FISCAL NOTE

Date Requested: February 11, 2021
Time Requested: 02:56 PM
Agency: Parkways Authority, WV
CBD Number: Version: Bill Number: Resolution Number:
1355 Introduced HB2111
CBD Subject:


FUND(S):

Toll Road Revenues

Sources of Revenue:

Other Fund Toll Road Revenues

Legislation creates:





Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


Summarize in a clear and concise manner what impact this measure will have on costs and revenues of state government. This bill does not affect the general revenue of the State of West Virginia. The West Virginia Turnpike is operated and maintained by the Parkways Authority with Turnpike toll revenues paid by the users of the highway. Thus, no State tax or general revenue dollars are used in the maintenance or operation of the Turnpike or in paying debt service on Turnpike bonds issued by the Authority.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2021
Increase/Decrease
(use"-")
2022
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 0 0
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 0 0


Explanation of above estimates (including long-range effect):


Please explain increases and decreases in personal services, current expenses, repairs and alterations, assets, other costs and revenues, including assumptions and data sources and delineation between start-up and ongoing costs. Please also include a long-range schedule of costs and revenues if fiscal impact is expected to vary in future years. See Fiscal Note Summary above for information regarding the fiscal impact of this bill on the State of West Virginia



Memorandum


Please identify any areas of vagueness, technical defects, reasons a bill would not have a fiscal impact, and/or any special issues not captured elsewhere on this form. The following contains the Authority’s concerns with the amendment contained within this Bill. • On August 18, 2018 the West Virginia Parkways Authority (the “Authority”) issued its $166,370,000.00 senior lien Turnpike Toll Revenue Bonds, Series 2018 (the “Bonds”) in connection with the Roads to Prosperity Highway Program. • In connection with the procedure of issuing the bonds, the Authority and United Bank, as Trustee, entered into a Master Trust Indenture (the “Master Trust Indenture”) dated August 1, 2018, containing certain contractual obligations to and for the benefit of the bondholders. • Included in the legal documents that supported that 2018 bond issue, were resolutions that dealt with compliance with the requirements of West Virginia Code §17-16A-13a(a)(2) which required that, in the event tolls were increased for Authority’s bonds, such increase could not take place unless and without establishing an unlimited single fee E-Z Pass transponder discount program for private passenger motor vehicles (and not for other types of vehicles including commercial motor vehicles or emergency vehicles). See also West Virginia Code Sections 17-16A-6(a)(16) and 17-16A-29. • House Bill 2111, as introduced, provides for an amendment to West Virginia Code §17-16A-29(a) which adds after the end of that subsection “…and emergency response vehicles certified by the State Fire Marshal or the Office of Emergency Services.” • HB 2111 raises significant potential issues with WV Code 17-16A-13a, because WV Code §§17-16A-13a(a)(2), 17-16A-6a(a)(16) and 17-16A-29 all were part of the Authority’s enabling statute when it issued the Bonds ($166,370,000 Senior Lien Turnpike Toll Revenue Bonds, Series 2018) as part of the Roads to Prosperity highway program in August 2018. • Importantly, the Bonds were approved and issued under existing West Virginia law, as set forth in Chapter 17, Article 16A, which vests sole legal authority to set tolls, rents, fees and other charges in the Authority.  The resulting independence of the Authority, especially on matters affecting net Turnpike toll revenues and the efficient and safe operation of the Turnpike, is an issue of significant importance to rating agencies.  That also is a matter of importance to holders of the Bonds, and the Master Trust Indenture likewise includes similar contractual obligations regarding the independence of the Authority. These provisions were and are for the benefit and protection of the holders of the Bonds. • Such existing WV Code provisions collectively constituted some of the important legal bases protecting bondholders who purchased the Bonds at the time they were issued and sold. (Please note that there are other pertinent legal requirements and legal issues implicated by this bill that are discussed further, below.) • Therefore, the statutory legal arrangements with bondholders who purchased the Bonds in 2018 did not contemplate such concessions (i.e., across-the-board deeply discounted travel for non-private passenger vehicles or any subset of non-passenger vehicles, under the single fee discount program). • Further, the Master Trust Indenture only allows free travel for emergency and law enforcement vehicles in the course of duty when responding to an emergency. Thus, the Indenture likewise did not contemplate and does not allow such concessions as are mandated by HB 2111. • HB 2111 accordingly would decrease net toll revenues from the Turnpike, which creates other specific legal concerns addressed below. • As noted above, the Authority entered into the Master Trust Indenture with an independent trustee in connection with the Bonds, which were issued in 2018 as part of the Roads to Prosperity highway program. • The Bonds are secured by and payable solely from net Turnpike toll revenues. Net Turnpike toll revenues accordingly are very important to the holders of the Bonds. • Net Turnpike toll revenues are thus pledged to