Roger Baker : Texas Toll Road 183-A: The Economics and the Special Interests

Texas Tollroad U.S 183A northbound in outskirts of Austin, approaching toll plaza.
Shrinking traffic increases could mean bond default problems for US 183-A

The road lobby operates as a sort of well-funded shadow government, organized to overcome citizen opposition to unpopular toll roads intended to serve hypothetical sprawl development.

By Roger Baker / The Rag Blog / February 18, 2009

In August 2007, the Central Texas Regional Mobility Authority’s (CTRMA's) first toll road, US 183-A, was newly opened and was acclaimed as a star performer. And yet it could still be in trouble due to outside factors beyond the control of the CTRMA. Let us drill down and examine the background and details.

The success of 183-A is important because the CTRMA, which manages 183A, intends to use the current extra revenue being generated by 183-A as a financial "backstop.” The 183-A toll revenue will essentially serve as collateral for leveraging funding for another toll road, US 290 E, that the CTRMA is actively promoting. Such speculative use of deficit spending to leverage rapid growth in road infrastructure was part of a leveraged debt trend encouraged under Bush, called public-private partnerships (PPPs).

The plan that the Capital Area Metropolitan Planning Organization (CAMPO) recently approved, urged by CTRMA bond consultant JP Morgan Chase Securities, is to combine these two toll roads using the 183-A surplus toll revenues as a substitute for bond default insurance on 290E. 183A does have bond default insurance, but it has now become unaffordable for 290 E due to the credit crisis. (TxDOT partly wants to get 290 E built to help bail out SH 130, a relatively underused toll road which suffers from slow access into Austin).

Not long after the Texas Department of Transportation (TxDOT) famously mismanaged their finances about a year ago, by double counting $1 billion in revenue, TxDOT cut back its construction spending drastically. TxDOT then decided to turn over its plans for six planned Austin area planned toll roads to the Central Texas Regional Mobility Authority. Under strong organized pressure from the road lobby, CAMPO, which approves federal funds for roads, accepted this shift in funding and construction responsibility.

The Texas road lobby, similar to the situation in many parts of the USA, is basically a coalition of special interests, both local and statewide. Statewide, these revolve around Texas road consulting and road construction in coalition with local regional banking, development and land speculation interests. The Texas road lobby and its allies (like the Texas Good Roads Assn., and Associated General Contractors or AGC) has been around as a significant force in Texas politics since about 1950. Now they are recognized as one of the most powerful lobby groups in Texas. Molly Ivins used to call TxDOT "the Pentagon of Texas.”

Locally, the road lobby is closely linked to the Greater Austin Chamber of Commerce, Opportunity Austin, and the Capital Area Transportation Coalition .

In the last year or so, the same interests that were previously focused solely on roads have developed a much stronger interest in regional and commuter rail to San Antonio, Cedar Park, Elgin, etc. At the same time federal funds for rail starts have become scarce. There is no easy money for rail or roads anymore.

Bankers, developers, and land speculators all share a strong interest in the outcome of most decisions on public infrastructure funding. Special interests fund "astroturf" media campaigns meant to mimic grass roots input. For example, this link is a good example of such an effort to promote 45 SW, a planned but mostly unfunded toll road over the sensitive recharge zone of the Edwards Aquifer.

The road lobby operates as a sort of well-funded shadow government, organized to overcome citizen opposition to unpopular toll roads intended to serve hypothetical sprawl development. It aims to persuade politicians to issue public debt to subsidize what up until recently was highly profitable sprawl growth in the suburban fringes that were predicted to grow rapidly forever. The money incentive is strong in Texas, with its many property rights laws imbedded in the state constitution. However, Texas has a heavily urbanized population distribution. As with other sunbelt cities that grew rapidly in an affluent era of cheap oil, Texas has large rings of car-addictive sprawl development surrounding its major cities.

Although the two are legally distinct, TxDOT maintains tight control over the CTRMA toll road projects through close collaboration on planning, long-standing ties involving ex-TxDOT engineers, common contractors, etc.

The use of a defacto puppet agency like the CTRMA allows TxDOT to use the CTRMA as a financial firewall, to avoid bond default blowback. It also allows TxDOT to preserve control in a new and less regulated part of state law, recently crafted to give expanded toll road deal-making power to the RMAs; the regional mobility authorities, RMAs, like the CTRMA. TxDOT and the late Transportation Commissioner Ric Williamson had strongly encouraged establishing RMAs around Texas, although they have had limited success.

In other words, 183-A is being promoted as an example of the CTRMA's bonding prowess, demonstrating that 183-A can be used as a financial engine to pull along 290 E. Let us take a closer look at the engine.

Here is a glowing August, 2007, account in Toll Road News , a national pro-toll newsletter. The article shows that despite heavy public opposition to the toll road package passed by CAMPO in October of 2007, the early 183-A numbers toll numbers looked excellent. It seems that this road jumped ahead to match its future numbers:

...Central Texas may be a hotbed of anti-toll activism but motorists there love the tollroads. Traffic and revenue on the four pikes that have opened this year is way above expectations. In six months on the 183-A toll road they are meeting third year traffic and revenue forecasts.

Tollers in Austin seem to have found a way to bypass the dread "ramp up" that has afflicted many new tollroads in their first several years - from the Dulles Greenway VA to the Suncoast Parkway FL and the 91 Express Lanes CA. At five to ten years old these tollroads tend to be closer to forecast but they had horrible startup numbers for three or four years.

Take the Central Texas RMA and its 183-A tollroad. Since full toll rates have been in effect 183A has been pulling in $1.2m to $1.3m/month. On that basis it should gross $15m in its first year. The Vollmer Stantec forecast for the first full calender year (2008) was $10.3m. 2009 was forecast at $13.9m...

