WI77 to hold public meeting on I-77 tolls

From our press release today.  Please share with your friends and neighbors.

Cornelius, N.C. – July 9, 2014 – Widen I-77 will be presenting their analysis of recently released information for the proposed I-77 High Occupancy Toll (HOT) Lane project. The presentation will also cover opportunities for public involvement.

 I-77 Tolls: What Do We Do Now?
Date
: Thursday, July 24, 2014
Time: 7pm
Location: Cornelius Town Hall
21445 Catawba Avenue
Cornelius, NC 28031

A question & answer session will follow.

Applying Last Night’s Logic…

Most of our blog posts deal with information and news, but occasionally an opportunity for satire arises that I just can’t resist.  That opportunity presented itself last night when the NCDOT gave an update to the Cornelius town board on the I-77 tolling project. A good portion of the presentation was the same justifications for tolling we’ve heard before: “giving drivers a choice”, “providing a congestion management solution” etc. With that in mind, let’s apply the NCDOT tolling logic to a different problem:

Exit 28 in Cornelius is under construction. When completed the project will have four lanes in a “diverging diamond” configuration. The diverging diamond eliminates four traffic light phases from the previous configuration, so it increases throughput by an estimated 40%.  However, right now only one lane is open in either direction so the backups are horrendous.  In the morning motorists routinely sit through three or four shifts of the light, gridlock extends to adjacent roads, and congestion on alternate routes has increased. The situation will not change until the additional lanes are open sometime later this year.

That’s an awfully long time to wait. But we have a solution: if we toll the new lanes we can open them now instead of a few months later.

We’ll get a foreign company to complete the interchange at six times what it would cost to do it ourselves, and in exchange for doing us that favor we’ll let them charge you whatever they want. We’re not telling you how much they’re going to charge, but trust us it’s a really, really good deal.  We’re so excited about all the pesos they’re going to pull from your wallet that we’re cutting in on a piece of the action- we’ll get a portion of any “excess” revenues so we can build more trains in Charlotte.

If revenues don’t pan out we’ll dig into your pockets via the tax system and pay the Spaniards whatever it takes to keep them happy, but you don’t need to know that. You should also forget that you paid for the bridge and the right-of-way in the first place and that you just sold your soul for the next fifty years.

Instead you need to think of the advantages. Rather than spending ten minutes to get to the other side of town, for a few bucks you can drop off your books before the library closes. Or you can hop on a gridlocked I-77 a couple minutes earlier. Of course, if you’re not wealthy enough or desperate enough to get out of the cheapskate lane you can always idle away in traffic. See, we’re giving you a choice.

We expect traffic in the cheapskate lane will eventually back up to Rock Hill but we’re not going to tell you that because we don’t have to. All you need to know is no matter how awful traffic becomes, there’s always going to be one lane with hardly anybody on it.  After all, the last thing we want is an interchange that moves traffic because then cars would actually use it and that’s a terrible thing.

See, this is all part of our grand “congestion management” vision.  Tolls on I-77.  Tolls on 485.  Tolls on I-77 through Charlotte.

Just wait ‘til you see what we have planned for the Gilead-Statesville intersection.

Despite Concerns, NCDOT Signs Contract

Following is our press release regarding NCDOT’s decision to complete the commercial close of the contract:

Cornelius, N.C. – June 26, 2014 – Despite serious questions surrounding the viability and effectiveness of the proposed toll lanes on interstate 77, the NCDOT closed the commercial portion of the contract today.  The NCDOT and Cintra, a Spanish firm chosen to build and operate the toll lanes under a 50 year agreement, hope to finalize the contract by the end of 2014.

“The NCDOT continues to charge ahead with this project and ignore legitimate concerns being raised by citizens and local legislators,” said Kurt Naas, a spokesman for Widen I-77. “After the NCDOT sent us their analysis showing $20 tolls, they quickly walked it back saying the numbers they sent were outdated.”  The NCDOT has not provided any updated toll or traffic estimates.

Local commissioners shared Naas’ concern, and less than 72 hours after the NCDOT’s estimates became public a majority of commissioners from the Lake Norman towns (Huntersville, Cornelius and Davidson) sent a memo to the governor requesting postponement.  One commissioner noted “an unprecedented avalanche” of emails from his constituents.  The issue has been featured prominently in local news outlets.

“This project has been characterized by inconsistency, misrepresentation and a disregard for the taxpayer’s money,” Naas said. He went on to cite a number of examples:

  • Transportation Secretary Tata touted the project as a “comprehensive solution to existing and future congestion” despite the NCDOT’s internal analysis showing commute times doubling within the next twenty years.
  • In their official report to the legislature, the NCDOT stated Cintra’s project in Texas had a “significant amount of cash on hand” even though the project faces imminent bankruptcy and was downgraded to junk bond status by Moody’s.
  • The same report stated Cintra will bear “substantial financial risk” despite up to $12 million/yr in taxpayer subsidies for any shortfall in toll revenue.  The bonds issued for the project will be backed by the taxpayer.
  • Over $150 million will be spent on items solely related to the tolling aspects of the project, including $51 million for tolling equipment and $55 million for overhead and consultants.

