Houston Strategies

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In part 1 we examined the strong post-covid revenue recovery and the rapidly escalating admin cost. Today we'll look at transfers out and the cost of conversion to all-electronic tolling.

Transfers Out

HCTRA has a longstanding practice of diverting toll funds out of HCTRA. The five-year average prior to 2020 was $132 million per year, but in 2020 the diversion was increased to $545 million, and funds were no longer being used solely for county road projects. See last year's review for more details.

In 2021 the diversion was $254 million. This is 72.6% of 2021 net income of $346.9 million. (Reference page 55, which is document page 64)

In last year's review I included "opportunities for improvement", and the first item was "More details about the specific use of funds transferred out."

No additional information is provided. The annual report still has the historically-used standard statement that the transfers are "to pay or finance costs of roads, streets, highways, or other related facilities that are not part of the Authority’s toll road system."

Conversion to All-Electronic Tolling

HCTRA stopped manual collection of tolls in March 2020 during the Covid emergency to avoid exposing toll booth workers. The system was effectively all-electronic at that point, but of course the tolling infrastructure remains on toll roads constructed more than 20 years ago. All new toll facilities opened since 2004 are designed to be all-electronic, including the Westpark Tollway, Fort Bend Parkway, Tomball Tollway and the northeast section of the Sam Houston Tollway.

The annual report lists conversion to all-electronic tolling as one of HCTRA's three major initiatives. It alludes to the cost of this initiative in the commentary about expenses, saying the $21 million increase in the $164 million expenditure for services and fees "is primarily due to an increase in service contracts related to the Toll Road’s effort in transitioning to a cashless environment and an all-electronic tolling plan." There has been a steady stream of consultant contracts in Harris County agendas, including $7.3 million on September 27.

The annual report cover includes a depiction of what appears to be an electronic toll gantry which will replace an existing plaza.

However, the annual report does not provide the cost of the conversion. Another document available at the HCTRA site, the state-mandated FY 2022 HB 803 Report (page 5), drops the bomb about the cost of this effort.

Estimated cost: $494 million

This is especially shocking since the demolition and construction work applies only to the older parts of the toll road system, mainly the original three sections of the Sam Houston Tollway, from I-69 Southwest Freeway to I-45 North Freeway, and the Hardy Toll Road. This work will apparently include demolition of the legacy toll plazas, and demolition work is usually a relatively small cost compared to construction.

The $494 million cost is 141% of the 2021 system profit, or (stated another way) consumes 1.4 years of system profit.

This plot compares the $494 million cost to recent and ongoing major construction projects, all costing less than the electronic conversion. (Sources 1, 2)

The similarly-sized North Texas Turnpike Authority in Dallas-Fort Worth converted to all-electionic tolling starting in 2008 with manual toll collection ended in December 2010. A July 2010 Dallas Morning News report stated that NTTA had spent $92 million on the effort. That number may not be the final total cost (for which information is not readily available), but the total cost is surely vastly below $494 million. While inflation has increased construction costs since 2010, major elements of electronic tolling, including cameras, software, and communication equipment, are surely lower today compared to 2010.

This certainly creates the perception HCTRA is charging tolls to pay for the collection of tolls, especially since it is likely that most of the conversion cost applies to the original three sections of the Sam Houston Tollway, which are huge revenue generators and have paid for themselves many times over. Sorry Sam Houston Tollway users, you need to pay $494 million so tolls can be collected indefinitely on sections which have long paid for themselves.

Let's hope HCTRA will provide a detailed accounting of this sky-high cost for electronic tolling.

Final Notes

The Hardy Toll Road Downtown Extension was suspended by Harris County Commissioners Court in May 2020, and the long-anticipated main lane construction has been on hold. The 2022 annual report says Commissioners Court "continues to move forward" with the project, and there is no mention of any changes in scope. The HB 203 report lists $226 million in expenditures for 2023-2026, which is consistent with the cost of completing the main lanes.

HCTRA's annual reports are on an unconventional fiscal year from March 1 to Feb 28/29. In January 2021, Commissioners Court approved changing to a fiscal year ending on September 30. The period from March 1 to September 30, 2022, was a transitional seven-month fiscal year, and on October 1 the first 12-month fiscal year on the new schedule began.