CTRMA don't think the traffic forecasts they got from Vollmer Stantec are flawed on the low side. They think that the marketing model they and TxDOT adopted in Austin has allowed them to bypass "ramp-up" and jump straight to a trend traffic level...

This was the situation a year and a half ago, but now we have about a year and a half of data that allow us to see how well things are actually doing on US 183-A. Since the bond brokers expect that toll roads will not do very well at first, until they are marketed to the public as a convenience, there is a bond debt reserve fund set aside. This is to cover the bond shortfalls through the ramp-up phase until a predicted ridership saturation point is reached. Financial training wheels of a sort.

In some ways things still look very good, including the fact that there is still more than enough revenue to pay the bond creditors. Whereas the 183-A toll road was only projected to collect $10.3 million in 2008, it actually brought in a bit more than $17 million. So 183-A is more than financially solvent for now. And 183-A would be likely to prosper if the transportation trends of the past were to continue.

In essence, 183-A jumped way up to a sort of plateau near its post-ramp-up projections, attributed to good marketing, but now the rate of revenue growth has slowed down considerably. The year over year toll transaction increase from the last quarter of 2007 to the last quarter of 2008 rose about 12.8%, whereas the revenue increase over the same period is about 10.8%.

Here were the bond projections for 183-A revenue:

• 2008 -- $10,336,000 (2008 was the first full year of revenue, which counts weekends)
• 2009 -- $13,937,000 (a 35% yearly increase projected)
• 2010 -- $19,595,000 (a 40% increase)
• 2011 -- $23,446,000 (a 20% increase)
• 2012 -- $26,306,000 (a 12% increase)

(These 183-A revenue forecasts are from the official bond statement on the CTRMA website, showing projected increases during the initial ramp-up period; Table ES-1, page ES 3.)

But what if the 183-A revenues, off to a fast start, were only to grow at the current year over year rate of 10.8%, continuing over the next few years? Comparing with the numbers above, such increases would then fall behind the bond revenue projections after 2010, as follows:

• 2008 -- $17 million
• 2009 -- $18.9 million
• 2010 -- $19.8 million
• 2011 -- $21.4 million
• 2012 -- $23.1 million

The truth is that when you inspect monthly 183A revenues, which jump around a lot from month to month, most of the last year looks fairly stagnant, about flat since May, 2008, when 183-A took in about $1,446,000. In December, 2008, the 183A toll revenue was down to $1,364,000.

These stagnant 183-A numbers probably tend to reflect the background situation that national road travel has been decreasing sharply for the last few years due to fuel prices and the recession. This chart makes this unprecedented travel decrease quite obvious:

Clearly there are unpredicted economic and growth risk factors at work, which are certain to affect 183-A traffic as well as the CTRMA's other planned toll roads. What are these risk factors?

These factors were outlined in the official bond statement to be found on the CTRMA website. Here are some of the risk factors spotlighted in the 183-A bond statement by the bond consultant, Vollmer and Assoc. prior to the 2005 bond sale, This is taken from page 66 of the US 183-A Official Bond Statement posted on the CTRMA's website:

10. "2005 Project traffic during the early years of operation will ramp up as formulated in the Traffic and Revenue Report." (Reality: Much faster early increases than projected, but looks like there may be a plateau and relative stagnation now.)

12. "Motor fuel will remain in adequate supply during the forecast period, and motor fuel prices (i.e., the average price for regular gasoline) in the foreseeable future will not increase above the 1980 peak, which, if adjusted for inflation, in current dollars would not be more than $3 per gallon." (Reality: These figures were greatly exceeded, peaking in July 2008, but now fuel prices have collapsed with the general economy.)

14. "No radical change in travel modes, which would drastically curtail motor vehicle use, is expected during the forecast period." (Reality: The FHWA travel chart above shows that this risk factor is in place and rapidly growing.)

"15. In the long term, generally normal economic conditions will prevail in the State and the United States, and there will not occur a major depression, national emergency or prolonged fuel shortage." (Reality: The IMF says that all the world's major economies are in a world-wide depression now, and long range fuel supply problems are apparent.)

Are there any further problems likely to crop up? Frankly yes. Not only are there about $66 million in federal TIFIA loans at stake in 183A, which have to be paid back starting in 2012, in addition to about another $166 million in private bond debt, but it is entirely unclear that the private bond insurance would still pay out in case of default. In case of 183A bond default, the insurance policy might amount to toxic waste requiring a federal bailout.

The feds are already distinctly pissed off at the way that TxDOT manages its federal toll road loans, and have threatened to cut off TIFIA funds, without which projects like 290 E seem impossible: Go here and here.

In the next year, the world economy could make a miraculous recovery and the 183A revenue trends could turn around, but it is very hard to find municipal bond investors willing to risk money on that possibility.

Such bonds tend to be favored by high income individuals who find tax-free municipal revenue bonds attractive as a tax shelter, partly because most such bonds were insured at a low cost. The current inability to get affordable bond default insurance today on toll road bonds is a problem. We don't know if the feds will bail out insured toll bonds, while uninsured toll bonds are like naked bets putting capital at risk for 40 years. US 183A is largely a commuter road designed to serve future residential development of a kind that is now reported to be in sharp decline in the Austin area (reporting in the Statesman on growth in Manor). Detroit, which makes the cars needed for expanding the future toll traffic, is broke and other car companies are in big trouble. CAMPO is now considering sharp cutbacks in its other road projects incorporated in its new long range 2035 plan.

This link explains how and why most toll road authorities tend to overestimate long range future demand.

Next is a link that explains how rapidly and unexpectedly once-assumed travel behavior can turn around in Texas, given our changing economic environment.

A willingness to invest private bond money on the theory that the weak 183A toll user trends might turn around fairly dramatically, even enough to help finance other projects like 290 E on its coat tails, is thus beginning to look like a heroic investment gamble.

