Texas Department of Transportation Special Meeting
Ric Williamson Hearing Room
Dewitt Greer Building
125 East 11th Street
Austin, Texas 78701-2483
Wednesday, February 24, 2010
Deirdre Delisi, Chair
Ted Houghton, Jr.
Ned S. Holmes
Amadeo Saenz, Executive Director
Steve Simmons, Deputy Executive Director
Bob Jackson, General Counsel
Roger Polson, Executive Assistant to the
Deputy Executive Director
MS. DELISI: Good afternoon. It is 1:07 p.m., and I call this special meeting of the Texas Transportation Commission to order. Note for the record that public notice of this meeting, containing all items on the agenda, was filed with the Office of the Secretary of State at 3:58 p.m. on February 16, 2010.
Before we begin, please take a moment to place all your cell phones and other electronic devices on the silent mode or the off mode, please.
This special meeting has been called to address three items related to State Highway 161 and Southwest Parkway issues in the Dallas-Fort Worth area which were assessed in great detail at last month's workshop. We will convene the regular monthly workshop meeting immediately after we have addressed the three minute orders on the special agenda or at 1:30, whichever is later.
We'll accept public comment that is relevant to the posted agenda items but we will not have an open comment period at the end of this meeting. To comment on an agenda item, please complete a yellow speaker's card and identify the agenda item on which you'd like to speak. You can find these cards out in the lobby, and we will limit each speaker to three minutes.
Before we begin with the agenda, do any of the commissioners have anything to say?
MR. HOUGHTON: I move to approve.
MS. DELISI: Okay. With that, Amadeo, I'll turn it over to you.
MR. SAENZ: Thank you, Madam Chairman.
The first item on today's agenda of the special meeting is final approval of a request for financing from the North Texas Tollway Authority for the State Highway 161 project, and James Bass will present this minute order to us.
MR. BASS: Good afternoon. For the record, I'm James Bass, chief financial officer at TxDOT.
Agenda item 1(a) will seek your final approval for a toll equity loan agreement for State Highway 161. And to provide you additional background, I have a PowerPoint presentation that hopefully you have a hard copy in front of you and it will be coming up here on the screen in a second for those in the room.
The first slide -- for those of you who don't have a hard copy in front of you, this first slide documents and represents the partnership that's been formed over the last year to deliver these much-needed projects in the Dallas-Fort Worth Metroplex. The Regional Transportation Council of the MPO in the Metroplex is providing an extension of up to six months for a payment of $258 million reimbursement that was advanced to move forward Segments 2 and 3 of State Highway 161. It's also providing for the payment of the remaining $200 million of an up-front payment to be made over time to coincide with funding requirements for other RTC projects or to provide an extension of up to six months.
The RTC has some Category 2 funds that are available out into the future that they are willing and going to commit for the delivery of Southwest Parkway/Chisholm Trail, and another $12 million that has been committed for the Union Pacific Railroad bridge improvements on State Highway 161.
MR. HOUGHTON: James, will you stop and comment on how do they commit $91 million today if it's future funds?
MR. BASS: Right. Here lower at the bottom of the page, as well, under TxDOT, the commission will be asked to provide $91 million of Prop 14 Bond proceeds to allow for the acceleration of those Category 2 dollars such that they'll be able to be used today for the delivery of these projects, and that's lower on the page.
MR. HOLMES: James, where would that come from, whose allocation would be reduced today and increased in 2016?
MR. BASS: Well, we will take it away from the RTC in 2016 and because it's Prop 14 proceeds, by the commission giving approval to issue that Prop 14 debt, that will generate the cash flow that's needed today. So no other area will need to be reduced today if the commission approves the $91 million of Prop 14. But what we will do is charge it against the RTC's allocation such that the RTC doesn't receive both the $91 million of Prop 14 today and then another $91 million in 2016.
MR. HOLMES: And so it wouldn't reduce Cat 2 for another region today.
MR. BASS: Correct.
MR. HOLMES: But it would reduce the availability of Prop 14 money that could have been used elsewhere.
MR. BASS: On other items, yes, subject to the commission's discretion and approval.
MR. HOLMES: Okay.
MR. BASS: The North Texas Tollway Authority is contributing up to $400 million of their existing system equity for the delivery of both State Highway 161 and Southwest Parkway/Chisholm Trail, as well as providing additional equity, if necessary, for any construction cost overruns.
TxDOT will provide a toll equity loan for the State Highway 161 in an aggregate amount not to exceed approximately $4.1 billion, and then also at some point in the future increase the toll equity loan amount for an additional amount not to exceed, right now we think, another $2.3 billion for the delivery of the Southwest Parkway/Chisholm Trail Scenario 1-C.
In addition, what we just spoke about, $91 million of Prop 14 Bonds are asked to be allocated for this project in exchange for the future Category 2 funds of the RTC. I believe that's on your agenda tomorrow for your consideration. In addition, in the past the department has provided funding to construct various elements of the Southwest Parkway/Chisholm Trail, that primarily being right of way in years past, and then also to pay costs associated with the UPRR, the bridge improvements on 161 if they happen to be in excess of $22 million.
And again, the purpose of this page is really to show that the delivery of these two needed projects relies upon this partnership that's been created or formed amongst these three entities.
One of the concerns we've heard from various parties expressed is on the toll equity loan agreement and the risks that that may present to the State Highway Fund. And in different conversations, I want to be clear, I know the commission understands this but just to reiterate for our audience, this toll equity loan agreement is not a backstop of the revenue of the projects, whether it be 161 by itself or 161 and/or Southwest Parkway/Chisholm Trail.
