Comprehensive Development Agreements (CDA)

Introduction

A comprehensive development agreement (CDA) is a contract between a private company and a public agency to perform different tasks for transportation projects. These tasks can be combinations of design, development, finance, construction, maintenance, repair, and operation.

A CDA may be used for toll projects, improvement projects that include both tolled and non-tolled options, improvement projects in which a private entity has an interest, or improvement projects financed wholly or partly with private activity bonds. A state highway under a CDA with a private entity is still public property.

Design-build CDAs
A design-build contract does not include a long-term lease or financial participation by the private sector. This contract does allow for right-of-way acquisition, design, and construction to occur simultaneously.These contracts are used for well-defined projects in which:

• Environmental activities are complete.
• Regulatory approvals are in place.
• Right-of-way requirements are finalized.
• Right-of-way acquisition is underway.
• Project financial plan has been finalized.
• Funding has been secured through public sources or a combination of traditional funding sources, including revenue bonds.

Pre-development Agreements
These agreements work by allowing a group to develop the project’s overall master development plan, master financial plan, and feasibility implementation plan. In return, this group negotiates with TxDOT concerning projects within this plan.

Concession Agreements
In a concession agreement, the private sector is contractually responsible for financing, constructing, operating, and maintaining a transportation facility for a period of time. The number of projects that TxDOT may undertake is limited and must be approved by the Texas Legislature. These limitations are stipulated in Senate Bill 1420 from the 82nd Legislative Session and SB 1730 from the 83rd Legislative Session. The specifics of how CDAs are implemented can be found in Section 223.203 of the Texas Transportation Code.

• Reduces cost to the public. A CDA allows public agencies to share costs with the private sector. Reducing the needed money for any single project allows the dedicated transportation dollars to be stretched for more projects. Recent academic literature and policy studies note the time and cost savings that can be attributed to the public-private partnership approach to highway delivery. Possible reasons for this include direct incentives to the private contractor for on-time delivery, effective use of performance-based contracting, competition among bidders at the outset of the project, and project life-cycle efficiencies.
• Can accelerate projects. A CDA reduces the delay of waiting for funding and allows the financing, design, construction, and delivery of projects to proceed without delay. In some instances, a CDA can help expedite the delivery of a transportation project that might otherwise not have been completed in a timely matter or even at all.
• Helps funds keep pace with rising highway construction costs. Since 1991, roadway construction costs have almost doubled, while transportation revenues have grown at a much slower rate. CDAs help the slower-growing transportation revenues keep pace with rising construction costs.

• Slows the effects of decreasing fuel tax revenues. Fuel tax revenues are eroded by increased fuel efficiency. Fuel tax revenues will likely decrease over time. The expected growth in future population means more people traveling on the roadways and consuming more fuel. However, today’s more fuel-efficient cars and trucks pay lower fuel tax per mile than when the tax rates were last set 20 years ago. As vehicles become more fuel efficient and alternative-fuel vehicles become more common, the number of gallons needed to go the same distance will decrease. While benefits such as a smaller carbon footprint and the ability to travel farther per gallon are gained, the resulting decrease in fuel consumption means less tax revenue raised to tackle the rising transportation needs. Using creative financing strategies helps compensate for this shortfall.
• Reduces the need for borrowing. Texas has increasingly turned to debt mechanisms such as bonds as a way to finance transportation improvements. Allowing CDAs would reduce the amount of public capital needed and slow the growing trend of using the credit card to pay for roadway projects.

Possible Loss of Public Control and Flexibility
Some have argued that CDAs, if not structured to protect public interest, could result in a loss of public control and flexibility. Some of this risk can be because it is difficult to predict the future demand of a toll facility in the future.

Perceived Loss of Future Public Revenues
Revenue generated from a privately maintained or operated facility would not benefit the public agency. According to a recent analysis by the U.S. Government Accountability Office, the higher private-sector costs relative to public-sector financing costs may result in higher overall project costs. However, these issues can be addressed through careful asset valuation and risk-sharing agreements.

Concerns over Risk of Facility Bankruptcy and Default
Since a private-sector partner could default, negatively affecting the public sector, CDAs have provisions to protect the public from a private partner’s bankruptcy. This concern is especially directed toward agreements in which the public sector is at financial risk or otherwise could be owed money at the time of default.