The Failure of Toll Roads

By Roger Baker * June 20, 2003 

The major factors that are going to cause the toll road bonds to default are:

1. Declining regional growth in the suburbs of affluent folks who will pay daily road tolls. The growth has been previously mostly based on high tech, or state government, or a cheap pleasant place to retire (but now Sun City can't sell their homes) and Austin/regional growth has plummeted.

2. The scale of the toll road network built with borrowed money, which is already about $3.5 billion and that is before the RMA builds even more toll roads at the urging of TxDOT. This is all being driven mostly by the roadbuilding and real estate interests who want to make money as opposed to contributing their own money. One glaring example of this madness is Perry's 50 year $175 billion Trans-Texas corridor Plan.

3. The sudden realization that there is not enough gas has taken the marketplace by surprise, although it was predicted years ago by the better petroleum and gas geologists. Oil will peak within the decade (it may be peaking now) and then suddenly get a lot more expensive according to supply and demand, killing the toll roads built with borrowed money. There are now many scientists and energy experts that have caught on that the marketplace is blind when it comes anticipating a resource shortfall and the politicians and bureaucrats tend to be in denial of bad news (just as the fishing industry failed to heed warnings and has collapsed ocean fishing stocks).

Probably the ONLY effective way to fight back is to expose the promoters of these toll roads in advance using the damning facts, widely publicized, so that the RMA and CAMPO promoters become scared that their reputations will be thoroughly ruined when it happens. They are powerful and in collective denial so its like fighting Bush at this stage , but knowing with near certainty that the policies will fail and cause the public to take the hit. It may not work to stop them, but they will be alive to suffer disgrace once the public finally sees for themselves the results of these policies.

I will append some stuff I wrote a few monthys ago including an article from the LA Times at the bottom describing what a disaster California's toll roads have been. -- Roger

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No member of the public who goes to both CAMPO meetings and RMA meetings can very easily figure out exactly what their real hidden agenda is, but they are somewhat rival or complementary with their own individual wish lists of roads. Williamson and Hayes Counties added about a billion dollars in roads to CAMPO's road list on Monday. CAMPO is rather less secretive in accord with their mandatory federal regulations than is the new RMA board, which seems to me to be run from the top down by Bob Tesch and Lowell Lieberman, et al, and has its own office and lawyer Brian Cassidy who used to work for TxDOT.

I think the RMA has more potential power, somewhat yet to be defined. Both bodies appear to make important decisions in advance and then to ratify these decisions at their public meetings. Neither body is intended by their members to be very publicly responsive (except to their own groupings of special interests, primarily tied to real estate like RECA and CATCO). I think Dick Kallerman would concur. Both groups work closely with TxDOT.

To me the really big danger is that RMA's appear to be designed to build toll roads to complement TxDOT's billions in toll roads already approved. One interesting case is US 183A, for which TxDOT is to be approached for $5 million. I has been proposed that the RMA build SH 45 SE from SH 130 to IH 35, but this road is in a time crunch and needs to open and collect tolls by 2007, so TxDOT is likely to do it themselves rather than getting the RMA to try to do it.

At the bottom of this post I have appended the disastrous California experience with toll roads as reported in the LA Times last year. These toll roads become disasters when the growth that was anticipated to make them pay off did not materialize, leaving somebody like the state or County or the bondholders stuck with the bills, depending on the exact bond language. Dick Kallerman and I went to the Texas Bond Review Board and complained about the long range risks to the state's credit last year. But to no avail, since TxDOT generally gets what it wants.

We don't yet know what risks the RMA is willing to take with public money, very likely Travis and Williamson County's property tax money, but here is some documentation of the risks that CAMPO is taking in approving a list of roads to serve a hypothetical population in the year 2030. The way the road game is played is that they plan a huge population decades in the future to inflate the computer-designed roadway network needs and approve those numbers and the associated roads. (They would never try to plan jails or libraries or health clinic needs this way. When all is said and done, roads are a form of public welfare for private developers. As the traditional road funds shrink, so does road policy become ever more political). As those roads with the most developer clout (like Gary Bradley's MoPac south extension) become officially eligible for early construction using public money, since the federally sanctioned long-range plan is not very prioritized.

Do you think I exaggerate? Just look at the future population numbers CAMPO just officially approved Monday night and then compare them with the numbers and planning recommendations from the Texas State Data Center (SDC). In essence, CAMPO is taking the high tech growth boom of the 1990's and then using this boom as a basis for planning Central Texas road needs for the next 30 years.