It is making a loan available for certain eligible costs, and those eligible costs being construction, right of way, engineering and operations and maintenance of those roads over time and making that loan amount available to NTTA over time, if it is needed. And so it is not true what some people might think of as a true guarantee or backstop, that is not what this toll equity loan agreement does.
MR. HOUGHTON: James, can we do a backstop?
MR. BASS: No, we cannot. We cannot guarantee debt service on the State Highway Fund for anything other than Prop 14, and that's by the constitution.
So some of the risk mitigation in order to serve as protection against an unexpected call on the State Highway Fund, because as we spoke about last month, the design and structure of the agreement is to provide the credit support necessary for these projects but to have enough mitigation factors in there that there will not be a call upon the State Highway Fund. We, of course, can never guarantee that, but looking at the diligence, we think the odds of that are low and I'm going to go through some of the reasons why we think those odds are low right now.
On the initial funding, there's required at financial close that the capital interest fund be funded with bond proceeds and that it be funded in an amount sufficient to pay the debt service during the construction period plus the first year of planned operations. In addition, there's a rate stabilization fund which really serves as a protection against a call or a draw on the State Highway Fund under the toll equity loan agreement, and this rate stabilization fund at financial close must be funded at an amount equal to the third-year projection of operations.
And so on day one it will have enough reserve in there for what might be expected in year three. Once the project gets to the third year of operations, the size of that reserve will grow to year four requirements. In year four, it will grow to year five requirements. The intent is that it will always provide one year's cushion from project revenues before there's a call placed upon Fund 6.
MR. HOLMES: And James, that's a reserve of debt service, operations and maintenance?
MR. BASS: Yes. In other words, under the agreement, before a loan request can be made, the balance in that rate stabilization fund would have to be zero, and it would be available for those items you mentioned, for debt service and for operations and maintenance standards.
MR. HOLMES: It would have to be zero having already been previously funded.
MR. BASS: Correct, having been funded and then already drawn upon. Again, it's kind of, if you want to think of it as the first line of defense, it's a buffer before Fund 6 would ever get called upon.
Another layer of protection is a toll rate covenant within the agreement in that on an ongoing basis every two years, the authority will update their traffic and revenue estimate and their financial model. We'll then review that model and if in the next five years after that update it ever shows that there's no money in the general fund which is the last bucket in the waterfall of the project -- if that last bucket doesn't have any money coming into it, the NTTA board will hire a traffic and revenue engineer for that traffic and revenue engineer to make a recommendation to the board as to how they can address that shortfall within the next five years, and then the board would take action on working to address that issue.
MR. HOUGHTON: Toll rate?
MR. BASS: I think it could be a combination, it could be toll rate, it could be looking at costs, so I think it's really a factor of both revenue and/or costs, and it would be the board at that time making the determination how to best address that issue that the model was showing within the next five years.
MR. HOLMES: Assuming that that review is made and the costs are scrubbed and that does not yield a sufficient delta to cover the debt service, and then the board decides, for whatever reason, they do not want to raise toll rates, what is TxDOT's remedy?
MR. BASS: The remedy, I believe, and I may have someone correct me if I misstate here, would be to sue for mandamus if they're not living up to obligations or commitments within the agreement in order for the board to take action as they will commit to do if they choose to adopt the agreement.
Another thing that provides comfort because of this toll rate covenant is that the State Highway 161 project has a high degree of toll elasticity. What I mean by that is the initial toll rate will be 14-1/2 cents per mile, and based upon the traffic and revenue studies, it says that those individual rates could be increased considerably before overall revenue would begin to decline.
So there appears to be room that if there ever was projected to be an issue, if the NTTA board elected to increase toll rates, you wouldn't be in a position of increasing rates yet ending up with less revenue. They would be able to increase rates and increase revenue to address the issue within the forecast.
MR. HOUGHTON: The toll rate is 14.5 cents per mile.
MR. BASS: Correct.
MR. HOUGHTON: What is the market rate by the T and R?
MR. BASS: If you don't mind, I don't know if that's public yet. I'm hearing that it's not public. I'll tell you that it's considerable.
MR. HOUGHTON: We don't know what market rate is?
MR. BASS: I don't know what market rate is. The T and R that we've had a chance to review and analyze and perform due diligence on shows that in 2013 that 14-1/2 cents would be 16 cents per mile. What the traffic and revenue report shows is that it could be increased considerably before you would be in the situation of getting diminishing revenue.
MR. HOUGHTON: Define considerably.
MR. BASS: I apologize. At this point I may be uncomfortable talking about another entity's traffic and revenue statement and I might leave that to someone from them to answer that.
MR. HOUGHTON: So we have enough room; there's enough room in here to increase rates to give us comfort.
MR. BASS: Yes, that if the projection ever got to that situation, the authority would have the option and the ability to increase the per-mile rate and increase revenue at the same time.
The overall finance plan for State Highway 161 by the NTTA provides approximately a 10 percent cushion between the revenues and the sum of the debt service and operation and maintenance expenses, again providing another layer of protection. And what this means, without adjusting any of the operations and maintenance expenditures in looking at that financial plan, revenues could be 14 percent below the projections in each and every year, and there would never be a draw against the toll equity loan agreement.
Now, if you consider well, if traffic is down and revenue is down, your expenses would likely be down as well; if you look at it the other way and say, well, if revenues are down 20 percent and expenditures are down 20 percent, we would be in the same situation: revenues down 20 percent, expenditures down 20 percent, and the model shows that there would not be a call against the toll equity loan agreement or the State Highway Fund.
