Cintra’s credit woes, speed limit hike adjacent to toll road spell trouble

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Cintra’s credit woes, speed limit hike adjacent to toll road spell trouble
By Terri Hall
March 29, 2013

It’s been a rough road for Cintra, Spain-based global toll operator, ever since it opened its first privately-operated tollway, State Highway 130, in Texas last fall. Yesterday, the Texas Transportation Commission voted to increase the speed limits on US Highway 183 to 60 MPH through Mustang Ridge and up to 65 MPH on the southern leg that runs through Lockhart, on the freeway that now serves as the frontage road to Cintra’s high-speed tollway. When SH 130 opened, the Commission increased the speed limit to the fastest in the country - 85 MPH - while also lowering the speed limit on the adjacent freeway, US 183 from 65 MPH down to 55 MPH.

The public fury was swift and Caldwell County Commissioners passed a resolution requesting that the Commission return the speed limit on US 183 to 65 MPH. TxDOT claimed it was ‘studying’ the speed limit situation, meanwhile SH 130 experienced its first fatality due to the dramatic difference in speed when a car on the tollway collided with a car getting onto the tollway from the dramatically lower speed frontage road that’s now US 183. The speed differential was believed to be the cause of the fatal accident.

Texans cringe at the idea of ceding state sovereignty over its public infrastructure to a private entity, much less a foreign company. It led to the demise of the Trans Texas Corridor. So it didn’t come as a surprise when a grassroots anti-toll group, Texans Uniting for Reform and Freedom (TURF), announced a boycott of Cintra’s tollway when it opened.

Credit rating may suffer
It appears the anti-privatization sentiment in Texas is successfully lowering the traffic volume on SH 130 since Moody’s just announced it’s reviewing Cintra’s credit rating due to the much lower than anticipated level of traffic and is considering a downgrade from AAA to AA.

Both the highway commission and local politicians have been struggling to find ways to incentivize motorists to use SH 130, which was intended to be a bypass around Austin and the heavily congested Interstate 35. All Texas taxpayers had to bailout SH 130 and two other Austin toll roads in 2011 with $100 million in gas taxes in order to cover the debt service payments since toll revenues were insufficient. Yesterday, the Commission also formally adopted a pilot program for one year to lower truck toll rates to the auto rate, potentially saving truckers $10 a trip. Yet, 18-wheelers still line I-35 throughout the region as most still choose the free route despite the new truck discount program that began in February.

Since trucks beat-up roads at a much higher rate than autos, some have cried foul that money that could be used to expand other freeways is being used to buy down the truck toll rates that are supposed to be higher to account for the damage big rigs do to highways. The highway department’s press statement reveals the discount program is only temporary and that it cannot continue to operate the tollway at a loss beyond that.

So what’s the point? To temporarily bail out a failing toll road only to kick the can down the road? So the new increased speeds on the free route coupled with the already lighter than anticipated traffic on the financially struggling tollway, Cintra’s in real trouble for the foreseeable future. Couple these developments with the company’s failing Indiana Toll Road that experienced a credit downgrade (which is at risk of default) and the overall outlook for Cintra’s P3 toll roads looks rather bleak.

Lawmaker seeks to buy back tollway, make it free
In yet another twist, Austin lawmaker, Rep. Paul Workman filed a bill, HB 3682, to buy out Cintra and payback the bond investors early on the four segments operated by TxDOT so that SH 130 could become a freeway. The move is yet another alternative under consideration in the effort to attract traffic to SH 130 and find ways to alleviate gridlock on Texas’ central NAFTA highway, I-35.

Too big to fail?
There’s even controversy over whether a buy back is a bailout or not. Many free market hawks feel taxpayers shouldn’t ‘bailout’ Cintra’s private toll road. The sentiment is ‘let it fail!.’ However, it’s not that simple. The contract signed with the state is a public private partnership (P3), which doesn’t remotely resemble free market. The reason SH 130 is not completely private is precisely due to Cintra’s desire to have taxpayers share the risk in case of failure or bankruptcy.

Cintra secured a $430 million federal TIFIA loan (backed by the full faith and credit of the U.S. taxpayer) to build SH 130. So if it fails, that taxpayer money goes down with the ship. Naturally, P3s are structured this way intentionally in order to use taxpayers as a shield to ensure policy makers won’t let the road fail.

So it’s essential state lawmakers put an end to this exploitation and ‘innovative financing’ gimmicks and get back to traditional turnpikes or don’t build the project as a toll road. Traditional turnpikes are brand new roads and funded solely with private toll revenue bonds which are NOT backed by taxpayers. If the traffic doesn’t show up, the private investors take the hit, not the public.

The voter revolt that occurred when the GOP-dominated congress passed the TARP bailout ought to be instructive to politicians at every level of government. There is no industry that’s too big to fail or worthy of a forced taxpayer-funded bailout. So they must stop structuring deals that socialize the losses and privatize profits. If the United States is truly a free market economy, then let ill-conceived toll projects fail.

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