Cintra teetering on edge of bankruptcy on SH 130
By Terri Hall
It’s hard to resist the temptation to say I told you so. Moody’s reports SH 130 private toll operator Cintra is scrambling to avoid default on the first public private partnership (P3) in the state of Texas. The Spain-based company in partnership with Zachry American Infrastructure is seeking to restructure its over $1 billion in debt and delay its June payment or face default. In less than two years in operation, the southern 41-mile stretch which opened in October 2012 with much fanfare and boasting by Governor Rick Perry now faces bankruptcy.
The highway has been in financial trouble since it opened. Moody's downgraded the bonds to junk bond status last year predicting bankruptcy this month. To drive Cintra's toll road it costs $7 one way with truck tolls double that. The Texas Department of Transportation (TxDOT) operates the northern four segments of SH 130 that connect with Cintra's southern stretch.
TxDOT enjoys a revenue sharing scheme with Cintra and it used public money to buy-down the truck toll rates for a year to try to get more trucks to bypass SH 130's congested alternative route, Interstate-35, and it also dual designated parts of Interstate-10 and Interstate-410 in San Antonio as SH 130 to try to entice drivers out to SH 130 where driving the full 86 miles to bypass Austin would cost $12 one way. TxDOT even floated the idea of swapping free I-35 with SH 130 making I-35 the tollway and SH 130 the freeway. But despite all the help from TxDOT, nothing has worked. Cintra's toll road is going bankrupt despite every ploy by TxDOT to make it solvent.
Perry put out the welcome mat for P3s as soon as he took office. Texans have opposed such controversial corporate toll roads, with opposition growing as more details become public. SH 130 is the only portion of the Trans Texas Corridor TTC-35 project that was ever built. It was the one that got away as the contract was signed just two months before the legislature put the brakes on P3s imposing a moratorium in May 2007. P3s for roads completely expired in 2009, though several projects that were already advancing continued and the legislature has twice voted to allow a handful of selected projects to advance if there was support by local officials. But the public has never wavered.
When Republicans gained supermajorities in the legislature in 2011, they opened the door to P3s for every other kind of infrastructure with passage of SB 1048, ramming it through despite public opposition. But few, to date, have been utilized outside highways.
P3 woes not unique to Texas
Cintra is also in financial trouble on its Indiana Toll Road concession, and hoping to restructure its overwhelming $3.8 billion debt on its 75-year lease in order to stay solvent despite doubling the toll rates once it took over the tollway from the state. Transurban just handed over operation of the Pocahontas Parkway (895) in Virginia to its creditors in yet another fledgling P3. Transurban owed $300 million to a consortium of European banks who had DBi Services now take over operations of the lackluster toll road.
Many libertarian think tanks like Reason Foundation and Cato Institute and even the conservative Heritage Foundation have called for the use of P3s as a free market solution to funding roads. However, the devil is in the details. There are private roads, but public infrastructure is inherently a governmental function. So free market principles don’t apply. It’s why we have eminent domain - the public understands that sometimes private property must be condemned for public necessity. But under P3s, that land is taken for a private profit.
When a private corporation gets a hold of the toll rates in a government-sanctioned monopoly, the rates are punitively higher than publicly-operated toll projects. On Interstate 635 in Dallas, Cintra uses congestion tolling (where the toll rate varies based on the level of congestion) and charges Texans 95 cents a mile to access its toll lanes during peak hours. Once the full project is open, it’ll cost more than $24 a day to get to/from work.
P3s also have non-compete provisions that allow the private corporations to dictate when and where free public roads surrounding their toll roads can be expanded. Cintra’s SH 130 contract contains a non-competition clause that prohibits the expansion of freeways in all of Caldwell and Guadalupe counties, with the exception of I-35, during the life of the 50-year contract. Texas taxpayers are also on the hook for any ‘uncollectable’ tolls on SH 130, including unpaid tolls from visitors across the border.