As you can see just below from the April 14 CAMPO packet, CAMPO is choosing to use the highest population projections, higher than any other local planning body, plus violating the the State Data Center's stated recommendation. The SDC recommends on their site to use only the mid-level or 0.5 population projections rather than high level 1.0 numbers as a basis for sound long range planning:

http://txsdc.tamu.edu/tpepp/txpopprj.php

CAMPO approved growth numbers (1.0) 2000 2007 2030
 
Travis 812,000 972,000 1,607,000
Williamson 250,000 347,000 1,069,000
Hays 98,000 144,000 401,000
 
SDC recommended for planning(0.5) Tr 920,000 1,246,000
Will 313,000 581,000
Hays 123,000 224,000
 
Comptroller Tr 929,000 1,235,000
Will 316.000 600,000
Hays 125,000 228,000
 
Water Development Board (for 2010)
Tr 970,000 1,385,000
Will 353,000 625,000
Hays 166,000 303,000
 
CAPCO
Tr 986,000 1,598,000
Will 357,000 643,000
Hays 144,000 304,000

Next, if you look at the SDC estimates at the link below, you will find that Travis, Williamson, and Hayes County growth rates have ALL dropped dramatically in the last several years, due to the collapse of the high tech boom (and are probably close to zero for Central Texas now, according to a recent Statesman article quoting Austin City demographer Ryan Robinson).

http://txsdc.tamu.edu/tpepp/2001_txpopest_county.php

2000-2001 2001-2002

Hays 7.4 2.6 (percent population increases)

Travis 2.7 1.1

Williamson 8.4 2.9

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Tollway Trial at a Dead End in California
Los Angeles Times

July 7, 2002

Transit: Pay-as-you-go highways have become a political nightmare. But backers say that with new approach, the roads can live up to early hype.

By DAN WEIKEL, TIMES STAFF WRITER

Political and financial problems have led many state leaders to conclude that California's nearly two-decade experiment with toll roads has failed, despite fervent hopes and vast investments.

 

When the state first embraced toll roads, think tanks, politicians and government officials couldn't find enough superlatives to describe them. Whether government-run or privately owned, toll roads were transportation's future--an effective way to build highways when the state had little money for new construction. So enthusiastic was the Legislature that it helped create seven of them--five in Orange County.

 

Today, the governor says "Freeways should remain free." California legislators speak openly of scrapping the toll-road experiment. Even the most ardent supporters are tempering their positions. "I've been burned, and the public has been burned by the whole thing," said state Sen. Tom McClintock (R-Thousand Oaks), who supported legislation that approved the 91 Express Lanes on the Riverside Freeway and three other privately owned tollways. "We must never allow the state's obligation to build a first-rate public highway system to be compromised again."

 

The Express Lanes created such a political nightmare that the Orange County Transportation Authority wants to buy the project and put it into the public's hands. Three other toll roads in the county are struggling with lower-than-expected revenue. A fifth proposed tollway in Orange County and another in the Bay Area have been stalled by political opposition and financial problems.

 

The only tollway project untainted by controversy is a proposed segment of California 125 near the Mexican border in San Diego County. It may provide the last chance to prove that a privately owned toll road can work in California. Construction on the $425-million highway is scheduled to begin by year's end.

 

Toll road advocates concede that the experiment has not gone well. But they say tollways remain a viable alternative in a state struggling to meet its growing transportation demands. Federal and state gas taxes, supporters say, will not provide enough money to pay for billions of dollars in needed highways. And the state, they note, had to close a $23-billion budget gap this year.

 

"There probably isn't much support for this idea anymore. That is a shame," said Irvine City Councilman Mike Ward, who sits on the OCTA board of directors. "When a mistake is made, the pendulum always swings too far the other way."

 

McClintock and other disaffected politicians should not be so hard on the measures they helped to make law, Ward said, because they supplied necessary freeways much faster and cheaper than the state could.

 

Unlike the eastern United States, where turnpikes have been widely accepted, California has little experience with toll roads and turned to them only when no alternative could be found.

 

The Legislature began supporting them in 1986 when it created the Transportation Corridor Agencies, a government entity based in Irvine. Financed by $4 billion in bond sales, the TCA built a 51-mile network of highways, including the Foothill, the Eastern and the San Joaquin Hills toll roads slicing through the canyons and hills in eastern and southern Orange County.

 

Three years later, the Legislature approved four more that would be owned and financed by private companies--The Mid-State Tollway in Alameda and Contra Costa counties; the segment of California 125 in San Diego County; a proposed extension of the Orange Freeway in Orange County and the 91 Express Lanes.

 

Facing an acute shortage of transportation funds at the time, legislators said tollways would take the pressure off snarled freeways and accommodate future residential and commercial development, particularly in fast-growing Orange County.

 

Disenchantment with the pay-as-you-go highways took root in 1995 when public opposition to the Mid-State Tollway began to grow. The 40-mile, $600-million route that was to run through the East Bay was abandoned in 2001.

 

In Orange County, the state recently terminated the franchise agreement for the proposed extension of the Orange Freeway, an 11-mile road that was to follow the Santa Ana River, connecting the Santa Ana and San Diego freeways. Caltrans officials say American Transportation Development did not begin construction on time, leaving them no choice but to cancel the contract. The Arizona-based company is contesting the matter in court.

