Toll road ridership drops, economic crisis means trouble for toll roads

Link to article here.

Toll road ridership down plus economic crisis equals no rationale to continue to build massive leveraged debt toll projects that will bankrupt the next generation. See article below. Remember this is written by the Father of toll roads, Peter Samuel.

The Great Crisis and tolling – declining traffic and dismal prospects
Toll Road News
Mon, October 6, 2008

In the spring and summer there was the big runup in gasoline/diesel prices. Now in the fall there’s the startling financial crisis and a likely economic recession/depression – events without precedent at least in living memory in their potential severity. But we’ll leave for later such analysis wandering into speculation and punditry.

First to report some traffic and revenue data from some of the tollers who report monthly. (Why don’t they all?)

Orlando Orange County Expressway Authority (OOCEA) collected tolls of $14.99m this August against $17.92m in August last year – down 16.4%.

Tropical Storm Faye saw tolls suspended for a day and a half 8/20-22 which could account for 4 to 5 percentage points (100/31 x 1.5).

Adjusted for that storm the decline for the month would be 11.4% to 12.4%.

July + August 2008 vs same bimonthly total last year is down 10.8%. Adjust for ther storm and that’s about 8% down.

July 2008/July 2007 had been down 5.2%, roughly the drop seen for several months.

August traffic and tolls were sharply worse – going from about 5% below to around 12%-storm-adjusted below the same month a year earlier. Suddenly the debt service ratio (net revenues before debt service/debt service) don’t look as healthy: in July they were 1.51, in August 1.27.

The Beachline (previously Bee Line) Expressway to the Atlantic coast is down the most – 19% on same month last year. That’s the most vacation/weekend oriented of the toll expressways.

OOCEA had forecast a decline in traffic and revenue this year, but way less than occurred. In August tolls were only 0.874 of those forecast.

The 12% reduction of August if applied to the coming year would produce annual tolls of $181m vs $206m in the year ending June 30, a drop of $25m.

Orange Co California: Foothill/Eastern Toll Road in August 2008 collected $8,215k vs $9,393k 07/08, a drop of 12.5%.  Transactions were down 12%. July 08 had been down 8.3% in revenue and 7.8% in transactions.

On the basis of August numbers toll revenues would drop from $102.3m to $89.5m, $12.8m less.

Further west on the San Joaquin Hills Toll Road toll collection this August was $7,781k vs $8,570k, a drop of 9.2%. Traffic was down substantially more – 2,396k 08/08 vs 2,773k of 07/08, a drop of 13.6%. Revenue drops were cushioned by toll increases. Most tolls went up 25c July 7 which is about 7% at the mainline plaza where the tolls for cars now are in the range $3.50 to $5.25 depending on cash/transponder and peak/off-peak. There were double digit percent increases at the ramp plazas. Overall the toll rates seem to have been increased 8%.

Based on the August revenue drop of 9.2% annual tolls in the coming year would be $83m, down $8.4m from last financial year’s $91.4m.

91 Express Lanes down

The largest decline is in traffic and revenue on the 91 Express Lanes (91XL) where we have weekly data to 9/27. The lower levels of traffic and revenue were established earlier there and haven’t shown further declines. 91XL’s weeks of course straddle months, but crudely taking weeks ending within the month traffic this September was 894k vis 108k Sept last for a drop of 17.6%. Revenue us $2,740k vs $3,187k, down 14%.

91XL has been steady on the same month last year through July, August and September – traffic down 17 or 18%, revenues down 14 to 15%.


E470 in Denver CO reports a definite increased drop in traffic in August. March through July were down about 4%.  In August traffic was down 8.2%, and revenue was down 11% – suggesting trip distances were shortened.

West Virginia

West Virginia: West Virginia Turnpike traffic continues to be down about 6% on the same period a year ago, according to Greg Barr just days ago.

WSA numbers

Ed Regan head of traffic and revenue at Wilbur Smith Associates said at a session at the recent IBTTA annual meeting in Baltimore that toll traffic is generally declining by the same amount as non-toll traffic.  The exception is those toll facilities which relieve congestion on parallel tax-supported roads. With traffic and congestion down on the untolled roads there will be a disproportionate drop in toll traffic as motorists shift to the free route.

Regan cited the San Joachin Hills Toll Road as a classic of this. Even more so would be the toll lanes within a freeway like 91XL.

The WSA figures through August were roughly as follows:

– Illinois Tollway down 4%

– Maryland 3 to 4% down

– Penn Pike 5% down

– MDX Miami 1% down

– Tampa 4 to 5% down

Regan said trucks were down a percentage point or two more than cars. He attributed the majority of the decline in those numbers to the big run-up in fuel prices.

Going forward – the bursting housing bubble and the wider panic

Going forward the economy is apparently going to be a more significant downer as the financial crisis starts to have effects on spending and employment.

First there is the bursting of the housing bubble pumped up 2002-2006 by:

– loose money since 2001

– governmental pressure to lend to bad prospects

– securitization of mortgages

The housing bubble has been deflating for the best part of two years, but house prices look to be still too high to clear markets, so it has some way to go.

The Panic

The last couple of weeks have seen a wider panic about the stability of financial institutions and a breakdown in normal financial business. Panics don’t go on very long. The greater the panic the more prices fall, and at a point bargain hunters start buying. The opportunity for profit is seen as outweighing the risks.

The “prices” of short term private money as reflected in the inverse of spreads between 3 month interbank lending (LIBOR) and Treasury bills (TED) have dropped so far – the spread  has risen so much –  there are now strong incentives to take the minimal risks with the interbank lending.

