HOUSE BRIEFING PAPER
Creating a highway bond fund and
allowing state spending on toll roads
by Shapiro/Brimer, et al.)
Texas Constitution, Art. 3, sec. 52-b requires the Texas Turnpike Authority (TTA)
or its successor agency to repay to the State Highway Fund any monies spent by
the Texas Department of Transportation (TxDOT) on toll roads, toll bridges, or
turnpikes. Art. 8, sec. 7-a dedicates three-fourths of net motor-fuel tax
revenue to the highway fund (designated by the Comptroller's Office as Fund 6),
which also receives revenue from motor-vehicle registration fees and sales taxes
on lubricants. Fund 6 money may be appropriated only for specific
Art. 3, sec. 49 of the Constitution prohibits state debt, generally requiring
that voters approve bonded indebtedness before the state may incur it. Sec. 49-j
limits annual state debt payable from state general revenue to 5 percent of the
annual average amount of nondedicated general revenue for the three preceding
Proposition 15 would add Art. 3, sec. 49-k to the Constitution, creating the
Texas Mobility Fund in the state treasury. The Texas Transportation Commission (TTC)
or its successor would administer this revolving fund to finance acquisition,
construction, maintenance, reconstruction, and expansion of state highways,
including design and right-of-way purchases. Money in the fund also could be
spent on public toll roads and other public transportation projects.
TTC could issue bonds pledged against the fund to be repaid from the fund
balance. Bond proceeds could be used for refunding obligations and related
credit agreements, creating reserves, and paying issuance costs and interest on
The Legislature could dedicate to the fund one or more specific revenue
sources or portions of other state revenues, as long as the sources were not
otherwise dedicated by the Constitution. Motor-vehicle registration fees and
taxes on motor fuels and lubricants could not be dedicated to the fund.
Dedicated revenue would be considered appropriated when received by the state,
deposited automatically into the fund, and used as provided by Proposition 15
and any law enacted under its authority without any further appropriation.
The dedication of a specific source or portion of revenue, taxes, or other
money could not be reduced, rescinded, or repealed unless two conditions were
satisfied. First, the Legislature by law would have to dedicate a substitute or
different source that the comptroller projected to be of equal or greater value
than the dedicated source. Second, the Legislature would have to authorize TTC
to guarantee payment of any bonds, notes, other obligations, or credit
agreements by pledging the state's full faith and credit if dedicated revenue
were insufficient to cover the payment. If TTC took such action and dedicated
revenue was insufficient, the first revenue deposited into the state treasury
not otherwise dedicated constitutionally would be appropriated to pay principal
and interest on the obligations or agreements, less any fund amount available
If approved by the attorney general, obligations and credit agreements issued
in conjunction with the fund would be considered incontestable. Judicial
enforcement would be delegated to a Travis County district court.
The fund's obligations and credit agreements would not be included in
computing the constitutional limit on state debt under Art. 3, sec. 49-j, except
to the extent that the comptroller projected that general revenue would be
needed to pay the amounts due should TTC exercise its authority to pledge the
state's full faith and credit or that money were dedicated to the fund from an
Proposition 15 also would amend Art. 3, sec. 52-b to authorize TxDOT to lend
or grant money for acquisition, construction, maintenance, or operation of
turnpikes or toll roads and toll bridges. The amendment would repeal the
constitutional requirement to repay Fund 6 from tolls or other turnpike revenue.
The ballot proposal reads: "The constitutional amendment creating the Texas
Mobility Fund and authorizing grants and loans of money and issuance of
obligations for financing the construction, reconstruction, acquisition,
operation, and expansion of state highways, turnpikes, toll roads, toll bridges,
and other mobility projects."
Proposition 15 would establish an innovative mechanism for stretching state
highway- funding dollars to build badly needed highways sooner. Texas'
traditional "pay-as-you-go" approach to highway finance no longer is viable. The
state's phenomenal population growth has led to more vehicle-miles traveled,
greater traffic congestion, clogged border crossings, deficient rural roads, and
many unsafe bridges. Demand has far outstripped capacity while spending has
lagged. Texas never will catch up with demand if it does not prepare itself to
innovate, as allowed by Proposition 15.
