Link to article here. It seems the bad news just keeps comin’ for toll roads and toll operators. We’ve been warning for years that increasing the cost of transportation hurts the economy and the evidence is now EVERYWHERE. There’s only so much money in the family budget to devote to transportation before it takes away from necessities. Restaurants, clothiers, auto makers and many other industries are taking a hit due to high gas prices (and the subsequent rise in food prices). Now even toll road concessionaires that proponents have touted as bullet-proof because “people HAVE to get to work,” are taking a hit, too. We’re building an unsustainable transportation system with toll roads. Time to change course.

Cintra’s August traffic falls on main concessions
Reuters
Thu. Sep 11, 2008MADRID, Sept 10 (Reuters) – Spanish toll road operator Cintra (CCIT.MC: Quote, Profile, Research, Stock Buzz) said on Thursday that traffic fell for nearly all of its main concessions in August.

On Canada’s 407-ETR road, traffic measured in daily journeys fell 4.8 percent in August from a year earlier, affected by the economic downturn and the fact there were two less working days in the month, the company said.

On the Indiana Toll road, traffic measured in daily journeys dropped 6.89 percent, and 6.66 percent on the Chicago Skyway, reflecting tariff increases and the economic slowdown in the United States.

Cintra’s Spanish motorways reflected the impact of the domestic economic slowdown, with traffic measured in daily journeys dropping 7.25 percent on its Ausol I concession from a year earlier and 4.67 percent for Ausol II. The only motorways to show rises in traffic were the Madrid-Levante and the M4-M6.

At 0952 GMT, Cintra shares were 0.89 percent lower at 7.78 euros, while the blue-chip IBEX-35 had lost 0.71 percent. (Reporting by Judy MacInnes; editing by Rory Channing)

Link to article here. No matter what, selling off our infrastructure to the highest bidder on Wall Street means higher taxes, sweetheart deals for special interests, and taxpayer bailouts when the risky deals fail. Just like the mortgage and banking bailouts, government is facilitating the taxpayer rip-off by privatizing toll profits and socializing the losses (or the risk).

The Trouble with Transportation
High gas prices have dimmed private equity’s hopes of rosy returns on infrastructure and transportation projects.
Government could be the loser
By Catherine Holahan
Businessweek
September 5, 2008
For private equity investors, the sheen is wearing off purchases of public asphalt. A year ago, banks and private investment firms were racing to pour money into infrastructure projects such as highways and light-rail systems. Compared with an investment in stocks, buying or leasing a highway seemed like a low-risk bet with easily estimated, long-term returns. After all, competing highways or mass transit systems couldn’t just spring up overnight to divert toll- and ticket-paying customers.

But $4-a-gallon gasoline slowed the enthusiasm for such projects. Many commuters are choosing to leave their cars in the garage and take mass transit, or don’t have a job to drive to anymore. “If you look at the publicly reported forecasts for the Chicago Skyway or Wall Street estimates of global traffic, they are completely different now,” said George Bilicic, a managing director at NYC private equity firm Kohlberg, Kravis, Roberts who spoke on a panel held Sept. 3 at the University of Minnesota. “It goes into the risk assessment associated with the investment decision.”

The purpose of the panel was to bring politicians in town for the Republican National Convention together with business representatives in a discussion that fits into GOP efforts to find privatized solutions to large public problems such as crumbling infrastructure. “Transportation is both broke and broken,” said panelist Bruce Katz, vice-president and director of metropolitan policy at independent research firm the Brookings Institution. “How do we have the collaboration with the private sector so we can really deal with the totality of this issue?”

Power to Private Equity

One answer may be to accept that private equity gets to dictate more terms, and use up-front revenues from long-term infrastructure leases to provide tax breaks offsetting higher commuting costs. That solution dovetails with the Republican convention theme of lower taxes.

But higher risk means investors are going to demand larger returns. And that’s not welcome news for government officials. Some of those present at the panel discussion said they don’t want to slam voters with higher commuting costs but do want private investment to fund improvements in roads and mass-transit systems (BusinessWeek, 5/7/07) not to mention provide immediate cash for other government projects. “We are acutely aware of transportation challenges in this community,” said St. Paul Mayor Chris Coleman, referring to the difficulty of getting a light-rail system constructed between St. Paul and Minneapolis. “I think there is a lot of room for private investors to invest in our community.”

Despite the economic downturn, private sources could still account for $240 billion of the capital needed for infrastructure worldwide each year, according to a September 2007 report by Ernst & Young. “The pools of private capital are gathering,” says Bilicic. “And these pools are forming with a global point of view.”

Renegotiating the Terms

But investors are adjusting by lowering their bids on long-term public infrastructure leases and demanding more assurances that the managing firms can raise tolls or adopt controversial measures such as peak toll pricing. (On one privately owned road in California, tolls jump from less than $2 to more than $20 during rush hour under the peak pricing model.) “Nobody will bid on [a toll road] at the fare of $1.50 per person,” said panelist and former Washington Senator Slade Gorton.

Strapped commuters obviously are in no mood to pay for higher tolls. What investors are counting on is that taxpayers are even more averse to paying the higher taxes needed to repair century-old roads, bridges, and other public facilities. The American Society of Civil Engineers estimated in 2005 that it would cost $1.6 trillion to simply bring the nation’s infrastructure up to “good” condition. That doesn’t include the amount it would cost to add environmentally friendly mass-transit systems and other infrastructure upgrades needed to help people move closer to the cities where they work, thereby reducing vehicle-related pollution.

Many taxpayers are already skeptical about federal and state transportation expenditures, panelists said, because they often get allocated to politically powerful districts rather than where they are most needed. “It never made sense to me why we would tax ordinary people and use that money to subsidize this type of sprawl development,” said panelist Tom Darden, CEO of Cherokee Investment Partners, a firm that works with government to invest in land development around new transportation hubs.

Congestion Plagues Cities

“It’s hell trying to get around any city in America today, from sea to shining sea. We are just at a stall in congestion,” said panelist John Mica, the ranking Republican on the U.S. House Transportation & Infrastructure Committee. “Some people think I have been smoking the funny weed and hanging out with college students when I say we need more than a trillion dollars… But we have got to do something.”

Link to article here.

After spending the last 4-5 years pushing toll roads on San Antonio in earnest, ex-Greater Chamber President, Joe Krier, will return to work for toll road law firm extraordinaire, Bracewell & Giuliani. The firm is the sole legal firm for Cintra, who has the development rights to build 5-6 segments of the Trans Texas Corridor, TTC-35, the first being SH 130 segments 5 & 6.

Chamber-ex Krier takes new job
By David Hendricks
Express-News
09/05/2008
Ten months after departing as president and chief executive of the Greater San Antonio Chamber of Commerce, Joe Krier is back on a payroll, returning to a law firm he served early in his career.

