Texas – Expediting Road Construction With Toll Financing

At a time when the need for new highway capacity greatly exceeds traditional sources of revenue, toll revenue financing is attracting increased attention. Issuing bonds secured by toll revenue gives state and local authorities the ability to accelerate road construction and undertake new projects that might otherwise take years to implement if they were to depend on funding from state and federal gasoline taxes. Nowhere is this philosophy more evident than in the state of Texas. The Texas legislature has declined to raise the gas tax. Instead, in June 2003, it passed landmark legislation (HB 3588) providing an arsenal of new financial tools that promise to vastly speed up transportation improvements. The new law authorizes a $3 billion bond issue to be used for highway improvement projects (subsequently ratified by a constitutional amendment in September 2003). It also provides additional authority to the Regional Mobility Authorities (RMAs) which are charged with constructing, maintaining and operating toll facilities on a regional basis. HB 3588 authorizes the RMAs to issue revenue bonds backed by tolls and to enter into comprehensive development agreements with private entities to design, construct and operate toll road facilities. The law also has introduced two innovative new features: it authorizes the Texas Transportation Commission to convert regular state highways to toll facilities and to transfer them to RMAs for operation and maintenance; and it provides for payment by Texas DOT of per-vehicle fees (called pass-through or“shadow” tolls) as reimbursement to RMAs for construction and maintenance of state highways or as compensation for the cost of maintaining toll facilities transferred to an RMA. In a recent action, the Commission, acting under its new authority, directed the Texas Transportation Department to establish guidelines to evaluate all highways “in any phase of development or construction” for potential tolling.

Interest in toll roads in Texas goes back to the 1950s when the state legislature enacted the Texas Turnpike Act, under whose authority the first toll road, the Dallas-Fort Worth Turnpike, was built. The facility was opened in 1957 and operated as a toll road until the 1970s when it was turned over to the Texas Highway Department upon repayment of the bonds. Ever since then, the state of Texas has been on the forefront of toll road development. Its two tollway authorities – the North Texas Tollway Authority (established in 1997) and the Harris County Toll Road Authority (est. 1983) – and the Texas DOT’s Turnpike Authority Division, are known nationwide for their pioneering use of electronic toll technology and for innovative financing partnerships such as the privately financed Camino Columbia Toll Road.

Now, a new generation of toll roads is taking shape in Texas, facilitated by the bond issue and legislative

changes. Major toll projects include the $3.6 billion Central Texas Turnpike Project, the first phase of which is under construction in the Austin area; a reconstruction of the LBJ Freeway (I-635) in North Dallas which will include four HOT lanes; an expansion of the Katy Freeway in west Harris County including conversion of its HOV lanes into high-occupancy toll (HOT) lanes; and a 12-mile toll road built by the state’s first Regional Mobility Authority, the Central Texas RMA. The first phase of the Central Texas Turnpike Project involves a total of 138 miles of toll roads, financed with a $1.8 billion bond issue backed by toll revenue and built under a design-build-maintain contract with a guaranteed completion date.

Thanks to the arsenal of the new financial tools authorized by HB 3588, the new toll roads will be completed many years earlier than they would have under traditional pay-as-you-go funding that relies on state and federal gasoline taxes. “Tolling allows us to build roads years if not decades faster,” said Commissioner Robert Nichols.

In addition to providing bonding authority, HB 3588 authorized the Texas Transportation Commission to convert any non-toll segment of the state highway system to a toll facility if such conversion will improve overall mobility in the region or if it is found to be the most feasible and economic means to improve or extend a non-toll segment. Acting under this authority, the Commission in a December 18 action, directed the Texas DOT to establish guidelines for evaluating all highway projects “in any phase of development or construction “ for potential toll operation. In other words, the State of Texas is henceforth going to consider tolls as part of every new highway project and every expansion of an existing highway. Toll revenues collected from the operation of a converted highway will only be used to finance the improvement, extension or operation of that highway.

The Trans-Texas Corridor

Dwarfing the Central Texas Turnpike Project, will be the Trans-Texas Corridor (TTC), also authorized in

HB 3588. The TTC will include a system of toll roads, toll truck lanes, rail lines and utilities. Major components of the project, estimated to cost $150-185 billion, will include a 608-mile north-south transportation corridor from the Oklahoma border to the Mexican border, generally paralleling Interstate 35; and a 559-mile east-west corridor, generally paralleling Interstate 69. This huge project, to be built over several decades, will be implemented through Comprehensive Development Agreements and will take advantage of the full array of financing tools: the Texas Mobility Fund, the Regional Mobility Authorities, the sale of bonds, toll equity, pass-through toll agreements and comprehensive development agreements.