In fact, the official travel numbers on the road 183A is designed to help -- 290E -- show approximately level traffic demand. [I hope to post the documentation later on The Rag Blog.] The TxDOT vehicle count numbers for 290 E have been stagnant for the last several years, and the accident statistics are trending downwards. Plus new home starts in fringe cities on 290 E, like Manor and Elgin, are in sharp decline. These trends undermine the major justifications commonly used for promoting new roads.

Sen. Kirk Watson, who chairs CAMPO, (and owns an interest in a bank in Elgin, on 290 E) is a skilled, energetic and powerful politician. He is also the vice chair of the Senate Committee on Transportation and Homeland Security and usually gets what he wants from CAMPO, the body that controls Austin's shrinking federal funds.

In more normal times, and if politics could still leverage money the way it used to do a few years ago, 290 E would probably be a done deal by now. But now we are living in times when the available public infrastructure funds are shrinking a whole lot faster than the old style of special interest politics can accommodate.

Also see Texas Toll Road Soup : The Environment, Federal Funding and Peak Oil by Roger Baker / The Rag Blog / Nov. 28, 2008

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Texas Toll Roads : Feds Must Take Lead

Texas Sen. Kirk Watson at public meeting on toll roads in Austin, September, 2007. Photo by Kelly West, Austin American-Statesman.

Our national transportation infrastructure crisis is now so serious and the funds are so short of the scale of the problem that it is absolutely going to take a comprehensive federal approach rather than a state approach to get anywhere.

By Roger Baker / The Rag Blog / December 1, 2008

See 'Time is Now to Fix Transportation' by Texas senators John Corona and Kirk Watson, Below.

There are a number of questionable assertions in the op ed piece by Texas senators John Corona and Kirk Watson, below, and also some good ones. The devil is in the details.

In essence the article says we need to change our transportation policy, which is true. But the editorial misses its target in one important respect; in light of energy (oil supply and climate-related) constraints and credit market constraints, the change is going to have to be deeper and more dramatic than portrayed here, and should properly be initiated at the national level. A bankrupt Detroit and a frozen bond lending market signify anything but business as usual.

The feds need to take the lead, rather than Texas politicians, who will predictably do too little, too late. We can muddle through at the Texas level, apply band aids, talk about these problems, and anticipate needed changes.

Our national transportation infrastructure crisis is now so serious and the funds are so short of the scale of the problem that it is absolutely going to take a comprehensive federal approach rather than a state approach to get anywhere. A more comprehensive approach which is likely to be coming, in some form, from our new Congress and the new Democratic Administration, whether we like it or not.

On to some details:

The DPS helps keep the big roads safe (everyone passes you on IH 35 if you only drive 5 MPH over the 70 MPH speed limit). What is bad about using our gas tax rather than the general revenue to keep the big roads safe? We end up paying the same no matter where it comes from. Let’s focus on how many dollars we really need rather than which
taxpayer pocket it comes from.

We cannot afford to solve congestion problems by building big new toll roads. Especially if we say, as the editorial does, that we are going to reduce car dependence. We need entirely different and financially constrained planning strategies; at least Detroit can't afford to call the shots so much anymore.

There is certainly no transparency the way the CTRMA is running things, yet Sen. Watson seems to support them and whatever toll road "system" they have in mind in regard to US 290 E, and the other roads they propose.

"Regional financing tools" seems to mean more local bonding authority, but the credit market to supply long range speculative toll road debt has largely collapsed. What then are these tools?

Indexing the gas tax to inflation would have little effect unless it were increased a whole lot, like maybe doubled, which would be VERY unpopular.

"Explore new alternatives" is commendable -- but it should not mean CAMPO-proposed sprawl growth as usual, with roads or even using rail. We can't afford to provide publicly funded infrastructure out to low density suburbs and wherever the land speculators have bought land. We need to shift to either more compact urban growth or perhaps clustered
growth along whatever passenger rail corridors we can actually afford, while increasing rail service with the urban area too. The "rail relocation fund" may not be affordable or make sense in light of current finances. I believe it was proposed to move rail hubs out of the urban areas which might not be wise. We need to preserve our rail lines and restructure its uses, since new rails will not be cheap.

Reforming TxDOT is another good goal. But does that mean supporting the specific TxDOT reforms outlined by the Sunset Commission report on TxDOT or what?

For those who have not seen them yet , here are some additional comments of mine that apply more specifically to the proposed policy changes on US 290 E and the "system" of other Austin-area toll roads initiated by the CTRMA. Changes which CAMPO will consider and perhaps vote on this coming Monday:

Texas Toll Road Soup : The Environment, Federal Funding and Peak Oil by Roger Baker / The Rag Blog / Nov. 28, 2008

COMMENTARY
Carona and Watson: Time is now to fix transportation
By John Carona and Kirk Watson, Texas Senate / November 26, 2008

Texas highways were once the pride of the state — and justifiably so. Our extensive infrastructure allowed generations of farmers and ranchers to feed the state and the world, and it turned our cities into economic powerhouses. Our transportation networks allowed generations of Texans to charge into a prosperous future without having to catch up with the present.

But for a generation, the state has approached old and new transportation challenges in a very different way. We have struggled simply to keep up with our needs. This has left Texas at a critical intersection, and the choices the Legislature makes over the next several months will determine both how we live in the short term and what opportunities our children will inherit.

Texas now faces a transportation crisis. We spend more and more of our lives in traffic instead of with our families. We seldom, if ever, see major roads built without toll booths. And the rail lines and highway lane miles we know we need are being scaled back or scrapped in the face of a hopeless inability to pay for them.

It is only becoming harder to address these needs. The costs of concrete, steel and other basic road building materials have risen by 60 percent over the past five years. However, the state motor fuels tax — our primary source of transportation funding — has been frozen at 20 cents per gallon since 1991. The disparity has left the state facing 21st century challenges with a 20th century tool.