Krier will head the new Public Issues Management Group at Houston-based Bracewell & Giuliani. Working from the law firm’s San Antonio office, Krier said he will continue where he left off after two decades at the helm of the chamber, giving advice to businesses.

“Corporate America has figured out it must do business with the federal, state and local governments every day,” Krier said in an interview at his new downtown offices. “Whether directly regulated or regulated through your customers and clients, it is important to how government and the public feels about you.”

Krier said his main job is to offer advice to senior management at large corporations “to get from you are to where you want to be ….. to get across the goal line.” That could involve polling, public relations, lobbying or work with regulatory challenges or corporate transactions.

While at the chamber, Krier headed a 36-member staff with a $4 million annual budget. At Bracewell & Giuliani, he will work with 30 lawyers in the San Antonio office and 430 total in offices in Houston, Austin, Dallas and six other cities.

Similar services are offered to corporate clients by Texas firms, including Public Strategies Inc. of Austin, founded by San Antonio native Jack Martin, and San Antonio-based The Loeffler Group, founded by former U.S. Rep. Tom Loeffler. The Loeffler Group, which specializes in lobbying, is affiliated with the law firm of Loeffler Tuggey Pauerstein Rosenthal.

J. Tullos Wells, managing partner of Bracewell & Giuliani’s San Antonio office, said Krier’s new group has the advantages of lawyer-client confidentiality privileges and the worldwide research of the Bracewell & Giuliani firm.

While the law firm will not conduct services like public relations and polling directly, it will hire outside companies for those purposes and serve as a central coordination point for corporate campaigns and projects.

“Joe Krier has worked at the intersection of business, government and public issues for 20-plus years and will significantly enhance our ability to deliver these capabilities,” Wells said.

Although Bracewell & Giuliani’s Public Issues Management Group will be positioned to serve Texas corporations, it will concentrate on the Interstate 35 corridor and issues that affect the corridor. Krier noted the international corporate partnerships bidding on highway construction as examples.

Krier will work closely with Scott Segal and former East Texas congressman Jim Chapman, who co-chair the law firm’s 16-professional government relations practice, and Milam Mabry, who is transferring from the firm’s Washington office to Austin to work on legislative and public policy matters.

Former New York Mayor and ex-presidential candidate Rudy Giuliani became a name partner for the law firm in 2005 and adds a public policy role at the law firm, Wells noted.

After graduating from the University of Texas at Austin and its law school, Krier worked from 1971 to 1973 in Houston for what then was called Bracewell & Patterson. He moved to San Antonio to practice law for a dozen years before taking the top job at the Greater San Antonio Chamber of Commerce.

While at the chamber, Krier was twice elected chairman of the Metro 8, representing Texas’s eight largest chambers of commerce. The chamber was involved in setting strategies for military base-closing rounds and finding funding for the Alamodome and AT&T Center. It also helped start several industry institutions, including the San Antonio Technology Accelerator Initiative, during Krier’s tenure.

Business leaders said Krier was a good fit for the position.

“Joe’s group will offer clients invaluable insight into the direction of public policy issues, from economic development to infrastructure to tax,” said Jim Greenwood, government relations vice president at San Antonio-based Valero Energy Corp. “I doubt there are many issues Joe does not have a good grasp of.”

Tom Frost, chairman emeritus of Cullen/Frost Bankers Inc., said: “It’s valuable to have this counseling. It’s a growing area. Business executives are focused on pricing and holding down costs, but they need someone to tell them what is happening in the world. ….. I’m tickled to death that Joe Krier is working for this community again. He’s good at it.”

Link to article here.

Privatizing What the Public Paid For
Special to the Star-Telegram
By Ed Wallace
September 5, 2008

“Right. It takes unconventional and courageous thinking to come up with a plan that clears a highway lane for the well off, while the middle class and working poor are left to inhale each other’s $5-a-gallon exhaust fumes. The worst thing about this ill-conceived decision … is it allocates freedom of movement according to income.” –From “Diamond Lanes for the Rich,” by Tim Rutten (Los Angeles Times, April 26, 2008)

Few think of it this way, but America already has a major flat tax that we all pay equally: the 18.4-cent federal tax that is applied to each and every gallon of gasoline we purchase, or the 24.4 cents on every gallon of diesel. Say a young person, who just lost his job at McDonald’s, buys a gallon of gas to get to an interview at Burger King at the same time Warren Buffet buys a gallon of gas to get to the airport in Omaha to board his personal jet: Both the unemployed, below-minimum-wage worker and America’s richest billionaire contribute the exact same amount toward the nation’s highway system on that day.

Now, however, we are being told – to an increasingly urgent drumbeat – that America can no longer afford the luxury of building new infrastructure or even maintaining our current road system, because there’s just no funding for these programs. It’s here that the complete absence of critical thinking about America’s future should astonish and dismay anyone who looks at the facts even casually.

Just for the Rich?

In just a few months America has come up with nearly $1 trillion to cover foolish losses on Wall Street and in the nation’s banking system – losses primarily self-caused in the investor-driven buildup to the mortgage crisis over the past three years. But at the same time we’re being told flat out that Social Security is a disaster waiting to happen, because it will be $1 trillion in default somewhere around mid-century. Yes, you read that right: We can save our financial centers today in mere weeks when it looks like they are over $1 trillion upside down, but there’s no way we can find that much money over the next 40 years to secure all working Americans’ retirement.

And on Wall Street, many firms are pleading poverty and demanding federal intervention, claiming to be incapable of rescuing themselves from the disaster they have brought on the nation. But, according to a New York Times article from August 27th on privatizing the nation’s infrastructure, “Kohlberg Kravis Roberts, the Carlyle Group, Goldman Sachs, Morgan Stanley and Credit Suisse are among the investors that have amassed an estimated $250 billion war chest – much of it raised in the last two years [emphasis added] — to finance a tidal wave of infrastructure projects in the United States and overseas.” (The last Federal Highway Bill appropriated $286 billion over a multi-year period, only $36 billion more than Wall Street has escrowed to buy up our infrastructure now.)

Likewise, Washington cries poormouth when asked how much we can spend in our next highway bill to fix and expand our nation’s highway system. Yet in less than one month Washington easily found $168 billon to send out in tax rebate checks to spur the economy – so the second-quarter GDP figures would look stronger.

Yes, America once found it necessary to “kick start” our economy in tough financial times. But back then the sudden infusion of $168 billion was spent on things everyone could use, like new highway projects: The money still had the same impact on the economy, but America gained something of lasting value to show for it. Long after the economic slowdown turned around and became a recovery, we would all benefit from better transportation.

