Selling off US Roads

Highway Upgrade Goes Private

MARCH 8, 2009, 7:14 P.M. ET

Florida Deal With Spanish-Led Group Serves as a Model for Cash-Strapped States

By CHRISTOPHER CONKEY

Cash-strapped Florida is paying a private contractor to fix up and operate a toll road instead of doing the work itself -- and other states might follow.

In a deal struck last week, a Spanish-led group will be paid as much as $1.8 billion over 35 years to design, build, operate and maintain three new toll lanes along traffic-clogged Interstate 595 near Fort Lauderdale. The agreement came as something of a surprise during a period of turmoil in credit markets, and many experts called it a model for how states and private investors can work together to upgrade the nation's aging roads, bridges and other transportation infrastructure.

"This project is a harbinger of what we may be seeing over the next decade or so, as we don't have enough money for major construction," said Robert Poole, director of transportation studies at the Reason Foundation, a free-market think tank.

Florida, Texas, Virginia and many other states are increasingly looking to road-privatization deals to close a growing gap between their infrastructure needs and their available resources. Even with an additional $48 billion in stimulus funds on its way to states for transportation work, many states are being forced to cut projects because traditional sources of such funding, such as gasoline taxes and levies on vehicle sales, have declined.

Some privatization deals have advanced in recent years, but many others, including an unsuccessful effort to lease the Pennsylvania Turnpike last year, have stalled amid concerns over handing key roads and transportation assets to foreign investors, which have the most experience on such projects. Transportation officials said the Florida deal, thanks to a financial model that hasn't been tried in the U.S. before, provides a new and politically palatable way forward.

Florida is shielded from the risk of cost overruns during construction. Once the road opens, Madrid-based Actividades de Construcción & Servicios SA, the leader of the consortium, will operate and maintain it, but the state will set toll rates and pocket the revenue. ACS will get paid back over the length of the 35-year contract based on performance measures tied to how well it builds and maintains the lanes. Lawyers involved in the deal said ACS could get a maximum 12% return on its investment if it meets every performance goal.

Some critics of privatization deals said the Florida 595 deal was less objectionable than many previous proposals like the Pennsylvania Turnpike lease. Phineas Baxandall, a senior analyst at the U.S. Public Interest Research Group, a consumer-advocacy group, singled out the creation of a bus rapid-transit service along the route as a positive. Still, he said, "the long-term costs would likely be lower by cutting out the private middleman."

Stephanie Kopelousos, Florida's transportation secretary, said the state couldn't have completed such a project anytime soon on its own because of its deteriorating funding picture.

"It would take us 15 years to do this," she said. "We do pieces at a time. That's all we can afford."

ACS said in a statement that it is "honored to be a part of this important project which will positively affect the quality of life of millions of Floridians."

Ms. Kopelousos said the state, which has been spending an average of about $8 billion per year in transportation work, has trimmed its five-year spending plan by $7.3 billion. "We've almost had to take out a whole year in our work program," she said.

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To compensate for the shortfall, Florida has been talking with a variety of mostly foreign investment groups to provide funding for several other large-scale projects, including a lease of Alligator Alley, the section of Interstate 75 that cuts across South Florida. The state is one of 23 that have passed legislation in recent years allowing transportation officials to partner with the private sector on innovative financing deals.

Florida's funding issue is a microcosm of a national problem, and U.S. Transportation Secretary Ray LaHood has said the government should support public-private partnerships as one way to solve it. The administration has agreed to provide Florida with $600 million in low-interest loans to support the 595 deal under a program established by the Transportation Infrastructure Finance and Innovation Act, or Tifia. Last week, Mr. LaHood called the Florida deal "part of the Obama administration's commitment to reviving the economy and putting Americans back to work."

