Lawmakers Keep Promise to Fund Texas Highways

 

July 25, 2017

 

In the final week of the 2017 regular session of the Texas Legislature lawmakers approved a budget that keeps the highway funding promises made to voters in recent years.

 

The result is that funds dedicated by voters in the passage of Proposition 1 in 2014 and Proposition 7 in 2015 will be available to pay for new highway construction and to pay down highway construction debt previously authorized by voters.  Additionally, lawmakers continued the decision made in 2015 to end diversions from the State Highway Fund which previously went to pay for operations of the Department of Public Safety.

 

During the next two years (FY 2018 and FY 2019) TxDOT is projecting that it will be able to invest approximately $2.5 billion a year in highway projects aimed at system upgrades, congestion relief, rural connectivity and safety.

 

Based on current estimates, Proposition 1 will generate $739 million in FY 2018 and $563 million in FY 2019 for the State Highway Fund.  From Proposition 7 lawmakers allocated $2.2 billion in FY 2018 and $2.5 billion in FY 2019 with $306 million a year going to pay off voter-approved general obligation debt issued in the past to build highway projects (Prop 12). 


TxDOT has budgeted to spend approximately $2 billion a year on project development costs which include planning, route studies, environmental clearance, engineering design, right of way and utilities.

 

Proposition 7 amended the Texas Constitution to dedicate, beginning in fiscal 2018, up to $2.5 billion in annual sales tax revenues to the State Highway Fund, depending on the total amount of sales tax revenue received by the State. The second part of Proposition 7 provides an opportunity to capture some of the future growth in motor vehicle sales tax revenues and dedicate it to highway projects starting in FY 2020.  The Highway Fund will receive 35% of the growth in this revenue stream above $5 billion annually.  This is estimated to produce about $400 million each year and increase as vehicle prices increase, the population expands and more vehicles are purchased. 

 

Proposition 1 directs a portion of the state’s oil and natural gas production tax collections to the State Highway Fund.  When energy prices were high in 2014 it was projected to generate about $1.4 billion a year for highways.  The new reality of lower prices in the energy market suggest that for several years revenues will be far less than was initially anticipated. Prop 1 and Prop 7 funds may not be used on toll projects.

 

TxDOT PASSES THROUGH SUNSET
Lawmakers approved the Texas Department of Transportation sunset review bill which means the department will not have to go through sunset for 12 years.  The measure also requires TxDOT to adopt additional procedures for prioritizing projects for funding and mandates improvement in planning and project tracking.


LIMITING TOLL EQUITY
The Legislature approved a measure which requires that any funds expended or loaned by TxDOT in support of any project including a tolled element must be repaid in full to TxDOT from toll revenues.  It eliminates previous authority TxDOT had to make a grant to a toll project.  This measure does grandfather in projects for which the environmental review process had started before January 1, 2014.  These restrictions will place more debt on some projects, increase financing costs and making it less likely that they will be deemed viable toll projects that can be bonded.

 

TOLL LANES
A provision was approved which prescribes that when converting any non-tolled lane to a tolled lane that the number of non-tolled lanes in the highway not be reduced and that TxDOT may not count frontage road lanes in determining the number of non-tolled lanes.


COMPREHENSIVE DEVELOPMENT AGREEMENTS

Lawmakers voted down a measure which would have continued to allow TxDOT and certain regional mobility authorities to utilize Comprehensive Development Agreements (CDAs) to finance and build 18 specifically named highway projects.  That action left the state with no projects authorized under the CDA authority which was established by the Legislature in 2003 and 2005.  That statutory authority remains in place and it is possible projects could be added by legislative action in the future.


The 18 projects for which CDA authority will now expire on August 31st include three in the Austin area, two each in the Dallas, Houston and San Antonio metro areas, and seven in the Lower Rio Grande Valley.


CDAs are a form of public-private partnership (P3) used to leverage private investment and share risks and responsibilities for the design, construction, and in some cases financing, acquisition, maintenance, and operation of transportation projects.  CDAs, often involving toll elements, allow projects to be funded and built years sooner than would be possible with limited state funds.  Defeat of the reauthorization measure leaves Texas with no new projects authorized for possible development under a public-private partnership, a tool that is expected to be a central component of the Trump Administration’s infrastructure improvement program.


Among the projects that have been developed using the CDA authority in recent years are the Houston region’s Grand Parkway, the North Tarrant Express, LBJ 635 and I-35E managed lanes in Dallas, the DFW Connector near the DFW Airport, and the Corpus Christi Harbor Bridge replacement.