Highways are the only major capital projects for which the state does not
borrow money by issuing bonds. That policy no longer is defensible in the face
of spiraling needs, lost economic opportunities, and reduced quality of life.
Cities and counties routinely finance street and road projects with bonds. There
is no good reason why the state should not avail itself of this financing tool
as well, subject to appropriate constraints.
The Texas Mobility Fund would supplement federal and state highway revenue
without jeopardizing either. It would provide both flexibility and structure,
allowing spending on a variety of transportation projects while keeping the fund
balance secure. The balance would be used primarily to leverage highway bonds,
enabling projects to begin sooner and reducing the impact of construction
inflation. The interest earned would generate money for even more projects.
It would be up to future legislatures to dedicate revenue to the fund, either
through greater efficiencies, increased appropriations, or new sources. However,
it is important to establish the fund now as a policy statement until adequate
funding can be obtained.
The stipulation in Proposition 15 that revenue dedicated to the mobility fund
automatically be appropriated for purposes of the fund is not unprecedented. The
Legislature appropriated money to many state agencies in that manner prior to a
change in policy beginning in the 1980s. The goal is to ensure investors that
money earmarked for highway bonds will be there by preventing the Legislature
from "raiding" the fund by appropriating for non-highway purposes the revenue
dedicated to the fund before it reaches the fund. The Legislature already
delegates spending decisions to TTC in an effort to depoliticize the highway
project-selection process. The amendment merely would place that sound policy in
the Constitution as it pertains to the mobility fund.
Allowing the state to spend money up front on toll roads would hasten
construction of much-needed highway projects. Forgoing repayment to TxDOT of
state funding for toll roads would alleviate the double-edged problem most new
toll projects face, that of two liens - one to TxDOT and the other to
bondholders. Providing toll equity - shorthand for the value of the state's
unreimbursed investment in toll projects - would alleviate some of the burden of
capital outlay for toll-road startup costs. This would make toll projects more
attractive to investors, accelerate debt retirement, and hasten production of
Making it possible for projects to proceed as toll roads, rather than be
financed conventionally, also would reduce contributions by local governments,
which eventually would derive even more benefits from additional projects built
in their areas with revenue generated from toll roads. Toll equity would free
more state dollars for other projects because the state's spending share of a
toll project would be much less than if it paid entirely for the same project
without tolls. This also could mean more money spent overall in certain areas
when the value of toll projects is combined with conventional TxDOT spending.
Four potential toll projects being planned by TTA for Central Texas likely
would benefit the most from the innovative financing proposed by Proposition 15.
Three other prospective projects (two in San Antonio and one at South Padre
Island) also could benefit, as well as five projects being planned in
Dallas/Fort Worth by the North Texas Tollway Authority and five projects planned
by the Harris County Toll Road Authority.
Taxes pay for many roads that some motorists never use. Toll roads make sense
as alternative routes to high-traffic areas, available for a nominal user fee.
However, tollways never will replace non-toll roads; free routes always will
exist. Any plan that provides more money for highway construction while
retaining state fiscal control would benefit all motorists.
Borrowing money by issuing bonds would make highways more expensive in the
long run because of debt service, underwriting, and issuance costs. This would
drain precious resources from the task of providing transportation efficiently
and would encumber revenue that otherwise could be used on other projects.
Bonding would not generate new money for highways; it merely would reallocate it
and tie it up for the future. Over commitment would limit Texas' ability to meet
unforeseen needs. The state lacks the resources to make bonding viable soon
enough to have a significant impact on Texas' transportation crisis. The
Legislature either should find sufficient money in general revenue or should
increase the gasoline tax, the closest thing to a user fee for all motorists.
Toll roads represent double taxation. Motorists already pay for highways at
the gasoline pump, vehicle registration counter, and at auto supply retailers.
They should not have to pay for highways again when they exercise their right to
travel on them.