Lawyers involved in the matter said the Tifia loans were a key development that made the project affordable for Florida. Under Mr. Obama's recently passed economic-stimulus package, Mr. LaHood can steer as much as $200 million in new funding into the Tifia program this year, on top of stimulus transportation funding already going to the states. Many transportation experts are urging the Obama administration to expand Tifia lending, which averages about $1 billion per year.

The Obama administration has rejected the idea of increasing the 18.4-cent-a-gallon federal gasoline tax to raise revenue for infrastructure projects. That could lead states to pursue more private-funding options.

$2 billion project will add tolls, speed to LBJ Freeway

12:00 AM CST on Friday, February 27, 2009

By MICHAEL A. LINDENBERGER / The Dallas Morning News
AUSTIN – Dallas' busiest highway is about to get a $2 billion face-lift, and when the dust settles about six years from now, a faster ride on LBJ Freeway will be among the most expensive in America.

The Texas Transportation Commission gave preliminary approval Thursday to a deal that would cost taxpayers $445 million and attract another $1.5 billion from a team of investors led by Cintra, the Spanish-based toll company with a fast-growing presence in Texas.

Construction could begin late this year, and it will take about five years.

"This is a big project, no matter how you measure it," Dallas Mayor Tom Leppert said. "We'd love to have all the roads free. But to get the investment we need and improve our infrastructure, not only here but throughout the nation, this is the only way we are going to get there."

Cintra will rebuild and expand LBJ Freeway, which opened in 1969 and carries 270,000 vehicles a day, making it one of the nation's most congested freeways. The project will replace the existing lanes with four free lanes in each direction and, for the first time, add continuous frontage lanes on each side.

But in a twist that will make it one of the most talked-about projects in the U.S., Cintra will also dig a 25-foot-deep trench between, and partially under, the freeway. In that hole, Cintra will build six toll lanes that will carry rush-hour price tags that will initially be set at about $7.07 each way for the 13-mile trip.

Those rates will change as traffic conditions change: The more traffic on the free lanes, the more expensive the tolls for the paid lanes will be.

By varying the price according to demand, the operators hope to keep traffic moving at 50 mph or faster even during the worst traffic tie-ups. But the speed may come at a steep price. Rates could go as high as $11 each way, if demand is higher than expected.

"Eleven dollars is a bit much to ask someone who must travel 635 in their daily commute to pay – especially when it's been free all these years," said Uptown resident Mike Muszynski, 32. "I try hard to not use the Tollway or 121 now, so I guess just add another road to the list."

The only highway in America that now uses the so-called dynamic pricing is in Orange County, Calif., and rates for that 10-mile road are as high as $1 mile per mile.

The pace of the construction will be mind-boggling, state engineers said.
"The High Five was a $250 million project that we rushed to build in four years," said Bob Brown, deputy Dallas district engineer for the transportation department. "This is going to be $2 billion worth of construction, and it's going to be done in five years. Think about the pace and the scale of that. There's going to be an ungodly amount of work happening all at once."

The rebuilt Central Expressway opened in late 1999, after 10 years of construction, Brown said. Those 10 miles stretch 14 lanes wide and cost about $450 million to build, he said. The new LBJ will be 20 lanes wide in most places and stretch 13 miles long, and will be built in half the time.

To meet that deadline, Cintra will have crews working on the entire length of the project all at once, all but guaranteeing traffic delays at times.

Transportation officials promise that access to every business along the corridor will be maintained at all times. Temporary lanes and other quick fixes will ensure that there are four free lanes in each direction during peak hours at least, officials said.

But in non-rush periods, lanes will be closed as needed, though financial penalties will encourage Cintra to minimize those interruptions, Brown and others said.

Occasionally, all eight lanes will be closed to traffic as crews install bridges or other large structures. If that work can't be completed in off-peak hours, Cintra could be fined $250,000 or more an hour, Brown said.

"Clearly there is going to be short-term pain for long-term gain," Leppert said. "TxDOT is pushing hard on minimizing that short-term pain, but they can't eliminate it. We're going to find ourselves sitting in a traffic nightmare from time to time, and wishing we didn't have to go through that. But when it's finished, the improvements will make a difference."