Within the plan there's a prohibition on additional debt being issued except in certain circumstances. One of those circumstances is to fund some additional capacity improvements on State Highway 161 that are scheduled for 2018 and 2029. Those will first look to project revenues to see if the cash on hand at that time is able to fund them. If not, then additional debt can be issued but only up to a certain maximum amount. Debt could also be issued to refinance for interest rate savings but only if TxDOT grants its approval for that, and it would not be allowed to extend the maximum maturity of the toll equity loan agreement.
And then the third circumstance would be to allow for the addition of the Southwest Parkway/Chisholm Trail as part of this new system and to issue the debt associated with the delivery of that project.
We have in the agreement for your consideration a revenue share mechanism, and what we have currently in the agreement before you is that beginning the year after the tenth anniversary of the debt being issued, or after the tenth year of this toll equity loan agreement being executed, there would be an annual revenue share that would equal 3 percent of whatever the amount NTTA could possibly draw on the loan in that particular year.
And so that annual average just for 161 is around $4.3 million, and that obviously starts out lower than that and grows to larger than that over time, and the total estimated amount is approximately $112 million, again for 161 only. And that $112 million assumes that the TELA, the toll equity loan agreement, is in place for the entire maturity of the debt that we're not taking out early.
That 3 percent of the annual amount would be payable from available revenues in the general fund which is, again, the bottom bucket in the waterfall, and any unpaid annual fees would accrue without interest and just roll forward to the next year to be paid once revenues are available or to be paid at the point of termination of the toll equity loan agreement.
MR. HOLMES: Accrued without interest?
MR. BASS: Yes.
MR. HOLMES: And why would that be?
MR. BASS: The thought was that if in year eleven or in any year there were not project revenues available to make the payment at that time, some would say that the project would be underperforming at that time, and the thought was by adding interest to that we might be overburdening a then-underperforming project. And the hope, I think, of all parties is that as soon as possible the TELA provision be removed from the arrangement but before that can be done, all amounts owed to TxDOT would have to be paid in full.
And so if this annual amount rolled forward from year to year and accrued interest, that bar, that threshold, would also grow making it, at least in theory, tougher for the TELA agreement to be taken out. Those were the thoughts behind that.
MR. HOLMES: And so it's basically free money for 34 years or however long that is?
MR. BASS: Right. There would be no interest assessed on it.
MR. HOLMES: And would we consider that to be fair to the rest of the Fund 6 contributors around the state?
MR. BASS: I'll leave that to you and your colleagues' discretion.
MR. HOLMES: I don't think it is; I think there ought to be interest on it.
MR. HOUGHTON: If we can hold that in abeyance for a minute, that issue, if you don't mind, Commissioner Holmes, to look at the next slide on revenue versus costs in these projects. And the reason I ask that is because you talk about putting pressure on if it's underperforming. I'd like you to show me what the anticipated performance is of the projects.
MR. BASS: And these are from models that we've received and they're not yet at the financial close, but from data that we've received, the color may be hard to see, but this is a projection of revenues and costs for State Highway 161. And I will point out, if you look at, down along the bottom there, the timeline, this goes out into the 2060s. But you'll see surplus cash flow, if you will, in that green area, and I think in nominal terms, not PV, for 161 it's in the neighborhood of just over $5 billion, again, going all the way through into the early 2060s.
If you then look at the next slide for Southwest Parkway/Chisholm Trail revenues and costs projections, again going out to now in the mid 2060s, you see continued projections of surplus revenue and this one is in the neighborhood of $15 billion over time. And again, you see on both of them on the front end, one longer than the other -- you see the constraint, and again, the thought behind the partnership and the provision and the availability of the toll equity loan agreement is to help both projects to get delivered today and assist through those constraint periods on the front end.
MR. HOUGHTON: So the total, if you take it all the way out, if this goes out to the term, the entire agreement is what, about what, 20 --
MR. BASS: Well, it would go beyond the term of the toll equity loan agreement and going out into, it looks like, 2063 there and 2066. There would be an expected, roughly, $20 billion of surplus or excess revenue.
MR. HOUGHTON: We're asking for how much?
MR. BASS: On the two projects it would be, from what we know now, in the neighborhood of $122 million, I'm sorry, $166 million. It's $112- just on 161 by itself, and then another $54 million on Southwest Parkway/Chisholm Trail.
MR. HOUGHTON: Are these our numbers?
MR. BASS: No.
MR. HOUGHTON: These are not our numbers.
MR. BASS: Correct.
MR. HOUGHTON: So $21 billion and our fee is $160-.
MR. BASS: Correct.
MR. HOUGHTON: Without interest.
MR. BASS: Correct.
MR. UNDERWOOD: James, going back to your slides, are you saying that the Southwest Parkway is actually more profitable than 161 projections?
MR. BASS: Based on the projections over time, yes, that's what it's showing. It has a higher incline, as you can see, between the two, a faster, more rapid growth.
MR. UNDERWOOD: Right, I saw that.
MR. BASS: I would also say, as we spoke last month, that the two projects are different, obviously. 161 is more in an already developed area, and I think the revenue projections you see here for Southwest Parkway/Chisholm Trail assume more growth, more development in the area because it's going into an area that has not already been developed, so it's showing much more demand.
MR. UNDERWOOD: So because of the traffic that they think will be there originally, there will be that much more increase in traffic to make it three or four times as valuable as 161.
MR. BASS: Correct. They're showing much more ramp-up, and I would also say, therefore, because it's reliant upon more development to get that increased revenue, there is a greater element of risk associated.
MR. UNDERWOOD: There's a greater risk but there's also a greater chance for profitability; great risk gives you great profits, and vice versa. I understand that.
MR. BASS: That's what we've seen in the latest, and I do want to point out that the traffic and revenue study for Southwest Parkway/Chisholm Trail is not investment grade. It is what's called a near investment grade report, and so obviously these figures are subject to refinement.
