Shutting down myths about express toll lane projects before they shut down Georgia’s progress.
From Bob Poole of the Reason Foundation in his Surface Transportation Innovations Newsletter:
Distortions of Fact on North Carolina Toll Concession Project
The I-77 express toll lanes project in Charlotte is proceeding despite an active grass-roots campaign against it. This effort is making many of the same kinds of misleading or outright false allegations about the project that have surfaced in Georgia, Texas, and elsewhere, so it’s important that transportation professionals understand what they are up against from this type of opposition.
The most respectable summary of these allegations was put out in June by a think tank called Civitas NC, drawing on the work of grass-roots activists. Written by Rachael Dobi, its headline was “I-77 HOT Lanes: a Bargain or a $400M Gamble?” Its opening paragraph telegraphed the main message: “A new ‘public-private partnership’ in North Carolina appears to put hundreds of millions of taxpayer dollars at risk while guaranteeing profit for a company that has run into trouble in other states.”
The body of the piece contains four claims that are regularly showing up in debates over P3s and tolling in other states. The first is that the debt to be raised for the project is “government-guaranteed.” That is totally false. The tax-exempt Private Activity Bonds and an expected TIFIA loan are revenue-based financing, backed by the project’s expected toll revenues. Buyers of revenue bonds take the risk of default with their eyes open, and the feds have thus far not lost any money on TIFIA loans.
Second, opponents of variable pricing always concoct a scary figure for how much it would cost to use the ETLs. In this case, Dobi came up with $21 per day (!) by assuming that commuters would each (a) make a 52-mile round trip the entire length of the ETLs, (b) do this every day, and (c) always drive during the highest-priced peak period. Ample evidence from ETLs around the country shows that most people who use the lanes do so only for especially time-sensitive trips, typically once or twice a week. And of course on a 26-mile long facility, many will use only a portion of it, paying a proportionally smaller toll.
Third, Dobi asserts that in the event of a default due to insufficient toll revenue, the taxpayers would have to make good on the debt (based on her false assumption that the debt is “government-backed”). She goes on to make the completely false claim that on SH 130 in Texas, taxpayers bailed out developer Cintra with “$100 million in gas taxes after it defaulted on its loan.” Cintra has not defaulted (though that project is having trouble meeting its debt service due to low traffic and revenue), and no such taxpayer bailout has occurred or will occur. In fact, the company paid Texas DOT $100 million as a concession fee when it won the right to develop and operate this project.
Fourth, Dobi writes that even if the I-77 project succeeds financially, it will still be a failure because “congestion won’t even be adequately reduced,” because “only those willing or able to pay the tolls would use the HOT lanes.” This is the old “add GP lanes instead of ETLs” argument, which has been falsified by the performance of real-world ETLs. In a fast-growing urban area like Charlotte, adding a GP lane each way instead of an ETL would attract drivers who now use parallel arterials due to I-77’s congestion, resulting in a return of congestion. By contrast, having two ETLs each way (one new, one the converted HOV lane) creates added capacity that will be uncongested long-term, thanks to faster and more reliable ETL trips attracting many drivers out of the free lanes.
So where does the piece’s headline number of $400 million taxpayer exposure come from? The bulk of it–$315 million—is the revenue-based debt (PABs and TIFIA) portion of the financing plan, which—I repeat–is not government-backed. The other $75 million is a worst-case estimate of a mechanism I have not seen before in concession financing. NC DOT has offered bond-buyers the possibility of $12 million a year in payments to cover shortfalls in revenue-based debt service payments in the early (ramp-up) years of the project’s operations. The maximum amount the state committed is $75 million. Whether that is wise or not is open to debate, but I imagine it will lead to slightly lower interest rates on the revenue bonds when they are issued. But I emphasize again, those would not be payments to Cintra but rather to the bondholders. The state DOT has agreed to invest only $88 million in the project up front (about 13.5% of the $655 million budget), well below the 20-25% more typical of toll concession financing structures. So in this case NC DOT has split its investment into two parts: one part definite and the other contingent on performance. I’m not troubled by that.
