FISCAL NOTE
Date Requested: February 05, 2020
Time Requested: 11:36 AM |
| Agency: |
Transportation, WV Department of |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2975 |
Introduced |
HB4696 |
|
|---|
| CBD Subject: |
Roads and Transportation |
|---|
|
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.
Please also see the Memorandum section of this Fiscal Note, below, which notes that this bill would cause operational problems and inefficiencies and safety concerns for the Parkways Authority and the Turnpike, involve significant costs, and raise significant legal and constitutional issues and concerns, as discussed further below.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2020
Increase/Decrease
(use"-") |
2021
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 operational, safety, and legal concerns with the amendment contained within this Bill.
Legal Concerns Under WV Code Provisions Applicable to the Authority’s Schedule of Tolls and Discounts for the WV Turnpike
• 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 larger vehicles including commercial motor vehicles or school buses). See also West Virginia Code Sections 17-16A-6(a)(16) and 17-16A-29.
• HB 4696 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 were part of the Authority’s enabling statute when it issued its $166,370,000 Senior Lien Turnpike Toll Revenue Bonds, Series 2018 as part of the Roads to Prosperity highway program in August 2018.
• Such existing WV Code provisions thus constituted one of the 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 did not contemplate such concessions (i.e., free travel for school buses), or deep discounts.
• HB 4696 would decrease net toll revenues from the Turnpike, which creates other specific legal concerns addressed below.
Legal Concerns Relating to Potential Violations of Master Trust Indenture and Other Legal Obligations to, and Covenants with, Bondholders Who Hold the Bonds
• As noted above, the Authority entered into the Master Trust Indenture with an independent trustee in connection with Bonds, which were issued 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.
• Other related contractual obligations specifically require the Authority to operate the Turnpike at all times in an efficient manner and to keep it in good repair and working order at all times.
• The Master Trust Indenture specifically prohibits granting free passage except in certain limited circumstances, and free passage for school buses is not permitted under the Master Trust Indenture.
• 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 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.
• Thus, any violation, erosion or impairment of any of these contractual obligations and protections may be viewed negatively by the rating agencies. Any negative rating action, in turn, would likely have a material impact 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.
• 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 are for the benefit and protection of the holders of the Bonds.
• As noted above, H.B. 4696 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.
Legal Concerns as to Violations of the U.S. and State Constitutions (No-Impairment-of-Contract Provisions; Equal Protection of the Laws and Interstate Commerce Clauses); and Potential Rating Agency Concerns
• Passage of H.B. 4696 thus would violate the (i) United States Constitution, Article I, Section 10 prohibiting the impairment 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 prohibiting laws that would impair existing contracts, 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.”
• Apart from all the other legal concerns discussed in this Memorandum, above, there also are serious concerns as to possible constitutional violations relating to the Equal Protection and Interstate Commerce clauses of the U.S. Constitution. School buses, for example, are heavy and have impacts on the roads and bridges similar to other heavy commercial vehicles, but, under this bill, would be treated very differently. The same would apply as to commercial buses. Similarly, if out-of-state buses were not extended the same treatment, there could be interstate commerce problems with this sort of special treatment.
• 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 or set of disclosures, such as the Trustee under the Master Trust Indenture and the bondholders with regard to the Master Trust Indenture and the disclosures set forth in the 2018 Official Statement, 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 large number of vehicles of different classifications after the fact and provide they are deemed to qualify for free travel on the Turnpike , 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.
• HB 4696 would tend to jeopardize the accuracy of the amount of net toll revenue stream (and toll surplus) that the Authority and its engineers and accountants forecast when the Bonds were sold in 2018. 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 travel on the Turnpike (and violates any of the bond documents) also may be viewed negatively by the rating agencies. Any negative rating action could have a material adverse affect on existing holders of the bonds and could negatively impact the Authority’s future borrowing costs and reduce bonding capacity.
• In effect, the passage of HB 4696 would expand free travel on the Turnpike beyond what is permitted by the Master Trust Indenture, and thus, in a fair sense, would violate and impair the Authorities contractual obligations to the Trustee and to the bondholders.
Operational Concerns and Related Inefficiencies
• As noted above, the Master Trust Indenture specifically requires the Authority to operate the Turnpike in an efficient manner and to operate and maintain the Turnpike in good condition. Relatedly, the Master Trust Indenture requires the Authority to follow the recommendations of its Consulting Engineers and its Toll Road Consultants in carrying out its duties and establishing the Turnpike toll schedules including discounts.
• From an efficiency and operational standpoint, school buses are much heavier than simple passenger cars and pickup trucks, and they do more potential damage to roadways and bridges than ordinary cars and trucks. In that regard, they are similar to other heavy commercial vehicles.
• From an efficiency and operational standpoint, there are also concerns relating to potential challenges to toll operators when vehicles are in a toll lane and their drivers try to claim free passage under this sort of an exemption.
Any such in-lane challenges could lead to traffic delays and backups in the toll lane that in turn could create safety issues.
For example, it is unclear what is a qualifying “school”? For example, do institutions of higher education (colleges and universities) qualify? Does the term “school” include private or just public “schools”? Does it include preschool or daycare facilities? Does it include church schools? Are out-of-state “schools” eligible for their school buses?
Likewise, arguments or challenges in the toll lane could arise as to what is a qualifying “bus”? Is a van eligible? Is a commercial bus eligible if it is carrying sports fans of a high school or college/university?
• There also is a significant concern in drawing lines when one group claims that it is worthy of free travel, because many groups will make the case that they too deserve some special and favorable treatment. This quickly can open up Pandora’s Box without any principled or logical way to draw lines once one group claims it deserves free travel.
• Perhaps for all these reasons, and legal concerns as well, it appears that the major toll roads in surrounding states charge tolls to school buses and do not allow them free passage on such toll roads.
Conclusion
While we can appreciate the well-intentioned purpose of HB 4696, 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