Wednesday, September 29, 2021

Infrastructure bill problems, Dallas TOD failure, CA vs TX, why transit has trouble competing, and more

I apologize for the sporadic posts over the summer while I was out-of-town with family, but I'm back and looking forward to catching up on a big backlog of smaller items that will probably take several weekly posts to get through.

"In short, TOD is simply a scam. Like Portland’s light-rail mafia, which guided subsidies to favored developers who would build TODs, Dallas light rail and TODs are merely a way of transferring money from taxpayers to developers."

"This page is not calling for abandonment of transit or extolling the virtues of the automobile. It is an attempt to lay out what transit is up against if it is to succeed. Pretending that the economic issues I describe can be made to go away is a guaranteed recipe for failure."
“Right now market forces are telling California, ‘Get your s-- together,’ ” said report co-author Mark Duggan, director of the Stanford Institute for Economic Policy Research. “This exodus thing — I think it’s a risk.” 
"the number of companies relocating their HQs out of CA is running at twice the rate of recent years and is showing no signs of slowing...The winning state is Texas, which for many years has been the most popular destination for CA company relocations" 
"Like many other tech executives, I think Texas is positioned to outpace California due to its proximity to the world's top companies in energy, healthcare, and aerospace, to name a few, and its willingness to innovate with technology in those industries."
  • Painted Into a Corner - It could be time to reconsider land-use laws that contribute to runaway housing costs. Hat tip to George. Really glad to see Houston avoid a lot of these issues. Conclusion:
"The role of cities in the 21st century has not yet been determined. Cities with outdated housing policies may no longer be aspirational. The future of successful cities must begin with enabling a broad set of people to live there, which necessitates affordable housing. Making housing affordable to a large set of people with a range of incomes has its advantages. 

This allows people who have lower-paying, service-industry jobs to live near where they work. It promotes a broader set of cultures within a city. Multiculturalism should be one of the values of large cities. When a city is large enough, it can support such things as museums, art galleries, performing arts and professional sports franchises. The greatest thing that a city can provide is social mobility."
  • WSJ: Mass Spending for Mass Transit - Democrats want the GOP to rescue big-city rail and public unions. This is why I have mixed feelings about the $1T infrastructure bill - a whole heap of the money will be going into a black hole, especially Amtrak.

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Thursday, September 23, 2021

HCTRA Annual Report Shows Impact of Covid and Toll Diversions

This week we have a guest post from Houston Freeways author Oscar Slotboom (highlights mine).
The Harris County Toll Road Authority fiscal year 2021 annual financial report recently became available on the HCTRA web site. HCTRA's FY 2021, from 1-March-2020 to 28-Feb-21, coincided with the period of worst impact of Covid 19 and also included the February 2021 freeze, which closed most or all toll roads for several days. HCTRA waived tolls from March 24 to April 29, 2020, further depressing revenue. Since 10 months of HCTRA fiscal year are in the previous calendar year, I will report FY 2021 data as being for 2020 (and similarly for all other years).

