The Texas Department of Transportation (department) adopts amendments to §5.53, repeal of §§5.54 - 5.59 and new §§5.54 - 5.60, concerning pass-through fares and tolls. The amendments to §5.53, repeal of §§5.54 - 5.59, and new §§5.54 - 5.60 are adopted without changes to the proposed text as published in the November 14, 2008, issue of the Texas Register (33 TexReg 9207) and will not be republished.

EXPLANATION OF ADOPTED AMENDMENTS

Transportation Code, §222.104(b) authorizes the department to enter into an agreement with a public or private entity that provides for the payment of pass-through tolls to the public or private entity as reimbursement for the design, development, financing, construction, maintenance, or operation of a toll or non-toll facility on the state highway system by the public or private entity.

Transportation Code, §222.104(c) authorizes the department to enter into an agreement with a private entity that provides for the payment of pass-through tolls to the department as reimbursement for the department's design, development, financing, construction, maintenance, or operation of a toll or non-toll facility on the state highway system that is financed by the department.

Transportation Code, §91.075(b) authorizes the department to enter into an agreement with a public or private entity that provides for the payment of pass-through fares to the public or private entity as reimbursement for the acquisition, design, development, financing, construction, relocation, maintenance, or operation of a passenger railway facility or a freight railway facility by the entity. Title 43, Texas Administrative Code, Chapter 5, Subchapter E prescribes the policies and procedures governing the department's implementation of these statutory provisions.

Amendments to §5.53(a), Proposal requirements, clarify the information, and require additional information, that is to be provided in a proposal for a project under a pass-through agreement. Amendments to paragraph (1) add the requirement that the proposal include the geographic area affected by the project. Amendments to paragraph (3) provide examples of anticipated benefits that must be included in the proposal. Amendments to paragraph (4) require that the proposal contain documentation that evidences local public support or opposition for the project. Amendments to paragraph (9) clarify that the proposal must include financial information sufficient to show the proposer's financial strength to develop and complete the project. Amendments to paragraph (10) require that the reimbursement period for proposed pass-through payments be provided. Amendments to paragraph (11) clarify that project funding sources and amounts are required for each project cost category.

New §5.53(a)(12) requires the proposal to list the financial assistance requested from the department in addition to funding under the pass-through agreement. Existing paragraphs (12) - (14) are renumbered as paragraphs (13) - (15) without change, and new paragraphs (16) and (17) are added. New §5.53(a)(16) requires a statement of whether the project is intended to be a part of a hurricane evacuation route. New §5.53(a)(17) requires a statement indicating whether the project has application to military base realignment or closure.

Each of the revised or new information requirements is added to §5.53(a) to provide the information necessary for the Texas Transportation Commission (commission) to adequately evaluate the proposals under the new criteria established in new §5.55.

New §5.54, Participation in the Program, is added to allow the commission the option of limiting the period of time during which submission of proposals will be received and limiting the total costs of all projects that will be reimbursed during a specific period, based on the commission's determination of the availability of program funds. The commission may also impose conditions that limit participation to either public or private entities, limit eligible projects to either highway or railway projects, or limit the type of project costs that will be reimbursed. To impose such limitations, the department must publish a notice describing the deadline for submitting proposals, the estimated total amount of funds available for the period described in the notice, and any limitations on public or private participation, eligibility of highway or railway projects, or on the type of project costs that will be reimbursed. After the deadline expires, the department will evaluate all of the proposals and present an analysis of each to the commission. The limitation option is being used to give all interested entities an equal opportunity to participate in the program and take advantage of the limited program funds.