Jose Lopez, president of Cintra's North American operations, said 400 workers will begin full time with the project and as many as 1,500 more eventually will be added from 140 subcontractors.

"This seems to be a full-employment act for North Texas," said Transportation Commission member Ted Houghton of El Paso, who has been a steadfast ally in Gov. Rick Perry's push for private toll roads in Texas.

Last month, the commissioners approved a similar, if less audacious, project in Tarrant County. Cintra won that contract, too and will use $600 million in public money to build the first phase of the North Tarrant Express toll road.

These two North Texas projects will join the Katy Tollway in Houston as Texas' only so-called managed lane toll roads. The Katy, which stretches 12 miles along Interstate 10, is already open for traffic, though the lanes are free for the moment.

But soon, the concept will be commonplace in North Texas. Carpool lanes have been added to nearly every major highway near Dallas, and officials at DART and elsewhere have said repeatedly they plan to eventually convert those lanes to paid, managed lanes and price them according to demand.

The North Texas Tollway Authority will collect the tolls electronically on the LBJ lanes, and bill drivers who do not have a toll tag.

Cintra and its partners, which include financiers Meridium Infrastructure Finance and the Dallas Police and Fire Pension System, will invest $600 million of their own money in the $2 billion project. They will borrow about $500 million from private lenders and seek an equal amount in government-backed loans from the Federal Highway Administration.

Cintra will also be required to maintain and operate the road until 2062 or so, which state officials say will cost about $1.5 billion. It must also hand back the road to the state in good condition at the end of the term.
Including financing costs, the total project is expected to cost $4 billion.

SH 130 road construction to start soon

By Jessica Sanders The Gazette-Enterprise

Published March 5, 2009
SEGUIN — State Highway 130 could be rolling into Seguin by 2012.

“The design phase is 90 percent complete and we’re in the process of acquiring right-of-way,” said Ben Engelhardt, an engineer with the Texas Department of Transportation. “We’re hoping to begin construction in the next 60 days.”

Engelhardt made a presentation to Seguin City Council on Tuesday explaining the timeline for the project and keeping council and residents updated on progress.

He said the tollway will be a 40-mile extension of the existing S.H. 130, which is open between Georgetown and the Austin airport area. This new portion of the project is estimated to cost $1.35 billion.

The phase of the S.H. 130 project ending at Interstate 10 in Seguin will connect to the existing highway at Mustang Ridge in Travis County and end at I-10 east of Seguin.

The interchange will be located at the old weigh station west of the FM 2438 exit.

“Within the first year, we’ll begin construction on all 40 miles of roadway, and we’re expecting to be done by November of 2012,” Engelhardt said.

The project is being developed as part of a public-private partnership between TxDOT and the S.H. 130 Concession Co., LLC. — a partnership between Spanish-based Cintra and Zachary American Infrastructure. Drivers on the new road will pay a toll of 12.5 cents per mile, which will help repay the cost of the project and pay for upkeep.

Engelhardt said the public-private agreement was reached as a way to help preserve state road dollars, which do not meet Texas’ road work needs. Eventually, S.H. 130 will continue into North Texas where it will connect with Interstate 35 near Denton, providing an option for drivers wishing to bypass I-35 congestion in Austin and Dallas-Fort Worth.

Mayor Betty Ann Matthies said she and city staff have been in close communication with both TxDOT and Cintra-Zachary officials throughout the project.

“They’ve kept us informed in a very timely way,” she said. “But last night we wanted to have an update in a City Council meeting so both council and the public could be apprised of what is going on. I was very pleased with his presentation and the fact that we’re still on track to finish by 2012.”

There were few concerns expressed by council, but councilman Don Keil did worry about the possible construction of cloverleaf interchanges or other potentially dangerous sections of road. However, Engelhardt assured him that such features are not part of the plan.