secure the Bonds under the Master Trust Indenture as permitted by the Authority’s enabling statute. • Specifically, the Master Trust Indenture contained a number of contractual obligations and covenants for the benefit and protection of the holders of the Bonds. • Importantly, and understandably, some of these most important contractual obligations in the Master Trust Indenture are specifically for the protection of net Turnpike toll revenues. However, these covenants are not the only ones pertinent to this bill. • Related covenants deal with retaining and following the recommendations and certifications of professional experts, including Toll Road Consultants and/or Consulting Engineer, for example, and, before any proposed changes are made to the existing toll schedule for the Turnpike (tolls and/or discounts), traffic and revenue studies must be done by a qualified independent Toll Road Consultant, in order to meet the pertinent legal requirements of the Master Trust Indenture. • All these contractual obligations of the Authority under the Master Trust Indenture are for the benefit and protection of the holders of the Bonds and are consequently important to bondholders. • They are also very important to the rating agencies that rated the Bonds and would rate any future Turnpike toll revenue bonds of the Authority. This is discussed further below. • In short, HB 2111 would put the Authority in the untenable position of having to choose between (i) violating State law or (ii) violating its contractual obligations to the holders of the Bonds. • This short amendment thus appears to violate the “No Impairment of Contract” clauses of both the U.S. and State Constitutions. The West Virginia Constitution and the U.S. Constitution prohibit State Legislation that impairs existing contracts and obligations. See, The West Virginia Constitution, Article III, Section 4 and U.S. Constitution Article I, Section 10. The State Supreme Court of Appeals over the years has applied this prohibition to invalidate a variety of legislation that impaired parties’ rights in existing contracts. • Specifically, (i) United States Constitution, Article I, Section 10 prohibits laws that would impair the obligations of contracts, stating in relevant part that “[n]o State shall . . . pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts . . .” and (ii) West Virginia Constitution, Article III, Section 4 similarly prohibits laws that would impair existing contract obligations, stating in relevant part that “[n]o bill of attainder, ex post facto law, or law impairing the obligation of a contract, shall be passed.” • In an impairment analysis it is important to analyze whether the new Legislation would “substantially impair” an existing contractual obligation. If a party has relied on a contract, as the Trustee under the MTI and the bondholders with regard to the Official Statement and the actions of the Parkways Authority, and the Legislation in question denies or undermines important benefits of the contract, then there appears to be a substantial impairment. • To simply include an unknown but obviously significant number of vehicles of different classifications after the fact and provide they are deemed to qualify for the single fee discount program that, when adopted and put into operation prior to the 2018 sale of the Bonds, only included private passenger motor vehicles, has a likelihood of being determined to be an impairment of the various contracts that are involved. • An analysis of this circumstance requires a recognition that bondholders are creditors and that creditors contract rights have been given special protection by our court under historical circumstances. See LeSage v. Switzer, 116 W.Va. 657, 182 S.E. 797 (1935). • Also necessary for consideration are the historic concerns of bondholders and rating agencies as they evaluate proposed Authority Revenue Bond issues including the ones issued in 2018. • House Bill 2111 in its current form would tend to jeopardize the accuracy of the amount of revenue stream (and toll surplus) that the Authority and its engineers and accountants forecast when the bonds were sold. Such forecasts were required disclosures in the relevant Official Statements (O.S.) explaining the bond deals to the investors. Second, this legislation would lead to additional diversion of pledged revenues, which are the bondholders’ source of security, and at the very center of the contract covenants which insured that the pledged revenues would be protected from diversion. • Any Legislative action which expands exceptions for toll free or deeply discounted travel on the Turnpike (and which violate any of the bond documents) may be viewed negatively by the rating agencies. Any negative rating action would likely have a material adverse effect on existing holders of the bonds and could negatively impact the Authority’s future borrowing costs and reduce its future bonding capacity, potentially by millions of dollars. • In effect, the passage of House Bill 2111 would expand the limited application of the single fee discount program far beyond the express text and intent of the bond documents and could in a fair sense, violate and impair the Authorities contractual obligations to the Trustee and to the bondholders. The very limited application of the single fee discount program and the diversion of revenue created by that program would under this bill be expanded after the fact. While we can appreciate the well-intentioned purpose of House Bill 2111, we are legally compelled under the circumstances to oppose its passage for the foregoing reasons.



    Person submitting Fiscal Note: Robin Shamblin
    Email Address: Rshamblin@wvturnpike.com