Current §5.54, Commission Approval to Negotiate, is repealed and added as new §5.55 with the changes described by this paragraph to expand the considerations that the department will use in reviewing proposals. New §5.55(1) requires the consideration of the proposer's proposed financial contribution and its relationship to total project costs, and deletes the criterion dealing with the general financial benefits to the state. The proposing entities are encouraged to contribute significant amounts of their own resources to the project. A higher contribution demonstrates the importance of the project to the region and maximizes the use and leveraging of state funds. The deleted general financial benefits to the state concept is being replaced with other specific criteria in this section that better illustrate the benefits to the state. New paragraph (2) requires the consideration of the geographic area affected by the project. The proposing entities are encouraged to select potential projects that affect broad geographic areas. Projects that contribute to the statewide transportation system would be considered more beneficial than regional projects which, in turn, would be considered more beneficial than projects serving only a local geographic area. New §5.55(6) requires the consideration of the potential safety benefit that may be derived from the project. The proposing entity is encouraged to consider specific projects which have the greatest potential to enhance the safety of the transportation system as evidenced by the crash rate of the existing transportation segment under consideration compared to statewide averages for similar transportation segments. New §5.55(9) requires the consideration of the extent to which the project will close gaps in the state transportation system. New §5.55(11) adds consideration of the entity's proposed period for department reimbursement. The proposing entities should consider the longest reimbursement period feasible to maximize the use and leveraging of state funds. New §5.55(12) adds consideration of the economic development potential in the area. The proposing entities should consider the effect of the proposed project on economic development and explain the relationship of the project to that specific commission goal. New §5.55(13) adds consideration of the financial strength of the proposing entity and replaces paragraph (10) of the current section. The proposing entities should provide sufficient information to give an indication of their financial ability to bring the project to a timely completion date. New §5.55(14) adds consideration of whether the project is part of a hurricane evacuation route. The proposing entities are encouraged to give any explanation of the relationship of the project, if applicable, to any hurricane evacuation route that would assist in facilitating traffic movement in the event of these weather related events. New §5.55(15) adds consideration of whether the project has application to a military base realignment or closure. The proposing entities are encouraged to give an explanation of the relationship of the project, if applicable, to any military base realignment or closure with respect to the contribution that the project will make, in the case of realignment, to national defense and base transportation efficiency or, in the case of closure, to future economic development in the area of the base closure. New §5.55(16) adds consideration of the experience of the entity in developing similar transportation projects and replaces paragraphs (7) and (8) of the current section. The proposing entities should describe or list their experience with similar transportation projects with respect to timely project completion in the context of federal and state laws and regulations. New §5.55(17) adds consideration of the relationship of the project to stated commission goals. The proposing entities should describe the relationship of the project to the commission goals of reducing congestion, improving safety, enhancing and expanding economic opportunity, improving air quality, and increasing the value of transportation assets. Current §5.54(2) - (6) is reenacted as new §5.55(3) - (5), (7), and (8) without change.

Current §5.55, Proposals from Private Entities, is repealed and added as new §5.56 with the changes to adjust the cross references within the section to conform to the renumbering of the sections. Also, the reference in current §5.55(c) to the relative weight given to criteria in the department's evaluation of private entities' proposals is removed to provide the department with greater flexibility in considering criteria under changing cash flow scenarios and to be consistent with the approach adopted for evaluation of all proposals under new §5.54(d).

Current §5.56, Final Approval, is repealed and added as new §5.57. New §5.57(b)(2) adds a requirement that a pass-through agreement must include identification of the one or more categories of project costs paid by the proposer for which the department will make a reimbursement under the program. This requirement makes the agreement correspond to any limitations imposed on department reimbursement as set out in the particular notice described in new §5.54. All other provisions of repealed §5.56 are reenacted as new §5.57.

Current §5.57, Calculation of Pass-Through Fares and Tolls, is repealed and added as new §5.58 with no additional changes.

Current §5.58, Project Development by Public or Private Entity, is repealed and added as new §5.59 with minor cross referencing changes in new §5.59(c)(7) and (9) to conform to the renumbering of the sections. New §5.59(f) adds a requirement that a public or private entity that intends to sell bonds and use pass-through tolls or fares as evidence of financial capability to repay the bonds, must provide the department with an opportunity to review and comment on the bond offering documents prior to sale of the bonds. The department would have a minimum of five business days to review and have the right to approve provisions in the offering documents that describe the pass-through agreement, the department's obligations under agreement, the interrelationship of the department, commission, and state highway fund, and the department's obligation to provide updated information on the state highway fund. This requirement is necessary to give the department an opportunity prior to sale of the bonds to correct any mistakes in the offering documents that relate to the pass-through toll agreement and the department's obligations and to make sure that the department can comply with the future disclosure requirements. Otherwise, no additional changes are made from current §5.58 to new §5.59.

Current §5.59, Operation, is reenacted in its entirety as new §5.60.

COMMENTS

Comments on the proposed repeals, amendments, and new sections were received from one private entity, HDR Engineering, Inc. (HDR); one public entity, Montgomery County; and one former county official, Jim Powers. Each commenter's concerns and the department's responses are grouped by commenter.

Comment: HDR suggests replacing the terms "pass-through fares" and "pass-through tolls" with the term "pass-through financing." The commenter notes that the use of the word "toll" has created artificially inflated resistance to the pass-through finance program by many elected officials and members of the public. It is believed that new terminology that better reflects the actuality of the program will alleviate much of this conflict. The differences between highway and rail projects can be incorporated into more concise language rather than repeating much of the language as is currently the case.

