Texas has had specific statutory authority to enter into PPPs for toll roads since 2003.68 On June 11, 2007, Texas Governor Rick Perry signed legislation enacting a two-year moratorium on new toll road PPPs.69 The legislation allows all of the toll road PPPs currently being procured to proceed, but prohibits the development of new toll road PPPs during the two-year moratorium period. A more restrictive version of the legislation had been passed by the legislature earlier in 2007, but Governor Perry vetoed that legislation and threatened to call a special session of the legislature if it was passed over his veto. In addition to establishing the moratorium, the legislation that was eventually passed refined Texas' PPP program in two important ways. First, the legislation codified certain terms pursuant to which TxDOT can enter into long-term concession agreements. Second, the legislation gave local toll road authorities a first option to develop new toll roads.
With respect to long-term concession agreements (TxDOT refers to PPP/concession agreements as "Comprehensive Development Agreements" or "CDAs"), the legislation requires that CDAs entered into with the private sector be limited to terms of no more than 50 years. The term of the concession is important to the private sector because investors need sufficient time to recoup their investments. In addition, the length of a concession also affects the concessionaire's ability to depreciate the value of the facility for income tax purposes, which can reduce the concessionaire's cost of capital. On the other hand, the interests of the private sector need to be balanced with the public sector's interest in reclaiming its asset. The new legislation also requires that CDAs specify the State's future buyback cost, should the State buy back the facility during the term of the concession. Under the new rules CDAs must clarify that competing roads may not be built within four miles on either side of the subject toll road, and CDAs must require that revenue generated for the State through the CDA be used only in the region in which it was generated.
The legislation also gives local toll road agencies the first option to build and operate any new toll roads. Before TxDOT develops any new toll road as a PPP, TxDOT and the local toll road authority must agree to certain business terms, including toll rates, and a market valuation study must be performed to determine the toll road's value. Only if the local toll road authority is unwilling to pay the market value determined pursuant to the valuation study may TxDOT open the project to bidding by the private sector as a PPP. Local toll authorities were also given the authority to propose that State roads be built as toll roads.
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68 Texas Code, Section 223.201.
69 The moratorium took effect immediately and ends on September 1, 2009.