Florida house passes HB7033 tollroad privatization bill 74/40

Toll roads and bridges Corridors under study for tollroads

The Florida state house has passed HB7033, a bill allowing the state transport department (FDOT) to "lease toll facilities to private entities." The bill passed the full house 74 to 40 on March 22. Intent of the legislature is "to strengthen the state's transportation system by providing the department with innovative financing techniques, including, but not limited to, public private partnerships, toll facility leases, and user fees."

The bill provides for Florida DOT solicit proposals for concessions and to receive unsolicited proposals, specifically for FDOT to "enter into agreements with private entities, or consortia thereof, for the building, operation, ownership, or financing of transportation facilities."

Projects which may be advanced under the program include those in the department's current 5-year program, or projects greater than $500m in the Strategic Intermodal System Plan (gawd, they have some serious geeks inventing titles!).

Unsolicited proposals will be subject to an application fee sufficient to pay FDOT's evaluation costs. Consultants may be retained to help in the evaluation.

Limits

Before approval FDOT must determine the project:

- is in the public's best interest

- won't require state funds unless it is on the State Highway System

- has safeguards against additional costs to the state in the case of default by the concessionaire

Concession proposers or PPPs as they are often called in the legislation must be qualified in line with the state's general procurement process for professional services.

There are provisions for surety bonds, parent company guarantees, letters of credit and lender and equity partner guarantees of performance.

Tax-$s OK for concessions on state system only

State financial contributions are OK for projects on the State Highway System but on others "all reasonable costs" must be borne by the private entity for facilities they own.

Turnpike Mainline to be kept by government but other FTE TRs can be privatized

FDOT may lease existing toll facilities with the exception of the Florida Turnpike System - the Mainline and the HEFT are to be kept as a socialist operation.

Legislature can veto no-capacity increase concessions

In projects in which no extra capacity is added the legislature must approve the concession contract. By contrast new facilities or those with extra capacity may be negotiated by FDOT without specific legislative approval.

The agreements must ensure the facility will be "properly operated, maintained, and renewed in accordance with department standards."

Toll revenues must be regulated in the concession contracts.

A portion of so-called "excess revenues" must be provided to FDOT over the concession period.

In the case of existing toll facilities being concessioned FDOT must negotiate both an upfront concession fee and on close and provision for receiving a portion of 'excess revenues' over the life of the concession.

An investment grade traffic and revenue study acceptable to major rating agencies must be provided by the investors, plus a finance plan and cash flow analysis. Toll rates in the contract must be consistent with these.

If there is provision for some state subsidies early in the project their use must be detailed.

Eminent domain powers already possessed by FDOT may be used to facilitate the projects.

FDOT may provide services to the concessionaire.

Unsolicited bids require notice of competition

When unsolicited proposals are received FDOT must publish a notice and invite competing proposals for 120 days.

FDOT will have considerable discretion in how it assesses the bids and the right to negotiate, and in the end the right to reject all. A cost-benefit and value-for-money analysis must be produced demonstrating the public benefit and cost-effectiveness of the project that proceeds.

Funds can be lent to investors from the state's Toll Facilities Revolving Trust Fund for State Highway System projects but these loans must be supported by investment grade bonds or letters of credit to ensure the money can be repaid. The state's liability will be limited to amounts approved in the state's 5-year work program.

Terms 50 to 75 years max

Concession terms are generally to be limited to 50 years, but the state transport secretary can certify 50 years as insufficient and approve up to 75 years.

"Excess toll revenues" are required to be devoted to roads or transit.

Index CPI at minimum

The concessioning authority "shall at a minimum index toll rates on existing toll facilities to the annual CPI or similar inflation indicators. Toll rates may not be raised by the concessionaire more than annually but must be made at least very 5 years to accommodate cash rounding. Toll rates may be increased more than these amounts as directed by bond covenants, concessionee permits or by administrative rulings.

Five projects to be bonded for local improvements

Toll revenue bonds may be issued secured to toll revenues five specified projects:

- I-75 Alligator Alley

- Sunshine Skyway Bridge Tampa St Petersburg

- Bee Line East Exwy

- Navarre Bridge

- Pinellas Byway

Such toll revenue bonds are to be used for projects locally (within the counties of the facilities).

No new tolls on interstates except toll express lanes

The bill prohibits tolls on any interstate not tolled by July 1 1997 with the exception of HOT or express lanes on interstates.

No word on whether the state senate will take up the bill. However it would seem likely to have a good chance of passing and being signed into law by the state governor.

The preface to the bill says private sector involvement is needed because of the pressure of population and traffic growth and congestion.

First shot at a law only

COMMENT: The bill vests all privatizing or concessioning powers in the state DOT which seems to limit the power of local and regional governments to take any initiatives. Florida has three metro areas (Miami, Orlando and Tampa) with regional toll authorities and an authority in process of being established for southwest Florida (Naples/Ft Myers) and the possibility of one in Jacksonville. It also has a bunch of toll bridges to barrier islands, most of which are county initiatives.

It seems to be a highly centralizing bill that only gives the state DOT concessioning powers. Or maybe they are already considered to have these powers. The bill doesn't tell us. Tampa's toll authority has been busy concessioning construction of a little East-West TR without any specific state enabling legislation. Will someone now challenge that using HB7033 to say that only FDOT can concession?

The bill is also incomplete in establishing so many rules and limits on use of "excess toll revenues" without defining what they the heck they are. In excess of what? As judged excess by whom? Left in limbo a term like this is bound to be the subject of contention and litigation.

One of the most contentious issues surrounding concessions are so-called "non-compete clauses" including limits on construction of competing capacity to the concession tollroad, or provisions for compensation in case of new free capacity.

Legislation doesn't have to deal with the issue. It can be dealt with by the concessioning authority. But it is strange to have legislation that doesn't even mention it and it might best be dealt with somehow in the legislation.

The bill seems to allow no flexibility for variable pricing or tolls that are varied by time of day or level of congestion.

And it draws no distinction between controls over toll rates and controls over maximum toll rates. As written the bill might be deemed to outlaw tolls less than those specified. Concessionaires like the ability to offer discounts or simply set tolls below legal ceilings. Such flexibility is surely in the public interest.

A central feature of longterm concessions is how they may be amended because no one wants to lock everything in for 75 years. There have to be mechanisms for amendment. This could be left to FDOT but it is odd that the bill has not a word on the issue.

Same with adjudication of alleged failure to adhere to the terms of the concession by either the state or by the concessionaire. A process is needed.

And why is the Florida Turnpike Mainline exempted? Don't anyone suggest to the governors of Pennsylvania and New Jersey that their mainlines be excluded from privatization!

The provision for issue of toll revenue bonds for five existing toll facilities is nothing to do with the main privatization thrust of the bill, but is apparently an indulgence for these districts piggybacking on the bill.

The bill is an interesting first shot but needs a lot more work if it is to be good law. Maybe that can happen in the state senate.

TOLLROADSnews 2007-03-24