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Texas’ first foreign-owned toll road handed to its creditors
By Terri Hall
August 15, 2016
Selous Foundation for Public Policy Research
It was so predictable. The people of Texas revolted against former Governor Rick Perry’s grand network of toll roads, once dubbed the Trans Texas Corridor, and many grassroots groups that sprung up to oppose it predicted its eventual demise. The press, always eager to jump on the ribbon cuttings, seldom show you the angling inside bankruptcy court, yet that’s where State Highway 130 Concession Company ended up. As part of its Chapter 11 bankruptcy, Spain-based Cintra and San Antonio-based Zachry ceded the delinquent toll project to its creditors Friday.
The southern 41-mile stretch of SH 130, a bypass designed to avoid Austin traffic from Mustang Ridge to Seguin, opened with much fanfare in November of 2012, including an appearance by Perry who hailed this first public private partnership (or P3) as highway nirvana and ‘visionary.’ But crony capitalism is as old as dirt and taxpayers didn’t see it as anything other than graft.
Dan Shelley, a consultant for Cintra, got hired as Perry’s legislative liaison in 2004 where he secured Cintra the exclusive right to develop the Trans Texas Corridor. Then Shelley promptly went back to work for Cintra once the session ended, this time adding his daughter, Jennifer Shelley-Rodriguez, to Cintra’s payroll. Cintra received two more P3 contracts, one in Dallas for I-635 and another in Ft. Worth for I-820 that, all told, gave the company the right of first refusal on 4 separate projects there. Just those three deals add up to over $5 billion in state contracts handed to a single company with direct ties to Perry’s office.
So it shouldn’t surprise anyone that taxpayers will be left holding the bag on SH 130. While the Texas Department of Transportation (TxDOT) and its buddy, Cintra, are quick to point out no state money went into the SH 130 contract, plenty of federal money did. A $430 million dollar federal TIFIA loan to be exact. Cintra-Zachry only put $210 million into the $1.3 billion project, less skin in the game than the public.
With taxpayers as a chief creditor, why is it that Texans do not get this road back in the public’s hands now that it’s gone bankrupt? Well, that’s because TxDOT, who signed the contract under the direction of Perry, didn’t ensure taxpayers would get it back if the private operators went bankrupt. The senior bank loan lenders get it. The way TIFIA loans are structured, the taxpayers get repaid last, and usually for pennies on the dollar if it’s anything like the South Bay Expressway in San Diego.
That P3 tollway was the first to receive a TIFIA loan and it went bankrupt in less than three years, similar to SH 130. Federal taxpayers had to take a nearly $80 million hit for losses on that loan. It, too, was taken over by its lenders and then resold to San Diego’s council of governments for almost half the original cost, using yet another TIFIA loan to pay-off part of the first one. While that may sound like the taxpayers still got a good deal by purchasing the road for far less than the original price tag, buyer beware.
According to a report by the Congressional Budget Office [PDF], the taxpayers are worse off than before, “The new financing and ownership structure required by the bankruptcy court imposed a loss of 42 percent on federal taxpayers, replacing the original TIFIA investment with a package of debt and equity worth only 58 percent of the original investment.”
So there’s very little to celebrate now that Cintra has let go of SH 130. This cycle of selling it off to the next sucker until that deal goes south could go on for the life of the original contract — up to 52 years. All the while, taxpayers are being positioned to take multiple blows at the behest of global corporations teaming-up with politicians and, by extension, the un-elected bureaucrats in Austin and Washington who are bent on sticking it to the public. Taxpayers foot part of the bill for the project then get forced to repay it with interest over and over again, while still paying tolls to use it.
It’s nice work if you can get it when you’re the insider, but P3s symbolize why angry voters are flocking to Donald Trump — to get a better deal for taxpayers. The best solution moving forward is to build freeways not tollways and to ensure that taxpayers get these bankrupt projects back in the hands of the public.
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Link to commentary here.