Response: The terms "pass-through fares" and "pass-through tolls" are statutory language and therefore not subject to change by rule. Should the statute be changed in the future, the rules could be revised to reflect that revised statutory language and also consolidate the highway and rail project language. No additional action affecting the substance of these rules as proposed is made as a result of these comments.

Comment: HDR notes that the rule revision would allow the commission to restrict the types of project costs that will be reimbursed. The commenter suggests that the types of costs that will be reimbursed be established and not subject to change with each project call. Because of the competitive nature of the project calls, many entities will be developing their applications well in advance of the commission issuing a call for projects. An established list of items that will be reimbursed under the pass-through program will allow a level playing field for those entities that proceed at-risk in developing applications. The ability of the project to satisfy the program guidelines, the regional significance of the project, and local equity contribution should be the differentiating factors where funding limitations exist for the commission in a given call for projects. This proposed change will allow applicants to proceed with financial plans with greater certainty of the criteria and focus more of their energies on anticipated participation.

Response: The proposed rule revision in §5.54 allows the commission some flexibility to continue the program under limited funding conditions. The level of funding available will influence the categories of project costs that will be considered for reimbursement. It also allows the opportunity for more entities to participate in the program under these limiting conditions. No additional action affecting the substance of these rules as proposed is made as a result of these comments.

Comment: Montgomery County makes a general observation that the proposed amendments reflect a more bureaucratic and less predictable approach to the administration of the pass-through program. The amendments propose to add additional criteria to the evaluation and processing of pass-through applications, yet in many cases those criteria are highly subjective in nature. The consequence would be to vest more control in the department staff and less control over the program by local entities who are the intended beneficiaries of the program. Shifting control away from local entities and undermining the predictability of the process will discourage continued participation in the program by local entities. As is evidenced by Montgomery County's experience, and that of other local governments who have used pass-through financing to accelerate the delivery of important transportation projects through local control, the program has been very successful in its present form. Montgomery County submits that it would be a mistake to adopt the sweeping changes reflected in the proposed amendments, and that a better approach would be to make minor changes with the benefit of input from local entities.

Response: The proposed rule revisions do not take away any local control of project submission or, once the project is selected, project implementation by the entity. The proposed revisions allow the department and the commission to make more informed decisions with respect to project selection and with respect to the ultimate successful conclusion of the project. The revisions allow both the proposing entity and the department to examine the project from several perspectives to properly evaluate the need for the project and the resources needed to bring the project to an expeditious conclusion. No additional action affecting the substance of these rules as proposed is made as a result of these comments.

Comment: Montgomery County states that other proposed amendments are either unnecessary or overly burdensome to local entities. One proposed amendment would add a provision to §5.53(a)(4) requiring documentation evidencing local public support for the pass-through project and any local public opposition. Such a requirement would place a significant additional burden on local entities. Projects are already required to be in metropolitan approved plans and are most often presented by governmental sponsors. It is unlikely they would bring projects forward that do not have local support or for which there is not a perceived need. The department does not need to second-guess local decisions to bring projects forward by requiring further documentary proof. Moreover, the nature of the required documentation is vague and unclear, leaving local entities without adequate direction as to how to comply with the requirement. Montgomery County therefore recommends eliminating this proposed requirement or limiting its application to projects presented by private entity applicants.

Response: The commission has continually expressed a desire for evidence of local project support. There could be cases where some local governmental entities do not have full knowledge or are not in complete agreement with a proposed project. The commission wants all input to be considered before going forward with project development. In the past, simple letters or resolutions have been adequate documentation of local support. No additional action affecting the substance of these rules as proposed is made as a result of these comments.

Comment: Montgomery County states that the proposed amendment to §5.53(a)(9) would require "financial information sufficient to show the financial strength and capability of the proposer to develop and complete the project." It is important that the pass-through rules continue to take into account the unique characteristics of the communities and project served by the program. Additionally, proposed §5.55(13) would require the commission to consider the financial strength of the proposer prior to authorizing the executive director to negotiate the financial terms of a pass-through agreement. Montgomery County believes that the intent of the pass-through program would be better served by looking at project-specific funding rather than the financial strength of the proposer. Many counties and other local entities (particularly rural cities and counties where an entity's tax base may be modest) are unable to demonstrate significant financial strength on paper, yet nevertheless have projects backed by strong project-specific financing. Montgomery County therefore recommends modifying rules §5.53(a)(9) and §5.55(13) to consider the financial strength of the project (and proposed project financing) rather than the financial strength of the proposer itself.