Commonsense? Re-fenestrated! (III)

19 11 2009

Welcome back.

Sorry for such a long interval between postings but much has disrupted our Most Senior Fellow’s schedule – and you can be sure he does not like his schedule being disrupted, even by the former Grand Poo-bah of the Texas House of Representatives Transportation Committee.  Because by now we should all be aware of how last week Mike Krusee said that “No road pays for itself.”[i]  As those of you who have already read “Commonsense? Re-fenestrated! (I)”  and especially “Commonsense? Re-fenestrated! (II)” know, this is the (ahem) road we here at The Placemaking Institute have been heading down.  If not, here’s a quick summary: Central Texas is in big f’in’ TROUBLE when it comes to providing sufficient transportation.

So this Most Senior Fellow, his thunder stolen, has decided it’s time to roll up his sleeves and eschew his wholehearted belief that “the study of economic growth is too serious to be left to the economists”[ii] by, well, getting serious.[iii]  Much comment has already been made about Krusee’s words, which we feel are best buttressed by Chris Baker at Austin Contrarian:

Krusee’s assessment matches TxDOT’s own internal assessment.  (This actually should be no surprise since Krusee’s committee relied on TxDOT for data.)   TxDOT, for example, concluded that the 15 miles of SH 99 from I-10 to US 290 will cost $1 billion to build and maintain over its lifetime, while only generating $162 million in gas taxes — just 16% of the total cost.  Some of us get swept up in the rhetoric sometimes, but roads aren’t unmitigated evils.   Obviously, we need roads.  Just as obviously, I think, we will continue to need new roads.   But new roads should be built only where drivers are willing to pay for the new capacity.   And the only way to gauge that demand is to price existing roads properly; the revenue they generate will tell us when it is time to add to add that capacity.

With that concise assessment of the current state of affairs out of the way, it should be duly noted that Krusee is the former representative of suburban Williamson County as well as the main author of HB3588, which laid the foundation upon which Central Texas’ road tolling plan is built – by selling bonds.  Here’s where we stand as of today in this regard:

Let’s take a look at the one that, after Toll 45 SW, seems most impending: The Manor Expressway, a 6.2-mile limited-access toll road with three lanes in each direction that will be constructed in an expanded median of US 290 and will extend from US 183 to Parmer Lane (while the existing US 290 will be widened and remain non-tolled) that is expected to break ground in 2012.  It has an estimated cost of $623.5 million (for much more detail click this) and it is only one of five projects (the others being tolls 183, 45 SW, 290 W, 71 W, 71 E) with a total price of $1.5 billion approved by CAMPO in October 2007.  They are being handled by TxDOT and the Central Texas Regional Mobility Authority (CTRMA), an agency created in 2002 to expedite mobility projects in Williamson and Travis counties.  TxDOT will build the road, but CTRMA, which also manages Toll 183A, may run it.

Toll roads are financed over several years and, after they are, in theory, paid off, TxDOT and CTRMA are authorized to improve or build other facilities with that money.  CTRMA spokesman Steve Pustelnyk: “In principle, when a toll road generates money above and beyond what’s necessary to operate, we (have) the authority to take that surplus to use it to expand the transportation network in the region.”[iv]  If this does indeed occur, it will have a tremendous amount of implications, especially regarding the further subsidization of sprawl throughout the Central Texas Region, no?

Also, toll roads may switch from tolled to free after the project’s debt has been paid back.  But TxDOT spokesman Marcus Cooper says it would be difficult to predict a road changing over now: “The main issue is maintenance.  Maintenance costs, much like construction costs, are increasing every year.  We’re coming to a point where there is a continuous need to build the roads and funding is still an issue.”[v]  Is this a potential window into Central Texas’ future?: “Credit ratings are critically important to the agency, which is preparing to raise tolls to maintain debt coverage levels while cutting costs to accommodate declining revenue. The NTTA is not planning to insure the debt and has not arranged for a letter of credit…The authority’s finance and audit committee, made up of board members, last week took the big step of imposing a 32% toll hike on the Dallas North Tollway and President George Bush Turnpike. Tolls will rise from the current 11 cents per mile to 14.5 cents, growing further to 15.3 cents in 2011 and rising annually at a compounded rate of 2.75% through 2017, when they would hit 18.01 cents per mile…The higher tolls come as revenues are falling due to less traffic.”[vi]

Yes, apparently it is, in fact.

