Monday, September 03, 2001

"It's painfully clear to bondholders and politicians that toll-supported projects... blessed by URS and its ilk, have become financial albatrosses."

Roads Less Traveled

New toll roads have been a bonanza for consultants, but not for bondholders.


Kelly Barron
Forbes Magazine
Copyright 2001

Florida Governor Jeb Bush's recent veto of a $1.4 million bailout of the Garcon Point Bridge spanning Pensacola Bay was the final indignity in the troubled history of the controversial toll bridge.

A pet project of former Florida House Speaker Bolley (Bo) Johnson, recently released from jail for tax evasion, the bridge was partly built on land he once owned. The builder was charged $4 million in fines and restitution for violating federal environmental laws. Adding to the folly, the toll bridge was built parallel to a nearby free bridge.

But the bridge likely would never have been built at all were it not for the seal of approval it received from URS Corp. of San Francisco, one of a handful of consultants that specialize in traffic projections for public projects. Using URS' 1992 projections that 6,500 cars would drive over the bridge daily and pay what is now a $2.50 toll, promoters flogged $95 million in bonds to finance the project. Today only 3,500 cars a day use the bridge.

"The bridge is an Edsel," sighs Joseph Mooney, a financial adviser who resigned in 1993 after a dispute with local officials over the numbers from URS, a publicly held engineering company whose largest shareholder is investor Richard Blum, otherwise known as the husband of Senator Dianne Feinstein (D-Calif.).

They should have listened. It has become painfully clear to bondholders and politicians that many of the public toll-supported projects built in the past decade, the majority blessed by URS and its ilk, have become financial albatrosses. The Garcon Point Bridge bonds, for instance, trade at 71 cents on the dollar, following multiple downgrades to junk status by the ratings agencies. Local officials will likely have to tap a reserve account next year to meet debt service.

URS defends its record in Florida as solid. But the company has overestimated revenue projections on toll roads elsewhere in the state, including the Seminole Expressway, the Polk Parkway and the Suncoast Parkway. On the 15-mile Veterans Expressway in Tampa, annual tolls are $15 million, barely half what URS projected in 1992. Tolls from the main portion of the state's profitable turnpike go to subsidize those clunkers.

"Many of these deals shouldn't even be brought to market," says Robert Muller, a managing director with J.P. Morgan Chase, who has researched toll-road feasibility studies. Muller figures that at least half of the traffic projections for toll roads--mostly performed by URS, Wilbur Smith Associates in Columbia, S.C. or New York-based Vollmer Associates--vastly overstate the potential.

But that hasn't stopped politicians, bond salesmen and contractors from relying on them. "It's almost an accident if the projection comes in perfectly," admits Edward Regan III, a Wilbur Smith senior vice president. For its part, Wilbur Smith's initial projections in 1992 for the 15-mile San Joaquin Hills Toll Road in Orange County, Calif. were 40% above actual traffic counts. By 1997, $1.1 billion in bonds had to be replaced with lower-rate bonds or risk default. Still in need of riders, the local toll-road authority recently handed out discount coupons.

*Revised estimate. Source: Florida's Turnpike District.

Taking a Toll

URS' projections have missed the mark more than once in Florida.
Toll road URS estimated revenue
at bond sale

Seminole Expressway $20.9 (1992) $16.0
Veterans Expressway 25.8 (1992) 14.9*
Polk Parkway 15.2 (1995) 8.7
Southern Connector Extension 2.4 (1995) 2.4
Suncoast Parkway 15.1 (1997) 14.8*

Disney World's Reedy Creek municipal authority in Florida relied on URS traffic projections in pushing for a $150 million, 12-mile turnpike extension leading onto Disney's property in the early 1990s. But with revenues coming in at 45% less than the forecasts, Osceola County is ultimately on the hook for millions of dollars to cover the shortfall. "No one would have entered this transaction were it not for URS," says C. Ray Maxwell, director of planning and finance for Reedy Creek.

Despite their mixed track record, the consultants who do the traffic projections have a nice little business, yielding upwards of $500,000 per study. Although traffic studies for revenue bonds probably brought in less than 5% of URS' $2.2 billion in revenues last year, the stock is still doing better than the average revenue bond these days--it's up 239% in the past five years.

© 2001 Forbes Magazine:

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