Texas began to move away from the traditional "pay as you go" highway model in the 2001 legislative session. Later that year, voters approved Proposition 15, creating the Texas Mobility Fund ("TMF"). TMF bonds are serviced by the cash flows from various license, inspection and traffic violation fees.52
The TMF has no hard dollar cap. Instead, Mobility Fund obligations may only be issued if the Comptroller certifies that Mobility Fund revenues, for each year in which such obligations will be outstanding, will be equal to at least 110% of debt service requirements. As of 31 August 2007, the Texas Transportation Commission had issued $3.9 billion in bonds.53
Proposition 15 also authorized the "toll equity" concept - overturning a constitutional provision dating back to 1954 that barred the use of state money or credit to build or maintain toll roads, unless the toll roads could be financed completely with the revenue generated by the road itself.
The Legislature in 2001 also created Regional Mobility Authorities and authorized TxDOT to transfer any highway to an RMA for maintenance and operations as a toll road. Texas currently has eight different RMA's. In 2003, the Legislature expanded the powers of RMAs to issue revenue bonds and to condemn property via eminent domain. To date, the Central Texas RMA has issued toll revenue bonds. (Note: the North Texas Tollway Authority, the Harris County Toll Road Authority, and the Texas Turnpike Division of TxDOT have also issued revenue bonds, while the Camino Real RMA and the Grayson County RMA have issued tax-backed bonds as of the writing of this report).
In 2003, voters approved Proposition 14, which authorized the issuance of bonds backed by Fund 6 cash flows. The Legislature initially authorized $1 billion of annual bond issuance, up to a total of $3 billion. In 2007, this was raised to $1.5 billion annually, with an aggregate limit of $6 billion. At the writing of this report, there are $3.1 billion of Proposition 14 bonds issued and outstanding.
In addition, the 2003 session authorized TxDOT to use pass-through financing and shadow tolling - a method by which TxDOT would pay a private company for certain lane-availability.54
In 2005, the Legislature authorized Comprehensive Development Agreements (CDAs) which allowed for full public-private partnerships.55
Later that year, however, voters defeated Proposition 9, which would have provided staggered six year terms for RMA board members.56 Opposition to the amendment was driven by the perception that it would make the RMA boards less accountable.
In 2007, voters approved Proposition 12, which allows the state to issue up to $5 billion in general obligation bonds for highway construction. However, the enabling legislation giving the authority to issue the bonds failed to pass, so there are no Proposition 12 bonds outstanding.
Historically, Texas has been averse to debt. This fact, ironically, has put Texas in a better position relative to many of our sister states regarding current and future bonding capacity. Though superficially attractive in a time of general economic distress, it is questionable whether increasing Texas' level of debt would be advantageous as a long run public policy. The challenge is that the primary underlying support for revenue bonds comes from either a pledge of state gas tax receipts or, if a toll project, the toll income generated from the project. The New Jersey Transportation Trust Fund, for instance, is due to run out of cash in three years as payments on bonds consume all of the money it receives annually from the state's gasoline tax.57 We must emphasize that like any other source of financing, bond funding has its limits. Bonding capacity exists only to the level that is supported by the underlying cash flows.
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52 The collection of delinquent surcharges is becoming problematic. Stutz, Terrence, "Texas Moves to Collect Delinquent Surcharges for Driver Violations, Dallas Morning News, 11 October 2008. 972,000 drivers collectively owe $815 million - though it is unclear how much of this surcharge revenue belongs to the Mobility Fund.
53 Texas Mobility Fund Financial Statements FY07.
54 Shadow tolling is a mechanism often used when it is known that current toll revenue would not be sufficient to support the full costs of a particular road. We will address shadow tolling in subsequent sections of this report.
55 Technically, CDAs were introduced by HB3588 in 2003, but HB2702 in 2005 set forth the implementation details.
56 Article XVI, Section 30(a) of the Texas state constitution states, "The duration of all offices not fixed by this Constitution shall never exceed two years."
57 Source: Bloomberg.