Back from the brink

To date, the US federal government’s TIFIA lending programme, stemming from the 1998 Transportation Infrastructure Finance and Innovation Act, has provided credit to a total of eight privately backed projects for more than $3.5 billion in total, according to a US Department of Transportation spokesperson.

The first privately backed toll road to receive a loan from the TIFIA programme was the South Bay Expressway, a Macquarie-backed project which received a $140 million loan in 2003. The project involved the construction of a 10-mile toll road in Southern California near the Mexico border.

The project’s private operator, South Bay Expressway (SBX) went into bankruptcy last year, with much of the 35-year concession still left. The TIFIA project page says that South Bay Expressway’s bankruptcy filing was primarily a result of claims against the project by contractors, as well as lower-than-expected revenues due to the economic downturn.

New turn

Now the story has taken a new turn. The San Diego Association of Governments (SANDAG), a regional planning agency whose board is comprised of mayors, council members and county supervisors from 18 cities as well as the county government, announced in July that it had agreed to acquire the remaining lease on the road for about $345 million, a sum far below the stated project cost of $658 million.

SANDAG may be the new owner of the lease, but it is not new to the project. When SBX began to develop the project, SANDAG financed a portion of the private sector construction not included in the $658 million construction of the toll road according to the association’s executive director Gary Gallegos. Specifically, it provided $159 million to finance the construction of a small but essential piece: a mile-long stretch that connected the South Bay Expressway to the neighbouring State Route 54.

As part of the bankruptcy proceedings, SBX brought claims against SANDAG in relation to the financing of that small portion of the road, according to Gallegos. He says those proceedings began the process which eventually led SANDAG to consider acquiring the road. Gallegos said SANDAG began to discuss a potential acquisition with the lenders for the project, and the association’s board approved the $344.5 million offer at a July 29 meeting.

That agreement is still subject to approvals, including a public hearing about the project which had yet to occur at press time. SANDAG is also still considering various options to finance the remaining portion of the acquisition. TIFIA has agreed to remain in the project and provide $92.5 million in credit, while SANDAG would be responsible for a cash settlement of $16.5 million to TIFIA and a $231 million settlement to the 11 private bank lenders on the project, according to a SANDAG board of directors’ agenda for the upcoming hearing.

Those financing options include bonds backed by toll revenues, a loan from SANDAG’s TransNet fund, whose revenues are generated from a local sales tax, or doing a “swap”, in which SANDAG would transfer funding from one transportation project to another. Specifically, SANDAG is considering an option to swap the South Bay acquisition for another project to construct managed lanes on an interstate highway in the region. That potential swap could lower toll revenues by 40 to 50 percent.

SANDAG representatives say that the acquisition, if completed, could give them a chance to meet some of the region’s growing infrastructure needs.

“We saw an opportunity here – a rather unique opportunity – to fulfill the capacity we are projecting we are going to need in terms of the transportation system and to do it at a reduced cost to what we were projected to have to pay,” says Jerome Stocks, deputy mayor of Encinitas, California, and chair of SANDAG’s board.

Gallegos says that SANDAG’s goals for the project would likely be different from those of a private sector operator. He said SANDAG would consider lowering tolls as a way to attract traffic and relieve congestion in the region as a whole, even though that might not generate as much revenue for the specific project.