COMMENTARY: The Death of the Texas Toll Road
By Jim Forsyth
August 14, 2016
I remember attending the groundbreaking for the State Highway 130 toll road. It was a windy day, out in a farm field southeast of Austin, where they had set up a stand surrounded by construction equipment. Gov. Rick Perry was there, all hat and no cattle as usual, proclaiming the start of the golden age of transportation in Texas. Perry had just unveiled the Trans Texas Corridor, an audacious proposal which got him labeled as a 'visionary' by all of the right publications. And toll roads would lead the way to highway bliss. The Trans Texas Corridor would be the transportation network for the 21st and 22nd Centuries, a ribbon of toll roads slashing across the state, but the corridor would also include rail lines, electric lines, even pipelines. At the same time, visions of toll projects were dancing in the heads of local planners too, like sugar plums on Christmas Eve. Congestion on 281? 35? 1604? Tolls are the answer! Highway officials in Austin, Houston, Dallas rushed toll projects into print at lightning speed so they wouldn't miss out. Heck, even Midland and Lubbock had visions of toll nirvana. At one point, Texas had two thirds of a trillion dollars in toll road plans on drawing boards, four times as much, in 2016 dollars, that we spent to put a man on the moon. Throw a couple of quarters into the bin at the toll booth, we were told, and the future would be ours. Fast forward not that many years, and the company that put the shovel into the ground to build the southern half of State Highway 130, already in Chapter 11 bankruptcy, is ceding ownership, amidst its ballooning debt, to creditors. Not only are the plans for the glittering Trans Texas Corridor not gathering dust on a shelf, the shelf they were stored on has been ripped out and the building condemned. Tolls have been removed on practically all the road projects in Bexar County, and the Legislature is even looking at paying off toll road debt to remove tolls. So what went wrong?
First of all, in a not uncommon scenario these days, there was a massive disconnect between our super smart leaders and we dumb tax paying rubes who are supposed to pay up and shut up. Tolls are just not in our DNA, unlike people in, say, New Jersey, who grow up paying tolls. Dolph Briscoe's magnificent system of Farm to Market Roads predated the Interstate Highway System, made Texas the transportation envy of the nation, and taught us that roads were just something state government did as one of its basic responsibilities, like paying the governor's salary.
The idea of toll roads muscling out city surface streets was dead from the start. It's one thing to pay a toll to drive across 100 miles of faceless Oklahoma prairie, but this was, in the wonderful phrase of anti-toll leader Terri Hall, paying the government for permission to buy a quart of milk at H-E-B. For commuters, this amounted to a pay cut.
Perry's cockeyed 'Public Private Partnership' idea was also as dead as a late 70s Chevy Nova. Private companies would get a franchise to build the road, in exchange for collecting the tolls for several decades. Rightly or wrongly, this sounded a lot like an invitation to cronyism, with the cushiest deals going to the biggest campaign contributors, with, again, Joe Schmuck the taxpayer writing the check.
I also think toll planners made a big blunder by refusing to commit to removing the tolls once the road was paid for. All the babble about 'maintenance costs' sounded like Charlie Brown's teachers to taxpayers who heard just 'money grab.'
The road itself had issues all its own. It was too far to the east for San Antonio to Austin commuters to go out of their way to take it, and was inconvenient for the long haul truckers, who were supposed to be its biggest customers, despite the fastest-in-the-Western Hemisphere 85mph speed limit. It also came on line while the Great Recession was lingering, depressing freight demand and harming the builder's financial plans right from the start.
So the toll dream has crumbled, with the smoldering wreckage of the SH 130 project standing as a warning to any company who might in the future be attracted to participate in a repackaged version of this bright idea. But social engineers are nothing if not resourceful, and they have already moved on to the next trendy catch phrase in 'Urban Planning Monthly,' magazine, the 'Managed Lane.'