By Bob Poole
The I-77 express toll lanes project in Charlotte is proceeding despite an active grass-roots campaign against it. This effort is making many of the same kinds of misleading or outright false allegations about the project that have surfaced in Georgia, Texas, and elsewhere, so it’s important that transportation professionals understand what they are up against from this type of opposition.
The most respectable summary of these allegations was put out in June by a think tank called Civitas NC, drawing on the work of grass-roots activists. Written by Rachael Dobi, its headline was “I-77 HOT Lanes: a Bargain or a $400M Gamble?” Its opening paragraph telegraphed the main message: “A new ‘public-private partnership’ in North Carolina appears to put hundreds of millions of taxpayer dollars at risk while guaranteeing profit for a company that has run into trouble in other states.”
The body of the piece contains four claims that are regularly showing up in debates over P3s and tolling in other states. The first is that the debt to be raised for the project is “government-guaranteed.” That is totally false. The tax-exempt Private Activity Bonds and an expected TIFIA loan are revenue-based financing, backed by the project’s expected toll revenues. Buyers of revenue bonds take the risk of default with their eyes open, and the feds have thus far not lost any money on TIFIA loans.
Second, opponents of variable pricing always concoct a scary figure for how much it would cost to use the ETLs. In this case, Dobi came up with $21 per day (!) by assuming that commuters would each (a) make a 52-mile round trip the entire length of the ETLs, (b) do this every day, and (c) always drive during the highest-priced peak period. Ample evidence from ETLs around the country shows that most people who use the lanes do so only for especially time-sensitive trips, typically once or twice a week. And of course on a 26-mile long facility, many will use only a portion of it, paying a proportionally smaller toll.
Third, Dobi asserts that in the event of a default due to insufficient toll revenue, the taxpayers would have to make good on the debt (based on her false assumption that the debt is “government-backed”). She goes on to make the completely false claim that on SH 130 in Texas, taxpayers bailed out developer Cintra with “$100 million in gas taxes after it defaulted on its loan.” Cintra has not defaulted (though that project is having trouble meeting its debt service due to low traffic and revenue), and no such taxpayer bailout has occurred or will occur. In fact, the company paid Texas DOT $100 million as a concession fee when it won the right to develop and operate this project.
Fourth, Dobi writes that even if the I-77 project succeeds financially, it will still be a failure because “congestion won’t even be adequately reduced,” because “only those willing or able to pay the tolls would use the HOT lanes.” This is the old “add GP lanes instead of ETLs” argument, which has been falsified by the performance of real-world ETLs. In a fast-growing urban area like Charlotte, adding a GP lane each way instead of an ETL would attract drivers who now use parallel arterials due to I-77’s congestion, resulting in a return of congestion. By contrast, having two ETLs each way (one new, one the converted HOV lane) creates added capacity that will be uncongested long-term, thanks to faster and more reliable ETL trips attracting many drivers out of the free lanes.
So where does the piece’s headline number of $400 million taxpayer exposure come from? The bulk of it–$315 million—is the revenue-based debt (PABs and TIFIA) portion of the financing plan, which—I repeat–is not government-backed. The other $75 million is a worst-case estimate of a mechanism I have not seen before in concession financing. NC DOT has offered bond-buyers the possibility of $12 million a year in payments to cover shortfalls in revenue-based debt service payments in the early (ramp-up) years of the project’s operations. The maximum amount the state committed is $75 million. Whether that is wise or not is open to debate, but I imagine it will lead to slightly lower interest rates on the revenue bonds when they are issued. But I emphasize again, those would not be payments to Cintra but rather to the bondholders. The state DOT has agreed to invest only $88 million in the project up front (about 13.5% of the $655 million budget), well below the 20-25% more typical of toll concession financing structures. So in this case NC DOT has split its investment into two parts: one part definite and the other contingent on performance. I’m not troubled by that.
