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Toll road privatization followup

Last month, the idea of Harris County selling off the financial interest in its toll road network to a private firm was first publicly floated. At the time, a feasability study was proposed, with an October 25 deadline for Dick Raycraft, director of county management services, to report back on just what would be studied. Well, today’s the 25th:

Commissioners Court is expected today to give the go-ahead to a comprehensive study that will determine whether it is in the public’s and the county’s interest to fully or partially privatize the toll road. The plan calls for the county to ask selected investment banks to submit proposals about the toll road’s future.

The court also will consider whether it should create a working group that will help review proposals about the toll road’s future.

The study will consider which of the following options is best for the toll road users, the county and its long-term financial stability.

The county could:

•Keep the toll-road authority as is.

•Sell parts or all of the system to a private firm or to a partnership between a private firm, the county and a newly created regional mobility organization. Such a sale might net $2.7 billion to $4.4 billion, concluded First Southwest Co., the county’s financial adviser.

•Or it could lease the right to operate the system for 50 to 75 years to a private firm or to a partnership between a private firm, county and the regional group. Such a deal could net the county $2 billion to $7 billion, according to investment banks.

Under a public-private partnership, the county could hold no more than a 49 percent interest. A private firm and a regional mobility organization would control the remaining 51 percent.

The organization, [Harris County Judge Robert] Eckels said, would include members appointed by Harris County, surrounding counties and Gov. Rick Perry.

Commissioner Sylvia Garcia said, “The study will explore our options and look at what the future of the toll-road authority ought to be. We would be remiss in our responsibility not to look at this.”

Robin Holzer, who outlined the reasons why this is a bad idea when it first came up (there’s a lot more discussion on that link after her piece, so do click the link and read it all), explains it again in shorter form:

“Many, many members of our organization are concerned the accountability will be less if the toll roads are run by a private company,” said Robin Holzer, chair of the Citizens Transportation Coalition.

[…]

Holzer said private firms want to operate the toll road because they know that they can make money on top of whatever was required to be paid to the county. She wondered why the county just doesn’t make the money itself rather than give a private firm a cut of its take.

“I am skeptical that the deal makes financial sense. Some people will be tempted by the thought, ‘Hey, we can have money now instead of later,’ ” she said.

The subsequent discussion of Robin’s initial analysis of this led me to this interesting perspective on what may be to come:

County Toll Road Authority director Mike Strech tells us impetus for the study comes from an unsolicited offer by Goldman Sachs to the county received about a month back. Goldman Sachs have proposed a longterm franchise in return for a franchise fee of $7b.

Goldman Sachs made a proposal about five years ago which was rejected by the county.

There’s a report in Bond Buyer magazine quoting Edwin Harrison, the county’s chief investment officer as saying that Lehman Bros, UBS and Citigroup have also said there should be no trouble getting a sum like $7b for a toll franchise.

First Southwest in a preliminary report for the county is reported in the local press as saying a franchise could bring in a net $2b to $5b after defeasing county debt of $1.8b.

However a First Southwest guy told us that so far all they have had is general conversations with Harris County officials. Any numbers they have given were very rough back of the envelop calculations of the order of magnitude. To get a good grip on the subject they would need to do a proper study. He said there are many alternatives that could be considered:

* sale to another government agency

* formation of a regional mobility authority

* an initial public offering in which the authority is converted into a publicly held and traded company

* a longterm toll concession granted after competitive bids

“There are a lot of options,” he said “and obviously we hope we will be hired to help the county explore them. We have a lot of experience here and we know these toll roads.”

Yes, I’m sure they’re oh so eager to help the county out. Someone remind me to look into recent campaign contributions made by whoever wins this consulting gig once it happens.

Finally, since the article mentions “Spanish toll company Cintra” (also known as a main player in the Trans Texas Corridor), here’s just a little reminder of what meeting the new boss may mean:

In Chicago, Cintra took over the Chicago Skyway, a 7-mile bridge, late last year. The city, which built the bridge in the 1950s, was paid $1.8 billion for 99 years.

Before the documents were signed, Cintra and its partners, doing business as Skyway Concession, announced that the $2 toll would increase to $2.50 for cars and up to $11.80 for trucks.

“Everybody agrees the tollway needs money for repairs … but to increase it by that much is shocking,” said Bob Stranczek, president of Chicago-area Cresco Lines, which specializes in hauling steel. “Most of us operate under 1 to 3 percent profit margins. We don’t have the money to pay these fees.”

Don’t say you weren’t warned.

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One Comment

  1. Anne says:

    Before the documents were signed, Cintra and its partners, doing business as Skyway Concession, announced that the $2 toll would increase to $2.50 for cars and up to $11.80 for trucks.

    Geez! There was nothing in the contract about just raising tolls, willy nilly? How nice for Cintra.