The Texas Lyceum, a group of the state's top thinkers and policy makers, will focus on this issue at its annual public conference in Houston on Dec. 3 (for more information, see http://www.texaslyceum.org/). And in January, the 81st Texas Legislature will begin weighing opportunities to make a meaningful investment in transportation. Here are alternatives that we believe the state must explore:

• End transportation funding diversions. The State Highway Fund has long provided money for the Department of Public Safety and other priorities. We must focus this money on roads and other transportation projects.

• Use bond funding transparently. A year ago, Texans voted to dedicate $5 billion in tax-supported bonds to transportation projects. The Legislature should appropriate this money for its intended purpose and commit to using it with complete transparency and accountability.

• Support regional financing tools. Other than toll roads and privatization schemes, the state has provided few options for cities, counties and other local jurisdictions to pay for transportation. The Legislature should offer voter-approved funding mechanisms for regions to plan and pay for roads, rail lines and other projects.

• Rewrite the gas tax. Texas' primary source of transportation funding cannot provide for the state's transportation needs. The Legislature must have a serious debate about restructuring the motor fuels tax to reflect the enormity of our tasks by indexing it to inflation.

• Explore new alternatives. Texas must move past a 20th century model that relies so heavily on single-occupancy vehicles and work to create a truly comprehensive statewide system for moving people and freight. This should begin by funding the Rail Relocation Fund that voters overwhelmingly approved in 2005.

• Reform the Texas Department of Transportation. With its overt advocacy of privatization and occasional disregard for the Legislature, the department has rightly incurred the wrath of Texans and their representatives. Though we applaud the department's recent efforts to be more transparent and accountable, the Legislature must fundamentally reform the agency so that Texans are fully aware of its activities and never question its objectives.

These changes will not be easy, and they will confound the frequent promises of something-for-nothing. But they are necessary if we are to address the needs we see every day at rush hour — challenges that will only become greater. Our children must not be the first generation of Texans to inherit an inadequate transportation infrastructure with nowhere to grow.

[Carona, R-Dallas, and Watson, D-Austin, are members of Texas Senate.]

Please see Source / Austin American-Statesman

Texas Toll Road Soup : The Environment, Federal Funding and Peak Oil by Roger Baker / The Rag Blog / Nov. 28, 2008

For additional Rag Blog material by Roger Baker on toll roads in Texas, go here.

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Texas Toll Road Soup : The Environment, Federal Funding and Peak Oil

U.S. 281 N Toll Road near San Antonio.

'"It's been obvious to us from day one that TxDOT was willing to do and say anything to get a toll road on U.S. 281," said Terri Hall of Texans Uniting for Reform and Freedom.'

By Roger Baker / The Rag Blog / November 28, 2008

Four points about TXDot and the Texas toll road mess.

1.) First of all, everyone who follows Texas road politics knows that the environmental studies done by The Texas Department of Transportation (TxDOT) are shoddy. They always conclude that whatever roads TxDOT wants are needed and will have a minimal environmental impact.

Federal officials now seem to agree that TxDOT's studies have been substandard, after a citizen lawsuit forced the issue and after incriminating internal emails were revealed. The feds are now making the San Antonio's TxDOT district do their federally required studies over again. The project, the US 281 toll road, would of course stimulate proposed development over the Aquifer where SA gets its drinking water. This "mistake" cost TxDOT $8 million and a delay of three years, so they fired somebody at the bottom. Here is the full story on that.

"It's been obvious to us from day one that TxDOT was willing to do and say anything to get a toll road on U.S. 281," said Terri Hall of Texans Uniting for Reform and Freedom. "I don't think one biologist should take the fall. It should be management that pays the price."

Another hugely important fact, which is off-limits for TxDOT's environmental studies, is that the greenhouse gas emissions closely associated with sprawl development stimulated by new roads are causing irreversible climate change.

According to top climate scientists , this is a critical problem demanding immediate action.

2.) In the case of US 290 E, it has now been revealed that the consulting group that did the Traffic and Revenue studies for this road has quit the traffic forecasting business. Here are the details.

"...URS has established an international reputation as one of the leading consultants in toll financing. URS reports are fully acceptable to the financial community and rating agencies. In illustration of this, URS staff periodically gives seminars on toll road traffic and revenue forecasting to staffs of the three rating agencies... URS's greatest strength in traffic and revenue work was in the US south. The collapse of political support for toll financing in Texas may have been a factor in the closure of their T&R work..."

These forecasts are work that the bond rating agencies rely on to justify the road's ability to repay toll road bond debt. By not insuring its toll road bonds, the public would have to take the financial hit because the bond houses often respond to default by lowering the bond ratings for those local governments that participated in the bond sales. This is done in order to force the public to bail out the bond lenders.

The CTRMA (Central Texas Regional Mobility Authority) is refusing to reveal the US 290 E T&R studies on the grounds that the studies are still incomplete, in some sense, and therefore can be withheld by the CTRMA until just before the bond sales. The CTRMA's refusal to reveal this data indicates that the numbers probably don't look very good. More evidence is the fact that the US 290 E bonds are considered too expensive (meaning too risky) to be insured.

Meanwhile the CTRMA's bond counsel, J.P. Morgan Chase Securities is advising CAMPO to change its toll road financing policies through the CTRMA, but they are doing this consulting without any written contract, according to CTRMA director Heiligenstein.

This fundamental change in CAMPO's road funding policy to allow the transfer of funds within an undisclosed $1.5 billion toll road "system,” would violate the rules that were promised to the public and were unanimously adopted by CAMPO in Oct. 2007.

This change is being posted for a CAMPO vote next week. See agenda item 8 on CAMPO's Dec. 1 2008 agenda.

