Late last year, the Harris County Commissioners' Court got the bright idea to consider selling off its toll road system to a private operator (see here and here for more). Apparently, the folks up in Travis County now think that's just swell.
Officials here in Austin, including state Rep. Mike Krusee, R-Williamson County, say they are open to the idea of selling the 66 miles of toll roads under construction on Austin's north and east sides. And, oh yes, the original plan for expanding Capital of Texas Highway (Loop 360) involved a long-term concession agreement with a private operator.
And that's just what we know of now.
"Texas is open for business," said the opening slide in a Texas Department of Transportation workshop put on last week for an overflow crowd of industry contractors, including toll road companies. The Texas Transportation Commission makes no bones about it: It wants companies to come to Texas, wallets open, and build or buy toll roads.
"We're prepared to make sure you're rewarded for taking on that risk," commission Chairman Ric Williamson told the crowd.
That potential reward is the nub.
One of the primary sales points for toll roads has been that once the turnpikes are in place, with forevermore toll charges, the profits would be plowed back into the road system. The turnpikes would become unceasing fountains of transportation cash that would allow Texas to close what Williamson says is an $86 billion funding gap over the next quarter-century, and maybe build some passenger rail systems to boot.
So, if we sell the fountains now, we'd be flooded with transportation cash for projects, but we'd lose the future cash flow. The toll road operators, meanwhile — no fools they — would certainly do everything they could to pay Texas less than what those roads will eventually generate in revenue.
That margin, the profit, is money that would go to their stockholders, not Texas roads.
"That could go both ways," Krusee said, noting that the roads might underperform and thus swing the transactions to Texas' favor. And if the state gets big money now, Krusee said, more roads could be built faster, and the state would see an economic development benefit from that acceleration.
I'm sorry, but I just don't see how it's a better idea to sell off assets to raise a boatload of cash to finance capital spending instead of borrowing against the future revenue of those assets and the investment-grade bonds they help generate. Am I missing something here? How exactly does this make sense? Link via Eye on Williamson, who's as skeptical as I am.
[Harris] county agreed today to pay investment banks $1 million to study the toll road system, including a plan to privatize it.
Commissioners Court voted to study three possible scenarios for the Harris County Toll Road Authority: keeping the 83-mile system as is; selling it outright; and leasing the long-term rights to operate it.
Financiers worldwide have begun viewing busy toll roads that draw hundreds of thousands of daily users as investment opportunities.
Investment houses and private toll-road operators have inquired whether the county is interested in privatizing, saying it might be able to lease its system for $2 billion to $7 billion.
An outright sale might net $2.7 billion to $4.4 billion, concluded First Southwest Co., the county's financial adviser.
But First Southwest and the investment banks have provided only preliminary estimates of how much the county could make. The studies will try to determine more exactly how much the county could reap by selling or leasing.
UPDATE: In the comments, Steve says:
[T]here is a possibility that the prices are inflated right now -- Macquerie, a big Australian investment bank, has been plowing money into this sort of project all over the globe because Australia, for a variety of reasons related to their pension reform laws, is desperate for bonds; a 50-year or 99-year right to operate a toll road can be securitized and sold to the pension funds. It pretty much seems like a seller's market, so it is possible that buyers are prepared to pay more than the roads would be objectively worth.