It’s the bitterest irony of all that today elected officials talk about how great our economy has been on Monday, then on Tuesday say America doesn’t have the money to improve our nation’s infrastructure.

Which is it? Are we rich or broke?

Happy Motoring Now Has a Price

What’s even sadder is the fact that Washington is actually paying out taxpayers’ money to take the highways away from everyone who contributed to them; your dollars are being used to carve out separate lanes, so that those who can afford to pay additional tolls every day can drive unfettered by the congestion that traps the rest of us.

In Los Angeles the federal government allotted $213.6 million to convert many of that city’s HOV lanes into toll roads, on which drivers pay variable surcharges based on peak driving periods. Keep in mind that the unemployed of LA who bought gasoline paid the exact same highway taxes toward the construction of those roads as did the wealthiest individuals in Beverly Hills. What that means is that we have all contributed equally to create a system of motoring exclusion. Then again, that’s how flat taxes work. Everybody pays, most are excluded.

Recently it was mentioned that, just like LA’s, Interstate 30’s new HOV lanes could be turned into toll lanes for the well off. As they do in other cases around the nation, advocates of this divisive and unfair move claim that it will cut congestion and save fuel; but a daily casual observation of the road quickly exposes the difference between reality and that PR spin.

For if you really wanted to cut congestion and save fuel, those lanes should be immediately opened to everyone when an accident turns I-30 into a parking lot. That way, thousands upon thousands of motorists could start moving again – saving untold gallons of gas and tons of air pollution – not just the chosen few. Of course, that’s not the plan.

Just Plane Elite-Friendly

It should also be mentioned that a relatively large infrastructure campaign is now going on to improve the nation’s secondary airports. For the most part those airports are serving the ever-growing number of private aircraft; personal jets have become all the rage in the last decade. As David Cay Johnston points out in his excellent book, Free Lunch; How the Wealthiest Americans Enrich Themselves at Government Expense, airport expansions for private jets continue unabated, but it’s the average American taxpayer footing the bill.

Johnston further discusses the $31 million airport expansion for the field that serves the Bandon Dunes Golf Course in Oregon, where 5,000 private jets land each year; that’s up from three or four landings a year as recently as 1999. That airport expansion’s costs are covered by taxes paid by all fliers on commercial airlines and by a hefty chunk of the monies paid by Oregon Lottery gamblers – even though the improved airport mostly benefits executives flying in for a round of golf.

A similar report, put together by the Institute for Policy Studies, shows that private jet ownership has risen from 1,000 in 1970 to 10,000 in 2006; and, while these jets use 16 percent of the nation’s total air traffic services, they pay just 3 percent of the costs. Although this is assuredly on a different plane (pardon the pun) than selling off the nation’s already paid-for highways, the overall concept is the same: The majority of the people pay to build and improve infrastructure that will benefit and convenience only a tiny minority: the ultra-rich.

Private and Public: Don’t Mix

This is the modern politics of exclusion. But privatizing a country’s public infrastructure has already proven to be a bad business model, one that can and will reverse a half-century of smart economic expansion. One has only to look at England to find the truth behind today’s political spin.

Today England’s largest airports “… are in shambles. Terminals and runways are so overcrowded that flights depart late and bags are lost. Faulty plumbing has become a point of pride for many visitors from Africa; the lavatories at the airports back home work better.” And that’s the opinion of the very conservative Economist magazine, which blasted the fact that 21 years ago the Thatcher administration’s sold London’s three largest airports to one private company.

When I returned from London in June, my plane’s passengers were all loaded onto buses and driven to our jumbo jet, which was parked nowhere near the terminal; there aren’t enough passenger gates to handle all of Heathrow’s flights. Of course, private industry’s job is to cut expenses and maximize quarterly profits; but that’s never the priority in intelligent long-term planning for public transportation — whether it is for highways or airports. England privatized its utilities, airports and other government functions in the eighties, and today that nation is paying an enormous cost, with their equivalent of our Treasury Secretary calling its recent economic downturn the worst in 60 years.

Then again, now England is saying that the current private owners should divest of many of their airport holdings to other private ownership groups (and possibly back to government hands), but this will only extend the country’s current problems. It could even make them worse.

It’s true that many things our government does, it does poorly; but there are things that government does exceptionally well. The problem today is that our government wants to sell off what it does best and keep what it demonstrably isn’t very good at.

We’ve paid for all of it; yet now government is asking the majority of us to pay so the smallest minority can enjoy the benefits. Not only is that not a sustainable plan, it’s not even remotely American.

© 2008 Ed Wallace

Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism, given by the Anderson School of Business at UCLA, and is a member of the American Historical Society. He reviews new cars every Friday morning at 7:15 on Fox Four’s Good Day, contributes articles to BusinessWeek Online and hosts the talk show, Wheels, 8:00 to 1:00 Saturdays on 570 KLIF. E-mail: wheels570@sbcglobal.net

Link to article here.

For anyone who still thinks there’s no merit to the North American Union and the deep economic integration of the U.S., Mexico, and Canada through trade agreements like NAFTA, here’s your proof. This massive influx of Chinese goods is the “congestion” the USDOT and TxDOT are trying to solve with the Trans Texas Corridor, foreign-controlled toll road.

Mexico plans HUGE Baja port for U.S. trade
By Marla Dickerson, Los Angeles Times Staff Writer
August 28, 2008

MEXICO CITY — Mexico’s government is setting sail with the largest infrastructure project in the nation’s history, a $4-billion seaport that it hopes will one day rival those of Los Angeles and Long Beach.

President Felipe Calderon is scheduled to travel to northern Baja California today to open bidding on a development that his administration hopes will catapult Mexico into a major player in North American logistics.

Link to article here.

Roads to hell paved with debt
By Ian Verrender
Sydney Morning Herald
August 28, 2008

There will come a time in the not-too-distant future when ordinary people will look back on this era, shake their heads in wonder and ask: how on earth did anyone ever think toll roads were sexy?

From the tulip bubble in Holland in the 1630s through to the dotcom boom of the late 1990s, otherwise rational minds have discarded logic and joined the frenzied mob in whatever investment fad promises fabulous wealth.

Without fail, they always end in tears. And so it is with the infrastructure boom.

Yesterday, Macquarie Group found itself under concerted attack from hedge funds as its shares fell 10 per cent to $41.61.

That’s wiped out all the gains from the bull market and left senior executives floundering in a sea of confusion about how to stop the rout.

In part, the renewed attack on the Silver Donut is in part the fault of Babcock & Brown, the deeply-flawed and heavily-indebted infrastructure group.

When B&B’s bankers effectively seized control in a bloodless coup last week – sidelining Phil Green and Jim Babcock while they figure out how to retrieve their $50 billion in loans – the attention inevitably swung towards the last bastion of financial engineering.