What that is, if you don't attend the right cocktail parties, is making you pay for roads that you can't drive on unless you meet specific regulations which are set by our betters in government. You can only use the new lanes your taxes paid for, dear serf, if you ride the bus (and pay a second time with bus fare) or are part of an 'approved' car pool. This fantastic idea is coming to 281, I-10 on the northwest side and probably other roads. Studies have confirmed that so called 'Diamond Lanes' have never worked anywhere to convince commuters to carpool or ride the bus (as anybody who has ever driven the 405 in Los Angeles and been stuck in one of those legendary traffic jams, only to see completely empty diamond lanes one lane over can attest). But of course your money isn't real money to them, and nobody wants to feel left out at the next convention of the Transportation Planners Association with the hip slogan 'moving people, not cars' right there on your name tag. So I'll start now writing my commentary on 'The Death of Managed Lanes' for...say...2021.
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Link to article here.
Texas: Failed Toll Road Divvies Up Ownership
Instead of reverting to the public, bankrupt Texas toll road retains management under new ownership.
The Newspaper.com
August 23, 2016
The State Highway 130 toll road project, the first of its kind in the Texas, was a failure. The foreign company that owned and operated the route filed for Chapter 11 in March. Now a federal bankruptcy judge will decide who gets to own this infrastructure asset that Cintra, a Spanish company, built almost entirely with borrowed funds. A hearing on the proposed settlement is scheduled for September 21 in the federal bankruptcy court in Austin.
SH130 had little chance for success. Initial traffic forecasts proved wildly inaccurate, and the road posted operating losses month after month -- it was $258,941 in the red for May. Without a positive income stream, Cintra was unable to cover payments on the $1.6 billion in liabilities that had accumulated.
In addition to the capital required to construct the road, toll roads require a massive amount of overhead to operate, unlike general purpose roads. For SH130, legal fees related to tolling are $3 million annually (bankruptcy-related legal fees are $23 million). The cost for personnel is $2.6 million per year. Consulting fees are $2 million annually. Toll processing fees are $1.7 million. The board of directors consumes $182,000. Expenses for other necessary equipment, banking, and office rent add up to $41 million on an annualized basis. Last month, for example, AlixPartners, a business consulting firm, asked Judge Tony M. Davis to approve $160,172 in expenses for three months of work creating monthly operating reports and cash flow analysis for the toll road
The bankruptcy plan filed earlier this month would create a new holding company granting bondholders ownership of the company while keeping existing management in place. The rules of the new company require a two-thirds vote of shareholders to remove Cintra as the operator of the toll road or to terminate the tolling agreement Cintra made with the Texas Department of Transportation (TxDOT).
"SH 130 Concession Company will continue to operate and maintain the facility under new ownership," the Cintra-owned subsidiary said in a statement. "The facility concession agreement between the concession and TxDOT will remain in place to protect the public interest, and the company will continue to meet all terms of this agreement. There are details that remain to be resolved between the company and its lenders. The court and a majority of the company's creditors must approve a final plan before it can be implemented."
Nearly every high-profile tolling project has failed. The Indiana Toll Road went bankrupt in 2014. The 91 freeway high occupancy toll lanes in Orange County, California was one of the first modern toll projects to go wrong, with the county taxpayers in 2003 paying for more than the original cost of construction to buy out the project. San Diego's South Bay Expressway went bankrupt in 2010 and was also bought out by county government. California's Foothill-Eastern Transportation Corridor Agency, which runs the 241, 261 and 133 toll roads in Orange County, has been teetering on the edge of default despite $1.7 billion in subsidies from the taxpayer.
In South Carolina, the Greenville Southern Connector went bankrupt in 2010. Transurban, the Australian company that runs the Pocahontas Parkway in Richmond, Virginia, wrote down the toll road as having a value of $0 in 2012.
In Australia, the operator of the Clem7 toll road went bankrupt in 2013, joining the Airportlink toll road, the Lane Cove Tunnel and the Cross City Tunnel. In Spain, ten toll concessions, including the Madrid-Toledo highway, became insolvent in 2012. The Spanish government provided more than a billion euros in bailout money to the tolling firms Abertis, Acciona, ACS, Bankia, Cintra, OHL and Sacyr Vallehermoso.