Wednesday, November 01, 2006

Gas taxes to subsidize Central Texas Toll Roads

Judging toll road success a tricky matter

Long-term estimates put three-road project in the red without tax support.

November 01, 2006

By Ben Wear
Austin American-Statesman
Copyright 2006

The television news reporter, as Steve Pustelnyk remembers it, posed himself in the middle of the Central Florida Greenway, holding a bowling ball. The toll road, which had opened just weeks before in 1987, was so deserted, the reporter said, he could roll that ball down the road and not hit anything.

"Today, if they tried that, they'd be hit by a car within a split second," said Pustelnyk, who worked for the Orlando toll road agency for a long time and is now the communications director for the Central Texas Regional Mobility Authority. "And if you look at traffic projections for that road now, they're right on the mark."

Toll service attendant Natasha Hill blocks lanes at the toll plaza on the Loop 1 extension before its opening Tuesday. Officials estimated in 2005 that, after a year, the plaza will see 38,000 cars a day, more than plazas on Texas 45 North and Texas 130.

With Tuesday's opening of Central Texas' first three toll roads, a debut occurring in a heated political environment, the natural tendency will be to make snap judgments.

If the 15 miles of Texas 130 opening now have relatively few cars, as is likely, well, the road must be a failure. Or if the new portion of Loop 1 has steady traffic — again, a likely scenario — that road will probably get a collective thumbs-up.

But Pustelnyk and others in the toll road business, familiar as they are with the course of American toll roads over the past 10 to 15 years, caution against declaring any winners or losers right after kickoff. And they say that even the concept of success is a tricky one for toll roads.

For drivers, particularly those with a reasonable amount of disposable cash and thus the ability to pay tolls, the mere existence of the road as a speedy alternative will constitute a public policy success. In fact, the emptier the road, the better, from their point of view.

The investors who loaned the Texas Department of Transportation $2.2 billion to build nearly 66 miles of Loop 1, Texas 45 North and Texas 130 will have a different perspective. They want to be paid, and so the more traffic, the better.

And that has by no means been a sure thing in recent years. Cherian George, a managing director and head of transportation at Fitch Rating in New York, said that up to 80 percent of toll projects have struggled to one degree or another over the past few years.

"There have been a number of projects around the country where bondholders have lost value," George said this week.

Several tollways have had to refinance their debt after traffic has fallen short of expectations in the early "ramp-up" period.

"But in good time, our experience worldwide has been that once the access is there, people will use it, and people will use it in good numbers," George said. "The question is one of pace."

Complicating all this is that the roads will be free for two months and then free or discounted for toll tag users for two more months. In the middle of all this, in December, another 13.8 miles of Texas 130 will open. Then in March, a fourth toll road feeding the system from the northwestern suburbs, U.S. 183-A, will open. And by late next year, another 20 miles of Texas 130 will come on line.

"Once the tolls begin being feathered in (in January), we're going to see a drop in traffic," said Phillip Russell, the state Transportation Department's turnpike director. "Then it will rebound. It's better to wait until April or May at least. Then we can start to get some definite conclusions about what it's going to be."

Financially, at least, the Transportation Department has covered the investors in a number of ways.

The agency borrowed extra money, called capitalized interest in the industry, to make debt payments in the early years and has been making payments since 2002. With about 41 miles opening nearly a year early, that means many months of income rolling in before it was supposed to begin.

And the bond documents, George said, stipulate that the Transportation Department will pay for operations and maintenance on the road if necessary, allowing toll revenue to go to debt as a first priority.

One traditional measure of success for a toll road, of course, is for traffic on the roads to meet projected volumes. The state hired consultants to do detailed traffic and revenue projections before borrowing the money in 2002 and then updated those projections a year ago.

According to that 2005 update, the main toll plaza on Loop 1 should see about 38,000 cars a day at the end of a year, and the Texas 45 North plaza near Parmer Lane would get 21,000 or so vehicles. Expectations are far more modest on the Texas 45 North plaza in Pflugerville — 9,400 a day — and even lower for Texas 130.

The report predicts 4,500 to 9,100 toll transactions at various plazas at the end of a year. On a four-lane road that could easily accommodate 50,000 cars a day, the predicted numbers presage a very roomy highway.

Even at those volumes, the three-road system would be able to make its debt payments and eventually turn a profit. After a fashion.

According to a Transportation Department cash flow and debt service table, the roads would generate $8.7 billion between now and 2042. Debt service would amount to $7.1 billion, and after paying various operations expenses, the project would have $476 million available.

But the chart also indicates that there would be $1.2 billion in "commission support" for operations and maintenance over the years. That is, money contributed from the Transportation Department's other revenues, primarily the gasoline tax. Without that, the estimate would show the project in the red by more than $700 million.

Central Texas, on the other hand, will have the use of 66 miles of road for those 35 years.

"It's important to recognize that we are judging toll roads differently than we are judging nontoll roads," Pustelnyk said. "I suspect that if you look back at I-35 that it was not jammed the day it opened."

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