3.) The FHWA issued a stinging rebuke to TxDOT last year, and withdrew potential federal approval for its TIFIA loan on SH 121. This is the category for federal loans that the CTRMA is depending on for roughly a third of its toll road financing. (Without the TIFIA loans, the financing for the CTRMA's toll roads pretty much falls apart.)

"The letter announces:

-- withdrawal of the special exceptions program (SEP-15) waiver granted to expedite SH121 and two other unnamed highway projects for accelerated environmental clearance

-- withdrawal of approvals for TIFIA federal loan and Private Activity Bonds support

-- a request for reimbursement of the US Government for its expenses in incurred in considering and evaluating the TIFIA loan associated with SH121

-- no future federal funds for SH121

-- additional oversight and approval requirements for future Texas applications so long as Texas breach of federal law is not remedied

-- more "far reaching compliance measures" if Texas violates federal law again..."

4.) The private bond money on which the CTRMA was depending for about another third of its of its toll road funding has virtually disappeared. Things have changed a whole lot in the last few months. We're not operating under the Bush/Greenspan bubble with easy credit for long-range debt anymore. Yet this is the type of private funding that TxDOT, and now the CTRMA, were counting on to cover their huge funding shortfalls. Here and here are links that underline the fact that borrowing long-range funds for toll roads has now gotten extremely difficult:

Likely, Obama and the Democratic Congress will favor new transportation money to repair neglected US infrastructure, but it will likely come with new strings attached; being targeted for repair of existing facilities rather than building uninsured new toll roads. TxDOT is acting fast to try to capture what it can of these funds:

"Texas Department of Transportation officials have notified the state's Metropolitan Planning Organizations to begin identifying ‘ready to go’ projects that could qualify for a new $700 billion federal stimulus proposed this week by President-elect Barack Obama. The package is intended to boost employment by rebuilding infrastructure, modernizing schools, and strengthening the alternative energy industry..."

Meanwhile the 40 year toll road bonds are nearly certain to default. This is because world oil production is peaking with no affordable near-term energy or technology to replace oil. If electric cars should become widely available, they are unlikely to be cheap, would require a lot of new electrical power capacity, and both US consumers and the government are heavily in debt. If you are short of transportation money, urban rail in combination with smart growth policies are a much wiser option than new and widened roads.

World crude oil production practically stopped growing in 2005. Since then, steadily increasing world demand bid the oil price up to $147 a few months ago. Such high oil prices are like a tax on everything involving transportation. This burden has now triggered a severe world recession. Whenever the world economy recovers, oil prices will soar again as the world bids for a limited oil supply:

The peak oil crisis: the Crash of 2008

"...Despite the dramatic drop in oil prices during the last three months, recent developments have only made the supply and demand situation worse. Oil consumption in the U.S. has fallen by 1.8 million barrels a day (b/d) or nearly 9 percent as compared to last year due to a combination of high prices, a slowing economy, and the shortages resulting from the hurricanes that tore up Gulf coast production and refining last month. During September, however, Chinese imports increased by 2 million b/d as Beijing took advantage of the low prices to start building its strategic reserves -so much for falling American demand. The major oil forecasting agencies are now saying that the increase in worldwide demand for oil will slow from rates seen in recent years, but that worldwide oil consumption is still forecast to increase this year and next..."

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Austin : Toll Road Situation a Mess

Transportation policy: CAMPO about to make a big mistake.
By Roger Baker / The Rag Blog / November 17, 2008

AUSTIN -- The Capital Area Metropolitan Planning Organization (CAMPO) may be about to make a great historic mistake in transportation policy; it would directly affect US 290 West too. There may be a December CAMPO vote on this.

JP Morgan Chase Securities is teaming up with the Central Texas Regional Mobility Authority (CTRMA) as the latter's unofficial bond counsel partner. They are telling CAMPO that they have to change Austin's metro roadway planning policy fast or they won't set up the toll road bond deals.

Even though there are no deals on the table!

The public can't even see the revenue numbers behind the deals until 90 days before the bonds are sold. 40 years of toll debt is envisioned as the local transportation burden from tolls to pay off the bonds.

There is no contract between the bank in control and the CTRMA, which is closely controlled by the Texas Department of Transportation (TxDOT). Morgan is a relatively unregulated investment bank trying to set up bond deals on which it gets a cut. How? By matching investors with the road lobby; TxDOT and the real estate/road promoters consultants and road contractors.

In fact, Morgan is telling the CTRMA, without leaving much of a paper trail, that CAMPO needs to quickly approve a sweeping change in transportation policy to tie ALL the CTRMA's proposed toll roads, ringing and crisscrossing Austin, into one giant toll road system to get Morgan's help with road bonds.

This policy change is based on totally speculative virtual deals promised by Morgan. The public is not being allowed to see the traffic and revenue studies, and won't be until just before the bonds are issued, which must mean the numbers don't look very good. This ties into the fact that the bonds cannot be insured according to CTRMA director Mike Heiligenstein due to the high cost of bond insurance, which is obviously related to high bond default risk.

So CAMPO is urged to sign fast to shift the toll money between corridoras, as is now prohibited by the Eckhardt amendments unanimously approved by CAMPO a year ago. Or else CAMPO won't get the pot of toll road bond cash that Morgan says is waiting, if only they would shift to more banker-friendly road funding policies.

Meanwhile the CTRMA is trying to pressure CAMPO to change policy with pretty blatantly dishonest funding claims applying to all the tollroads roads in the new "Statement of Purpose" it wants CAMPO to adopt.

One of the worst of a number of the false and unsubstantiated and shaky claims passed from the bankers to the CTRMA and then to CAMPO for approval is posted on CAMPO's web site here.

Then go to: "Public Hearings for Statement of Purpose and the Financial Plan for a Portion of 290E" and download the PDF file and read the text in the 'Statement' on the toll road justification and the reason for setting up the new and much bigger system that the bank wants.

