Rail authority's proposed loan to AHR isn't legal
ROBERT N. CROSSMAN JR. Jacksonville

The Texas State Railroad Authority (TSRA) is planning to loan $500,000 to American Heritage Railway in accordance with their contract to own the Texas State Railroad which the Texas Legislature transferred out of Texas Parks & Wildlife in the 80th Legislature. As a part of the transfer Rider 25 to the State Budget (HB1) provides $2M general revenue funds as a match for a $10M Transportation Enhancement Grant from Federal Highway Funds through TxDOT. This is an 80/20% grant, which required the applicant to Escrow 20% ($2M) in order to apply for the $10M ($8M of Fed Funds).

The loaning of funds by a Quasi State Agency (TSRA) to individuals or corporations is prohibited by the Texas Constitution. A Texas Supreme Court Decision in 1977. The courts apply a three (3) part test to determine if a particular application of public resources satisfies the constitutional requirements (1) the predominant purpose is to accomplish a public purpose, not to benefit private parties; (2) the governmental agency retains sufficient control over the funds to ensure that the public purpose is accomplished and to protect the public investment; and (3) the public must receive a sufficient return benefit (or quid pro quo).

It appears that since American Heritage plans to use this loan for Operating Expense, TSRA will not have any control over the use of the funds. This would only benefit the private operator not a public purpose. It would also remove a portion of the $2M, thus precluding its use as match money. The contract between TSRA and American Heritage provides for an extended payback period.

I do not believe that an operating loan from TSRA to AHR can be made under the Three Part Test.