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Transportation What’s the future of transportation funding?

What’s the future of transportation funding?

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Paul Harral
Paul is a lifelong journalist with experience in wire service, newspaper, magazine, local and network television and digital media. He was vice president and editor of the editorial page of the Fort Worth Star-Telegram and editor of Fort Worth, Texas magazine before joining the Business Press. What he likes best is writing about people in detail and introducing them to others in the community. Specific areas of passion are homelessness, human trafficking, health care and aerospace.

There’s no question that the North Texas area through the North Central Texas Council of Governments (NCTCOG) and the Regional Transportation Council have been very successful over the years in securing funds to manage construction and congestion in an area that has been adding a million people a decade since 1950.

It’s not by accident.

But, Russell Laughlin, executive vice president at Hillwood, says that over the last 20 years, Texas has spent a smaller percentage of its gross state product on transportation structure than have its competitors.

Laughlin was moderator of a panel on transportation funding at the Northeast Tarrant Transportation Summit on Feb. 8 that included Michael Morris, director of transportation at NCTCOG, and Bill Meadows, who is chairman of the board at Dallas Fort Worth International Airport, chairman of the North Texas High Speed Rail Commission and a former member of the Texas Transportation Commission. He also served four terms on the Fort Worth City Council.

To start the discussion, Laughlin listed the sources of funding for the transportation system.

They include federal and state motor fuel taxes (18.4 cents per gallon federal and 20 cents per gallon state); state vehicle registration fees; some other state and federal taxes; revenue from the state’s toll and managed-lane system; local government funds; sales tax collected by transit authorities; and money from Proposition 1 approved by Texas voters in 2014 and Proposition 7 approved by voters in 2015.

And that – at least according to the Legislature – provides all the funding needed.

But NCTCOG’s Mobility 2045 plan calls for more than $136 billion over the next 25 years.

Meadows said collaborative efforts by “so many people in this room“ delivered $20 billion worth of projects over the last decade.

“I think that’s important to know because that history will tell you how we can be successful,” he said. “And that, first of all, means that you’ve got to be creative and have the ability to use the tools that we talk about.”

The assumptions about Propositions 1 and 7 when they were formulated were that the dollars they designated would be sufficient to meet the needs, he said. That turned out not to be the case because the propositions effectively eliminated other partnerships.

But the Legislature has made it clear that those designated funds cannot be used to leverage private investment, and that has been a successful tool for North Texas. The funds in both propositions were reallocations of money already being collected.

That raises a red flag for Morris.

“I believe — I don’t have lots of evidence — I believe people are looking at our success story and not trying to copy it for their region but take our earned revenues and simply move them to a particular place,” he says. “So I spend a lot of time making sure that doesn’t happen as part of that bigger project.”

One possibility is P3 funding – transportation officials’ shorthand for a Federal Highway Administration (FHWA) program that encourages consideration of public-private partnerships (P3s) in the development of transportation improvements.

The RTC started two P3 projects in the most congested area of U.S. Highway 183 near Dallas.

“We saved money for probably six years, the RTC. We didn’t spend anything other than accumulate $500 million in the east, $600 million in the west,” Morris said. “We sweated bullets when the P3 bids were coming in because the state of Texas said, ‘We’re off the hook for the shortfall.’

“And we said, “Fine, we’ll pay the difference.’ I don’t know how we were going to pay the difference. The P3 bids came in. The two partners put $5 million on the table, sum of the two, plus they were responsible for capacity through there all the time. Plus, they were responsible for the maintenance of the system all the time. And the rest is history.”

As Morris is fond of saying:

“You either can be the lighthouse or you can be the ship. And what I mean by that is, the ship bounces around and then pays attention, like it should, to safely get its cargo and people into port. And the lighthouse stays firm through good and bad weather.”

Morris said the state needs P3 legislation.

“The state has to get P3 legislation to at least get Interstate 35 across the goal line if possible. It’s an $8 billion project. There isn’t enough Prop 1 and 7 revenue to build it. In fact, we call it a drifting sailboat.

“At $8 billion, 10 percent interest is $800 (million), 4 percent is $400 (million); the cost of Interstate 35, in Austin, is going up $400 million a year,” Morris said. “It has to be cut with P3 for that to succeed.”

It is an issue about balance, he said.