Most of the banks aren’t in danger so the ‘prices’ of their money have already dropped too low – the yields are too high. The correction there could come quite quickly as this realization sinks in. The panic of the last few days will then abate.

However the correction in housing prices and the write-downs of mortgage based securities and other feeble ‘derivatives’ will take a lot longer to be worked off. It isn’t clear that the federal government will help here. To the extent that it holds prices artificially high by holding out the promise of being an above-market buyer it will delay a clearing of the market.

Marx’s definition, the American Marx, that is

I’m indebted to Matt Brouillette of the Commonwealth Foundation for Groucho Marx’s definition of politics and government as: “The art of looking for trouble, finding it everywhere, diagnosing it incorrectly, and applying the wrong remedies.”

It is unclear how far the rot has spread beyond mortgage-based securities. Auction rate securities, credit default swaps, swaptions and other derivatives have clearly been vastly oversold and their risks understated.  It is a pathetic reflection on the incompetence rife on Wall Street that securities traded in their billions for years now are widely described as incapable of being valued because of their complexity. The Bear Stearns and Lehmans and Merrills never considered there might be any difficulty in valuation?

Charlatans claiming to be able to give organizations unprecedented risk-free leverage managed to con rating agencies and supposedly smart chief financial officers and get awarded “Deal of the Year” by the likes of Bond Buyer magazine building financial structures so flimsy they have been collapsing in large numbers over a considerable period now. Many of these people were worse than charlatans, they apparently were fools who believed in the crap they were selling.

Democrats have been running the Congress and are the most responsible

But government, especially the Democrat majority in the Congress deserve a lot of the blame too – for their failure to allow any sensible restructuring or containment of the bastard public-private Freddie and Fannie monsters which manufactured the mass of “toxic” mortgage based securities and insured them ith taxpayer backing.

As Kevin Hassett AEI economist writes: “many of the senators who protected Fannie and Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years.”

Fortunately in “conservatorship” they can’t continue to buy protection directly.

Prize for the most asinine bumper sticker of this election campaign surely goes to this: “It’s Time for a Change: Vote Democrat 2008.” Last time we looked Dem Nancy Pelosi’s party was in the majority in the House of Representatives and Dem Harry Reid’s party had the numbers in the Senate. Giving this crew larger majorities will change them?

McCain has blown the presidency?

However John McCain has probably blown his chances of winning the presidency by failing to take a firm stance against the abominable “bailout.” In a single huge misstep he undercut completely his claim to be a reformer who would fight Washington corruption and bumbling. The bailout will be a source of continuing frustration and developing scandal to all associated with it.

While McCain dramatized his intervention in support, Obama went along with the bailout as he always goes along with the establishment. But Obama was politically savvy enough to keep a low profile.

No Great Depression just Protracted Chaos

It is most unlikely there will be any 1930s style Great Depression. it was caused by a highly restrictive monetary policy over several years. And Amity Shlaes excellent “The Forgotten Man: A New History of the Great Depression” makes clear how disastrous was the dominance in this period of Franklin D Roosevelt – totally clueless about the economy and whose capricious measures almost invariably prolonged the depression.

Neither McCain nor Obama inspire any more confidence in terms of their economic understanding, but it seems most unlikely either would dictate monetary restrictionism like Hoover and Roosevelt. And neither would dominate decisionmaking as FDR did for a grim decade.

More likely than a Great Depression is the Great Chaos Recession.

But how big and how long?

IMF economists Stijn Claessens, M. Ayhan Kose and Marco E. Terrones have systematically reviewed the data from 122 recessions in 21 advanced nations since 1960.  Their findings suggest recessions accompanied by burst bubbles and credit crunches are much costlier and slightly longer than average recessions.

A recession on average lasts about a year or as they measure it 4 quarters with substantial variation  — the shortest recession is 2 quarters and the longest 13 quarters. The typical decline in output from peak to trough, the recession’s amplitude, tends to be about 2%.  The cumulative loss of output in a recession is typically about 3% of GDP, but this number varies quite a bit too.

The three write: “Recessions accompanied with severe credit crunches or house price busts last only a quarter longer, they typically result in output losses two to three times greater than recessions without such financial stresses. During recessions coinciding with financial stress, consumption and investment usually register much sharper declines leading to the more pronounced drops in overall output and unemployment.”

On this basis a fair expectation is the Great Chaos Recession will:

– last about five quarters, that is through 2009 and perhaps into early 2010

– involve GDP dropping 4% to 6%

– a cumulative loss of output of 6 to 12%

This would be the worst economic downtown in the past half century, but not comparable in amplitude or duration with the Great Depression.  Hopefully the US will handle the Great Chaos with average competence/incompetence. If you are pessimistic on this score it would be bigger and longer, mostly longer. If you’re optimistic then it should be shorter and less severe.

Further downside risks

There are two further downside risks:

– that destructive “protectionist” measures will be taken that will depress imports and subsequently exports compounding present problems

– that the American financial mess will be so mismanaged by resistance to market clearing prices and profligate government handouts that the US will suffer capital flight, a further serious decline in the US$ and a deteriorating terms of trade

These could turn a housing-related recession of about two years into a deeper and prolonged economic malaise like Japan’s lost decade in the 1990s. If so all those traffic growth projections need to be severely pruned back.

There are some modest upside possibilities:

– oil prices and fuel costs at the pump will continue to come down so the price effects on traffic seen from April through July should abate moderating the effects of declining economy

– the rampant inflation in construction costs of the past few years will come to an end and there will be some bargains among construction contractors short of work