Macquarie is not a Babcock & Brown. It has a huge global banking operation that will ensure its survival. But its growth strategy of the past decade has been built on buying infrastructure, loading it up with debt, selling it off to investors in tax-effective listed trusts and then “managing” the assets – with fees extracted every step of the way.

Even dividends and distributions were paid with debt rather than earnings.

With the business model now

dead, Macquarie’s future growth has evaporated. And every group that imitated the Macquarie model, such as the listed property trusts, is now in trouble.

Macquarie’s early response was to start buying units in its deeply-discounted satellites, spending as much as $500 million alone on Macquarie Infrastructure Group.

Lately, the plan has morphed into a strategy to delist the satellites from the sharemarket and resell them into unlisted funds. But events appear to be overtaking the plan.

There are now serious doubts about whether it has the cash reserves to privatise the assets. A stockbroking analyst from UBS concluded yesterday Macquarie Group had between just $150 million and $500 million in excess capital – well below the $3 billion claimed by Macquarie.

That started the hounds barking and was enough to concentrate the minds of hedge funds.

Another to run into a roadblock yesterday was Transurban, which started life as the successful developer and owner of Melbourne’s CityLink toll road.

It is a fairly simple model that goes something like this: cars drive on a road; they pay a toll.

The operator pays the government a concession for the right to build and operate the road for anywhere between 25 and 100 years. That invariably requires large borrowings that ensure losses in the early days. But as time goes on and the loan is paid down, the company becomes increasingly profitable.

Transurban did well out of CityLink. But as toll road mania swept the land, and then the globe, Transurban’s boss Kim Edwards scouted around for expansion opportunities. First he took Sydney – with a takeover of Hills Motorways M2 and a half share in the Macquarie-controlled Westlink M7. Then he bought a major slice of the M1, M4 and M5 from Macquarie. And then it was off to show the Americans a thing or two.

Each deal meant more debt to buy assets in an inflated market. And to keep the punters happy, Edwards pumped up the dividends with – a little more debt.

Transurban’s newly-appointed Chris Lynch, the former BHP executive, has inherited this mess and taken swift action. He’s raised extra equity and, luckily, has a strong backer in the Canada Pension Plan. He’s also slashed the dividend which left investors with a bitter taste.

Lynch, a no-nonsense former AFL player from Broken Hill, says he wants to transform Transurban back into a “fair dinkum” company. He’s going to have to.

So are numerous others who bloated themselves on cheap debt and now are stuck with overpriced assets no one wants.

Link to article here.

Macquarie along with its partner, Cintra, bought the rights to the Indiana Toll Road and Chicago Skyway. Macquarie has been a bidder on several Texas toll road projects. A Macquarie subsidiary also bought dozens of Texas newspapers in the path of the Trans Texas Corridor. A Wall Street analyst who sounded the alarm on Enron, Jim Chanos, also warned about Macquarie’s business model, which is to pay shareholders from debt, not actual earnings.

Doubts over Macquarie’s model
MARTIN COLLINS: John Durie
August 28, 2008
The Australian Business

A RELATIVELY benign analyst downgrading was the initial impetus to yesterday’s 10 per cent plunge in Macquarie’s stock price, but the sustainability of the model is the issue.
UBS, which happens to be one of the biggest traders in the stock, issued a downgrade yesterday, accompanied by a 2 per cent cut in its 2009 year earnings estimates and a 10 per cent cut in its 2010 estimates.

Two other firms, Goldman and Citigroup, already have the stock on hold and the report in itself was not exactly revolutionary.

UBS talked about potential asset write-downs on Macquarie’s $7.1 billion equity investments and the 12 per cent of revenue it generated from shifting assets from fund to fund last year.

It also figured that surplus capital was closer to $500 million than the $3 billion claimed by Macquarie in May’s annual results release.

The bank, for its part, notes that just 20 per cent of its earnings are derived from its listed funds and this includes advisory fees and the like and that, unlike a Babcock or an Allco, it is actually a regulated bank.

So what makes the stock fall so hard on the back of an analyst’s report that states the bleeding obvious?

The answer is: market sentiment and the growing doubts that Macquarie can continue with its program of shifting funds from its listed funds to its unlisted funds at director valuations, which don’t look anything like market valuations.

For 18 months or more, Macquarie has said there is patient capital aplenty (sic) for the type of quality infrastructure stocks it owns.

But over the last 18 months, valuations have come down and at some point investors in these funds will be asking why they should pay $x for an asset, which is valued in the market at $y, just because Macquarie said it was worth $x.

Then there is the issue of distributions, which Chris “Che Guevara” Lynch at Transurban put to rest a month or two back, when he said the toll road company would only pay dividends out of earnings. The folk at Macquarie Communications played this line earlier in the week, noting cash earnings totalled $325.3 million and distributions were $238.7 million, so they were covered 137 per cent by cash earnings.

Fair enough, but the problem is that calculating cash earnings seems clouded by a few one-offs.

There was a figure of $119.5 million in what was called non-current deferred revenues that was included, even though that description suggests the bank can’t actually get its hands on the cash right now.

Then there were charges for depreciation, amortisation and other items totalling some $54 million, when a separate entry in the accounts noted depreciation and amortisation was more like $330 million.

There will be an explanation for this, but the point is, the distribution cover may not be what it seems.

Macquarie Communications, like MAp before it, has started shifting assets out of listed funds into unlisted funds. No problem here so long as the unlisted fund investors are happy with the valuations used. As happy as they might be with Macquarie valuations, in this market they will at the very least be starting to ask more questions.

That’s the issue which seems to dog Macquarie now: its earnings sustainability.

The market value of four vehicles, the head stock, Macquarie Communications, MAp and MIG, have fallen by $22.2 billion from the highs in October last year to a combined value yesterday of $23.5 billion.

The bank itself is sticking to its statements in May which is just as well because the evidence from the US says those who hit the panic button first have proved the smartest.

When Bear Stearns put itself up for sale at $10 a share earlier this year, some claimed it had sold too cheaply. Debt investors got their money back and no-one is attacking the $10 a share valuation.

Likewise at $US25 a share when Citigroup raised $US12.5 billion, the smarties said it was an undue dilution of equity. This week Citi is trading around the $US17.60 mark and survival looks better than even bigger dilution.

The point is, the first mover’s advantage doesn’t mean its all over for those wanting to shore up their books.

Macquarie’s future doesn’t rest on a couple of days’ share-market trading, but with Allco and Babcock now effectively gone, it was natural that all eyes would look critically on Macquarie.

Strong should go

IAG chair James Strong is up for re-election at this year’s annual meeting and he is telling anyone who would listen that he wants to stand again but will step down some time in his next term.

One could politely suggest that, as with ANZ’s Charlie Goode, Mr Strong would be better off leaving, now that he has the company in safe hands.