“Cloverleafs are considered kind of outdated,” he explained, adding that the interchange at I-10 will be designed similar to the direct interchange at U.S. Highway 281 and Loop 410 in San Antonio — made to help traffic merge with ease.

Groundbreaking on the interchanges, one of the most complex parts of the project, could begin in August.

Matthies said she is looking forward to seeing the project started and can’t wait to see how the growth and development related to the tollway will change Seguin’s future.

“I think it’s a very positive thing for the community because it will bring additional traffic and, from that, hopefully additional business to Seguin,” she said.

The mayor said that she has driven Texas toll roads many times, and even has a toll pass that she uses when traveling the existing stretch of S.H. 130 to visit her children in Round Rock and Austin.

“It’s wonderful to completely bypass Austin,” she said. “It’s such a friendly way of getting up there.”

Visit www.mysh130.com for more information on the S.H. 130 project.

Toll increases mean profit for private investors

February 19, 2009

Private-sector companies that operate a handful of toll roads in North America have stayed profitable despite significant declines in traffic. It would not have been possible without toll increases, company officials say.

Officials with Australian toll operator Macquarie Infrastructure Group issued a report to say their portfolio took a $1.3 billion hit to its profits during the second half of 2008. In their portfolio are stakes in five North American toll roads, including the Indiana Toll Road and Chicago Skyway.

Still, Macquarie managed to post a slight revenue increase during that time – about 1.4 percent – thanks in part to toll increases and to the sale of shares in some of its worldwide assets.

Macquarie operates the Dulles Greenway in Virginia and South Bay Expressway in California.

Macquarie and partner Cintra Concesiones of Spain formed a consortium to operate the 407 Express Toll Route in Toronto, Canada, along with the Indiana Toll Road and the Chicago Skyway.

The consortium is guaranteed toll increases at or above the rate of inflation for decades to come as part of its long-term leases for those roadways.
The 407 ETR did not see significant traffic growth in 2008, but the consortium has countered with a toll increase that took effect Feb. 1 of this year.

Traffic counts in December 2008 on the Indiana Toll Road and Chicago Skyway were down 8 to 10 percent when compared with December 2007.
A 20 percent toll increase on the Indiana Toll Road and a 27 percent toll increase on the Chicago Skyway have kept those roads profitable for the Cintra-Macquarie group.

Transurban, an Australian company that operates the Pocahontas Parkway in Virginia saw traffic decline by 10 percent in 2008. A toll increase implemented in January 2008 offset the brunt of the decline, company officials stated, leading to a 4.4 percent profit.

Toll-road investors do not appear to be slowing down, although Macquarie stated in a report released Tuesday, Feb. 17, that it is not obligated to buy into new toll ventures at this time.

Transurban won a contract in 2008 to construct and operate a tolled-lane project to expand the Capital Beltway in Washington, DC, and add tolled lanes along Interstates 95 and 395 in Virginia. The Beltway project is in its first year of a five-year construction project, and the I-95/I395 project has not yet broken ground.

Cintra has landed several new toll road projects in the state of Texas and continues to bid on more.

Another Spanish company, Grupo ACS, has burst onto the North American scene in the past year by bidding on at least four new toll roads in Texas, Florida, North Carolina and Quebec, Canada.

– By David Tanner, staff writer
david_tanner@landlinemag.com

MIG shrugs off default concerns

Scott Rochfort

February 20, 2009

MACQUARIE Infrastructure Group has played down concerns its part-owned Indiana Toll Road is at risk of defaulting on a $US4.1 billion ($A6.4 billion) debt facility, after revealing cash flows from the road barely covered interest payments in the final months of 2008.

The toll-road operator yesterday said the ITR, which it co-owns with Spain's Cintra, had dipped into $US77.5 million of "stabilisation reserves" to cover debt payments on the road, which suffered a 14.8 per cent slump in traffic volumes in the six months to December 31. "We effectively don't have a default trigger (since) we have that balance of reserves to meet that coverage," said MIG's chief executive John Hughes.

