Raw Deal: Private toll company weasels sweetheart deal out of Cibolo
By Terri Hall
March 9,2017
After a controversial decision by the Cibolo City Council to give development rights for a private toll road to a corporation that's never even built a road last week, Cibolo Mayor Allen Dunn has been busy shooting the messenger. The Development Agreement, kept secret from the public prior to its approval last week, was finally made public and it verifies and validates citizen concerns. When the terms of an exclusive 50-year development agreement was negotiated in secret and handed to a single private firm in a no bid contract, it shouldn't surprise elected officials when the public is irate.
The city signed an irrevocable development agreement with, Cibolo Turnpike, an entity created by the investors of Texas Turnpike Corporation. The draft operating agreement requires the city to repay all the company's debt and the net present value of future distributions (anticipated revenues) if it wants out of the deal -- after it's built. There is no other way out for the city, however, there are lots of exit strategies for the company.
So what are some of the other red flags? First, the agreement seeks to give operational control of the non-toll portion of FM 1103, a state highway, to the private company.
Page one of the Development Agreement states: "The term 'Project' means the (1) design, build and finance of the Cibolo Expressway and the Cibolo Parkway and (2) operation and maintenance of the FM 1103 Improvements, the Cibolo Expressway, and the Cibolo Parkway." So the project includes the operation and maintenance of all three interrelated projects, including FM 1103. Operation means control of stop light times, access, speed limits, etc., which is exactly how this private, for-profit corporation can slow down and/or manipulate the non-toll segments to force more traffic onto their private toll road.
The corporation that built SH 130, a neighboring public private partnership that will also last 50 years, did just that. A Spanish firm, Cintra, overlaid its private tollway on top of what was a free public highway, SH 183, through Lockhart. The free highway had a speed limit of 65 MPH. SH 183 was then downgraded to a frontage road adjacent to the private tollway, with permanent stop lights, and the speed limit was reduced to 55 MPH while Cintra's tollway increased its speed to the highest in the nation -- 85 MPH. So the precedent has already been set. It's not speculation to suggest this could happen to FM 1103. It's, in fact, likely.
While the Development Agreement expressly forbids any non-compete clause that prohibits or penalizes the expansion of surrounding non-toll roads, the city gave operational control of the primary free competitor, FM 1103, to the private toll road to the Cibolo Turnpike company for the next 50 years. Cibolo Turnpike will exploit that control for its own benefit. The Agreement also allows for that 50 year timeframe to grow, "This Agreement shall be for a term of fifty (50) years, plus additional time, as needed to conform with the Financial Model." Nowhere in this Agreement does it define or articulate what the 'Financial Model' is or the elements that bind the city in that model. But the city signed it anyway.
Who's misleading who?
The city doesn't even have the jurisdiction or authority to give operational control of a state highway to another entity. The Agreement states that the city will request that the Texas Department of Transportation (TxDOT) give the city that portion of FM 1103 as part of the controversial TxDOT turn back program. This is basically how TxDOT offloads parts of the state highway system to local governments.
The Agreement describes the scenario on page two, "Under TxDOT’s 'Turnback Program' the City will request that upon TxDOT’s completion of the FM 1103 Improvements that TxDOT transfer to it…ownership of FM 1103 from IH 35 to Weil Road including the ROW.'
Texas taxpayers already pay state gasoline taxes to build and maintain our state highways, but through its turn back program, TxDOT has found a way to make local taxpayers pay again to build and maintain their state highways through local revenues.
To put it in laymen's terms, the city signed an irrevocable agreement promising to give operational control over a state highway (over which it has no jurisdiction) to a private corporation and signed an agreement that could put the city in default on the contract if it fails to secure that authority. Article XI, Sec. 11.1(f) on page 18 states the city will go into default if "final legislative, administrative or judicial action after the date hereof that limits City’s authority so as to materially and adversely affect its ability to perform its obligations under this Agreement or the Operating Agreement…"
While there is a section on ‘Uncontrollable Circumstances’ (Section 13.1, p. 21-22), it only allows for a delay in fulfilling a provision in the Agreement, it does not absolve the city of its ultimate responsibility to deliver.