Mr Specialty Focused himself, Mike Wilkins is an extremely safe pair of hands as chief and in contrast to the aforementioned Mr Goode, Strong has recruited well to have a board with talent to spare to replace him.

Former AMP and Aviva executive Phillip Twyman would seem just one person capable of filling Strong’s shoes.

As noted yesterday, John Morschel is ready, willing and able to takeover at ANZ when Goode leaves, so it also makes little sense for him to hang around any longer.

This concept of one more election smacks of inviting disaster and should be dealt accordingly if either of them above try it on.

Smarts and duds

THIS reporting season has presented many challenges for investors despite what on the surface looks to have been a relatively benign set of numbers.

Tax rates have fallen from a long-term average for industrial companies of 28.5 per cent to 26.5 per cent, which may not be sustainable against a legislated tax rate of 30 per cent.

On Macquarie numbers, interest costs in the June half increased over 30 per cent, in part because the smart companies bought debt raisings forward to get the money while they could and obviously on higher interest rates.

On Goldman numbers, earnings before interest and tax margins fell from 14.7 to 14.1 per cent and are obviously heading south.

Westfield reported a 35 per cent fall in headline profits, but this was due to a write-down in property values. In operating terms, Frank Lowy posted an impressive 14 per cent gain.

Lowy presents a good case in point because the market seems happy to allow him to pay out more in distributions than he actually earns, in part because his track record means they trust him.

Last year’s $3 billion equity raising was obviously superbly timed before the credit crunch hit.

But the trick is to increase income enough to maintain its development programs, but that is outside Lowy’s hands to some extent given the varying states of global economies.

Then there is the attempt to join his friends at Simon Property to convince Liberty’s Donald Gordon to either let them buy some assets or his company.

That play for the likes of London’s Covent Garden and part of Earls Court would seem to be a long-term game which perversely would be helped if the global economy got worse rather than better.

Link to article here.

Leasing of Landmark Turnpike Puts State at Policy Crossroads
By CRAIG KARMIN
Wall Street Journal
August 26, 2008

(See Corrections and Amplifications item below.)

DONEGAL, Pa. — Hobbled by the credit crisis, Wall Street firms and many state governments are hoping that a pockmarked strip of Pennsylvania highway could provide a road out.

Next month, the Pennsylvania legislature is expected to vote on a $12.8 billion deal struck between the governor and a group of private investors to lease America’s oldest major toll road, the 537-mile Pennsylvania Turnpike.

If it passes, the deal would be by far the largest ever of its kind in the U.S. Under these arrangements, known as public-private partnerships, investors lease or buy roads, bridges or other infrastructure, operate them independently and collect tolls.

A green light in Pennsylvania could bolster the political will of officials in other states trying to hash out similar deals. That in turn could jump-start projects in waiting, from Florida’s Alligator Alley to Chicago’s Midway Airport. Last month, New York Gov. David Paterson urged legislators to consider leasing some of his state’s roads, bridges and tunnels to help shrink a budget deficit projected at $26.2 billion by 2011.

Proponents say the lease approach could provide financial relief to state governments struggling with foreclosures, ballooning pension obligations and reduced tax bases. That’s not to mention crumbling roads — and lately, a drop in tax revenue to pay for repairs, owing to high gasoline prices that have reduced driving. The U.S. needs about $1.6 trillion in investment over the next several years to bring infrastructure conditions to acceptable levels, according to the American Society of Civil Engineers.

Pennsylvania’s needs rank among the highest in the nation; the state’s Department of Transportation estimates it will cost $11 billion just to repair the state’s bridges. Drivers complain about the turnpike’s potholes, insufficient shoulder room, and continual construction.

As much as states need money to fix their roads and bridges, Wall Street firms are eager to supply it. With the industry’s core businesses in distress from the credit crisis, so-called infrastructure funds — which have already raised more than $160 billion, according to Morgan Stanley — have emerged as one of the most promising growth areas in years.

Yet this hot area is already suffering growing pains. The end of cheap credit has forced all funds to borrow at higher rates, severely crimping profits at some of the leading infrastructure funds. The share price for Australia’s Babcock & Brown Ltd., one of the bigger publicly traded funds, tumbled 36% on Thursday to a record low after reporting a large decline in earnings, before rebounding. Shares of another Australian fund, Macquarie Group Ltd., have also sold off this year.

Pennsylvania Turnpike

Known as the nation’s first Superhighway, the Turnpike opened in 1940.

Those financial pressures are unlikely to affect the Pennsylvania deal, which already has a check in hand. But it might not have the votes to cash it. Gov. Edward Rendell, a Democrat who has championed the project, concedes that “the concept of leasing the turnpike is a decided underdog.”

Detractors, from the Turnpike Commission itself to labor unions, question whether the state is selling too cheaply. They also worry that jobs will be lost — under the proposal, union contracts are guaranteed only until 2011 — and that tolls will rise. The new operators can raise tolls 25% in 2009, then keep them in line with inflation every year.

More broadly, in a country that has often mythologized the car and the open road, the deal is sparking debate about whether America’s highways are too much a part of the national fabric to be controlled by anyone but the public. Adding to the backlash: Many of these private funds come from outside the U.S., where investors have reaped huge profits from rising oil and commodities prices and are looking for new places to put their money. The consortium vying to lease the Pennsylvania Turnpike includes Citigroup Inc. and Abertis, a Spanish toll-road operator.

Crowds opposing the deal have gathered along Route 209, in the northeastern part of the state, waving signs like “Pennsylvania’s Not For Sale,” as truckers honk horns in approval.

“Americans built this turnpike,” says Catherine Johnson, a nurse in Tarentum, Pa., who regularly drives the turnpike. “Why do we need someone else to operate it?”

The lease agreement is not the first time the nation has looked to the Pennsylvania Turnpike for a glimpse into the future.

The highway heralded a new era of transportation when it opened in 1940. A year earlier, a World’s Fair exhibit in New York sketched out an exciting vision of a publicly funded highway system that would crisscross America, connecting East to West. The exhibit, commissioned by General Motors Corp. and dubbed “Futurama: Magic Motorways,” enthralled an audience that still relied heavily on railroad travel.

The 160-mile stretch that initially connected the outskirts of Pittsburgh in western Pennsylvania with Harrisburg, the state capital, embodied that vision; it is often touted as the nation’s first superhighway. Service plazas along the road sold postcards, banners and other turnpike trinkets. Many drivers apparently saw it as an American autobahn; the turnpike’s wide, gently sloping lanes encouraged speed, and the road opened without a speed limit. A series of accidents eventually led to a 70-miles-per-hour rule.