Even more perniciously, officials are expecting to use excess toll revenues as collateral for leveraging funding for new toll roads – as evidenced by the plan CAMPO recently approved to use the excess toll revenues from 183A, which has bond insurance, as a substitute for bond default insurance on 290E because bond insurance has now become unaffordable as a result of the credit crisis.  This is a financial tactic that Minsky might very well term “Ponzi Borrowing.”[vii]  Furthermore, “Standard & Poor’s experience indicates that optimism bias is a consistent trend in toll-road traffic forecasting.  Bondholders and lenders should, therefore, view these forecasts with some degree of caution as they attempt to identify the inherent risks that these forecasts pose for credit quality.”[viii]  And so it comes down to these questions:

  • Has TxDOT and/or CAMPO and/or CTRMA been cooking their traffic count books?[viv]
  • What happens if TxDOT defaults on its bond for 183A?[x]
  • What happens if toll roads, which are now so called Public-Private Partnerships, are fully privatized?[xi]

Mayor (Denton) Pro Tem Pete Kamp, who serves on the North Central Texas Council of Governments’ Regional Transportation Council (regarding “The Texas Local Option Transportation Act, Senate Bill 855,” which would have let Texas counties call elections to increase gasoline taxes or certain fees to pay for local transportation projects): “TxDOT is not being shy about the fact that they will not have any money for new construction projects after the first quarter of 2012.  They will only be able to barely keep up with the current M&O [maintenance and operations] costs of their facilities. So unless we decide to quit growing as a state, then we probably are going to have to continue to have this debate.”[xii]

Sen. Kirk Watson, D-Austin, vice chairman of the Senate Transportation Committee: “TxDOT needs to come up with a real plan that actually pays for these projects we know we need — and the legislative leadership needs to support it.  And that plan, as we’ve seen, cannot be based around short-sighted deals that sell our infrastructure to private corporations.  We know Texans won’t support such a plan — nor should they.”[xiii]

This just in (2:39pm): “I-35/Ben White flyover project delayed

“Phew!” exclaims this Most Senior Fellow, who is worn out, enervated by all this seriousness, and he has decided that what he needs right now is a good healthy dose of Molly Ivins.


[ii] E.J. Mishan

[iii] (Plus, he’s a very, very, very busy man who doesn’t have any time to be funny right now.)

[vii] Which occurs when an entity is unable to pay either the principal or the interest, which in turn is pretty much the root cause of the recent housing market crash.

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2 responses

12 04 2010
Roy

There is nothing like variable rate road tolls to measure the consumer willingness to pay AND make time/cost analysis of each travel decision subject to a more considered opinion.

Great post.

18 07 2011
Saw this coming a mile away « The Placemaking Institute

[…] Two-year-ish old Source: Even more perniciously, officials are expecting to use excess toll revenues as collateral for leveraging funding for new toll roads – as evidenced by the plan CAMPO recently approved to use the excess toll revenues from 183A, which has bond insurance, as a substitute for bond default insurance on 290E because bond insurance has now become unaffordable as a result of the credit crisis.  This is a financial tactic that Minsky might very well term “Ponzi Borrowing.”[vii]  Furthermore, “Standard & Poor’s experience indicates that optimism bias is a consistent trend in toll-road traffic forecasting.  Bondholders and lenders should, therefore, view these forecasts with some degree of caution as they attempt to identify the inherent risks that these forecasts pose for credit quality.” [viii]  And so it comes down to these questions: […]

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