Saturday, October 11, 2008

"Even the rosy projections advanced by CTRMA and their friends at JP Morgan aren't enough to cover the debt service on the bonds used to finance 290E"

Tolls : So what is CAMPO up to?


Copyright 2008

On Monday, CAMPO's Transportation Policy Board will be meeting to discuss some some issues and make some decisions. Among them is the vote to accept the terms and conditions of the financing of the 290E Tollway. And therein lies the rub... apparently, even the rosy projections advanced by CTRMA and their friends at JP Morgan (the investment banking subsidiary of JP Morgan Chase) aren't enough to cover the debt service on the bonds used to finance the road. Which is a real problem in this market. I'd ask you to forget, for a moment, the fact that the credit markets are effectively frozen still, especially for road bonds. This'll all make sense in that context.

Apparently, JPM is pricing the interest rate on the bonds to, what I would assume, a level that would allow them to carry the bonds on their balance sheet. But they are dangling a carrot. If CAMPO will agree to bind 290E AND 183A into the same project as part of a system then they'll reduce the interest rate. Of course, there's no word on the existing bonds used to finance the 183A road. Or the performance vs. projections of that road. What is known is that CAMPO is being asked to guarantee the bonds on 290E with revenue from 183A.

Now, one of the arguments for toll roads is that they are financed by user fees (not evil taxes). The interesting thing in this situation is that 'user fees' from one population are being used to bolster the financing, in effect subsidizing, the users fees on another project. This would make sense if the two roads had user overlap. Or even if they were close to one another.

These roads don't have overlapping user populations AND they are separated from one another by, well, most of Austin.

And now, I have some questions...

1) If we're not worried about 'user fees' being used to pay off projects where they were assessed, in effect spreading the burden evenly, why don't we spread it as evenly as possibly (and as cheaply for taxpayers) by increasing the gax tax?

2) What about the money that TXDOT has been authorized to raise? Surely our legislators can find a way to get some of THAT money out of TXDOT to fund this project.

CAMPO needs to realize this ISN'T the best time to raise money to build something. Whether the situation will cure in a week or a year, the reality is that 290E is not a pressing project especially given that it can't fund itself. Further, we're less than a month away from an election that is definitely going to change the legislative makeup of DC and possibly Austin. Everyone in politics knows that infrastructure is definitely needed and will be necessary to bring us out of this recession... and the mood has certainly shifted from financing that investment with tolls.

CAMPO should table this until at least March, 2009. It's the only responsible thing to do.

YES! I got through this entire post without calling you any of you names or deriding your intelligence. Don't think that'll continue, especially if you vote to approve these draconian terms and conditions. Simply put, and I mean no offense, none of you have a solid background in structured finance. Simply put, JP Morgan does NOT have the best interests of CAMPO in mind. You should dig VERY deeply into the structure of this and the covenants.

CAMPO Transportation Policy Board
Monday, October 13, 2008 at 6:00 p.m.
University of Texas, Joe C. Thompson Conference Center, Room 2.102
Dean Keeton and Red River, Austin, Texas

© 2008 McBogger:

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