"Lower borrowing costs – the financing can be obtained with lower interest rates due to a stronger financial position resulting from the created system"

Then click on this link and then on the public hearings of which the CTRMA 'Statement" is the focus:

The CTRMA Director repeats this clearly false assurance of future bond funding at this link:

"Given the severe transportation financing limitations our nation is facing, we are proud to be able to make the investment needed to bring these critical projects to the region," said Heiligenstein.

The truth is that the CTRMA is assuming that about a third of the toll road money in the form of federal TIFIA loans for toll roads will be available. If not, the CTRMA's whole toll road funding plan falls apart.

But our new president assures us a change is coming. What will Obama do? Obama's enviro web site (thanks Bruce Melton) says that he will favor a shift in public spending, on page 11, "Reform Federal Transportation Funding", to favor smart sustainable growth and put a new emphasis on public transportation alternatives to building roads as usual.

But what if CAMPO shifts its policies to favor the bank, but then Morgan, who has no contract or stake in the deal, walks away? Tough luck; it’s then up to CAMPO and local taxpayers to pick up the pieces and start over.

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Toll Roads : Soon to be Yesterday's News?

Toll road protest in California earlier this year.
'Ordinary people will look back on this era, shake their heads in wonder and ask: how on earth did anyone ever think toll roads were sexy?'
By Roger Baker / The Rag Blog / August 28, 2008

The latest news regarding toll roads, their current status, their long range prospects, and more, below:

There will come a time in the not-too-distant future when ordinary people will look back on this era, shake their heads in wonder and ask: how on earth did anyone ever think toll roads were sexy.

From the tulip bubble in Holland in the 1630s through to the dotcom boom of the late 1990s, otherwise rational minds have discarded logic and joined the frenzied mob in whatever investment fad promises fabulous wealth.

Without fail, they always end in tears. And so it is with the infrastructure boom.

Yesterday, Macquarie Group found itself under concerted attack from hedge funds as its shares fell 10 per cent to $41.61.

That's wiped out all the gains from the bull market and left senior executives floundering in a sea of confusion about how to stop the rout...

Roads to hell paved with debt by Ian Verrender / Sydney Morning Herald / August 28, 2008

But why? There is a key central, big-picture flaw in the management of not only the US economy, but also the whole global economy:

It all boils down to the fact that the capitalist system is based on paying interest on borrowed funds. However, a finite planet can only be milked so far before the rate of exploitation has to slow down. Nobody has put this better than Kenneth Boulding:

"Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist."

In our times the key growth limiting factors is oil/fossil fuel (and soon enough fresh water and greenhouse gases, assuming there were a viable substitute for cheap oil to move people and goods in the global economy).

Meanwhile the health of the global capitalist economy demands that existing debts be repaid with interest, even though the production of material goods must eventually fall short of expectations. So quite naturally, the bankers persuade the governments to print up enough currency to paper over the temporary shortfall until the economy can recover and the current crisis is replaced by the anticipated recovery.

One can see where this leads. When Mother Nature finally gets too exhausted to keep expanding her physical blessings for human benefit at a rate that matches the rate of interest demanded for the normal functioning of the banking system and the capitalist business cycle, then invested savings will necessarily shrink over time, rather than rewarding the saver.

Economists are trained to be blind to the big picture, and the ultimately devastating implications of exponential growth over the long run.

Not only that, but our infrastructure is crumbling terribly nationwide, including the electrical transmission grid. The corporate empire that rules our lives has had the social character and planning perspective of an impetuous infant.

Toll roads have the short-sighted advantages over other critically needed, wise infrastructure investments by their subsidizing an established lobby centered on the road contractors, plus the suburban sprawl interests centered on the bankers, developers and land speculators. Factor in dysfunctional, special interest-based politics and it is easy to see that building new toll roads will win out over maintaining the crumbling existing infrastructure any day of the week, to say nothing of shifting our funds toward a new and more sustainable planning perspective, which by definition lacks a special interest lobby.

See Cities Debate Privatizing Public Infrastructure by Jenny Anderson / New York Times / August 26, 2008

"...The American Society of Civil Engineers estimates that the United States needs to invest at least $1.6 trillion over the next five years to maintain and expand its infrastructure..."

That is on the order of $1000 per years per capita in a population already tens of thousands in personal debt due to credit cards, home mortgages etc., while living under a government busy bailing out banks on an emergency basis while simultaneously fighting apparently endless foreign wars involving oil or something.

As we used to say, it don't take a weatherman to know which way the wind blows.

Here is the most important recent news, documenting a sharp decline in toll road use due to soaring fuel price and the downgrading of toll road bonds by Fitch, etc:

...Traffic on tax roads in the US seems to have dropped on average by 4 to 5% and on toll roads by 5 to 6% over the past year. The reduced travel is attributable almost entirely to the big run-up in gasoline prices and is about was to be expected from long-established economists' estimates of the price elasticity of demand of about -0.2. Fuel prices which dominate the marginal cost of driving are about 30% higher so you would expect traffic as measured by vehicle-miles traveled (VMT) to be 6% lower (-0.2x0.30=-0.06). Deduct one percent for the sluggish economy and you have 5%. Toll road traffic may be down marginally more than tax roads traffic because tollroads are somewhat skewed to discretionary travel...