MR. UNDERWOOD: You kind of danced with me on that. What does that mean, subject to refinement?
MR. BASS: Well, I don't think you would expect to see a drastic change in the numbers but the analysis from the traffic and revenue engineer is ongoing on Southwest Parkway/Chisholm Trail; the traffic and revenue study we have on State Highway 161 is a more mature, if you will, an older report, and Southwest Parkway is a little bit behind it and moving rapidly to catch up as far as the maturity of the report.
MR. UNDERWOOD: The data?
MR. BASS: Yes.
MR. UNDERWOOD: Okay. Thank you, sir.
MR. BASS: In this minute order it envisions adding Southwest Parkway/Chisholm Trail to the toll equity loan agreement. There are certain actions that are required to do so and some of those have already taken place in that TxDOT and NTTA have drafted an agreement to supplement the State Highway 161 toll equity loan agreement if NTTA elects to undertake the Southwest Parkway/Chisholm Trail project.
If approved by the commission, the TELA would then be supplemented at the financial close for the issuance of debt associated with Southwest Parkway/Chisholm Trail. The maximum aggregate amount of the TELA would then be increased by around, we think, $2.3 billion for the costs associated with the Southwest Parkway/Chisholm Trail. So 161 is $4.1 billion, Southwest Parkway/Chisholm Trail to get added to it would be about $2.3- for a total of $6.4-. Obviously, the maximum available annual amounts and other things would be increased accordingly to reflect the incorporation of the Southwest Parkway/Chisholm Trail into the agreement.
A summary of key proposed changes to that would be that NTTA would commit all of the $400 million of equity for both projects. Honestly, that was going to happen anyway, it's just a removal of up to $400 million; it will be the $400 million. The two projects will be combined to form a new system with a single set of revenues and reserve funds and operating funds.
Any expansions of the Southwest Parkway/Chisholm Trail, because it is being built as a scenario 1-C, a skinnied-down version, if you will, of the ultimate build of that project, any expansions could not be financed while the TELA is outstanding except for they could issue subordinated debt, subordinate to their senior level debt and subordinate to the toll equity loan agreement to advance any of those expansions.
Any excess bond proceeds not needed on one project will be moved over to fund the other, again, looking at it as a true system. The TELA cannot be partially terminated in order to take out only one of the projects; it will be one single system and will operate as one single system.
Just a few other conditions precedent before the Southwest Parkway/Chisholm Trail can get added to the toll equity agreement. NEPA finality would need to be reached on Southwest Parkway/Chisholm Trail, and the commission would have to give final approval to a toll equity loan agreement for Southwest Parkway/Chisholm Trail. Agenda item 1(b) today is for your consideration of preliminary approval, so before we can ultimately add it into the agreement, we would need to come back to you for a final approval.
We will also need an updated financial model that would fully integrate Southwest Parkway/Chisholm Trail into the system and it would have to show that the projects are self-supporting and that there's not a TELA draw expected in any of the years, and all of the required reserves would need to be funded at their minimum levels at financial close.
That's the prepared PowerPoint I have for you. I'd be happy to answer any questions or go over any other information we may have covered previously.
MR. UNDERWOOD: I just want to understand something, James. The exposure that TxDOT has is the 161 is $4.1-, Southwest Parkway is $2.3- maximum -- is that right? -- to basically $6.4 billion. That's the exposure?
MR. BASS: Right, and as we said last month, that's really a calculated theoretical maximum because what will actually happen is those aggregate amounts will get allocated year by year over the life of the debt, and such that, just for an example, let's say in 2020 $100 million of that $6.4- is allocated in year 2020, if both projects generate $90 million of revenue, the most that could ever be asked for or requested under the toll equity loan agreement would be $10 million in that year.
And so that $6.4 billion is obviously a large number; it's a calculated number, but in my mind it's more of a technical number that, according to the rules and everything, we needed to come up with. Once we get into actual operations, it's going to operate on annual amounts less the actual revenue that's been received.
MR. UNDERWOOD: And they're going to evaluate what their tolls are and what they should charge for their tolls, what, every two years. Is that right?
MR. BASS: Yes, sir. And then they'll also update the financial model, once that new traffic and revenue study comes in every two years, they'll also update the financial model, and we're going to focus on those next five years after that update to look at and make sure that the system, the projects are functioning as expected and that that model shows there's no expectation or it doesn't show that there’s going to be a request to Fund 6.
If there is a request shown in the model to Fund 6 that says, hey, five years from now we're going to have to request $20 million, that then triggers the NTTA board hiring the traffic and revenue engineer to make recommendations to them on how they can address that $20 million figure.
MR. UNDERWOOD: So hopefully, you're saying that they'll be able to, through studies and whatnot, know prior to the draw on TxDOT and address that problem before it happens. Is that correct?
MR. BASS: Correct. I think some of the protections to Fund 6 I would simply say are the reserves that are going to be within the project. This rate stabilization fund I talked about, it's going to have cash on hand that's going to be used first before ever coming to Fund 6. These various reporting requirements and updates are really kind of an early warning system, if you will, to look out over the next five years and say we see an issue, let's do something about it today rather than waiting three years from now and addressing it then.
MR. UNDERWOOD: But I see that only as a cushion till they turn around and raise their rates to cover their loss.
MR. BASS: Correct.
MR. UNDERWOOD: And that's all that is; that's just a one-year insulation.
MR. BASS: Correct. Another layer of protection is the ability to raise that.
MR. UNDERWOOD: But they're only doing the study every two years.
