The Texas Department of Transportation (department) proposes amendments to §§5.51 - 5.59, concerning pass-through fares and tolls.

EXPLANATION OF PROPOSED AMENDMENTS

House Bill 2702, 79th Legislature, Regular Session, 2005, amended Transportation Code, §222.104, which governs agreements providing for pass-through tolls. Transportation Code, §222.104, requires changes to the rules to address the new statutory provisions allowing pass-through toll payments made by a public or private entity to the department and addresses additional subjects that can be included in an agreement providing for pass-through tolls. House Bill 2702 also added Transportation Code, §91.075, to allow the payment of pass-through fares on railway projects.

In addition, the department has now entered into several pass-through agreements under its current rules. Practical experience with these agreements has suggested ways in which the rules may be improved, so amendments are desirable to reflect that experience.

Section 5.51 is amended to include the new statutory language adding design, development, and financing as subjects suitable for a pass-through agreement. Section 5.51 is also amended to reference new Transportation Code, §222.104(c), which allows the department to receive a pass-through toll payment from a public or private entity. In addition, §5.51 is amended to reference new Transportation Code, §91.075(b), which allows pass-through fares on railway projects.

Section 5.52, concerning Definitions, is revised to add new definitions, delete definitions that are no longer necessary, and amend existing language. Paragraph (3) is amended to generalize the definition of department estimate so it will apply equally whether the department is paying or receiving pass-through tolls or fares.

For the same reason, paragraph (4) is amended to delete the definition of developer. Throughout the amended rules, the term developer is replaced by the term public or private entity.

New paragraph (6) is added to clarify that references to a highway include facilities necessary or convenient to the highway's construction.

New paragraph (8) is added to define the term pass-through agreement. The use of this term allows general references that will address both pass-through tolls and pass-through fares.

New paragraph (9) is added to define the term pass-through fare. The definition establishes that the term includes both passenger and freight rail and encompasses fares, surcharges, and user fees. Otherwise, the definition tracks the statutory language.

New paragraph (10) is amended so the definition of pass-through toll will more closely track the statutory language.

New paragraph (11) is added to define the phrase public or private entity, which is used throughout the rules to identify the entity with which the department may enter a pass-through agreement. This phrase replaces the term developer, which is used in the current rules, and is no longer appropriate because the law now allows the department to be the entity that develops a project.

New paragraph (12) is added to define railway so that it includes both passenger and freight rail and any facility in connection with a railway. This definition is essential to achieving the purpose of House Bill 2702 in allowing pass-through fares on any railway project.

Section 5.53(a), paragraph (1) is amended to require submission of a project location map with the public or private entity's proposal. Experience has shown that a project location map is extremely useful to the department in evaluating proposals.

Section 5.53(a), paragraph (5) is amended to clarify that experience in developing highway projects is only relevant if the pass-through agreement is for a highway project. Section 5.53(a), new paragraph (6) is added to impose a corresponding requirement for a statement of experience with regard to a pass-through agreement for a railway project. Subsequent paragraphs are renumbered.

Section 5.53(a), renumbered paragraph (7) is amended to clarify that information on development experience is unnecessary if the proposer will not be the one developing the project.

New paragraph (8) is added to address the corresponding situation in which the project will be developed by the department and the proposer will be making payments; the proposer must then provide information sufficient to show the proposer's ability to make the promised payments.

Section 5.53(a), paragraph (10) is amended to clarify that information on tolling is only necessary and relevant if the project will be for a highway.

Section 5.53(a), paragraph (11) is amended to clarify that information about the proposer's intention to enter a comprehensive development agreement is only necessary and relevant if the project will be for a highway.

Section 5.53(c) is amended to distinguish between highway and railway projects. For highway projects, the relevant citation for comprehensive development agreements is 43 TAC Chapter 27, while the corresponding citation for comprehensive development agreements for railway projects is 43 TAC Chapter 7.

Section 5.54 is amended to improve the grammatical construction. In addition, the amendments clarify that the initial approval by the Texas Transportation Commission (commission) permits the executive director to negotiate financial terms of a pass-through agreement, but that the detailed agreement itself will be negotiated after final commission approval of the financial terms. The amendments to paragraphs (3), (7), (8), and (9), clarify when certain requirements are only relevant to highway projects and impose corresponding requirements for railway projects. Paragraph (10) is amended to require additional information about the proposer's financial capability when the department will be constructing a project in reliance on future pass-through payments from the proposer.

Section 5.55(c) is amended to recognize that some of the listed factors will not be relevant to all pass-through agreements and to add the financial capability of the proposer as one of the criteria to be considered in evaluating proposals.

Section 5.55(g) is amended to recognize that the department cannot know in advance whether negotiations will be successful.

Section 5.56(a) is amended to reflect that at the time of commission approval, the department and the proposer will have negotiated the financial terms of the agreement, but may not have reached agreement on every word of a contract. Final commission authorization will be based on various criteria, including the new criterion that the project will serve the public interest and not merely a private interest. This criterion is added to ensure that the public interest is always paramount, particularly when a private entity is the proposer.

