The road to nowhere

The Texas Tribune is the latest to take a look at the failing corporate toll road in Texas, Debt Issues Tied to SH 130 Could Impact Toll Projects.

For anyone who needs a quick primer on how these things go it’s like this. State or local government doesn’t have the will or want to, to raise taxes to build a road. Instead they come up with a scheme called a Public-Private Partnership, aka PPP or P3, to build a road. The justification comes from a consulting firm – usually in close association with those who want the road built (government, developers, & road builders) – that produces a Traffic & Revenue (T&R) study. The study shows that once the road is built, the traffic will come, and that the road will essentially pay for itself. It hardly ever works out that way. Instead the taxpayers get stuck with the tab.

Instead this happens:

A year ago this week, a toll road opened in Central Texas that represented two milestones for the state. While its posted 85 mph speed limit — the highest in the country — drew international headlines, many state and local leaders were more interested in the road’s unique financing: A private consortium designed and built the road and agreed to operate and maintain it for 50 years in exchange for a cut of the toll revenue.

“This stretch of road holds a special place in our history,” Gov. Rick Perry said at the ribbon-cutting for the 41-mile southern portion of State Highway 130. “This is the first road built via a public-private partnership.”

But SH 130 has not been the immediate success story its backers had hoped. Last week, lower-than-expected traffic revenue prompted credit ratings firm Moody’s Investors Service to severely downgrade the SH 130 Concession Company’s debt and warned that a default may not be far off. The project’s stumbles are likely to draw increased scrutiny of how Texas plans to fund future infrastructure projects, though local and state officials are working to distinguish SH 130 from other toll projects in the works.

Moody’s downgraded $1.1 billion of debt tied to the project by five notches, from B1 to Caa3, considered junk status. It’s the second time the firm has downgraded the project’s debt, following an earlier downgrade in April.

“Bottom line is we believe they have enough money for their December payment, but they do not have enough money for their June 2014 payment,” Moody spokesman David Jacobson said.

No one should be too trusting of ratings agencies, after all they’re the ones that never said boo before the crash in 2008. But they’re likely looking at the fact that very few vehicles are paying tolls on this segment of SH 130.

The consortium spent $1.3 billion to build the southern portion of SH 130, known as Segments 5 and 6. Combined with the publicly funded northern portion (Segments 1-4), SH 130 connects Georgetown to Seguin, providing a 90-mile bypass around San Antonio and Austin. TxDOT officials have expressed hope that the road would someday serve as a popular alternative to congested Interstate 35 for those driving through Central Texas. Backers, noting the 50-year contract with TxDOT, also predict that future development in Lockhart and other small towns along the toll road’s route would lead to increased traffic in the future

[…]

Despite the private funding behind SH 130, TxDOT has invested public resources in promoting the toll road. The agency recently helped pay to put nearly 400 signs along the I-35 corridor promoting SH 130 as an alternative route. TxDOT has also subsidized trucks to use the road at a discounted rate. Lippincott expressed hope that the truck discount could be extended past its current March expiration.

“It’s a good choice for truckers, and anything that gets trucks off I-35 is a benefit to everyone,” Lippincott said.

Houghton suggested that making it easier for drivers to access SH 130 may be what’s needed to draw more traffic to it.

“It’s unfortunate that it’s not performing,” Houghton said. “Hopefully, in the future, it will perform better with maybe some connectors back to Interstate 35 closer to San Antonio.”

TxDOT can’t pave roads in South Texas, but they can erect signs, do marketing, and subsidies/corporate welfare for a corporate toll road!? They definitely have their priorities in the wrong place. The main reason no one is driving this road is because it doesn’t go anywhere. No offense to Lockhart and Sequin.

In the long-run it will likely turn out that it would have been cheaper for taxpayers to have paid for this road up front, with a tax increase, then when we have keep the corporation from going bankrupt.

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4 Responses

  1. […] Eye On Williamson is still blogging at our temporary home. The corporate toll road experiment is not going well in Texas. TxDOT can’t pave roads in South Texas, but they can erect signs, do marketing, and subsidies/corporate welfare for a corporate toll road, The road to nowhere. […]

  2. […] Eye On Williamson is still blogging at our temporary home. The corporate toll road experiment is not going well in Texas. TxDOT can’t pave roads in South Texas, but they can erect signs, do marketing, and subsidies/corporate welfare for a corporate toll road, The road to nowhere. […]

  3. […] Eye On Williamson is still blogging at our temporary home. The corporate toll road experiment is not going well in Texas. TxDOT can’t pave roads in South Texas, but they can erect signs, do marketing, and subsidies/corporate welfare for a corporate toll road, The road to nowhere. […]

  4. […] tax breaks.  Too many working for low wages as corporate profits soar. We see state giveaways to corporations and cronies while college tuition rises and school funding is cut.  These are all connected to the […]

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