“You have enough money in Prop 1 and 7. Well, maybe Tyler does, but Dallas-Fort Worth doesn’t, at a million people a decade and 10 deficient bridges right now that need to be repaired or they’re going to be closed,” Morris said

“You can’t go all the way back to, ‘Well, we won’t ever need P3s in our region. And we’ll never need toll-managed lanes,’ because you’re not being honest with yourselves. You want to be the boat, or you want to be the lighthouse?” he said.

Meanwhile, the Legislature in Austin is again talking about limiting property taxes in the state by law, possibly further limitomg the amount of money available to local and county governments should they want to put money into transportation.

Morris says the current climate in the state makes it difficult to hold discussions on controversial issues and he recalls a time when his agency would send emails to the FBI to make sure its staff would not be harmed at a public meeting to talk about a toll-managed lane.

“The environment we’re in now is we can’t even talk about it. I go back 20 years with the RTC and we talked about everything,” Morris said.

Texas currently has made it if not impossible at least difficult to create toll alternatives.

One proposal that repeatedly failed in the Legislature was to allow local voters – however that was defined – to approve or disallow additional sales taxes dedicated to transportation.

“I think people around the state probably think we’re crazy, because we actually try to figure this out and do these things and be innovative,” he said.

Raising the gasoline tax also is a highly controversial possibility – especially in no-new-taxes Texas – but it’s not a long-term solution anyway.

The federal gasoline tax was created in 1932 and last raised in 1997, to 18.4 cents.) Texas imposed its state gasoline tax in 1923 and it was last raised in 1991, to the current 20 cents per gallon.

But the revenue from a tax on gasoline falls because people drive more fuel-efficient vehicles while transportation construction costs are going up 4 to 6 percent a year, Morris said.

While there were no clear – or at least easy – answers at the session, Meadows did suggest that past success could be a pattern for future success.

It was a coalition of transportation experts, local political leaders and business leaders actively in contact and conversation with state political leaders that led to the passage of Props 1 and 7, he said.

Participants are the conference were urged to contact their representatives in Austin to lobby for funding mechanisms.

Sidebar

Props 1 and 7

– On Nov. 4, 2014, 80 percent of Texas voters approved Proposition 1, which authorized a constitutional amendment for transportation funding. Under the amendment, a portion of existing oil and natural gas production taxes (also known as severance taxes) would be divided evenly between the Economic Stabilization Fund and the State Highway Fund. …

The funds may only be used for “constructing, maintaining, and acquiring rights-of-way for public roadways other than toll roads.”

– On Nov. 3, 2015, 83 percent of Texas voters approved Proposition 7, which authorized a constitutional amendment for transportation funding. Under the amendment, a portion of sales and use taxes as well as a smaller portion of motor vehicle sales and rental taxes may only be used to:

(1) construct, maintain or acquire rights-of-way for public roadways other than toll roads; or (2) repay the principal of and interest on certain general obligation bonds including those

guaranteed by state general revenue.

Source: Texas Department of Transportation

P3

The Federal Highway Administration is a division of the U.S. Department of Transportation and encourages the consideration of public-private partnerships (P3s) in the development of transportation improvements. Early involvement of the private sector can bring creativity, efficiency, and capital to address complex transportation problems facing state and local governments.

New Build Facilities

P3s for new build facilities can involve construction of a new surface transportation asset or modernization, upgrade, or expansion of an existing facility. These P3s are structured as design-build-finance-operate-maintain (DBFOM) concessions that bundle together and transfer to a private sector partner responsibilities for design, construction, finance, and long-term operations and maintenance over the concession period. In the U.S., DBFOM concessions have been use for toll roads, waterbody crossings (bridges and tunnels), priced managed lanes, and transit projects.

Existing Facilities

P3s concessions may be used to lease existing publicly financed tolled facilities to private-sector investor operators for a specified period of time, during which they have the right to collect tolls on the facility. In exchange, the private partner must operate and maintain the facility and, in some cases, make improvements to it. The private partner must also pay an upfront concession fee for the right to operate the road and retain toll revenues.

Long-term leases are procured on a competitive basis, with awards going to the qualified bidder making the most attractive offer to the sponsoring agency. The most important criterion for the award of a long-term lease concession generally is the amount of the concession fee. Other criteria may include the length of the concession period and the creditworthiness and professional qualifications of the bidders.

Source: Federal Highway Administration


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