MR. BASS: Correct, but we're getting reports throughout that two-year period showing if they're either on project, under projection or over, and if the variance is more than 5 percent from what was projected, then we need an explanation of that variance and then we can visit with them and request a more frequent traffic and revenue study. But a traffic and revenue study will be done at least every two years.
MR. UNDERWOOD: Well, I get a little nervous about when you say request. I've requested meals from my wife sometimes but it's not what showed up. So explain to me a little bit more about the request.
MR. BASS: Under certain conditions we can require one to be performed more frequently than two years, so what will be done at a minimum every two years, if not more frequently.
MR. UNDERWOOD: Okay, thank you.
MR. HOUGHTON: Let me ask is there anything in the region that precludes NTTA from raising their rates on an annual basis?
MR. BASS: Not that I'm aware of. But that would really be a question for the authority.
MR. HOUGHTON: Or the RTC. Mike, is there any reason they couldn't raise the rates? So if they wanted to go to some type of different rate path, time of day, those sorts of things to maximize revenue, they could do that? Is that right, Paul. Would that be an accurate statement? Just a yes or no.
MR. WAGEMAN: (Speaking from audience.) We have a policy that prohibits that currently.
MR. HOUGHTON: Okay.
MR. HOLMES: James, if there is a draw on the TELA, it would be a draw with interest accruing on it?
MR. BASS: Yes.
MR. HOLMES: And what is that interest?
MR. BASS: The interest rate would be the ten-year AAA MMD rate plus 100 basis points.
MR. HOLMES: Adjusted ever, annually?
MR. BASS: I think at the time of the draw, I think it would be set -- at the time of the draw date we would look to that index and assign that rate for the payment.
MR. HOLMES: And then that would run until it was paid?
MR. BASS: Yes, and I believe, and if payments are made on schedule, in certain circumstances that increases to, I believe, it's LIBOR plus 200, LIBOR being a taxable equivalent and MMD being a tax-exempt equivalent.
MR. HOLMES: And these are negotiated interest rates that you've negotiated with NTTA?
MR. BASS: Right, we negotiated a reference to an index that we would then look at that index at the time, if and when, any draw was made.
MR. HOLMES: And why would that be an inappropriate method to calculate interest on a guaranty fee that wasn't paid?
MR. BASS: I think, again, that's something for the commission's consideration. As I mentioned earlier, our thought was as this revenue-sharing mechanism that if in year 11 or year 15, in any one year if there weren't project revenues available to make the payment then, we thought it would just roll forward. As the parties are sharing on the front-side risk through this different partnership, it would be more on the back-end sharing in the gains of the project and not assessing the interest.
MR. HOLMES: There's another way to look at it. If it is acceptable to have an advance on the TELA bear interest, if it's acceptable for a TELA advance to bear interest, by definition, that means that the project is not generating enough revenue to pay its total outgoings.
MR. BASS: Correct.
MR. HOLMES: And so why would it be acceptable then and it's not acceptable on the guaranty fee or on the revenue-sharing arrangement?
MR. BASS: Obviously, I'll let, again, you and your colleagues decide the acceptable and non-acceptable fee.
MR. HOLMES: Well, I think it should and you've already got an interest rate that has been agreed.
MR. BASS: The difference, the thought process -- I'll explain to you the thought process on an actual TELA draw. We would actually be pulling cash from the State Highway Fund and other identified needs and redirecting it to these projects or this agreement. So there would be more of an impact, there would be plan dollars that would now need to be redirected, and so that was the ten-year AAA MMD plus 100 basis points. On the revenue-sharing mechanism, if the payment is not made, there's no direct impact to the State Highway Fund in that circumstance, and so, again, the thought process that would be how we saw those as slightly different in our deliberations.
MR. HOLMES: I just don't see this type of an arrangement as being effectively free or at least kind of elective as to when you pay that revenue share. It could obviously be deferred to the end of that term.
MR. BASS: Well, I think if there's money in the general fund, it would be required to be paid; if there were money in there and the board chose not to pay, I think we would be in that similar situation we talked about earlier of the commission potentially utilizing mandamus to force the authority to operate in accordance with the provisions of the agreement. And so if there's money in there, and I also think the trustee will have some ability to do that rather than just a discretionary decision of not to make the payment.
MR. HOLMES: You know, we're in the process of setting precedents and I think it's a very dangerous precedent to set not to have a cost to a deferral.
MR. BASS: I'm assuming there are other people who want to comment.
MS. DELISI: There are a couple. Representative Rob Orr.
MR. ORR: It's just an honor to be here, and thank you for the commission allowing me to come up. You know, I came last month and I thought I'd just go on and follow this all the way to the very end. This is a very important project for our district.
And I want you to know I also speak for Dr. Mark Shelton. This project goes through my district and also Dr. Shelton's district as well, and we had long conversations yesterday, and he wanted me, for both of us, to extend how important it is to our project. Thank everyone for working together. When Commissioner Meadows came and did the opening of the interchange last Thursday, which was freezing weather -- it was so cold we couldn't hardly talk. But the interchange at 67 -- it didn't affect Bill very much.
MR. MEADOWS: That was a good thing.
MR. ORR: We did the interchange at 67 and I-20 and then also at I-20 and 121, the new interchange with stimulus dollars to get those started. This is just huge that we all come together with a partnership between NTTA and RTC and TxDOT.
So I really just want to thank you. I know everybody has got their nose to the grindstone and working on each of the individual segments. I guess I just want to say, from what I can see, there's been a lot of safeguards. I work for the State of Texas, just as you do, and be sure that the State is protected and Fund 6 is protected. And I believe there's been enough safeguards put in place with the reserves and with the other entities that Fund 6 will be protected. And this is setting new precedents as far as there may still be some details to work out but I think this will be a model for projects all over our great state for entities to come together, work together, and make this happen.