Traffic hit hard by fuel prices / TollRoadsNews / August 24, 2008

Meanwhile, as I have recently pointed out, our three top Texas politicians (Perry, Craddick and Dewhurst) have made it clear that they would like to use state retirement funds under their control to keep building the toll roads when Wall Street is afraid to issue such debt because of the obvious risk to lenders in light of the information above. Such a policy is both a tribute to the political clout of the Texas road lobby (allied with the banks that have funded land speculation in raw land surrounding the major Texas urban areas), and also a revealing commentary on the moral character of our state political leaders. Here is the link:

Investing pension funds in toll roads is an irresponsible–and immoral–idea / Burkablog / Texas Monthly / August 23, 2008

Finally, to explain and to document the unwillingness of traditional bond lenders to fund bond projects of any sort, even of a kind much less speculative than toll roads, here are two links that explain the current situation quite adequately:

Bond fundraising costs soar / Financial Times / August 25, 2008

Bankers caught between hope and despair Financial Times / August 25, 2008

From the foregoing it is quite apparent why the road lobby is forced to turn to Texas politicians and the pension funds under their control as a last resort. Here the only risk is that Texas schoolteachers might get wind of the plan, might be smarter and more motivated than anticipated, and might be able to organize politically during the next legislative session in time to stop them. Any state bonds are nearly certain to fail because of the combined effect of the abysmal credit conditions described above and peak oil. For those who wish to document the peak oil risk in a scholarly way, here are three key links:

Crude Oil Price Retreat: Sunrise or a Lull Before the Storm? by by James Leigh / Energy Bulletin / August 12, 2008

PEAKING OF WORLD OIL PRODUCTION:
IMPACTS, MITIGATION, & RISK MANAGEMENT

Peak oil primer and links / Energy Bulletin

Also see Austin and US 290 E: You Can’t Get There From Here by Roger Baker / The Rag Blog / August 13, 2008

And Texas : Raiding Pension Funds to Build Toll Roads by Paul Burka / The Rag Blog / August 23, 2008

The Rag Blog

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Texas : Raiding Pension Funds to Build Toll Roads

Northbound Texas Toll 130 at the Exit 426 off-ramp. This toll road northeast of Austin opened for traffic in 2006.
'An irresponsible and immoral idea"
By Paul Burka / August 23, 2008

I doubt whether Rick Perry, David Dewhurst, or Tom Craddick has ever heard of the Lane Cove Tunnel in Sidney, Australia. If they had, they might not be so eager to raid the teacher and state employee retirement funds to build toll roads.

On the day the Olympics opened (08/08/08), the Sidney Morning Herald carried the news that the tunnel “is rapidly turning into a bottomless pit for its financial backers….” Two credit rating agencies, Standard & Poor’s and Moody’s, have warned that the toll road could default on its $1.1 billion debt with a year. The tunnel has suffered three consecutive monthly dropoffs in traffic usage. The estimated usage before the road was built was 100,000 vehicles per day; actual numbers in June and July barely exceeded 50,000. A Standard & Poor’s analyst predicted that unless the project gets fresh capital (at least half a billion dollars), it will default within 10 to 16 months. Perhaps TxDOT, since it is such a believer in such projects, would like to invest.

The problem with the financial wheeling and dealing with retirees’ funds that Perry, Dewhurst, and Craddick have proposed is that toll road projects are risky investments. They are risky for two reasons. One is that they are subject to economic fluctuations that affect people’s driving habits, such as the price of gasoline or the pace of development. The second reason is that, when government is involved, they are vulnerable to political pressure and favoritism. Google “toll road defaults” and you will find a trove of stories with unhappy endings. The Camino Columbia toll road in Laredo, which was rife with political intrigue over which landowners would benefit from having a road go through their property, opened in 2000 and defaulted in 2004. Cost: $90 million. Auctioned off for: $12 million. Tx-DOT bail out acquisition payment: $20 million. The Dulles Greenway toll road to Washington’s Dulles Airport defaulted on its bonds within a year of its opening in 1995. The private owner, Toll Road Investors Partnership II, have lost money every year since the road opened. When toll roads lose money, tolls go up–in this case, to $4.80 by 2012. That works out to an astronomical 35 cents per mile. There are similar stories in Orange County, California (where the state had to buy failing toll lanes), and along Florida’s west coast, and near Richmond, Virginia, where the 8.8-mile Pocohantas Parkway, financed with tax-free bonds, has suffered around a 50% shortfall in projected toll receipts; the state has had to maintain the road because the private owners don’t have the money. Bond ratings have been lowered to below investment grade. To pay off the bonds, the toll was increased by 50%.

It is true that many toll roads have been success stories. In Texas these include the Dallas-Fort Worth Turnpike, which paid off bondholderes with toll revenues after thirty years and became free Interstate 30; the Dallas North Tollway and its northern extension; and the Sam Houston Tollway on the west side of Houston. The issue here is not toll roads per se. It is toll roads built with pension funds (and probably other investment funds as well, such as the Permanent School Fund and the Permanent University Fund). These are trust funds. They belong to the members. It is morally wrong to require fund managers to invest them in risky ventures like toll roads. Does anybody doubt that there will be pressure on the pension funds to invest in certain projects that favor certain people and certain contractors and certain areas? We all know what kind of people we are dealing with here. Rick Perry can’t resist it. He appointed the members of the boards that oversee the pension funds. These deals will be neck-deep in politics.

The Statesman’s story on the leadership’s plan quotes Britt Harris, the chief investment officer of the Teacher Retirement System, as saying that investments in infrastructure made sense if the proposal was “equal or better than something we can get [in another project].” Harris then pointed out that the fund’s “ultimate loyalty is to the members,” not to target investments based on geography or politics. The last clause does not appear in quotation marks in the article. Bravo for Britt Harris, but I think he should keep his resume updated.

The biggest risk in toll roads as investments is political pressure. The pressure comes in two forms. The first is pressure on the consultants to provide favorable projections for use of proposed toll roads. Does anybody trust TxDOT–or the consultants they hire, or the private entities they seek to contract with–to do hardnosed, accurate projections? If you do, then consider these comments from an article in Business Week several years ago, at about the time Rick Perry was unveiling his proposal for the Trans-Texas Corridor:

* “There is a history of feasibility studies for toll roads being overly optimistic,” says John J. Hallacy III, director of municipal bond research for Merrill Lynch and Co.

