WASHINGTON — The Texas Department of Transportation severed its ties with Spanish toll road operator Cintra over a controversial $5 billion toll road project both to avoid violating federal laws and to ensure that it would remain eligible for federal funds and tax-exempt bond financing assistance on the project. The Texas Transportation Commission, which supervises the state agency, took the action last week after the U.S. Department of Transportation’s Federal Highway Administration charged that TxDOT’s bidding process for the project — in which it awarded a contract to Cintra and then later decided to instead give the contract to the North Texas Tollway Authority — resulted in “substantial” violations of federal laws and ran “counter to the fundamental requirement for a fair and open competition.” The FHWA made the charges in an Aug. 16 letter to TxDOT, saying it was withdrawing the state agency’s applications for aid under the Transportation Infrastructure Finance and Innovation Act program, also known as TIFIA, and for authorization to issue private-activity bonds for highways under a recently enacted transportation law. (Click here to view the three Texas letters concerning Texas State Highway 121.)Alarmed by the letter, TxDOT officials scrambled to take steps to bring itself into compliance with federal laws over the project. In an Aug. 23 letter, TxDOT asked the FHWA if it could rectify its concerns by essentially scrapping its prior bidding process, severing Cintra’s connections to the project, and entering into a simple agreement with the NTTA to develop the toll road.The FHWA told the state agency in a return letter on the same day that it would support these actions and reinstate the state agency’s eligibility for federal funds and tax-exempt financing assistance. However, the U.S. DOT made clear that it plans to review TxDOT’s procurement procedures and increase its scrutiny of assistance for such projects.“In light of the violations … and the apparent uncertainty the private sector may face when exploring whether to bid on transportation projects in Texas, the FHWA, through its Texas Division Office, will carefully review TxDOT’s procurement procedures and impose additional oversight and approval requirements before awarding any future loans under the TIFIA program or approving the issuance of PABs,” the FHWA administrator J. Richard Capka told the state agency in the Aug 16 letter.TxDOT triggered FHWA concerns when it awarded the State Highway 121 toll-road project in Denton and Collin Counties to NTTA in June after public outcry that the deal with Cintra was too generous. Under its contract, Cintra would have operated a toll section of the highway in return for providing the state with an up-front payment of $2.1 billion and an additional $700 million over a 50-year lease. The NTTA proposal for the project included $3.3 million in up-front payments that would come from new debt issuance.In its Aug. 16 letter to TxDOT, FHWA stipulated that it would withdraw approval for a $700 million TIFIA loan and authority to issue up to $1.6 billion of PABs for the highway project, as well federal assistance for two other pending highway projects, unless the agency came into compliance with the laws.TxDOT had sought the aide for the winner of its bidding process. However, NTTA is not expected to seek federal funds under its plan for the project.NTTA spokesman Sam Lopez said he could not comment on the dealings between TxDOT and the FHWA, including whether the state agency’s actions are sufficient.“The NTTA is awaiting the TxDOT executive director’s signature of the agreement,” Lopez said. “We’re just standing by and waiting for that process to occur.”In the meantime, the NTTA is working with the rating agencies and its underwriters on completing its $3.3 billion up-front financing package for the highway project. Those funds are expected to be distributed to the North Texas Regional Transportation Council, which will give hand them out to local governments for a variety of transportation projects, some of which will involve federal funding.Robert Poole, director of transportation studies for the Reason Foundation that supports public-private partnerships, called the settlement of the FHWA’s complaints “a very bizarre outcome.”“The result was basically to finalize the screwing of Cintra,” Poole said. “It wasn’t like they made anyone whole.”Poole said Cintra, a Spanish company with U.S. headquarters in Austin, is unlikely to sue because of other projects, such as the Trans Texas Corridor that is expected to parallel Interstate 35 and ultimately be worth $150 billion.Indeed, Cintra Director Jose Lopez took a conciliatory approach in a prepared comment on the decision.“While we believe our proposal — with its guarantee of $7.3 billion in new and additional revenue to the Metroplex for SH 121 and other transportation projects — was the better option for the state and Dallas-Fort Worth, we respect the commission’s decision,” he said. Poole said the fair outcome would have been to undo the awarding of the contract to the NTTA, but “politically, that was unlikely to happen.”Aides to Sen. Kay Bailey Hutchison, R-Tex., a supporter of the highway project, said yesterday, “Sen. Hutchison is pleased this matter is now settled and that the project can move forward.” She “will continue to represent the interests of the state of Texas on this issue wherever necessary,” they added.Earlier this month, Hutchison told local officials that U.S. DOT Secretary Mary Peters promised her that Texas “would not lose a dime” of federal funding over its decision to go with the NTTA. The federal transportation officials “know they’re governed by Congress, and they’re not likely to take on a powerful senator,” Poole said.In taking on the SH 121 project, the NTTA is more than tripling its debt with a ratings downgrade likely once the financing is in place, according to the ratings agencies.With an A-plus rating from Fitch Ratings and Standard & Poor’s, as well as an A1 rating from Moody’s Investors Service, the NTTA is on the watch list for all three agencies. Moody’s said in June that even if the authority’s rating is downgraded, it will probably remain in the A category after the debt is issued.