Section 5.56, new subsection (b), is added to list the required terms of any pass-through agreement. These terms combine in one place various terms that were previously implicit in several rules or were located in former §5.58(e). Experience with the pass-through mechanism has indicated that it is possible and desirable to combine the financial terms and project development terms in a single legal document. The list of matters that must be addressed in a pass-through agreement also includes items that have been shown through experience to be useful, such as a map of the project, a project schedule, and an estimated project budget.

Section 5.57, new subsection (a), is added to provide a method for calculating pass-through fares for railway projects. In concept, the methodology is similar to and runs parallel to the methodology used to establish pass-through tolls and considered in more detail in connection with new subsection (b). Subsection (a)(2)(B) allows pass-through fares to be calculated on any reasonable basis, including number, type, and class of passengers; type of freight; tonnage of freight; number or type of cars; mileage traveled; or characteristics of track. This flexibility is essential to allow pass-through fares to be tailored to the particular circumstances of a given railway.

New subsection (b)(1) of §5.57 is amended to clarify the standards to be considered by the commission in establishing the level of pass-through tolls. This includes rewording to improve the structure and clarity of the standards. One standard is added to ensure that the commission considers any benefit from the more rapid construction of a project. Amendments to this paragraph also clarify that the commission will not approve a level of pass-through tolls that exceed the department's cost estimate except by an amount equal to the savings realized through earlier construction of the project. Finally, the amended paragraph establishes that the commission will not compensate a public or private entity for its financing costs. As a whole, the amendments to new subsection (b)(1) establish necessary parameters that are designed to encourage the proper use of pass-through tolls while curbing demands that could result in excessive expenditures from the state highway fund.

Section 5.57(b)(2) is amended to improve the clarity of its original meaning by improving the grammatical structure. Paragraph (2), subparagraph (B) is rewritten to generalize the types of pass-through toll that will be allowed and to add whether the highway is tolled as a possible basis for varying pass-through toll payments. Paragraph (3) is rewritten to clarify the existing procedure with regard to overruns and underruns and to add a corresponding provision governing overruns and underruns when a project will be developed by the department. The provision governing overruns and underruns when a project will be developed by the department places the risk of overruns and underruns on the public or private entity unless the commission directs otherwise. Paragraph (3), subparagraph (B) rewrites the provision governing traffic volume to clarify the existing procedure.

Section 5.58(a) is amended to permit department, rather than commission, approval of environmental review. This allows projects to proceed expeditiously after receiving the commission's final approval of financial terms. New subsection (b) is added to establish procedures for right of way acquisition and the adjustment of utilities. In general, a public or private entity is required to follow the same procedures as would apply to the department. For right of way acquisition, alternative procedures may be approved if it would be sufficient to meet legal requirements.

Section 5.58, new subsection (c), is amended to make explicit that the standards in the former rule are intended for application to highway projects under the former rule and to establish design criteria for railway projects. The design criteria for railway projects are comparable in scope and nature to the preexisting design criteria for highway projects. Former subsection (c) is deleted because the specific provisions previously considered for a separate project development agreement will now be handled in a single pass-through toll agreement. This provides for a single definitive legal document and thus reduces the department's legal risk, and it also reflects the department's successful experience to date in negotiating pass-through agreements that are complete and comprehensive.

Section 5.59 is amended to clarify the distinction between the standards applicable to highways and those applicable to railways. New subsection (d) is added to establish maintenance standards for railways. The railway maintenance standards are comparable in scope and nature to the preexisting maintenance standards for highways.

FISCAL NOTE

James Bass, Chief Financial Officer, has determined that for each of the first five years the amendments as proposed are in effect, there will be no fiscal implications for state or local governments as a result of enforcing or administering the amendments. There are no anticipated economic costs for persons required to comply with the amendments as proposed.

Mr. Bass has certified that there will be no significant impact on local economies or overall employment as a result of enforcing or administering the amendments.

PUBLIC BENEFIT

Mr. Bass has also determined that for each year of the first five years the amendments are in effect, the public benefit anticipated as a result of enforcing or administering the amendments will be enhanced public understanding of the use of pass-through agreements and increased efficiency in the use of pass-through agreements to facilitate needed highway and railway improvements. There will be no adverse economic effect on small businesses.

SUBMITTAL OF COMMENTS

Written comments on the amendments may be submitted to James Bass, Chief Financial Officer, Texas Department of Transportation, 125 East 11th Street, Austin, Texas 78701-2483. The deadline for receipt of comments is 5:00 p.m. on March 13, 2006.

STATUTORY AUTHORITY

The amendments are proposed under Transportation Code, §201.101, which provides the commission with the authority to establish rules for the conduct of the work of the department, and more specifically, Transportation Code, §222.104, which authorizes the department to enter agreements for pass-through tolls, and Transportation Code, §91.075, which authorizes the department to enter agreements for pass-through fares.

CROSS REFERENCE TO STATUTE

Transportation Code, §91.075, and §222.104.