Nearly seven decades later, the turnpike and other Pennsylvania roads are in worse shape than most. The state has 6,000 structurally deficient bridges. Pounded by harsh winter weather and hard-driving 18-wheelers, some 9,000 miles of highway are in poor condition, according to the state’s Department of Transportation.

“Seems like they are always having to do work on it, always having to fill potholes,” says Helen Elborne, a self-employed resident of Harmarville, in the southwestern part of the state. “There are a lot of accidents.” Ms. Elborne often takes the turnpike on trips to Ohio, where she says “the roads are better.”

Saving the Skyway

While private investment in state infrastructure has been around for decades in other parts of the world, it hasn’t caught on in a significant way in the U.S. State governments have turned instead to the municipal-bond markets for much of their funding. But this decade, costs for health care, education and pensions mushroomed.

Since 2005, eight states have enacted legislation enabling officials to sell or lease highway or transit infrastructure, bringing the total to 25 states, according to the U.S. Department of Transportation. Infrastructure funds recently acquired long-term leases for the Indiana Toll Road and the 7.8-mile Chicago Skyway bridge. Chicago has used about half of the $1.8 billion in lease fees to retire debt and to boost emergency reserves. It has also used the money to fund homeless programs and job-training initiatives.

In bad shape just three years ago, the Skyway itself has been given new life. Australia’s Macquarie Infrastructure Group and Cintra, another Spanish toll-road operator, together leased the bridge, filled in potholes and added electronic tolling that can process nearly triple the number of cars as the cash lanes can. They also installed reversible lanes, so that the bridge can better accommodate periods when traffic flows are particularly strong in one direction.

Abertis, the Spanish company hoping to lease the Pennsylvania Turnpike, operates motorways in the U.K., South Africa and Chile. It points to its other ventures in the U.S. as proof that it can turn around a sinking ship — or in one case, an airport. The company took over operations of the Orlando International Airport in Florida in 1996, paying $20 million for a 30-year lease and assuming $30 million in debt. Since then, it has invested $70 million on upgrades, from parking spots to expanding the gates. Last year, Orlando officials extended the lease for 30 more years.

In Pennsylvania, Abertis says it and its partners are committed to spending at least $11 billion on the turnpike over the proposed lease period. Its plans include wiring fiber optics and installing a series of tiny monitors and cameras across the length of the turnpike. Abertis says this equipment, combined with an independent fleet of roving patrol cars to supplement the state Highway Patrol, will enable it to detect accidents in five minutes or less. That could get help on the way faster, and warn motorists earlier to detour. Currently, Abertis says, it takes the Turnpike Commission up to half an hour to detect an accident.

Other improvements would be more subtle. Jordi Graells, managing director of Abertis, says turnpike workers now sprinkle too much salt on the roads before winter storms. Salt can enter the ecosystem, damaging trees and other vegetation. Abertis workers, he says, are trained to add just the right amount of salt to minimize the environmental effects.

Carl DeFebo, a spokesman for the Turnpike Commission, says, “When it comes to winter maintenance, turnpike crews do whatever it takes to keep the road open in the heaviest snow and ice storms.” He says the salt is necessary to de-ice the roads “despite some infrequent impacts to plants near the highway.”

Regarding accident detection, Mr. DeFebo says the commission uses the latest technologies and is working to improve incident detection and response times.

The Turnpike Commission, which has operated the road for nearly 70 years and is run by officials appointed by the governor,

says it can fix the highway without foreign aid. It plans to invest $4.8 billion over the next 10 years, and a fiber-optic network is in the works, though “it is going to take some time,” Mr. DeFebo says.

The commission estimates the turnpike can generate $83.3 billion in revenue for the state over 50 years. But it first has to receive federal approval to add tolls to Interstate 80, which runs parallel to the turnpike in the northern part of the state, or that figure could be cut in half.

‘The Last Bastion’

The commission, some charge, has another reason for not wanting to turn over control of the turnpike: The politically powerful group is often accused of filling jobs with friends or relatives of elected officials. “It is the last bastion of political patronage for both parties,” says Gov. Rendell. “Very few in politics want to mess up that arrangement.”

While the commission says it listens to lawmakers when filling job openings, “the turnpike is not obliged to hire referrals,” Mr. DeFebo says.

When Mr. Rendell campaigned for the governor’s job in 2002, he promised to tackle the problem of deteriorating road conditions. But the legislature failed to enact funding measures during his first two years in office. The spike in oil prices made an increase in the gasoline tax politically untenable. Toll increases weren’t much more popular.

In 2006, when Indiana leased its toll road, “the governor said, ‘Why don’t we consider something like this?'” recalls Roy Kienitz, a deputy chief of staff.

That deal, which brought the state $3.8 billion in exchange for a 75-year lease, has helped shore up Indiana’s finances, according to Standard & Poor’s Corp. In July, the ratings agency upgraded the state’s credit rating to triple-A.

A Lucrative Prospect

The lucrative prospect of running a turnpike more than three times the length of Indiana’s toll road quickly attracted myriad banks, funds, toll-road operators, law firms and other contractors.

But Gov. Rendell found little enthusiasm in the state legislature. Then in August 2007, the collapse of a Minneapolis bridge across the Mississippi River, with 13 deaths, sparked a nationwide re-examination of structurally deficient bridges. The tragedy brought a new sense of urgency to find funds for repairs, and the governor renewed his effort to lease the turnpike.

By early 2008, the field of bidders had been narrowed to two groups: the Citigroup-Abertis team and one led by Goldman Sachs Group Inc. In a second round of bidding, Pennsylvania gave the teams one week to come up with their final offers. The Citi group’s $12.8 billion bid won.

With less than three weeks to go until the Pennsylvania legislature returns from summer recess, Gov. Rendell says he plans to meet with as many lawmakers as he can to win them over. Most opposition comes from his own party. Prominent unions have also condemned the plan. The governor sounds less than enthusiastic about its odds. “This is very high on my list of priorities,” he says. “There’s still a decent chance it will pass.”

Corrections and Amplifications:
Abertis Infraestructuras SA runs the Orlando Sanford International Airport, which is in Sanford, Fla. This article about the Pennsylvania Turnpike incorrectly said Abertis runs the Orlando International Airport, which is in Orlando, Fla.

Link to article here.

More doubts loom over the risks of Public Private Partnership toll roads. With the increased cost of transportation causing our economy to spiral downward, now is not the time for massive leveraged debt that requires lots of driving and motorists with money to burn.

Cities Debate Privatizing Public Infrastructure
By JENNY ANDERSON
New York Times
August 27, 2008

Cleaning up road kill and maintaining runways may not sound like cutting-edge investments. But banks and funds with big money seem to think so.