We're looking for a positive vote from you to move this forward, and I just want to thank you and let you know that we are in support of combining these two projects as one, and I think it reduces the risk for the State of Texas and keeping these projects together is very important. And with that, I would just close and take any questions that you might have.
MS. DELISI: Thank you, Representative.
MR. ORR: Thank you.
MS. DELISI: Judge Harmon.
JUDGE HARMON: Thank you for allowing me to make a few comments. I will be very brief because I know you have a busy day.
Rob Orr really summed up a while ago when he mentioned the word partnerships. This, I hope you can see, has been a very unique type partnership between the NTTA, the counties, Johnson County, Tarrant County, the Regional Transportation Council and TxDOT. And so I'm not going to debate any of the issues with you; that's really over my head a little bit. I'll leave that to the people that know what they're talking about.
It was encouraging to hear Commissioner Meadows that the Southwest Parkway/Chisholm Trail revenue was quite a bit stronger than what we had anticipated, so that was a plus, so thank you.
But you know, serving over at the commissioners’ court, I know you have very difficult decisions before you. I face that in my commissioners’ courtroom with the commissioners that I work with, and I know decisions are sometimes difficult to make. So I just personally want to thank you for what you do. I know the citizens of Johnson County would like to thank you for what all you do for the Johnson County area.
So anyhow, I would like to encourage you, of course, to vote a positive vote today in regards to this issue. Thank you very much for your time.
MS. DELISI: Thank you.
Commissioner Houghton, have you got a question for someone?
MR. HOUGHTON: Yes. The first question is to James. Then Council Member Jungus, I'd like to ask you a question. Where does the fee end up? What happens to this fee. Does it go to El Paso?
MR. BASS: The revenue share would be available for projects in the region.
MR. HOUGHTON: In the region.
MR. BASS: Yes.
MR. HOUGHTON: Define the region.
MR. BASS: They would be the Dallas and Fort Worth districts because it would be operating as a system with elements in both districts, and so it would go in the region.
MR. HOUGHTON: So it doesn't end up in this supposed black hole of TxDOT -- you know, we send it all over the state, the fee will end up in the region.
MR. BASS: Back in the region to advance other transportation projects.
MR. HOUGHTON: Okay, that's my question of you.
Council Member Jordan, I read with great interest this morning the Bill Meadows Star Telegram editorial page that the Southwest Parkway/Chisholm Trail has been on the books for over 40 years.
MR. JORDAN: In 1962 was the decision by local authorities to start working to draw the line; in 1965 the line was drawn on the master thoroughfare plan, yes, sir. And Bill Meadows was 15 years old or something like that.
MR. HOUGHTON: So it's been on the books that long.
MR. JORDAN: Yes, sir. This is huge for us.
MR. MEADOWS: Mr. Houghton, would you follow that question up with ask -- Councilman Jordan; he probably is not old enough to remember, but how was that road proposed to be funded from 1962 through discussions up through to the year 2000?
MR. HOUGHTON: I imagine Fund 6.
MR. MEADOWS: I'm sorry?
MR. HOUGHTON: I imagine it was Fund 6, wasn't it?
MR. MEADOWS: One hundred percent Fund 6, yes, that would be right. Thank you.
MR. JORDAN: That's correct.
MR. HOUGHTON: And your point?
MR. HOUGHTON: My last say here is, Council Member Jordan, we will make a decision here today but the ultimate decision is not going to be ours. We send this package that was put on my dais ten minutes ago to the North Texas Tollway Authority for an up-or-down vote. So I think your work is still cut out for you.
MR. JORDAN: It is cut out for us, and both in my position on the RTC working with Mr. Morris, and I do want to put on record that Michael Morris has been strongly instrumental in working with the partners putting this together, but we understand that we have work to do with NTTA and we, the City of Fort Worth, and we, the RTC, will get busy and make sure we work that into the partnership.
MR. HOUGHTON: Thank you.
MR. JORDAN: And for the record, I'm Jungus Jordan, city council member of Fort Worth, and secretary for the Regional Transportation Council.
MR. HOUGHTON: Is there any rumor to the effect that a guy named Meadows may be running for mayor up there? I hear there's something going on.
MR. JORDAN: Bill keeps telling me he's got all kinds of rumors out there, but I'm not going to say anything on the record for that.
MS. DELISI: Thanks, councilman.
MR. JORDAN: Thank you to the commission.
MR. HOLMES: James, may I ask a couple of questions? You went over a whole series of safeguards. Do you feel those are adequate to protect Fund 6 from actually having to fund under this credit facility?
MR. BASS: Yes.
MR. HOLMES: And if, in fact, they are adequate, why are we having this conversation?
MR. BASS: Well, one of the reasons is just the uncertainty with any project revenue debt, and the willingness or unwillingness of investors to assume that risk on traffic and revenue lines or other things, and how much can be funded through that and so how much you can get in the market from that and then how much equity the existing NTTA system has to put forward towards delivery of these projects. And the current thought is that without this credit enhancement, those two by themselves would not be able to deliver these projects without a downgrade to the rating of the current NTTA system.
MR. HOLMES: I think I read that in the paper. But for the TELA, would these projects actually get built?
MR. BASS: I think they would struggle for both of them to get built. I would say I think one of them might be able to with that downgrade to the NTTA system that I talked about. I think it may also create more of a funding gap that some assistance other than a TELA might be requested from TxDOT in that circumstance, but I think it would be a serious challenge for both of them to get delivered in the near term without the TELA.
