October 19, 2013
Hate to say it, but we told you so.
Texas’ first foreign-owned toll road financed through a controversial public private partnership just got downgraded to junk bond status by Moody’s Investors Service. The Spain-based firm, Cintra (65% ownership), and San Antonio-based Zachry (35% ownership), known asSH 130 Concession Company opened the southern leg of State Highway 130 last November.
Concerned citizens with Texans Uniting for Reform and Freedom (TURF) immediately launched a boycott of SH 130. Since then, the anemically low traffic levels signaled trouble from the beginning and Moody’s downgraded the concession company’s rating in April warning of the risk of default. The downgrade this week warns of default unless the company can restructure its debt or attract a substantial increase in traffic.
Moody’s predicts Cintra will be unable to meet its June 2014 debt service payment: “Thus, absent a sponsor injection of equity, a debt restructuring, or some other method of generating significantly more revenues, there is a high likelihood of a payment default in June 2014.”
The concessionaire has already dipped into its reserves to meet prior debt service payments and will need to tap its contingency funds to make its December payment, leaving inadequate funds to meet its June 2014 debt payment. If Cintra defaults on its debt, the Texas Department of Transportation (TxDOT) could execute a termination agreement and takeover the tollway, leaving lenders with limited ability to take possession of the facility as collateral.
It’s unclear whether TxDOT would continue to operate the highway as a toll road or as a freeway. State Representative Paul Workman authored a bill in the Texas legislature earlier this year to tap state and federal funds to buy back the ailing tollway and make it a freeway. Many predict if SH 130 were a free highway that the road would finally attract significant levels of traffic from the heavily congested Interstate 35, which most travelers cannot afford to do now given the high cost of tolls in addition to the higher consumption of gas given the road’s extra distance and the road’s highest-in-the-nation 85 MPH speed limit.
NAFTA superhighway going south
One of the drivers behind the push to build SH 130 was the anticipated influx of truck and trade traffic due to NAFTA. It was part of the Trans Texas Corridor TTC-35 project and the only segment of the corridor to ever be built. Texas Governor Rick Perry and state lawmakers pulled the plug on the politically unpopular project in 2009 when Texans went nuclear over the massive size (originally 1,200 feet wide - of three times the size of an normal interstate) and hence the giant land grab using eminent domain for private profits as well as the concept of foreign-ownership of its public highways.
One of the drivers behind the push to build SH 130 was the anticipated influx of truck and trade traffic due to NAFTA. It was part of the Trans Texas Corridor TTC-35 project and the only segment of the corridor to ever be built. Texas Governor Rick Perry and state lawmakers pulled the plug on the politically unpopular project in 2009 when Texans went nuclear over the massive size (originally 1,200 feet wide - of three times the size of an normal interstate) and hence the giant land grab using eminent domain for private profits as well as the concept of foreign-ownership of its public highways.
But the push to privatize Texas roadways and build the corridor piece-by-piece utilizingpublic private partnerships (known as P3s) with a smaller footprint still advances. NAFTA traffic isn’t going to abate anytime soon with the anticipated expansion of the Panama Canal expected to open next year. The Texas legislature approved a bill, SB 1730, earlier this year allowing 23 projects to be privatized using P3s -- a few part of the original Trans Texas Corridor plan.
Taxpayers footing the bill
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.
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.
P3s a big bust
The failure of Texas’ first public-private venture demonstrates the folly of utilizing P3s for public infrastructure. Taxpayer money is always involved and therefore the potential for taxpayer bailouts is always looming. Throw in the fact that they contain non-compete clauses that limit or prohibit the expansion of free roads surrounding the private tollways, and P3s directly threaten one’s freedom of mobility.
The failure of Texas’ first public-private venture demonstrates the folly of utilizing P3s for public infrastructure. Taxpayer money is always involved and therefore the potential for taxpayer bailouts is always looming. Throw in the fact that they contain non-compete clauses that limit or prohibit the expansion of free roads surrounding the private tollways, and P3s directly threaten one’s freedom of mobility.
At the end of the day, P3s represent public money for private profits and do little to solve urban congestion. Texas is building underutilized tollways using a scurrilous financing mechanism that erodes state sovereignty and impedes freedom to travel. Lawmakers and whoever the new governor will be need to dump P3s and get back to a freely accessible, affordable pay-as-you-go freeway system that serves all Texans equitably.