Speed limit manipulation
Tucked into the addenda on Cintra’s SH 130 contract were incentives for TxDOT to increase the speed limit on the private tollway, and based on the increment, Cintra would pay TxDOT various concession fees. Cintra and TxDOT lobbied to change the state law to increase the state maximum up to 85 MPH so that TxDOT could be paid the maximum $100 million concession fee.
The incentive to Cintra was to make its tollway more appealing, and the incentive to TxDOT was its revenue sharing and the concession fee. In the same commission meeting that it raised the posted speed limit on SH 130 to 85 MPH, the Transportation Commission also lowered the speed limit on the adjacent freeway, Hwy 183 through Lockhart, from 65 MPH down to 55 MPH. So speed limits in Texas are no longer based on public safety but on profit and greed.
There are huge sums of taxpayer money involved in every one of these P3s. You’ll hear proponents argue so what if it fails, let it fail, the private company took the risk and they lost. Wanna bet? The taxpayer-funded goodie bag favorite of the private toll operators is the federal TIFIA loan program. You and I, the federal taxpayer, backs these loans of fiat money borrowed from the federal reserve. Then, of course, many of these sweetheart deals use that borrowed money to secure more borrowed money known as multi-leveraging, not unlike the first P3 program known as Fannie Mae and Freddie Mac that cost taxpayers billions in the TARP bailout.
On SH 130, Cintra snagged a $438 million TIFIA loan. So when the road goes belly-up, who’s going to pay that back? The first TIFIA loan went to the South Bay Expressway in San Diego, CA, that went bankrupt in less than years. The rosy traffic projections were off by nearly 40,000 cars a day. When the San Diego Association of Governments took over the road after it emerged from a Chapter 11 bankruptcy, the taxpayers had to take an almost $80 million loss on the loan. No matter what, taxpayers are the ‘big losers,’ and unlike the reality TV show, there’s no upside.
On Cintra’s two projects in Dallas-Ft. Worth, not only did it grab two TIFIA loans that combine to equal $1.5 billion, it secured over $1 billion in Private Activity Bonds (PABs, tax-exempt bonds), and $1 billion in gas taxes for a combined project cost totaling $4.7 billion. Indeed, on I-820, the taxpayers put more cash into the deal than Cintra. So there is simply no way any person confronted with the facts can call P3s free market in ANY way. They’re a form of corporate welfare that socializes the losses while the special interests walk away with all the profits.
Cintra even managed to convince the Dallas Fire & Police Pension Fund to invest in its expensive, risky I-820 and I-635 toll projects. Who’s risking whose money here? It sure isn’t the private corporations. Do you think any government will let these roads fail when its public employee pensions and such vast amounts of public money are at risk in these deals? This is yet another way to guarantee a taxpayer bailout. So you can be sure this is by design to set-up a system too big to fail.
Disconnect with public officials
Just this week, the U.S. House Transportation and Infrastructure Committee met with investment bankers in New York to discuss the role P3s should play in the nation’s transportation policy. The fact that members of congress are conferring with the very rent-seeking special interests who will profit off these deals to shape public policy is offensive. But if these politicians would merely open their eyes and look at the failure rate of P3s, read the reports from the Government Accountability Office, US PIRG, and others, that send up red flag after red flag, they would no longer consider P3s a viable transportation policy much less hold such a brazen public hearing validating them.
So taxpayers and those that love freedom and liberty beware. There are no free rides and P3s are the most expensive, most restrictive, most anti-sovereignty, and least effective method for building and maintaining our public highways. With the federal Highway Trust Fund set to expire at the end of the summer, every taxpayer needs to get on the phone, call their members of congress to tell them ‘No way’ to more tolls and especially P3s, and watchdog the next federal highway bill with great vigilance.
President Obama wants to slap tolls on all existing interstates. Whether public or private, the disastrous tax overload tolls represent in raising the overall tax burden, cost of goods, and cost of living will have a lasting, deleterious affect on the economy for generations. So it’ll be pay now and pay later unless a tax revolt ensues.