 

Default on Bonds Feared

 

Meanwhile, traffic and revenue on the 16-mile San Joaquin Hills toll road has lagged so badly behind projections that the Transportation Corridor Agencies may default on $1 billion in bonds by 2012.

 

TCA officials are considering an administrative merger of the ailing road with the Foothill and the Eastern tollways, two routes that--so far--are ahead of revenue projections. But there is concern that dramatic cutbacks in commercial and residential development in east Orange County might affect those two roads as well, putting them in the same situation as the San Joaquin Hills. New traffic studies have been ordered.

 

Legislative opposition to toll roads began to build in 2000 when a little-known agreement between Caltrans and the owners of the 91 Express Lanes came to light. The clause gave the owners of the Express Lanes power to block major improvements to the Riverside Freeway, one of the most congested routes in Southern California.

 

The owners of the four-lane tollway, which runs for 10 miles down the middle of the Riverside Freeway, used the so-called noncompete clause to halt lane additions Caltrans wanted to build.

 

The clause, which was negotiated by Caltrans and never subject to legislative approval, can prevent improvements along 30 miles of the Riverside Freeway if they take business away from the Express Lanes. In effect, the state had turned over control of a portion of a public highway to a private company.

 

Less restrictive noncompete agreements are in place on the roads operated by the Transportation Corridor Agencies. They require that the TCA be compensated for any revenue loss caused by improvements to several public highways, including stretches of the Santa Ana and San Diego freeways.

 

Noncompete agreements are necessary, toll-road operators say, because no one would invest in the project without some assurances the highway would survive economically. In other words, the more congested the freeway, the more drivers will turn to toll roads.

 

After years of supporting the Express Lanes, the Orange County Transportation Authority is now trying to buy the tollway for $207.5 million. If the deal is made, OCTA wants to lift the controversial noncompete clause and make hundreds of millions of dollars in improvements to the Riverside Freeway.

 

"The whole concept of noncompete clauses has put a stranglehold on the state's ability to make improvements to highways," said Orange County supervisor and OCTA board chairman Todd Spitzer, who has led the effort to buy the toll lanes. "Government should not abdicate its responsibility to provide infrastructure."

 

Future Backing Unlikely

 

Largely because of noncompete clauses, members of the Assembly and Senate Transportation Committees say it is unlikely the Legislature will support more toll roads. State Sen. Kevin Murray (D-Culver City), chairman of the Senate Transportation Committee, has called noncompete clauses "a scam."

 

"The Express Lanes have been ... so controversial, I don't know any one who would want to front one of these things right now," said Steven Schnaidt, staff director of Murray's committee.

 

In campaigning for reelection, Gov. Gray Davis has said he is against toll roads, especially those privately owned. His opponent, Bill Simon Jr., favors the for-profit operations.

 

Even less restrictive agreements like the TCA's are in question. McClintock said he would "strenuously object" to toll road deals that would interfere with construction on state highways.

 

Support for toll roads has eroded so much in the Capitol that OCTA officials say they are having a hard time getting support for a bill that would help complete the authority's purchase of the 91 Express Lanes.

 

OCTA, which wants to maintain the toll lanes for awhile, needs state approval to charge tolls.

 

Toll road advocates agree that noncompete clauses are a weakness in the effort to build more toll roads in California.

 

"We probably won't see privately owned tollways like the 91 anymore," said Robert Poole Jr., president of the Reason Foundation and a leading proponent of private highways. "The idea is very much alive. It is just going to be done differently."

 

Poole and other toll road supporters point to the Transportation Corridor Agencies as a better model. The TCA's more moderate noncompete agreement requires the agency to be compensated for improvements to nearby highways if they take away so many paying customers that the operation can't pay its bills.

 

"We've lost momentum. The support is not where it was 15 years ago when the TCA was created or 12 years ago when the private toll roads were approved," said Walter Kreutzen, the TCA's chief executive officer. "But when the population grows and the traffic gets bad, toll roads will be one of the solutions."

 

As the debate continues, a private venture is moving ahead with California 125 in San Diego County. California Transportation Ventures Inc. plans to build a four-lane, 12-mile highway from California 905 to San Miguel Road near California 54.

 

The north-south corridor across Otay Mesa will serve traffic going to and from the U.S.-Mexico border.

 

The tollway has no significant competition from public highways and the road's noncompete agreement was revised so it cannot be used to halt construction of public roads called for in the area's regional transportation plan. The pact, however, allows the company to collect for lost revenue if competing highways draw motorists away.

 

"With as much blood, sweat and tears as we have put into this thing, I will be proud if we're the last remaining private toll road in the state," said Kent Olsen, president of California Transportation Ventures.




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