[Letter from Robert W. Poole, Jr.]

December 5, 2008

The Hon. Rick Perry, Governor
The Hon. David Dewhurst, Lt. Governor
The Hon. Tom Craddick, Speaker of the House

Gentlemen:

As a Member of the Legislative Study Committee on Private Participation in Toll Projects, I have signed the committee's Nov. 25, 2008 report. For the record, I am submitting this letter as additional information which I believe should have been included in that report.

One of the important advantages of the long-term toll concession (referred to as CDA in Texas) model is that it can often raise larger sums for a new toll road than the traditional tax-exempt debt model. This can sometimes make the difference between a project being able to be financed entirely via toll revenues rather than having to be partly supported by state tax revenues.

A case in point is the only CDA project to be financed thus far in Texas: SH 130 Segments 5 and 6. As a start-up ("greenfield") toll road, it is typical of many of the projects Texas hopes to finance via tolling. As Texas DOT official Phil Russell testified before our Committee on July 22, 2008:

"Concurrent with procurement for Segments 5 & 6, TxDOT created a tool to determine whether to undertake a CDA or to pursue a traditional toll revenue bond financing method. The results showed that a traditional tax-exempt municipal bond financing method would require approximately $700 million from Fund 6 to build, operate, and maintain the project for 50 years. . . . However, a public-private partnership through a CDA could offer multiple benefits. It would mean all private financing, with no public funds subsidy of capital, operations, and maintenance costs."

In other words, for this $1.3 billion project, the conventional tax-exempt all-debt model could finance only $600 million, while the CDA model using debt and equity over a longer time period could generate the entire $1.3 billion.

These results were so powerful that they led the Public Private Ventures division of the American Road & Transportation Builders Association to select the SH 130, Segments 5 & 6, as its 2006 Project of the Year, "showcasing the value that public private partnerships can bring to innovative transportation projects."

The general point that the CDA model can often generate more total funding for a start-up toll project than the conventional tax-exempt debt model is alluded to in the Committee's report, but is presented as a possible or hypothetical advantage. In fact, this advantage has been demonstrated already in Texas, via this landmark project.