The South Bay Expressway foreign-owned toll road is the new poster child for the failed policy of road privatization. Up until now, most “conservative” and libertarian think tanks have promoted PPPs (public private partnership) as the “free market” solution to transportation finance. I’ve said all along it’s no such thing. They’re government sanctioned monopolies and this editorial states it.
It also notes the flaw in raising toll rates when traffic drops, which is the exact opposite of a free market response to fewer customers. To increase demand they need to lower not increase toll rates. Yet what did the North Texas Toll Authority, a publicly run toll entity (so this problem isn’t just with privatized toll roads), do when its toll road system experienced a decline in traffic? Raised its rates by 32%! The new generation of toll roads that have relied on “innovative financing” (ie – taxpayer subsidized toll roads, often co-mingled with private money) find themselves consistently upside down on their debt despite the taxpayer bailouts that help front the construction costs. We’re creating an infrastructure bubble that will be deemed too big to fail that will require even greater taxpayer bailouts if we allow this tax raid to continue. I have yet to see any data that shows increasing the cost of transportation (toll taxes on top of high gas prices) helps the economy either.
Also, this article mentions a study TxDOT did that admits toll roads are based on FLAWED traffic projections (that are kept secret until after the contracts are signed). This is precisely what we tried to stop in SB 792 from 2007 (the counterfeit CDA moratorium) that allowed these traffic and revenue studies (toll viability studies that give the traffic estimates) to stay secret until AFTER the contract is signed. We tried to remove this provision from the bill, and only got 19 votes (so much for a conservative majority that should be for OPEN GOVERNMENT, especially the kind that saves taxpayers money). This must be changed. We’ve long held that it violates federal law, NEPA, anyway. Revealing these flawed traffic projections BEFORE going to contract will help us ferret out the truly viable (and sensible) toll projects from those that aren’t which are being propped up by HEAPS of taxpayer subsidies (gas taxes, Texas Mobility Funds, Prop 14, Prop 12, stimulus money, TIFIA loans, PABs, etc., up front) that end up going bankrupt anyway.
We’re going to continue to work against this mythical “free market” concept of public private partnerships (called CDAs in Texas). It’s a fad whose time has ended!
Link to article here.
Tuesday, March 30, 2010
EDITORIAL: The trouble with tolls
A toll-road project in San Diego, once held up as a model of the “innovative” public-private partnerships, collapsed last week.
The South Bay Expressway filed for Chapter 11 bankruptcy protection after being open for business less than three years. Proponents of the tolling fad insist that allowing private companies to charge motorists to drive on roads represents the free-market solution to all of our transportation funding woes. The South Bay Expressway failure shows that plan is a road to nowhere.
Thanks to gasoline prices around $3 a gallon and the ongoing recession, hard-pressed consumers weren’t interested in shelling out an additional $4.50 to drive 10 miles. Macquarie Infrastructure Group, the Australian firm that owns the expressway, assured federal highway officials that 60,000 paying customers would use the road daily. In fact, only 22,600 did so, leaving the project without enough revenue to sustain its debt obligations.
It turns out that estimates based on rosy scenarios are the norm in the world of tolling schemes. A Texas Department of Transportation study completed last year found that a majority of toll-road projects overestimated traffic levels in the first five years by at least 20 percent to 30 percent. Because public transportation agencies generally cut deals with private tolling companies behind closed doors, such detailed forecasts are not available for public review until long after the contract is signed.
Plunging traffic is also the norm nationwide. The Pocahontas Parkway in Richmond reported a 12 percent drop in traffic last year. Transurban, the Australian company that owns the road, responded by raising prices every year since 2008 and is scheduled to continue doing so until 2016. Dulles Greenway traffic is similarly down 7.2 percent, and Macquarie has put in motion a series of regular price hikes.
In a true free-market environment, the projects would follow the law of supply and demand, dropping rates to attract new customers. Instead, the foreign companies operating these roads are hiking tolls as fast as they possibly can – the opposite of what one would expect in a truly competitive marketplace.
Toll roads get away with this conduct because they are state-sanctioned monopolies, not free-market operations. Bureaucrats and politicians turn to public-private partnerships because they, in effect, outsource unpleasant revenue-raising duties to private companies. As we see from the South Bay Expressway, the deals governments strike with companies to perform this task frequently are based on faulty, unsustainable assumptions.
We hope Virginia Gov. Robert F. McDonnell heeds this lesson and drops his support for the foolhardy plan to impose tolls on the Interstate 95/395 high-occupancy vehicle lanes.
Link to article here.
PFI – First US TIFIA road files for protection
Reuters – Thursday, March 25NEW YORK, March 24 – South Bay Expressway, the first US toll road to tap the federally subsidized TIFIA loan program, has filed for bankruptcy protection. The 9.3-mile electronic tollroad is located in southern California.
Toll collections have been dramatically under projections since the road opened in late 2007. The road is owned by Macquarie funds – 50% by Macquarie Infrastructure Partners, the US fund owned by large institutional investors and 50% by the Australian listed Macquarie Atlas Roads.
South Bay Expressway currently has US$340m outstanding of a US$400m construction loan converted into a term loan facility according to bankruptcy filings. The term loan was arranged in 2003 with BBVA as admin agent and Depfa as co-lead, and matures in 2021. Other lenders to the project include Allied Irish, Bank of Ireland, BNP Paribas , Commonwealth Bank, DVB Bank, DZ Bank and HSH Nordbank.
In addition, South Bay took out a US$140m, 35-year TIFIA loan, under which the first mandatory interest payment was due in 2011. That facility now totals US$170m after the capitalization of US$30m in interest.
South Bay sought bankruptcy protection after attempts to negotiate a settlement with ORC, a contractor to the tollroad, failed to result in a settlement. ORC has made claims totaling US$600m, which is disputed by South Bay Expressway.
Link to article here.
Toll road builder files for Chapter 11
March 24, 2010
Toll increases were not enough to save the company that built the South Bay Expressway from bankruptcy.
The 10-mile toll road in San Diego was built in 2007 by California Transportation Ventures, a group that eventually became South Bay Expressway Ltd. The group is a subsidiary of toll operator Macquarie Infrastructure Group of Australia, the same Macquarie that holds stakes in the Indiana Toll Road, Chicago Skyway and Dulles Greenway.
South Bay Expressway Ltd. filed for Chapter 11 bankruptcy reorganization in recent days according to the San Diego Union Tribune.
Company officials had projected 60,000 vehicles per day using the roadway, but daily traffic in 2009 averaged just 22,600.
The roadway will remain open as the company restructures $510 million in debts.
Land Line Magazine reported throughout 2009 that the South Bay Expressway was falling behind in traffic counts and that the company would have lost money if it had not raised tolls.
“Apart from the toll increases, traffic volumes on South Bay Expressway continue to be impacted by the weak regional housing market and a slowdown in economic activity which has also led to a decline in Mexican border crossings,” company officials stated in a 2009 financial report.
Macquarie-operated roadways have relied on toll increases – most of which have been guaranteed in contracts with state entities – to stave off financial losses.
South Bay Expressway Ltd. is less than three years into its 35-year agreement to operate the tollway. Caltrans is scheduled to take over operations in 2042.
The $635 million expressway was one of the first toll roads in the U.S. to use federal tax dollars under the Transportation Infrastructure Finance and Innovation Act – or TIFIA – program developed by the Federal Highway Administration.
– By David Tanner, associate editor