* “Of the 10 major private toll roads constructed since the mid-1990s, nearly half carry far less traffic than projected. Some $4 billion in toll road bonds risk default over the next five years unless they’re refinanced,” estimates Robert H. Mueller, a municipal bond analyst at the J.P. Morgan securities Inc.

What about financing toll roads with bonds? Well, don’t expect bond raters to give the bonds a good rating. I’m quoting here from an article that appeared eight years ago in a tollroad industry publication, so it is possible that things may have changed, though I doubt it. Credit is much harder to get today than it was in 2000.

Fitch-ICBA, the New York bond rating agency says that there is a permanent bifurcation of the toll road bond market. Established systems of toll facilities can expect to be rated in the range A to AA, whereas most standalone and startup toll facilities will be rated BB- to BBB. They see a continuing demand for new toll road financings because of what they call a “seemingly unbridgeable gap” between highway needs and the ability to finance them with tax monies that toll projects can often help to fill.

According to BondsOnline, bonds rated BBB are “lower medium grade” and bonds rated BB- are “speculative.” The lower the bond rating, of course, the higher the interest rate that bond buyers demand. No one is going to be getting any bargains on toll road bonds. And AAA ratings are just a dream: “Fitch says that the ever present possibility of state governments siphoning off surplus toll revenues or leveraging them for other borrowings prevents state owned turnpikes from achieving the AAA rating.” So how can asking pension funds to invest in these bonds ever be a prudent investment? It can’t.

The article continues: Another problem with bonds for highways is that bond rating houses distrust state governments. It is unlikely that any state owned turnpikes will ever reach AAA: The key reason is susceptibility to political interventions.

I have said this before, and I will say it again. There is a sensible way to finance roads. It is to increase the gasoline tax and index it to inflation in the highway construction index. The gasoline tax has some weaknesses. Part of it is diverted to public education. People drive less when gasoline prices go through the roof. Cars are more fuel-efficient. All of this cuts into the revenue potential of the tax. Nevertheless, Texans still love their cars. The suburban lifestyle here is designed around the automobile. Even if the revenue per mile driven is declining, there is a lot of life left in the tax. A portion of the revenue could be dedicated to paying off the bonds for toll roads. This should be capped to ensure that money will still be available for free roads. While the resistance to tax increases is formidable, so is the resistance to toll roads. If you can persuade the public that a gasoline tax increase will reduce the need for toll roads, I think that proposition could be sold. Anything is better than insisting that the savings of retired teachers and state employees be invested in risky ventures like toll roads.

Source / Burkablog / Texas Monthly

See Austin and US 290 E: You Can’t Get There From Here by Roger Baker / The Rag Blog / August 13, 2008

Thanks to Roger Baker / The Rag Blog

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Austin and US 290 E : You Can’t Get There From Here

A little historical foreplay: 1971 Plans for the US 290/2222 interchange.
Proposed toll road: 'The public hearing was set up and designed as an exercise in intimidation'
By Roger Baker / The Rag Blog / August 13, 2008

The conduct of federal law as practiced by the Texas road lobby just hit a new low yesterday at the US 290 E hearing on this proposed new toll road held last night, 8/12/'08.

This proposed but unfunded road would serve many minority and low income citizens commuting to the East of Austin.

The official environmental assessment found that this road would have no significant impact on either the environment, or the low income populations that abound in the areas this road would serve.

Of course, the conduct of the meeting as well as these studies have been privatized so that that there is a built in conflict of interest. It goes without saying that no private environmental studies contractor chosen by either the CTRMA or TxDOT would be likely to get another contract if that contractor had the poor judgment to find that the road had any negative impact that would interfere with the goals those trying to promote the road seek.

The way that the meeting itself was conducted underlines these conclusions of inherent bias and conflict of interest. First of all the public hearing was publicized to begin at 7 pm. But the meeting was set up in such a way that those promoting the road took until 7:50 pm to explain why the road would have no environmental impact., etc. The cost of the road and its shaky financing situation were not explained.

Then the public attending were told that they could not ask questions during the hearing itself, but that they could ask questions during the ten minute break before the start of the hearing itself at 8 pm, by which time time many of the minority and low income citizens in attendance had started to drift away.

The citizens signing up to speak were told that they were not permitted to face the other members of the audience, but that they had to face a large screen with giant numbers on which were projected numbers that that counted down the seconds in the brief time during which they were permitted to speak. These citizens were not allowed to ask questions of either TxDOT, the assembled CTRMA officials, or the private contractors conducting the hearing during the formally recorded portion of the hearing.

This procedure by its nature assured that while all the hour of comments by officials to the pubic were carefully recorded, communications in the other direcion were minimized and answers to questions by officials not recorded. Although comments during the brief three minute time permitted each citizen were indeed recorded, none of the responses to questions by the officials back to citizens during the brief ten minute break from 7:50 pm to 8 pm before the start of the public comments would or even could be recorded.

The ultimate indication that the public hearing was set up and designed as an exercise in intimidation rather than the open communication and information exchange process mandated under federal law was the fact that the organizers went to the trouble and expense of having FIVE giant screens on the walls in the auditorium on which were projected in big red numbers the seconds the numbers remaining in the brief three minutes that each citizen was permitted to speak. No citizen signing up was permitted to donate time to any other citizen.

In this way, the point that made in various ways that while federal laws mandate that a public hearing of some kind must be held, the way that the hearing was structured showed that it was intended to minimize the opportunity for meaningful two-way dialog with the officials and private contractors in charge of organizing this toll road hearing.

The lesson here is probably to channel citizen communications toward writing, because here federal law requires that a paper trail exists of the two-way dialog that this hearing was carefully structured to minimize.

The Rag Blog

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