Texas wants its public funds to invest in roads

NEW YORK (Reuters) - Public investment funds based in Texas could invest directly in transportation projects through a new corporation under a plan unveiled on Thursday by the state's legislative leaders and the governor.

Texas has the nation's biggest road privatization plan but the legislature, reacting to criticisms that developers were enriching themselves at the expense of taxpayers, enacted a two-year moratorium.

That has crimped road-building projects and led to a series of clashes between the governor and the legislature, who now have agreed on a compromise plan. Developers, including overseas companies, investment banks and private equity funds all vie for such public-private partnerships, which can prove more rewarding than often-volatile equities, for example.

Lt. Gov David Dewhurst, who sets the Senate's agenda, House Speaker Tom Craddick, and Gov. Rick Perry released this new financing plan in an August 19 letter to Texas Transportation Commission Chairman, Deirdre Delisi.

The three Republican politicians also proposed big bond sales as solutions to the road-funding problem, starting with the sale of as much as $1.5 billion of highway bonds as soon as September.

Voters have approved that debt sale, and as much as $5 billion of additional road bonds. Perry and the legislators pledged to approve the laws needed to sell that debt.

A spokeswoman for the governor was not immediately available to offer more details about the plan, which also called for returning gas tax revenues to road building instead of using the money to fund the Department of Public Safety. That department would instead be funded with general revenue.

"Due to a variety of factors, including the steady population growth of our state, inflation in the construction industry, rescissions in the federal highway funding program, and the Texas Mobility Fund reaching its bond capacity, our ability to fund needed transportation projects in the future is limited," the letter said.

Companies, such as Spain's Cintra and Abertis and Australia's Macquarie are all competing for road projects in the United States.

The list of banks, corporations and private equity funds that have raised billion-dollar funds for such deals includes including Goldman Sachs, Morgan Stanley, a joint venture of Credit Suisse and General Electric, and the Carlyle Group.

Though Florida and Virginia, like Texas, are pursuing such deals, similar plans have proved deeply unpopular in other states, including New Jersey and Pennsylvania, where they have failed due to voters' concerns about the wisdom of signing such long-term leases with companies that they are almost sales.

Yet states and cities around the nation are struggling to raise billions of dollars needed to keep their roads and bridges in good repair, let alone expand these links and add commuter railroads and subways.

Gasoline tax revenues, which also fund the national highway program, are falling at the same time that the federal government has run up a huge deficit. This has led the U.S. transportation secretary to urge states to turn to privately run electronic tolling systems and other private investments.

Some states and cities, including New York City, instead want the federal government to create an infrastructure bank. Under one Congressional bill, this bank could sell $60 billion of bonds, and offer grants and loans.

(Additional reporting by Jon Stempel in New York, Lisa Lambert and John Crawley in Washington)

(Reporting by Joan Gralla. Editing by Richard Satran)