Reeling from more exotic investments that imploded during the credit crisis, Kohlberg Kravis Roberts, the Carlyle Group, Goldman Sachs, Morgan Stanley and Credit Suisse are among the investors who have amassed an estimated $250 billion war chest — much of it raised in the last two years — to finance a tidal wave of infrastructure projects in the United States and overseas.

Their strategy is gaining steam in the United States as federal, state and local governments previously wary of private funds struggle under mounting deficits that have curbed their ability to improve crumbling roads, bridges and even airports with taxpayer money.

With politicians like Gov. Arnold Schwarzenegger of California warning of a national infrastructure crisis, public resistance to private financing may start to ease.

“Budget gaps are starting to increase the viability of public-private partnerships,” said Norman Y. Mineta, a former secretary of transportation who was recently hired by Credit Suisse as a senior adviser to such deals.

This fall, Midway Airport of Chicago could become the first to pass into the hands of private investors. Just outside the nation’s capital, a $1.9 billion public-private partnership will finance new high-occupancy toll lanes around Washington. This week, Florida gave the green light to six groups that included JPMorgan, Lehman Brothers and the Carlyle Group to bid for a 50- to 75 -year lease on Alligator Alley, a toll road known for sightings of sleeping alligators that stretches 78 miles down I-75 in South Florida.

Until recently, the use of private funds to build and manage large-scale American infrastructure assets was slow to take root. States and towns could raise taxes and user fees or turn to the municipal bond market.

Americans have also been wary of foreign investors, who were among the first to this market, taking over their prized roads and bridges. When Macquarie of Australia and Cintra of Spain, two foreign funds with large portfolios of international investments, snapped up leases to the Chicago Skyway and the Indiana Toll Road, “people said ‘hold it, we don’t want our infrastructure owned by foreigners,’ ” Mr. Mineta said.

And then there is the odd romance between Americans and their roads: they do not want anyone other than the government owning them. The specter of investors reaping huge fees by financing assets like the Pennsylvania Turnpike also touches a raw nerve among taxpayers, who already feel they are paying top dollar for the government to maintain roads and bridges.

And with good reason: Private investors recoup their money by maximizing revenue — either making the infrastructure better to allow for more cars, for example, or by raising tolls. (Concession agreements dictate everything from toll increases to the amount of time dead animals can remain on the road before being cleared.)

Politicians have often supported the civic outcry: in the spring of 2007, James L. Oberstar of Minnesota, chairman of the House Committees on Transportation and Infrastructure, warned that his panel would “work to undo” any public-private partnership deals that failed to protect the public interest.

And labor unions have been quick to point out that investment funds stand to reap handsome fees from the crisis in infrastructure. “Our concern is that some sources of financing see this as a quick opportunity to make money,” Stephen Abrecht, director of the Capital Stewardship Program at the Service Employees International Union, said.

But in a world in which governments view infrastructure as a way to manage growth and raise productivity through the efficient movement of goods and people, an eroding economy has forced politicians to take another look.

“There’s a huge opportunity that the U.S. public sector is in danger of losing,” says Markus J. Pressdee, head of infrastructure investment banking at Credit Suisse. “It thinks there is a boatload of capital and when it is politically convenient it will be able to take advantage of it. But the capital is going into infrastructure assets available today around the world, and not waiting for projects the U.S., the public sector, may sponsor in the future.”

Traditionally, the federal government played a major role in developing the nation’s transportation backbone: Thomas Jefferson built canals and roads in the 1800s, Theodore Roosevelt expanded power generation in the early 1900s. In the 1950s Dwight Eisenhower oversaw the building of the interstate highway system.

But since the early 1990s, the United States has had no comprehensive transportation development, and responsibilities were pushed off to states, municipalities and metropolitan planning organizations. “Look at the physical neglect — crumbling bridges, the issue of energy security, environmental concerns,” said Robert Puentes of the Brookings Institution. “It’s more relevant than ever and we have no vision.”

The American Society of Civil Engineers estimates that the United States needs to invest at least $1.6 trillion over the next five years to maintain and expand its infrastructure. Last year, the Federal Highway Administration deemed 72,000 bridges, or more than 12 percent of the country’s total, “structurally deficient.” But the funds to fix them are shrinking: by the end of this year, the Highway Trust Fund will have a several billion dollar deficit.

“We are facing an infrastructure crisis in this country that threatens our status as an economic superpower, and threatens the health and safety of the people we serve,” New York Mayor Michael R. Bloomberg told Congress this year. In January he joined forces with Mr. Schwarzenegger and Gov. Edward G. Rendell of Pennsylvania to start a nonprofit group to raise awareness about the problem.

Some American pension funds see an investment opportunity. “Our infrastructure is crumbling, from bridges in Minnesota to our airports and freeways,” said Christopher Ailman, the head of the California State Teachers’ Retirement System. His board recently authorized up to about $800 million to invest in infrastructure projects. Nearby, the California Public Employees’ Retirement System, with coffers totaling $234 billion, has earmarked $7 billion for infrastructure investments through 2010. The Washington State Investment Board has allocated 5 percent of its fund to such investments.

Some foreign pension funds that jumped into the game early have already reaped rewards: The $52 billion Ontario Municipal Employee Retirement System saw a 12.4 percent return last year on a $5 billion infrastructure investment pool, above the benchmark 9.9 percent though down from 14 percent in 2006.

“People are creating a new asset class,” said Anne Valentine Andrews, head of portfolio strategy at Morgan Stanley Infrastructure. “You can see and understand the businesses involved — for example, ships come into the port, unload containers, reload containers and leave,” she said. “There’s no black box.”

The prospect of steady returns has drawn high-flying investors like Kohlberg Kravis and Morgan Stanley to the table. “Ten to 20 years from now infrastructure could be larger than real estate,” said Mark Weisdorf, head of infrastructure investments at JPMorgan. In 2006 and 2007, more than $500 billion worth of commercial real estate deals were done.

The pace of recent work is encouraging, says Robert Poole, director of transportation studies at the Reason Foundation, pointing to projects like the high-occupancy toll, or HOT, lanes outside Washington. “The fact that the private sector raised $1.4 billion for the Beltway project shows that even projects like HOT lanes that are considered high risk can be developed and financed privately and that has huge implications for other large metro areas,” he said .

Yet if the flow of money is fast, the return on these investments can be a waiting game. Washington’s HOT lanes project took six years to build after Fluor Enterprises, one of the two private companies financing part of the project, made an unsolicited bid in 2002. The privatization of Chicago’s Midway Airport was part of a pilot program adopted by the Federal Aviation Administration in 1996 to allow five domestic airports to be privatized. Twelve years later only one airport has met that goal — Stewart International Airport in Newburgh, N.Y. — and it was sold back to the Port Authority of New York and New Jersey.

