State House speaker Thom Tillis and Gov. Pat McCrory’s DOT board are singing the praises of High-Occupancy Toll lanes to help finance road construction across the state. Tillis has been a leader in pushing a controversial toll project on I-77 in northern Mecklenburg County. The state of North Carolina has awarded a contract to the Spanish firm Cintra to develop and manage that Mecklenburg project.
How is this all going to shake out? It might be instructive to review Cintra’s recent history — in places, like, say, Texas:
It appears the anti-privatization sentiment in Texas is successfully lowering the traffic volume on SH 130 since Moody’s just announced it’s reviewing Cintra’s credit rating due to the much lower than anticipated level of traffic and is considering a downgrade from AAA to AA.
Both the highway commission and local politicians have been struggling to find ways to incentivize motorists to use SH 130, which was intended to be a bypass around Austin and the heavily congested Interstate 35. All Texas taxpayers had to bailout SH 130 and two other Austin toll roads in 2011 with $100 million in gas taxes in order to cover the debt service payments since toll revenues were insufficient. Yesterday, the Commission also formally adopted a pilot program for one year to lower truck toll rates to the auto rate, potentially saving truckers $10 a trip. Yet, 18-wheelers still line I-35 throughout the region as most still choose the free route despite the new truck discount program that began in February.
Since trucks beat-up roads at a much higher rate than autos, some have cried foul that money that could be used to expand other freeways is being used to buy down the truck toll rates that are supposed to be higher to account for the damage big rigs do to highways. The highway department’s press statement reveals the discount program is only temporary and that it cannot continue to operate the tollway at a loss beyond that.[...]
How are things going for Cintras in Indiana? Let’s see:
[...] Cintra has said before that it would have fared much better under its own crushing debt load, but the evidence of that is thin. Indeed, Cintra partnered with an Australian firm in 2006 to pay $3.85 billion to Indiana to take over the Indiana Toll Road.
But just like on NTTA roads, traffic on the Indiana Toll Road has been less than forecasters thought — thanks to the recession and toll rate increases, among a host of other factors. And unlike North Texas, Indiana’s economy and population have not been booming, making the slow-down worse there.
Now, Cintra and the Australian firm Macquarie, with whom it partnered to finance the deal, are in danger of default because the team has nearly drained a $150 million reserve fund required as part of its loan agreements, according to a report last month in Debtwire, a publication owned by the Financial Times. [...]
Moody’s has downgraded Cintra’s credit rating due, in part, to concern over $1.1 billion in outstanding debt. The deal in Texas had been signed with the understanding of using private money, but Cintra obtained a TIFIA loan courtesy of the US taxpayers to finance their deal:
[...] José López, director of Madrid, Spain-based Cintra’s U.S. and Latin American operations, said at the time that federal loans, known as Transportation Infrastructure Finance and Innovation Act loans, could be used. The loans are used to entice public and private investment in major transportation projects. [...]
And boy do those TIFIA loans have a record of, um, success:
[...] Texas taxpayers have already subsidized the privately-operated tollway through advertising and buying down a one-year truck toll rate reduction announced at the beginning of the year. Texans have also paid for new signage along Interstate 410 and Interstate 10 to entice travelers to use the privately-run tollway.
All U.S. taxpayers are on the hook for repayment of a $430 million federal TIFIA loan on the SH 130 project. It’s the TIFIA loan that complicates any default and the potential for the tollway to be converted to a freeway. On the first P3 that received a TIFIA loan, the SouthBay Expressway in San Diego, the project went bankrupt in less than three years after its opening when forecasted traffic was wildly overstated and off by nearly 40,000 cars a day. Taxpayers had to eat nearly $80 million in losses on that TIFIA loan. Building roads with debt is never a good thing.[...]