Build now, pay later? State debates roads

With traffic in Texas getting worse each year, a growing number of state leaders want to borrow road construction money so they can build now and pay later. But the price the state would pay could be a lot higher than some lawmakers expect, if experiences outside Texas are any guide. These proposals to issue road construction bonds and pay them off with future federal highway money - supported by Gov. Rick Perry, Comptroller Carole Keeton Rylander and a slew of lawmakers - could leave the state with little cash to build new roads or maintain existing ones in 10 to 15 years, critics say.

"Unless I get some new information, I'm not terribly enthusiastic," said Rep. Clyde Alexander, D-Athens, chairman of the Transportation Committee, where a similar proposal died in 1999. Those who are enthusiastic say the bonds will jump-start needed road work before the state's transportation crunch becomes a full-blown crisis. "It makes possible completion of projects now that would take decades to complete or even start. You get a tremendous economic impact," Rylander said.

A half-dozen other states have begun to leverage highway bonds with future federal aid, and several have reported early success. But in Massachusetts - which helped pioneer the strategy in the late 1990s and is a few years ahead of most other states - a loud chorus of critics says the state has mortgaged its future by committing tomorrow's federal aid to today's projects. That state sold $1.5 billion in federally backed bonds to build a new network of highways in downtown Boston. To pay off those bonds, Massachusetts will have to use up to half its yearly federal highway aid over the next decade and another $600 million in state money just for the interest payments - money that could have otherwise gone to smaller, local projects like bridge repairs and road widening. "The really unfortunate consequences are the implications for 10 years afterwards - eating up the highway aid," said Michael Widmer of the nonpartisan Massachusetts Taxpayers Foundation. "This is a high price. Not (only) in dollars but in opportunities missed with future transportation dollars."

Looking for options

In Texas, many public officials and ordinary motorists believe the state is already missing plenty of opportunities to build new roads. The surging economy of the past few years and the North American Free Trade Agreement have led to more cars and more congestion across the state. Population has increased 20 percent, and truck traffic has risen 38 percent in the past decade. But the state's highway fund, which draws money from gasoline taxes and federal aid, only can meet only 36 percent of Texas' highway needs. That ongoing shortfall has prodded lawmakers to try to come up with new ways to pay for roads.

Sen. Florence Shapiro, R-Plano, wants to sell bonds and pay them off with car registration fees and gasoline tax revenue that is now being used for nontransportation programs. Last week, a statewide committee on which Shapiro sits proposed building more public-private toll roads and using driver's license and car inspection fees for new roads. And other lawmakers are weighing a 5-cent gasoline tax increase. "Our system is quickly approaching a crisis," Shapiro said. "We now must find supplemental ways to maximize the transportation dollars."

The proposals that have received the most interest are those that call for Texas to sell Grant Anticipation Revenue Vehicles , known as GARVEE bonds, to investors and then pay back those investors with federal highway aid, of which the state receives about $2 billion a year. The Senate in 1999 approved a plan to sell such bonds to build roads along the border. But the proposal died in the House. This session, Perry has proposed building $1.5 billion worth of roads with the bonds and paying them off with up to 11 percent of the state's highway funds for 10 years. Rylander wants the state to build about $1 billion worth of roads and then pay them off with interest for a total of $1.6 billion, using only 5 percent of federal funds over the next 15 years.

The state's Department of Transportation supports selling the bonds, which would require a voter-approved constitutional amendment, so long as it can use the money anywhere in the state. It would spend those funds on projects that cost at least $100 million and affect at least 100,000 drivers a day. Rylander believes her 5 percent repayment cap would prevent problems like those in Massachusetts. And because road construction costs have increased about 5.7 percent a year, she says, it's actually more expensive to wait than to borrow and build now. "When you start falling behind in major transportation projects, if you don't catch up, the cost to catch up is prohibitive," she said. Perry's office agrees that the interest payments can be offset by other savings.

That sentiment is hardly unanimous. Many lawmakers believe Texas should seek to reclaim its reputation as a pay-as-you-go state, which it held until it sold $1.5 billion worth of bonds to build new prisons in the early 1990s. And they worry that selling grant anticipation bonds could be a fiscal disaster. "GARVEEs are great politics. It's just not very good policy," said Alexander, the House Transportation Committee chairman. "If we're going to look at any kind of bonding, I would look at (Shapiro's) model (of using gas taxes to pay off bonds) before I look at a GARVEE model."

Uncertain future

Alexander and others are especially cautious because the state has no guarantee that it will continue to receive $2 billion a year from the federal government. The current federal highway appropriations bill expires in 2003. Texas could usually expect to receive more money under the next bill because population is booming and, with the arrival of the Bush administration, the state now has more powerful advocates in Washington. But if Texas fails to comply with federal clean air requirements in the Beaumont, Houston and Dallas areas, some of that federal funding could be in jeopardy. "That could put some of the funds at risk," Alexander said.

Part of Massachusetts' problems stem from a similar reduction in federal funds. In 1998 - just after the state had authorized the grant anticipation bonds - the Republican Congress cut the yearly highway aid to the heavily Democratic state from about $700 million to just over $500 million. Because of that cut, Massachusetts will likely use about half its yearly highway aid to pay off the bonds between 2002 and 2009 and another $70 million a year on interest payments instead of smaller road projects. In Texas, Lt. Gov. Bill Ratliff says he won't support grant anticipation bonds until he's convinced that smaller projects on state roads won't be swallowed up by larger projects. As with all road projects involving federal money, grant anticipation bonds must pay for work on interstate highways or other U.S. roads - not state-run roads. But the state must cover 20 percent of the bond repayments, as it does with every federal road project, and Ratliff worries that could take money away from rural roads. Ratliff and House Speaker Pete Laney, who also opposes the bonds, come from rural areas that might not benefit if the Massachusetts model holds true.

In Mississippi, which began issuing grant anticipation bonds in 1999, officials say all areas have benefitted and that they haven't felt hindered by federal requirements. Instead, they say, the bonds have helped boost their sorely outdated infrastructure. And they consider the $60 million in interest the state will pay on $200 million worth of bonds in the next 10 years well worth the cost. "We've got a ton of construction going on. We've been opening 50 to 60 new miles of four-lane highway every year," said Danny Miller, financial management director at the Mississippi Department of Transportation. In New Mexico, officials also hope to complete a 20-year construction project in the next three years because of such bonds. But in Massachusetts, critics such as Widmer say the state would have been better off finding a direct source of money such as driver's license fees or tolls to back bonds and pay for the downtown Boston construction. And he offers some advice, should Texas follow Massachusetts' lead and pay off bonds with future federal aid. "Only do the amount you absolutely must do," he said, "because you'll pay a future price."