MR. HOLMES: Do I understand correctly that NTTA is not guaranteeing the debt for these projects?
MR. BASS: Correct, the existing NTTA system is not there. The NTTA system is providing the $400 million of equity and then the NTTA system is also covering any construction project overruns on both of the projects.
MR. HOLMES: And so, effectively, the life cycle cost, debt service, operations, maintenance through the TELA are being guaranteed by TxDOT by Fund 6. Is that correct?
MR. BASS: By making this loan available for eligible expenses as long as we receive appropriation to make those loans and as long as those eligible expenses have actually been made or are expected to be made, then yes, we'd be able to make the loan amount available to them for those costs.
MR. HOLMES: And presumably that would be funded out of Fund 6?
MR. BASS: Yes.
MR. HOLMES: And so, in effect, Fund 6 which is supplied by gas tax receipts from around the state is providing the necessary backstop to make this project work in spite of the fact that NTTA is not guaranteeing that debt. Is that the bottom line?
MR. BASS: Correct. And again with the thought, because of the various protections we've talked about and risk mitigation steps that have been put into the agreement that the chances of a draw are low. I will never tell you it's never going to happen, but they're low.
MR. HOLMES: Well, if the debt isn't going to be issued without, then there are other people that think that too.
MR. BASS: Correct. One thing, there's basically three things in the minute order that's before you. One of them is based upon comments the commission made and direction the commission gave last month on this item. We spoke about if there is a draw needed, where is that money going to come from, and I said, well, anywhere and everywhere.
We're going to have to come up with the cash at that point in time. Then the question came, who is it going to get charged to in our various work programs and planning documents, and in the minute order before you, agenda item 1(a), it would say if a draw is made, that would be charged against the allocation and future allocations of the Metroplex region.
I had a couple of clarifications on some of our earlier Q and A. On the ability to have a traffic and revenue study more often than every two years, the certain conditions would be, one, if and when the general fund ever hit a zero balance, and again, that general fund is that bottom bucket in the cash flow waterfall, if it hit a zero dollar amount, we could then initiate a traffic and revenue study to be performed at that time.
The interest rate when a toll equity loan agreement is made, or -- sorry, a toll equity loan is actually made is that ten-year AAA MMD plus 100 basis points. If in a future year there's money available to make repayment on that loan, and it is not made, the interest rate then would escalate to the LIBOR plus 200 that I mentioned. And so it would only be if there's money available and the payment is not rate would the interest rate escalate at that point.
MR. HOLMES: So if there's not money available it would be at the ten-year AAA.
MR. BASS: It would stay at the ten-year AAA MMD over time, plus 100 basis points.
If there are no other questions or commenters, the agenda item before you, agenda item 1(a) seeks your final approval for a toll equity loan agreement for State Highway 161. It would direct department staff to present for future consideration a supplement to add Southwest Parkway/Chisholm Trail to the agreement, and it would also direct that any advances made under the toll equity loan agreement be charged against the future allocations of the Dallas-Fort Worth region.
MS. DELISI: Thanks, James.
MR. HOLMES: Madam Chair, with your permission, I'd like to make a comment and a motion.
MS. DELISI: Yes, absolutely.
MR. HOLMES: I really appreciate all the work that our staff has done, Paul, your group, Michael, yours, and I appreciate how aggressive the North Texas region is, has been in providing infrastructure and I think it's really important. Having said that, I think this is a fairly momentous occasion and one that we need to be really careful about. And I would move approval with a change and I would add that interest accrues on unpaid guaranty amounts at the same rate and terms that you have under the TELA draws, and so that would be my motion.
MR. UNDERWOOD: Second.
MS. DELISI: So there's a motion and there's a second. Did you want to make a comment?
MR. HOUGHTON: No. I just want to make sure that everyone understands, Michael, that that payment if, in fact, does occur, the fee goes to the region. It doesn't come back to TxDOT, for you guys to build other projects. Did we have a second?
MS. DELISI: Yes, Commissioner Underwood seconded; we have a motion and a second. Hold on one second. Commissioner Meadows?
MR. MEADOWS: I guess this would fall under the description of discussion of the motion. That would be the appropriate step at this point just because I have some comments and observations, if that's appropriate at this time.
MS. DELISI: Go ahead.
MR. MEADOWS: I would certainly echo Commissioner Holmes's thanks and appreciation to all of the professional staffs that have been involved in bringing us to this point today, and the professional staffs would include our advisors, Michael Morris, the RTC staff. I think it's remarkable, given the complexity and the political overlay perhaps, because some of these questions that are being put on the table today really are public policy questions beyond the fundamental business decision that is at hand, and I think Commissioner Holmes has outlined that very well.
You know, what I think is important to recognize about what you all have done from a staff and advisor perspective is you've never lost sight of the goal, and that goal really is that we all want to see these projects delivered. There isn't anybody in this room that doesn't want to see these -- well, I guess that's true, but I think the vast majority of the people in this room want to see these projects delivered while at the same time recognize the absolute importance and the obligation of ensuring the financial viability of all of our respective agencies on a go-forward basis. That's just absolutely said.
Furthermore, you have to understand that there is, and I think we all understand this, that there really is a profound precedent-setting action that is likely to take place here in a few moments, and we need to recognize and appreciate that and make sure we understand, to the extent that we can, what the ramifications and implications of that may be.
I will tell you, Commissioner Holmes and I disagree fundamentally on one aspect of this proposition, and that is I do not think this is -- and I don't think it's appropriate for us to be viewing this proposed transaction as a business transaction. I really think that this falls in the realm of public policy. It's a partnership between two public agencies, and I think the whole notion of having a revenue share piece is not appropriate to the transaction; I really do not.