No surprise, traffic and revenue were way down.
values in millions 2019
(FY 2020)
(FY 2021)
Traffic Transactions 577 461 -20.1%
Toll Revenue $855 $551 -35.5%
Total Revenue $901 $563 -37.4%
Income Before Transfers $463 $157 -66%
Transfers Out $137 $545 +298%
Change in Position $326 -$388
Outstanding Bonds $2247 $2618 +16.5%
Liability, principal + interest $3162 $3667 +16%
Since HCTRA had a very strong financial position prior to Covid, it easily handled the financial setback. In fact, even with the reduced revenue, Harris County Commissioners Court proceeded with the huge $545 million diversion of funds out of HCTRA, shown above as the "Transfers Out" (more on that below).
We can expect a very strong rebound in traffic and revenue for 2021, probably getting within 5 or 10% of 2019. While no recent or monthly data is available for HCTRA, I'm a regular user of the Sam Houston Tollway and traffic is close to pre-pandemic levels.
Here is a plot of HCTRA's toll revenue for the last 15 years.
Here is a plot of monthly data from the North Texas Turnpike Authority, showing the sharp drop in April and May 2020, and then a strong recovery. (HCTRA was certainly similar.) The recovery of toll traffic in North Texas has been slower than overall traffic. (This plot also shows SH 360 since NCTCOG had a financial interest in the tollway.)
The plot below shows the effect on separately-reported toll road sections. No surprise, the biggest losers were facilities with nearby freeway alternatives: the Katy Managed lanes and the Hardy Toll road. The Tomball tollway was the best performer, sustaining only a 1% traffic loss due to the opening of the new section of tollway north of Tomball around April 2020 which brought in new customers. Revenue loss is larger than the traffic loss for all facilities due to the non-collection of tolls in March and April 2020. Note that the -28.3% revenue loss differs from the value in the table above because this value is facility revenue only and excludes a $33 million charge for the Covid Emergency declaration and also excludes revenue transfers between toll road agencies.
Transfers Out
Other than the drop in revenue due to Covid, the big news in this year's financial report is the massive increase in "transfers out". For a long time, HCTRA has shifted some toll revenue out of HCTRA. This is reported in the financial statement as "transfers out". This money has always been used for road and bridge improvements, originally to improve access to the toll roads but I don't know if that's still the case. The table below shows the transfers out in recent years.
The massive increase in the transfers out was due to the action of Harris County Commissioners Court (3 in favor, 2 against) to harvest money from HCTRA to use on other government functions, with initial withdrawals being used to supplement flood control funds. The Houston Chronicle reported on this in September 2020, with Harris County establishing a special corporation that immediately transferred $300 million and is slated to transfer $90 million annually in future years. The amounts of $300 million plus $90 million plus the traditional transfer are in the ballpark of the $545.1 million revenue diversion.
Page 7 of the annual report states the following:
Unrestricted net position of $477,101,449 represents the portion available to meet ongoing obligations of the Authority. Unrestricted net position decreased $487,721,988 from the previous year. This decrease was mainly due to the increase in transfers out to Harris County.
The financial report has very little information about the use of the funds being transferred out, with a vague explanation on page 12 and a note about the creation of the Harris County Flood Resilience Trust on page 50.
Tory has previously sounded an alarm about this practice. Toll diversion has been a longstanding practice in New York City, New Jersey and Pennsylvania. What do residents of those regions get? Perpetual tolls, including sky-high tolls on the NYC bridges, for basic maintenance on 60- to 100-year-old facilities which are generally still in their original (often inadequate) configuration.
While some folks may be okay with using toll money for flood control, there was nothing to prevent ongoing and increasing diversions for other government activities. State-level leaders were concerned about this diversion, prompting the legislature to pass SB 1727, which was signed by Governor Abbott on June 7. SB 1727 appears to prohibit the diversion of toll revenue for non-road use. We'll need to see how the law affects toll revenue diversion in future years.
Long-Term Bond Obligation
The data below summarizes information presented on pages 31 and 32

Lien Bonds and Tax Bonds $2,335
Unamortized Premiums 284
Total 2,619
Other obligations, mainly employee retirement 175
Total Liability $2,794
Interest Expense $1,332
Approximate total obligation through 2050 $4,126
The the plot below, using data presented on page 61, shows the payment schedule for the $2.355 billion in lien bonds and tax bonds, which comprise 90% of HCTRA's bond liability.
This plot shows that total liabilities will be around $175 million per year until around 2035, when obligations drop sharply to around $75 million per year through 2047, then tapering to the final payment in 2050. Since HCTRA's revenue should be back in the range of $800 million to $1 billion per year from this year forward (barring any new disruptions), we can see that HCTRA should retain its strong financial standing going forward, assuming SB 1727 does in fact prevent more diversions.
The current 3-2 majority on Harris County Commissioners Court seems to be intent on ending improvement and expansion of the toll road system after current obligations are completed. Judge Hidalgo is well-known to be anti-tollway and anti-freeway. The $962 million ship channel bridge is the most expensive project in progress. Remaining projects include $130 million for connection ramps at the Sam Houston Tollway and SH 225, $71 million for connections between the Hardy Toll Road and BW8, and the currently suspended Hardy downtown connector, which should cost around $250 million if it proceeds. With all these projects finishing by the mid-to-late 2020s and bond obligations a small fraction of expected revenue, this begs the question: should regional toll road users ever get relief from the high tolls? For example, a customer passing through one Sam Houston toll plaza each way on a daily commute will pay around $700 per year. For a person in a lower-paying job, this is a substantial financial burden.
If surplus toll funds are not going to be used to improve the toll road system or Harris County roads, my view is that tolls should be reduced or selectively removed so Houston-area residents can keep their money. Another way to say this is that Harris County should not price gouge the public with high tolls if the tolls are not going to be used for their original intent, which is to finance the toll road system. Sure, many of HCTRA's customers are from Fort Bend and Montgomery counties, and Harris County Commissions Court may be glad to continue to impose high tolls on those customers. I think suitable criteria for toll reduction or removal are
  1. Sections that have generated revenue far in excess of their cost
  2. Sections which predominantly or overwhelmingly serve Harris County residents
  3. Sections serving low-income areas, to provide these low-income communities relief from high tolls.
The original three sections of the Sam Houston Tollway between the Southwest Freeway and North Freeway meet criteria 1 and 2, and the south Hardy Toll Road meets criteria 2 and 3. Toll removal on these sections would save area residents $350 million per year, and this loss of revenue could easily be accommodated by the late 2020s if Commissioners Court does in fact terminate new investments in the toll road system, and diversions are limited by SB 1727.
Opportunities for Improvement
The HCTRA financial statement provides a large amount of data, but there is minimal or negligible reporting for certain uses of agency revenue, and I would like to see more explanation of the following
  • More details about the specific use of funds transferred out. This should include a listing of specific projects or activities which are financed with toll funds.
  • More detail and explanation of the expense category "services and fees". The expense was $143 million in 2020 and $157 million in 2019. This could include a listing of consultant contracts.
  • More detail about ongoing construction and improvement programs. For example, for each ongoing project (such as the Ship Channel bridge), there should be reporting of the amount spent and the source of the funding (toll revenue or bonds). This could also include upcoming initiatives, listed on page 4. For example, how much is the conversion to all-electronic tolling going to cost?
  • Reporting on the size of the HCTRA workforce. For example, what happened to all the toll collectors when all manned tolled plazas were closed? What were the expenses involved with this transition?
  • While a lot of information about bonds is included, it is difficult to analyze the specific use of the bonds. A summary that shows the following would be useful: total bonds sold during the year, bonds sold for construction projects, bonds sold for financing transfers out, and bonds sold for refinancing.

