The State of Transportation in Texas
For all practical purposes, the Texas Department of Transportation (TxDOT) is emerging as a new public agency ready to do business with the private sector in a way that will meet the immediate and long-term transportation needs of a robust state. Two circumstances drove the urgency behind the need for alternatives to business as usual — the cost of maintaining our aging roads and bridges soared while the need for new capacity exploded.
Texas is facing a mobility challenge. Existing roads must be maintained and new ones built. There are more cars on the roads and not enough lanes to move them efficiently. Roadways have become increasingly congested in recent years due in part to the state’s phenomenal growth and a changing economy.
An aging infrastructure, limited gas tax revenue, and a public demanding more transportation improvements means something must be done to close the funding gap between needs and available funding. In Texas, to maintain the existing roadways and build added capacity to meet statewide transportation needs, the state gas tax would have to be raised about a dollar a gallon.
In part, the solution to improve mobility is to build more transportation projects using innovative delivery systems. However, funding, or a lack of it, is part of the mobility challenge.
The question facing Texas and other states is how to pay for new roads and transportation alternatives while keeping our aging roads in top condition and as safe as possible. The solution centers on supplementing gas tax revenues with other funding such as tolling and public-private partnerships. Accelerating projects by leveraging these resources represents the new formula for congestion relief in Texas.
In Texas, hard choices must be made but it is clear that, for mobility to improve, all funding options must be on the table. Our door is open to public-private partnerships that can help to do more with less in times of financial limitations, provide innovative solutions for transportation issues, provide high-quality expertise, and deliver cost-effective transportation solutions in a timely manner.
Solutions to the Mobilty Challenge
Standing between mobility challenges and delivering the solutions is legislative authority. Accelerating transportation projects in Texas has gained new ground with the passage of the federal reauthorization bill and new state legislative authority.
Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU)
In summary, this federal legislation authorized $286.5 billion in funding for surface transportation projects through Fiscal Year 2009, with provisions that provide more latitude in leveraging public funds with billions of private investment. For Texas, the result is more flexibility in developing public-private partnerships to meet the state’s growing transportation demand. Here are some of the factors that will affect private sector partnerships in the state’s transportation system.
Private Activity Bonds — Authorization of a new $15 billion program for highways and intermodal facilities. While a private entity cannot directly issue PABs, it does allow Texas as a partner with the private entity access to lower-cost financing. In practical terms, the state will be able to issue tax-exempt debt and blend it with private equity. This could translate into greater private sector investment in significant projects such as the Trans-Texas Corridor.
Tolling of Interstates: Express Lanes — Among other provisions, tolling would be permitted to create additional tolled capacity. This includes a facility that is constructed using private funds. With some portions of the interstate system carrying a heavy volume, tolling additional interstate lanes is a possibility in Texas.
Tolling New Interstates — This pilot program permits a state or a compact of states to collect tolls on a new highway, bridge, or tunnel on the interstate system. To be eligible for the pilot program, it must be shown that the collection of tolls is the most efficient and economical way to deliver the project. From Texas’ perspective, the program would allow building I-69 in an accelerated schedule as a toll road. Texas has begun the environmental study for I-69 and intends to pursue a public-private partnership to fully construct this project.
Design-Build Contracting — Eliminates an obstacle in the existing Federal Highway Administration (FHWA) design-build rules and allows transportation agencies to take certain actions prior to receiving the federal record of decision. Specifically, it allows issuing requests for proposals, proceeding with awards of design-build contracts, and issuing notices to proceed with preliminary design work. However, to proceed with construction a record of decision is still needed from FHWA. The benefit of this provision is that is allows the environmental and contracting processes to be performed simultaneously rather than concurrently, thus accelerating project delivery.
The Transportation Infrastructure Finance and Innovation Act (TIFIA) allows public-private partnerships to apply directly for TIFIA assistance. This program provides direct loans, guarantees, and lines of credit for financing surface transportation projects. In Texas the TIFIA loan was a critical financing element of the Central Texas Turnpike Project (CTTP), a new 65-mile turnpike system in the greater Austin area. The CTTP is on schedule to open by December 2007.
Texas Legislation for Public-Private Partnerships
For Texas, many of the gains of SAFETEA-LU allow for the full implementation of recent state legislation, which included development of the Trans-Texas Corridor. The Legislature refined previous legislation that allows for public-private sector partnerships on more than just highways, making the state well-equipped to apply multi-modal solutions to the state’s transportation system.
Comprehensive Development Agreements — Provisions include increased financial flexibility by allowing CDAs for projects that have both tolled and non-tolled elements and projects that have both tolled and rail elements.
Public-Private Partnerships for Multi-Modal projects — Allows for a public-private partnership, known as a comprehensive development agreement (CDA), to design, construct, finance, acquire, maintain, and operate a rail facility. Just as this can accelerate road projects, a CDA for rail projects will speed the rail improvements and development.
Rail Relocation Program — Pending voter approval of a constitutional amendment, TxDOT may issue debt to relocate and improve public or private rail lines
Trans-Texas Corridor — Several provisions clarified and strengthened issues brought up by property owners.
Two of the provisions directly impacting public-private partnerships were:
- Commercial development on the Trans-Texas Corridor is limited to gas stations and convenience stores at locations in the median. Property owners would have the option to retain the development rights for such facilities.
- If TxDOT contracts with a private entity to collect tolls, the department must approve the method for setting, collecting and increasing tolls.