I think that there are perhaps some overriding public policy purposes that might be accomplished by having revenue share or fee. I accept that, but at the end of the day, I'm not sure it really matters because we get to the same place.
Then, therefore, I have a real concern with the whole business transaction perspective which you're bringing to the table on this, and I respect it. I absolutely do and understand it. I've got a little bit of commercial banking background as well and understand that I assume you're thinking that we should be compensated for risk. I mean that's fundamentally what I see with that, and it doesn't really matter at the end of the day.
I have a concern with the interest aspects attaching to this proposition because, fundamentally, I don't think we ought to have the revenue share piece in it in the first place, and I understand -- as someone who has sat on one of these deliberative bodies before, I know what a majority looks like and I respect that as well, and I am absolutely willing to support a motion that does not include the interest provisions that you suggest. Basically, that would be the only substantive difference and I would just move the substitute motion.
MS. DELISI: Procedurally, so now I would ask if there's a second on the substitute motion?
MR. JACKSON: Yes.
MS. DELISI: Okay. So you've heard the substitute motion. Is there a second?
MS. DELISI: There is no second. So I go back to the original motion?
MR. JACKSON: Yes.
MS. DELISI: So we're going to a vote on the motion by Commissioner Holmes to adopt the minute order as amended. It's been seconded by Commissioner Underwood. All in favor say aye.
(A chorus of ayes.)
MS. DELISI: All opposed.
MS. DELISI: The motion passes. Thank you.
MR. SAENZ: Going to agenda item 1(b), and James will present a preliminary request for financing by the North Texas Tollway Authority for the Southwest Parkway/Chisholm Trail. James.
MR. BASS: Thank you. Again, for the record, I'm James Bass, chief financial officer at TxDOT.
And before I go into 1(b), if you'd give me the opportunity, thank you for your appreciation, but NTTA's staff was obviously instrumental in delivering of the agreement, as well as the RTC, but on the TxDOT side, it would not be fair -- there are a number of people at the district level and in the divisions -- but I think the one person making sure everybody was on task and on time was John Munoz, and so I just want to make sure that he's recognized for the long hours and hard effort that he's put in on this and many other items.
Moving on to agenda item 1(b) is for your preliminary approval of a toll equity loan agreement for the Southwest Parkway/Chisholm Trail project. It would also give preliminary approval of toll equity of $91 million of Prop 14, and the $91 million of Prop 14 is on your agenda tomorrow. And then the third thing it will do is authorize the executive director to work on and deliver a supplement for the Southwest Parkway/Chisholm Trail.
MS. DELISI: Are there any questions of James?
MS. DELISI: Is there a motion?
MR. HOUGHTON: Meadows.
MR. MEADOWS: Move approval.
MR. HOUGHTON: Second.
MS. DELISI: All in favor?
(A chorus of ayes.)
MS. DELISI: The motion passes.
MR. BASS: Thank you.
MS. DELISI: Thank you.
MR. SAENZ: Thank you, James, and thank you to everybody that worked long hours and interesting hours on this project. In particular, I do want to also thank John Munoz because John Munoz was kind of the teacher, I guess; he was the one with the paddle and the time clock making sure everybody was moving forward. So John, thank you.
The next item, agenda item number 1(c) is a minute order presented by John Barton that gives authority to the North Texas Tollway Authority to go ahead and make the improvements on the Southwest Parkway/Chisholm Trail project, State Highway 121.
MR. BARTON: Thank you, Director Saenz. For the record, my name is John Barton, your assistant executive director for Engineering Operations.
Madam Chair and commissioners, item 1(c) that is before you now, as Director Saenz pointed out, would authorize the NTTA to actually construct improvements to a portion of the state highway system. This would be along State Highway 121, a toll project from the Central Business District of Fort Worth at Interstate 30 south to US 67 in Johnson County, commonly referred to as the Southwest Parkway/Chisholm Trail project. It also would authorize your executive director to enter into a project agreement with the NTTA for the Southwest Parkway/Chisholm Trail project.
The NTTA's improvements of the state highway system that are envisioned would provide for the expeditious completion of a much needed and critical transportation project within the State Highway 121 corridor that you've been discussing earlier today that will help relieve traffic congestion on portions of our existing state highway system and improve air quality in the greater Fort Worth area of Johnson and Tarrant Counties. The NTTA has committed to comply with all the appropriate and applicable federal, state and TxDOT requirements in making these improvements, and therefore, staff would recommend your acceptance of this minute order.
MS. DELISI: Any questions of John? If not, is there a motion?
MR. HOUGHTON: So moved.
MS. DELISI: Second?
MR. HOLMES: Second.
MS. DELISI: All in favor?
(A chorus of ayes.)
MS. DELISI: The motion passes.
MR. BARTON: Thank you.
MR. SAENZ: We do not have need for executive session.
MS. DELISI: That concludes the agenda for today. Can I get a motion to adjourn?
MR. UNDERWOOD: So moved.
MR. HOUGHTON: Second.
MS. DELISI: All in favor?
(A chorus of ayes.)
MS. DELISI: No opposed. Please note for the record that it is 2:12 p.m. and this meeting stands adjourned.
(Whereupon, at 2:12 p.m., the meeting was concluded.)
C E R T I F I C A T E
MEETING OF: Texas Transportation Commission Workshop
LOCATION: Austin, Texas
DATE: February 24, 2010
I do hereby certify that the foregoing pages, numbers 1 through 48 inclusive, are the true, accurate, and complete transcript prepared from the verbal recording made by electronic recording by Nancy King before the Texas Transportation Commission.
On the Record Reporting, Inc.
3307 Northland, Suite 315
Austin, Texas 78731