Mr Hughes said MIG had found that even in its "worst case scenario" the reserves would not be exhausted.

The update on the financial state of the road concession purchased from the Indiana State Government in 2006 came as MIG announced a $1.68 billion half-year loss was underlined by heavy write-downs on the value of its toll road portfolio. Perversely, the $1.7 billion asset write-down was seen as the only good news yesterday.

It was less than the $2.1 billion write-down MIG warned of in a December trading update.

MIG shares rose 0.5¢ to $1.35, with revenues for the period falling $20.8 million to $112.4 million, thanks largely to the impact of the economic slowdown on traffic volumes.

Austock infrastructure analyst Andrew Chambers did not share MIG's confidence. "It needs a dramatic lift in revenue for it not to go into financial oblivion," he said.

Investors read the lack of any dividend guidance for next year as a bad sign, given MIG's boasts about extra cash from the recent sale of assets.
In the strongest sign the company's debt-fuelled acquisition binge is over, Mr Hughes said MIG was open to selling more assets.

This follows the sale of its Sydney Westlink M7 stake back to an investment vehicle set up by itself and co-owned by the Queensland Investment Corporation. MIG is looking for a buyer for its remaining half stake.

Mr Hughes stressed MIG would only sell assets if the price was right.

Obama Highway Plan Paves Way For New Tolls Nationwide

11:34 AM 04/01/2015
Peter Fricke
Contributor

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A little-noted provision of President Obama’s highway funding proposal would lift the federal prohibition against states imposing new tolls on existing interstate highways.

The GROW AMERICA Act would eliminate restrictions held in place since the creation of the Federal Interstate System, according to a summary of the plan’s provisions, allowing states that receive permission from the Secretary of Transportation to toll existing Interstate highways “in order to make improvements or to manage congestion.”

Since its creation in 1956, interstates have been funded primarily through fuel taxes, with tolls banned on all sections of highway built after that date, according to The Alliance for Toll-Free Interstates (ATFI). The only exception is a 1998 program available to three states, none of which have taken advantage of it to date.

The exact criteria by which the Secretary would evaluate such requests will not be known until they are published for public comment in the Federal Register, but that has not stopped organizations on both sides of the issue from opining.

“Tolling interstate lanes which drivers now freely access is an inefficient financing mechanism that is the worst possible approach to raising transportation revenue,” ATFI spokesman Julian Walker said Monday in a press release, noting that “the idea has already been rejected by lawmakers, the public, and community leaders in the few states with a federal exception to the tolling prohibition.”

Walker argues that tolls not only “divert heavy highway traffic onto secondary streets,” leading to higher road maintenance costs, but also “endanger public safety when rescue workers are delayed in responding to emergencies,” though the latter concern would be only be temporary under the Obama proposal, which requires cash-free, electronic tolling after Oct. 1, 2016.

The free-market Competitive Enterprise Institute, on the other hand, says in a blog post that although Congress is unlikely to pass the GROW AMERICA Act, the tolling provision is one of two “very smart elements that Congress should attach to their own reauthorization package.”

“Contrary to popular belief, the states, not the federal government, own and operate the Interstate Highway System,” CEI notes, adding that because of this local dynamic, “tolling offers a number of advantages over fuel tax or non-user funding.”

Most importantly, according to CEI, no federal funds can be used for maintenance on any tolled segments of the Interstate, ensuring that those costs are borne exclusively by those who benefit from using the roads.

Walker, however, counters that this would not necessarily be the case under the Obama plan, which would “let states redirect toll revenues to completely unrelated projects, abusing public trust and exploiting highway drivers with a tax on interstates to pay for trolleys, public transit, and unspecified environmental projects, all without solving the transportation funding problem.”

Steal money, they mean.