BOHICA Alert: Cost projections show new toll roads to be LITERAL highway robbery

payupThom Tillis, Skip Stam, and the McCrory administration have all been singing the praises of HOT lanes and tolls as THE BEST way to pay for future road construction and improvements.  Wellllllllllll —- some new cost projections reveal that drivers will likely have to start making their daily commutes with significant quantities of cash:

[…] In early April the NCDOT announced they had selected Cintra, a Spanish company, as the contractor for the I-77 toll lane project. (As it turns out, the Cintra bid was the only one received.) Under the terms of the contract, NCDOT will donate the remaining public right-of-way  and grant Cintra an exclusive concession to design, build and operate toll lanes along the Lake Norman stretch of I-77 for the next 50 years. The NCDOT noted Cintra’s proposal had been subject to an extensive review of over 300 pass/fail criteria, and the Cintra package met all of them.

Despite this apparent rigor and detail, the public has been kept largely in the dark about even the most basic aspects of this project: How will drivers access the toll lanes? Where will they access them? How much are the tolls? I attempted to find out by filing a FOIA request, but weeks after filing and receiving nothing but stonewalling, I finally went to the media. Allison Latos at WSOC made a few phone calls and was able to shake loose more information in a week than I’ve been able to in two months. Thanks, Allison!

The NCDOT forwarded a series of traffic and revenue (T&R) memoranda from Stantec, an infrastructure consultancy. NCDOT also provided electronic copies of two memorandums to the NC legislature summarizing the I-77 tolling project. […]

Those DOT documents can be found HERE, HERE, and HERE.  MORE: 

Stantec predicts a one-way morning trip from Mooresville to Charlotte will initially cost $9.05.  The return commute will cost $11.75, so a one day toll lane commute will cost over $20.  By the year 2035, the tolls will more than double to $20.60 and $21.63 for the morning and evening commutes, respectively, so the price of a commute twenty years from now will cost over $40 per day. (These are all in 2011 dollars.)

Wow.  So, if you commute to work daily in this particular area, You will be spending — in addition to gas — ONE HUNDRED DOLLARS PER WEEK.  You may shrug all of this off if you don’t live in Mecklenburg County.  But McCrory’s DOT board told us all a little while back that they will be seriously considering toll roads statewide as a new source of construction funding.  MORE: shakedown2

[…] In the first full year of tolling, revenues are expected to gross approximately $20 million. (In comparison the Triangle Expressway, North Carolina’s first toll road, had first year revenues of $13 million.)  This would make the I-77 toll lanes one of the highest-grossing in the country. In twenty years, the toll revenues are predicted to grow to $136 million, and by the contract’s end, a staggering $704 million dollars per year. (All numbers are in nominal dollars.) The total toll revenue over the 50 year life of the contract is predicted to be  $13 billion. This does not include penalties, fines and associated fees which can typically add another 25- 30%, bringing the grand total to over $16 billion.

In contrast, adding a single lane in either direction just where it is needed would cost $80- 100 million.  Thus, by resorting to tolls we will pay to widen the road one hundred and thirty times over.

These numbers lead to two conclusions.  First, if they are correct, the I-77 toll lane project will be an economic catastrophe, siphoning billions of dollars out of the local economy.  Indeed, in 2035 tolls will cost every person in the region an average of over $500 per year.

However, I do not believe these numbers are even close to reality.  The toll lanes serve one of the smallest metropolitan areas yet are expected to be among the highest grossing in the country. The predicted toll revenues have thus far been historically unattainable in all but two metropolitan areas (LA and DC). If the bond underwriters and NCDOT used this model for their ratings and approval, they have put hundreds of millions of taxpayer dollars at risk- profligate risk. Unfortunately this appears to be the case; the memo containing these figures is titled “Fitch Equity T&R Case”.  (T&R – Traffic and Revenue.) Fitch was the ratings agency hired to review the project’s creditworthiness, and they gave it a BBB- rating, meaning the project is of “investment grade” and therefore carries “low to moderate credit risk.”

So the taxpayer stands to be on the hook for hundreds of millions… unless there is another sleight of hand yet to be played.  As it turns out, there is. […]

The total project cost is estimated at $655 million. Of this the taxpayer will directly contribute $88 million. $315 million comes from government-backed loans from two sources- TIFIA loans and private activity bonds, or PABs. These loans are guaranteed by the taxpayer, meaning if the project fails the taxpayer is liable for a bailout. The private company is also providing an equity infusion of $234 million, and $16 million in deferred interest payments will be added to the outstanding debt.bohica

The average cost of the financing, called the weighted average cost of capital, or WACC, is 7.4%. This is significantly higher than interest rates on other collateral-backed loans. For instance, 30 year mortgages on private homes are less than 4%. Average interest rates on municipal bonds are around 4%.

This financing method is therefore very expensive. Assuming a 30 year term, the total interest paid on the project at the WACC interest rate is $832 million. If the project was instead financed through municipal bonds, total interest paid would be $403 million. If the project was funded through normal allocation means, the interest cost would be zero. Granted, this would be a few years down the road, but there is no definitive answer on when funding would be available because the NCDOT has never ranked an alternate project.

So, we’re going to ignore the past troubles this contractor, and projects like this, have had.   We have a struggling economy and one of the highest gas taxes in the country.  Now, the honorables in Raleigh — even with this information in hand — want to slap us with as much as TWO HUNDRED DOLLARS PER WEEK in additional costs.  JUST so we can drive to work every day to put food on our tables and PAY to keep the Raleigh leviathan rolling along.