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SH 130 toll traffic plunges, are taxpayer bailouts ahead?

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The facts don’t lie, even if the Texas Department of Transportation (TxDOT) does. Recently released traffic data for the privately-operated southern leg of SH 130 shows traffic dipping anywhere from 10%-15% year over year or even from month to month. Moody’s downgraded the bonds held by Spain-based Cintra to junk bond status as the SH 130 Concession Company depleted its cash reserves to make bond payments last year, predicting default as soon as June if a significant uptick in traffic doesn’t arrive -- and fast.

Speaking of fast, the tollway boasts the fastest speed limit in the country - 85 MPH - and yet even that isn’t enticing enough traffic to cover the company’s debt service payments. Amazingly, TxDOT still tries to maintain that SH 130 is relieving congestion on its main competing freeway, I-35 through Austin, though one wonders how. So few cars take the road, any relief on I-35 would be negligible at best.

Cintra bribed the state into changing state speed limits laws to allow them to go up to 85 MPH. Shortly thereafter, the Texas Transportation Commission cashed-in on the contract’s incentive where Cintra paid TxDOT a ‘concession fee’ that varied depending on how high the speed limit was set. TxDOT pegged it to the max - 85 MPH - for which it got paid the max - $100 million - and at the same hearing, reduced the adjacent freeway speed limit from 65 MPH down to 55 MPH. To the highway department greed is good, for Texans, not so good.

Truck discount good for who & for how long?
The highway department itself has a stake in increasing traffic on SH 130, even the southern leg it doesn’t control or operate. TxDOT has a revenue sharing agreement with Cintra. So the more money the tollway takes in, the better chance the state has of skimming off extra cash on the deal. As part of its panic to try to attract more traffic to the underutilized tollway, TxDOT used some of the $100 million pay-off it received from Cintra to buy down the truck toll rates (which is roughly double the cost of autos). That money ran out before the year was over (in November when it is supposed to go until April), leaving TxDOT scrambling to find a way to continue subsidizing the truck toll rates. The tollway is losing revenue even with the bump in truck traffic. The gimmick is likely to be discontinued, and who didn’t see it coming?

The simple principle of supply and demand could have predicted this. TxDOT is artificially lowering prices (it and the private operator of the southern half cannot afford to give) to create a demand that doesn’t exist. When the discount runs out, so will the truck traffic. Either way, the tollway is bleeding out. Yet roadways are government-sanctioned monopolies by their very nature, so free market principles do not apply. Even so, TxDOT’s attempt to create demand for its and its private partner’s loser tollway won’t work in the long-run. The toll rates are supposed to be set based on the cost of building the road and retiring the debt. In the case of Cintra, it also includes profit. Trying to reduce the toll rate below what it cost to build, operate, and maintain the road is doomed to fail.

The discount was significant, reducing the rate from $56 down to $13 to drive the entire 89-mile tollway. What a deal for truckers, but a rip-off for the majority of Texans who paid for the trucks to get discounts that weren’t afforded to regular autos. We must have ‘suckers’ written across our foreheads. Surely TxDOT knew that the discount bought only a year of falsely inflated truck traffic volume that would only go away as quickly as it came once the taxpayer-subsidized discount ran out. They’re back at square one and the tollway continues to drown in a sea of red ink, and I-35 remains hopelessly gridlocked.

So what’s the way forward?
One State Representative, Paul Workman, suggested the state and federal government buy back the failing toll road from Cintra and retire the debt owed on the TxDOT portion to make SH 130 a freeway. There’s a very high probability that SH 130 would actually start to reduce congestion on I-35 if it were a FREE alternative. SH 130 is so far east of I-35, that even with the higher speed limits, the tollway barely beats the free interstate on time. Add the cost of tolls to the extra gas it takes to get on SH 130, and the cost outweighs the benefit. But if it were free, it may just incentivize enough drivers to relieve I-35.

Commission Chairman Ted Houghton, would like to see the reverse. He wants to swap free Interstate 35 with SH 130 making existing I-35 into a tollway and SH 130 into a freeway. That’s asking Austin drivers to bail out a private toll road and double taxing them to use a road they’ve already paid for. Tolls then become a tax, not a user fee, and the tolls would likely stay in place in perpetuity, too, based on changes in state law. But Workman’s idea still involves a form of taxpayer bail out as well, though it makes both roads freeways, which is far more politically palatable.

On Cintra’s segment, part of its debt is a $430 million federal TIFIA loan that’s backed 100% by the U.S. taxpayer. That’s why public private partnerships (P3s) are so caustic. The private guys always find a way to snag taxpayer money to subsidize their losses. It sets up a deal that’s too big to fail and socializes the losses while privatizing the profits.

So taxpayers are between a rock and a hard place - if the road defaults, though the state may get the road back for pennies on the dollar, it would still owe $430 million plus interest on the tollway that has to be repaid, unlike toll revenues bonds that are backed by tolls only and do not receive taxpayer bailouts. It’s unclear if enough toll traffic would still show up to repay the federal government. But TxDOT may even be eying a bailout of the private operator, which is one of the worst case scenarios aside from its road swap idea. Just about all the options moving forward are a bad deal for taxpayers.

Whether TxDOT continues its efforts to subsidize truck toll rates, buys out the private operator, or swaps I-35 for SH 130, Texans need to wake-up to the fact that these aren’t your mother’s toll roads, and banksters and other special interests are on a war path to rip us off - in perpetuity. Transportation funding needs to be front and center in every political race at the local, state, and federal level. Your taxes on driving are about to explode from 1-2 cents a mile (for a gas tax funded freeway) to 25 cents or up to 95 cents a mile (like the rates on the privatized portion of I-635 in DFW) -- thousands more per year. Your freedom to travel and your personal financial solvency depend on your involvement.

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