For many politicians, privatization also remains a painful process. Mitch Daniels, the governor of Indiana, faced a severe backlash when he collected $3.8 billion for a 75- year lease of the Indiana Toll Road. A popular bumper sticker in Indiana reads “Keep the toll road, lease Mitch.”

Joe Dear, executive director of the Washington State Investment Board, still wonders how quickly governments will move. “Will all public agencies think it’s worth the extra return private capital will demand?” he asked. “That’s unclear.”

Link to article here.

Even toll road industry insiders must now acknowledge what the rest of us have been observing for years: toll roads are no longer financially viable with high fuel prices! It is obvious that toll roads are purely speculative risky deals that the prudent must shun. These deals depend on low fuel prices, a booming economy, and more vehicle miles traveled, none of which we have now or into the foreseeable future. Selling billions in bonds knowing these toll roads are famous for overprojecting rosy outcomes and have a history of underperformance that will require massive toll hikes and/or taxpayer bailouts, is malfeasance.

Traffic hit hard by fuel prices – average down over 5%, but some way worse
By Peter Samuel
Toll Road News
August 24, 2008
Traffic on tax roads in the US seems to have dropped on average by 4 to 5% and on toll roads by 5 to 6% over the past year. The reduced travel is attributable almost entirely to the big run-up in gasoline prices and is about was to be expected from long-established economists’ estimates of the price elasticity of demand of about -0.2. Fuel prices which dominate the marginal cost of driving are about 30% higher so you would expect traffic as measured by vehicle-miles traveled (VMT) to be 6% lower (-0.2×0.30=-0.06). Deduct one percent for the sluggish economy and you have 5%.

Toll road traffic may be down marginally more than tax roads traffic because tollroads are somewhat skewed to discretionary travel.

FHWA/OHPI data for travel on all roads show the drop in traffic slightly greater in the west (excludes TX) and the southeast but single digit percent falls have occurred in all major regions. Indeed in June all 50 states were down (only DC is up slightly).

Rural travel is down more sharply (5% to 7%) than urban (3% to 5%). Rural interstates are down nearly 7%. (VMT08juntvt.xls)

Fitch Rating survey

A survey of US tollers’ traffic and revenue by Fitch Ratings shows a fall-off year on year clustered in the single middle digits range. Declines are as much as 10% in Florida and California. In Texas are declines in traffic in the lower single digits.

They say that standalone toll projects have the greatest declines and the turnpikes with their dependence on longdistance and rural traffic. Next come the bridges with the least affected being the (urban) expressway networks.

TOLLROADSnews needs to do a proper survey toll agency by toll agency, but that will have to wait a bit longer. A few tollers publish their data monthly (Orange County Toll Roads) and even weekly (91 Express Lanes). There are some more spectacular drops in traffic than Fitch mentions.

91 Express Lanes down 15% to 20%

The 91 Express Lanes are way down. Through July their toll transactions were about 17% lower than the same week last year and the first two weeks of August have been down 18%. Revenue is down about 15% in the last six weeks.

It would be interesting to see if the other express lanes are losing traffic as heavily but it seems logical that they will be more volatile than full tollroads. Most of their users are occasional users taking the toll lanes only when they want a faster ride so their use is discretionary. Furthermore and maybe this is more important: declining traffic in the free lanes means there is less congestion there and faster free trips, so the Express Lanes suddenly aren’t saving as much time as before.

The Toll Roads of Orange County nearby have suffered serious traffic losses too, close to 10% in the case of Foothill Eastern TR (FETR) and San Joaquin Hills TR (SJHTR).

The burst of the housing bubble has hit this part of southern California as well as parts of Florida especially hard.

Orlando Orange County toll expressways in Florida have suffered a traffic drop but not as large. (see OOCEA in table nearby).

Macquarie hemmoraging

Macquarie has reported June quarter traffic and it has some huge drops 2008Q2/2007Q2:

– Indiana Toll Road average daily traffic down from 122.8k to 95.6k, 22.2%

– Chicago Skyway from 44.2k vs 51.7k, down 14.6%

– Dulles Greenway VA is down less from 58.6k to 55.1k or 5.9%

The three major Macquarie tollroads in the US have gone from 233k/day 2007Q2 to 195k 2008Q2 or 16% down. (South Bay Expressway is at 26k day but wasn’t open in 2007).

On the Indiana TR the ticket system portion of the tollroad which caters to longdistance traffic is down 5%.

The spectacular drop is on the barrier system where daily traffic is down from 98.4k 2007Q2 to 70.5k 2008Q2. That’s 28.4% down!

That’s commuter and weekender traffic.

Some of the drop may be attributable to opening of improvements to the competing free route of I-80/I-94 (Bishop Ford, Kingery, Borman Expressways) and the higher tolls, but regardless, it doesn’t look good for the Macquarie shareholders.

Macquarie recently lowered their valuation of these tollroads substantially.

Canada not seeing the same declines in traffic

A lot of the rise in the price of gasoline in the US is simply the fall in the value of the US$ relative to other currencies. Gasoline has risen much less in C$s because C$s now bob around at parity with US$s whereas they were 15% below a year ago.

Also rises in the oil component of the gasoline price seem less north of the border, because the fuel taxes are so much higher already.

Toronto 407ETR up over last year

In Toronto 407ETR traffic continues to be above last year’s levels. Its traffic is larger than all four US Macquarie tollroads combined, so the North American Macquarie traffic in total is down only 5.8% vs 16% for Macquarie’s US roads.

Where from here? (SPECULATIONS)

Our sense is that traffic should stabilize at roughly present levels if gasoline prices stay where they are. Short-term adjustments to the higher prices have been made.

And if the US economy continues in its present sluggish state but avoids a real recession and systemic financial collapse then traffic won’t get much lower than now.

Over the longer term one adjustment to higher prices will be a move to more fuel efficient vehicles – to smaller lighter vehicles, to hybrids, plug-in hybrids and diesels. That will allow road travel to recover somewhat.

Significant and last mode shift to rail transit seems unlikely. It is seriously unprofitable and capacity constrained and is only competitive at the margin.

Motor fuel prices of course could go strongly up, or they could collapse.

So much crude oil comes from the Middle East and South America and is under the control of hostile governments that major supply disruptions could easily occur. Iran’s nuclear program could lead to war in the Persian Gulf just months from now. At home there is fierce resistance to any new production and to any new oil refinery capacity, while the Democrats vilify “Big Oil” and threaten discriminatory taxes against the very companies which will increase fuel supply if they’re allowed to.

On the other hand public sentiment has shifted in favor offshore drilling and concerns about disruptions may already be reflected in oil prices. With luck and even a glimmer of good sense by governments, fuel prices could fall as quickly in the next year as they rose in the last. But you can’t count on it.

With forecasting so difficult, organizational agility looks key.

Feds data: http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.htm