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Thursday, September 16, 2021

Houston's blob is about to eat even more of East Texas... and we should embrace it

I recently submitted this op-ed to the Houston Chronicle:

The Chronicle’s recent article debating the sustainability of Houston’s traditional “build more” approach to growth (“Houston became 'the blob that ate East Texas' by building big. Is it time for that to change?” August 27) frames the debate as if Houston can dictate whether people drive cars in the suburbs or ride transit in the densifying core, when in reality people make their own choices which we can accommodate and thrive or ignore and decline. 

The debate completely misses the reality of our post-pandemic world. Remote work is now a permanent part of our economy, and it is creating a tidal wave of suburban and exurban growth as people realize they’ll no longer need to commute into the city on a daily basis. Houston can’t stop it, even if it wanted to. All we can do is try to accommodate it while keeping the core healthy and accessible to attract their dollars for discretionary shopping, restaurants, entertainment, events, health care, philanthropy, office visits, and more. And if we don’t maintain that accessibility - including prudent transportation investments - not only are they unlikely to visit, their employers are likely to leave as well along with their much-needed local property and sales tax contributions.

Houston’s great strength has always been embracing growth - suburban, urban, and the freeways to connect it all together. That formula has kept us the most affordable major metro in the country and always near the top in growth rankings.  In other words, we’ve made ourselves extremely attractive to newcomers, especially diverse people of color and immigrants looking for affordable opportunity. We’ve got a product people want. Why would we want to radically change that? Especially to models like California with urban growth boundaries, constrained development, astronomical housing costs, traffic gridlock, and wasteful transit spending (LA has spent upwards of $20 billion only to lose 21% of its ridership pre-pandemic) resulting in a mass exodus of both people and businesses.

What Houston’s formula needs is tweaking, not throwing out the baby with the bathwater. For example, with growing concerns about flooding, the answer is not banning new development, but tightening runoff regulations on new suburban developments so they don’t flood us downstream. Every new development should have enough detention that the land releases even less water during a hard rain than it did undeveloped - then every new development would actually reduce flooding!

And when it comes to transportation investments, yes, many freeways are reaching realistic width limits, but that doesn’t mean we should give up growth for perpetual congestion or old, slow transit. We’ve proposed - and TXDoT is planning - an innovative next-generation mobility strategy: a network of MaX Lanes (Managed eXpress Lanes) 'moving the maximum number of people at maximum speed' by allowing direct point-to-point single-seat high-speed trips by transit buses and other shared-ride vehicles today, and even higher-speed zero-emission autonomous vehicles in the future.  The network would enable Houston’s seven core job centers to scale from 626,000 jobs today to over one million jobs in the future while drawing employees from all across our ever-expanding region with a reasonable commute (even if they’re doing that commute less often in a remote work world).  This is the type of climate-friendly innovative mobility solution that could attract substantial federal funding while also embracing suburban and exurban trends rather than hopelessly fighting them. 

Finally, Houston’s unzoned urban core can continue to naturally densify as it has been doing successfully for at least two decades now - not because we’re trying to force it to, but because people - especially diverse young people - choose it. They choose it because we allow the free market to build and cater to that demand, including townhomes, apartments, residential towers, and walkable mixed-use complexes.

Which brings us full circle to Houston’s secret sauce: building what people want rather than what academic urban planners deem the ‘right’ way to live and get around. That strategy will always be a winner.

Tory Gattis is a Founding Senior Fellow with the Urban Reform Institute - A Center for Opportunity Urbanism, and the Editor of the Houston Strategies blog.

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