Is there a way to fund contract cancellation costs and get approval from the legislature? Possibly, but like everything with this project, it won’t be easy.

Background

Transportation projects are scored and ranked under a process called the Strategic Transportation Initiative (STI). Those that score high enough receive funding. If STI funds were used to pay I-77 termination costs, projects currently scheduled to be built would have to be dropped from the list.

Recognizing that zero legislators would be willing to give up a project to fund the I-77 buyout, legislative analysts inserted a paragraph in a budget bill (S99) that exempts I-77 from STI.

That’s understandable.

Concerns

However, S99 also says that any termination compensation is subject to an express allocation of the legislature. In other words, cancellation is subject to approval of the entire NC legislature, not just NCDOT or the governor. This is a far cry from what was said in court a year ago when NCDOT successfully argued that the ultimate safeguard of the public interest was their ability to cancel the contract in their sole discretion:

Now any cancellation necessarily involves the legislature.

We understand the restriction on STI funds but would feel a whole lot better if the language said compensation can be paid for by an express allocation. This leaves flexibility for other funding solutions (maybe a public toll lane under Complete and Modify?). NCDOT could “front” the money and pay for it with a toll revenue bond. Or other solutions we haven’t even considered.

We’re told this change- from “is subject to” to “can” may be considered in a technical corrections bill… at some later date.

Right now the language gives the possibility to some unconscionable scenarios.

Consider the case of Cintra default. Under the terms of the agreement, if NCDOT cancels the contract for default, termination compensation would be 80% of the Senior Outstanding Debt.

Regardless of whether that costs a penny or millions of dollars, it’s still compensation. Under S99’s current language, it is subject to an express appropriation from the legislature.  So NCDOT would still need to go to the legislature even if Cintra defaults.

We’re not aware of any other contract where termination for contractor default requires approval of two of the three branches of government.

Silver Linings

Nevertheless, there are a couple of silver linings to this.

First, the very fact that this language is being included in a bill is evidence that termination (or modification) is being seriously considered. That’s obviously a good thing.

Second, the consensus of the I77 Advisory Group was that an exceptional situation (i.e. I-77) requires exceptional treatment; cancellation compensation should not go through the normal transportation appropriation process because that can take years. So it should be done by an act of the legislature or governor. Our objection is that it does not necessarily have to be both.

Third, word is NCDOT is looking to float a $2.5B transportation bond. That could happen as early as November, and the bond package could include termination costs. If so, that would be an “express allocation” of the legislature. The bond package would therefore solve both problems- funding and legislative approval- and put cancellation on the fast track. So, if a bond package happens…

It’s up to all of us to ensure I-77 cancellation costs are included in this bond package.

We’ll need your help.  Stay tuned.

You can find the paragraphs pertaining to I-77 on p. 180:  NCGA_6300-0

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