Trans-Texas Corridor
Planning ahead and preparing for the state’s transportation future is the goal behind the Trans-Texas Corridor (TTC), an innovative concept for moving people and freight. TxDOT plans to use public-private partnerships to develop and finance most of this project.
Texas officials expect a 50-year or more build-out of the TTC system that will connect the state’s borders and metropolitan areas with a new comprehensive network of rail, road, and utility corridors. It is a plan to ease traffic congestion and increase safety and security of Texans living in crowded cities and suburbs, near congested border crossings, and throughout rural areas.
TxDOT is quick to point out that the TTC is not intended to replace the existing 79,000-mile state highway system. Instead, it will be designed to complement it and provide immediate relief where it is needed the most.
The TTC will be a state-owned system. Planning construction and maintenance will be overseen by TxDOT but private firms will be providing financing and could be responsible for the daily operations of the system in exchange for an opportunity for a long-term concession. The objectives in pursuing public-private partnerships for the corridor are obtaining a long-term strategic partner, minimizing the use of state tax revenue, maximizing private sector investments, and accelerating project delivery.
TxDOT has not determined specific locations for the corridor but is concentrating its efforts on two priority TTC projects: the Oklahoma to Mexico element, which generally parallels I-35, and Northeast Texas to Mexico, which includes the proposed I-69.
Environmental studies for both proposed projects are ongoing and, if federally approved, construction is still several years away.
Two Development Tracks for TTC-35
Simply put, TTC-35 is moving along on two parallel developmental tracks — preliminary project planning while the environmental study is ongoing. Texas was the second in the nation to receive federal permission to deviate from the design-build rules to expedite project delivery, facilitate the use of innovative financing, and enhance quality of service. Without the federal approval to pursue both tracks simultaneously, the environmental and planning activities would have had to occur sequentially rather than concurrently, thus adding years to the project delivery.
TxDOT is undertaking a tiered approach to the environmental analysis for the corridor under the National Environmental Policy Act. The objective is to receive a Tier I record of decision for the entire TTC-35 project, which is expected to be completed in summer 2006. The result from the Tier I study will narrow the study area from 50 to 60 miles wide to a 10-mile wide band for the Tier II environmental studies. It is during the Tier II studies that final route alignment would be determined.
Since the tiered approach is to refine the study area, it allows the initial phase of the CDA to begin during Tier I.
Contract Agreement for TTC-35: Cintra Zachry
After lengthy and competitive evaluations among several international private sector consortiums, TxDOT selected and signed Cintra Zachry as its long-term strategic partner for TTC-35.
Cintra Zachry’s conceptual proposal included private investment of $6 billion to fully design, construct, and operate a four-lane 316-mile toll road between Dallas and San Antonio for up to 50 years as the initial segment of TTC-35, and payment to the state of $1.2 billion for the long-term right to build and operate the initial segment as a toll facility, which the state may use to fund road improvements or high-speed and commuter rail projects along I-35 or the TTC-35 corridor.
The CDA, signed on March 11, 2005, set forth the framework for the conceptual planning and development of individual project sections for TTC-35. Under the agreement, Cintra Zachry will first produce a master development and financial plan which will schedule multi-modal projects over the life of the CDA (up to 50 years). The master plan will include a list of specific transportation facilities that could be developed in the near-term (2005 to 2010), mid-term (2010 to 2025) and long-term (after 2025). The master plan will be updated on an ongoing basis to account for developments on TTC-35 due to environmental, financial, and other factors.
In addition, the development of these projects is contingent upon federal environmental clearance and the required public comment process. The CDA allocates the responsibility for the environmental study to TxDOT and the FHWA, not Cintra Zachry. Construction of individual facilities is subject to environmental review.
The framework established by the CDA contemplates multiple phases of the partnership because the design, construction, maintenance and operation of individual transportation projects will be performed under a contract called a facility agreement.
The CDA is also structured to provide TxDOT with the delivery options that offer the best value for the state. For instance, individual TTC-35 projects could be delivered using the traditional methods or design-build, design-build-operate-maintain, and concessions. Cintra Zachry could be the chosen as the developer to deliver these projects but TxDOT retains the option of seeking competing proposals for TTC-35 projects.
Building flexibility into the CDA allows TxDOT to do what is in the best interest of the state, not just for today’s transportation needs but preparing for the state’s future transportation needs. Issues still to be determined for the continued development of TTC-35 include, among others, concession payment and toll revenue sharing, setting tolls, and allocating risk.
Meeting the Challenge
TxDOT has seen many changes in its 87-year history. With new funding initiatives, the time is here to meet the challenge so that more roads can be added, rail lines can be relocated, and truck-only lanes can be built — all in the name of keeping up with the needs of a rapidly expanding population to move people and goods faster and more efficiently.
To meet the challenge, we must maintain a clear strategic focus on developing more financial options and partnering with regional and local leadership, with an emphasis on consumer choice that results in a better transportation system.
Texas is not looking for short-term solutions to its transportation needs. Instead, the focus is on strategies that provide a long-term transportation investment. Texas has a problem and a plan to solve it. It includes enticing new firms to compete in Texas, matching private capital for public infrastructure projects, and encouraging competition among private sector firms so that Texans can be served by the best transportation system.
Texas is not looking to just build infrastructure. It is looking to add value to its transportation assets.
The Texas Department of Transportation, a DBIA Owner Industry Partner, is responsible for more than 79,000 miles of state-maintained highways, one of the largest systems in the country. It is a progressive state transportation agency that is implementing innovative financing options to improve mobility, increase safety, expand economic opportunities, and improve air quality in Texas.