At last week's council meeting, the city staff touted how the Agreement would save the city money by having the private firm pay for the maintenance of FM 1103. Yet the state currently maintains FM 1103 and the city is not on the hook for that cost. Only after the Agreement was signed, will the city volunteer to take on that responsibility and then will promptly give that responsibility to a private entity, who will pay for its maintenance through the toll revenues from its two toll projects - the tolled express lanes the company will build in the median of existing FM 1103 and the new Cibolo Parkway tollway that will connect to I-10.
I'm sure it won't surprise you that in this same deal, the city is promised a share of the future toll revenue from the project. In a very short-sighted move upon the promise of some future toll revenue, the city will transfer the financial burden of maintaining FM 1103 onto Cibolo taxpayers in perpetuity, long after Cibolo Turnpike company is gone. So who is misleading who? It's certainly not concerned citizens misleading the public, it's the city of Cibolo.
The Illusive Feasibility study
Last the public knew, the city said this toll road was only preliminary, an 'idea scratched out on the back of a napkin,' and that the company would provide the city with a pro forma feasibility study and that the city would also conduct its own to compare against before any final decision would be made. Yet during the busy holiday season in December, while the public awaited the formal studies, the city discussed a traffic study the city was already in the process of performing that simply looked at the level of traffic along similar existing routes. It was not a feasibility study that actually studied how many of those cars would likely pay to take a toll road based on forecasted toll rates and time savings.
Meanwhile, the city never actually received any pro forma feasibility study from the company, nor did it conduct a toll feasibility study of its own. Next thing the public knows, the city posted an agenda item at its meeting last week that it would be voting on approving an agreement with the company. Turns out, the corporation wanted an irrevocable Development Agreement in place before it expended $10-12 million to conduct the pro forma feasibility study.
Follow the money
While the company claims no public money will be expended and the city has no liability for any of the project's debt, there is taxpayer liability. The city will only be reimbursed up to $15,000 for its out of pocket legal fees and consultants (Article VI, Sec. 6.1, p. 14). They've likely already racked up that amount just negotiating the Development Agreement. Wait until they start negotiating the Operating Agreement with the mountain of details about entrances, exits, toll rates, toll collection and enforcement, and more.
In Article XIII, Sec. 13.17 on page 24 it describes how the city must help defend Cibolo Turnpike corporation in any litigation, "City agrees to cooperate with and assist Cibolo Turnpike in connection with initiating or defending any actions, including mediation, arbitration, or state or federal administrative or court proceedings, against or brought by third parties that threaten to stop, delay or increase the cost of (a) completion of the Project." If the city is found to have breached the contract, Cibolo Turnpike can also come after them for any Attorney's fees (Article XIII, Sec. 13.18).
In contrast, Cibolo Turnpike gets reimbursed for all development capital plus 12% annual profit, development fee of 2% of the principal amount at financial close, a management fee to include 3% of the estimated construction cost, and an ongoing operating management fee (to be defined in the Financial Model yet to be negotiated or disclosed). So the company gets all of its money on the front end regardless of whether the road is financially successful, and the city only gets a cut of future toll revenues after all these management fees and profits gets disbursed to the company, the bond holders, etc.
For a town of 25,000, few see how a toll road will turn a profit. Despite the ad hominem attacks against concerned citizens by the mayor, the red flags are justified and can be substantiated within the city's own executed Development Agreement. With such a sweetheart deal, Cibolo Turnpike corporation has positioned itself to secure a handsome return on investment even if the toll road goes bankrupt. As far as deals go, this sure looks like a bad one, especially for those farmers who will lose their land, potentially with the use of eminent domain, for a for-profit, private toll road they can neither control nor hold accountable.