “The U.S. has only done about 12% of that.”

The argument that tolls should never be imposed on existing highways, particularly interstates, is one that must be challenged, he said.

“We’ve got something like 44,000 miles of non-tolled interstate that has either exceeded or met its 50 years useful life,” he noted. “We’re getting on the tail end of a lot more, and the gas tax revenues are going down.”

The cost of maintaining a highway is as significant as the cost of construction, Leatherberry said.

The idea of raising the fuel tax at the pump has been a non-starter at the state and federal level for more than two decades. However, some states are beginning to buck conservative orthodoxy. Seven states increased gas taxes at the beginning of the year, and Texas’ neighbors Arkansas and Oklahoma are considering the idea.

Texas lawmakers have balked at fuel tax increases, instead backing initiatives to tap general sales tax revenue and the rainy-day fund for transportation. Facing sluggish general fund revenues, lawmakers this year also weighed proposals to reduce those diversions to transportation.

Leatherberry sees raising the fuel tax as a reasonable way to fund projects but says the P3s are generally more efficient.

“There has not been a significant amount of taxable money that’s been issued to fund P3 highways in the U.S.,” he said. “That tells me that what we’re doing in regard to policies to open up the floodgates of private funds that want to invest in the U.S. hasn’t happened.”

Saudi Arabia is expected to pledge $40 billion toward U.S. infrastructure when President Trump visits the kingdom this week, according to news reports. The oil giant Saudi Aramco, a major business investor in Texas, took control of the nation’s largest oil refinery in Port Arthur, Texas, this month as part of a $2.2 billion deal with Shell Oil.

Saudi Arabia’s top chemical company Saudi Basic Industries Corp. and Exxon Mobil Corp. are also teaming up on a $10 billion petrochemical plant to be built north of Corpus Christi. The proposed venture gained indirect approval in March, as President Trump sent a public message of support to ExxonMobil in response to an announcement of plans to invest $20 billion over the next 10 years in Gulf projects. Trump’s Secretary of State Rex Tillerson was previously chief executive of Exxon Mobil.

“Money wants to come into the United States in the worst way,” Leatherberry said. “We need to put policies and procedures into place to make that work.”

Acknowledging “a mistrust of private companies owning public infrastructure in the United States,” Leatherberry contends “that’s just something that has to be overcome in time.”

Leatherberry calls Texas’ P3 statute passed in 2011 “a decent statute,” but considers Maryland’s 2013 law better.

The Maryland law provides the first statewide policy on P3s, formalizes the process for evaluating both solicited and unsolicited proposals, and clarifies the requirements for any P3 agreement. Moreover, it offers increased transparency, efficiency, and predictability in an effort to attract private investors, proponents say.

“The laws that are currently in place need to be explicit as to how projects can be funded,” Leatherberry said. “They need to clearly identify what kinds of projects are financeable. I don’t think any other country has the limitations on P3 projects that we have.”

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