“Until the NCDOT and Cintra start coming clean on toll rates and congestion, our legislators should flatly oppose this project,” Naas added. The NCDOT has said this information will be made public after the contract is signed.  “That’s absurd,” Naas said. “You don’t take out a mortgage without knowing what your monthly payment is going to be.”

NCDOT Officials at July 7th Cornelius Town Board Meeting

Aside

Rodger Rochelle, NCDOT’s Director of Technical Services and Bill Thunberg, Executive Director of the Lake Norman Transportation Commission (LNTC) are scheduled to discuss the I-77 toll lane issue with the Cornelius Town Board on Monday, July 7th, during their regularly scheduled meeting at 7pm.

Rochelle and Thunberg are proponents of the I-77 toll lane project.

Answers

UPDATE 6/11: Eliminated duplicate chart; added links below to source documents

In early April the NCDOT announced they had selected Cintra, a Spanish company, as the contractor for the I-77 toll lane project. (As it turns out, the Cintra bid was the only one received.) Under the terms of the contract, NCDOT will donate the remaining public right-of-way  and grant Cintra an exclusive concession to design, build and operate toll lanes along the Lake Norman stretch of I-77 for the next 50 years. The NCDOT noted Cintra’s proposal had been subject to an extensive review of over 300 pass/fail criteria, and the Cintra package met all of them.

Despite this apparent rigor and detail, the public has been kept largely in the dark about even the most basic aspects of this project: How will drivers access the toll lanes? Where will they access them? How much are the tolls? I attempted to find out by filing a FOIA request, but weeks after filing and receiving nothing but stonewalling, I finally went to the media. Allison Latos at WSOC made a few phone calls and was able to shake loose more information in a week than I’ve been able to in two months. Thanks, Allison!

The NCDOT forwarded a series of traffic and revenue (T&R) memoranda from Stantec, an infrastructure consultancy. NCDOT also provided electronic copies of two memorandums to the NC legislature summarizing the I-77 tolling project.

Below is my summary.

Toll Rates

Stantec predicts a one-way morning trip from Mooresville to Charlotte will initially cost $9.05.  The return commute will cost $11.75, so a one day toll lane commute will cost over $20.  By the year 2035, the tolls will more than double to $20.60 and $21.63 for the morning and evening commutes, respectively, so the price of a commute twenty years TollRatespptfrom now will cost over $40 per day. (These are all in 2011 dollars.)

The toll for the worst stretch of SB congestion- Catawba to Hambright- is $2.09. This stretch routinely takes over twenty minutes to travel some mornings, and a $2 toll seems like a bargain. That is, if you are able to exit the toll lane once you’ve bypassed the worst of the traffic. I’m doubtful this will be the case; drivers entering the toll lane at Huntersville or Cornelius will probably be forced travel (and pay tolls) all the way to downtown, as the ingress/egress discussion explains.

Ingress/Egress

The contract requires at least one ingress/egress point between:

  • Exit 13 (I-85) and Exit 18 (W.T. Harris)
  • Hambright Road (approx mm 20) and Exit 23 (Gilead)
  • Exit 25 (Sam Furr) and Westmoreland
  • Exit 31 (Langtree) and Exit 33 (Williamson) Note: Davidson is bypassed

While it looks like a southbound driver may enter around Westmoreland and exit five miles later, the contract gives Cintra tremendous latitude in determining access points. The contract states that Cintra “at its discretion may propose alternate ingress or egress points other than those identified below ….”  So Cintra may propose (and why would the NCDOT object?) any access points they choose.  The financial model assumes traffic in the toll lanes will stay in the toll lane. It follows logically that access points will be selected to ensure this is the case.

Toll Revenues

In the first full year of tolling, revenues are expected to gross approximately $20 million. (In comparison the Triangle Expressway, North Carolina’s first toll road, had first year revenues of $13 million.)  This would make the I-77 toll lanes one of the highest-grossing in the country. In twenty years, the toll revenues are predicted to grow to $136 million, and by TollRevenuesFitchpptthe contract’s end, a staggering $704 million dollars per year. (All numbers are in nominal dollars.) The total toll revenue over the 50 year life of the contract is predicted to be  $13 billion. This does not include penalties, fines and associated fees which can typically add another 25- 30%, bringing the grand total to over $16 billion.

In contrast, adding a single lane in either direction just where it is needed would cost $80- 100 million.  Thus, by resorting to tolls we will pay to widen the road one hundred and thirty times over.

These numbers lead to two conclusions.  First, if they are correct, the I-77 toll lane project will be an economic catastrophe, siphoning billions of dollars out of the local economy.  Indeed, in 2035 tolls will cost every person in the region an average of over $500 per year.

However, I do not believe these numbers are even close to reality.  The toll lanes serve one of the smallest metropolitan areas yet are expected to be among the highest grossing in the country. The predicted toll revenues have thus far been historically unattainable in all but two metropolitan areas (LA and DC). If the bond underwriters and NCDOT used this model for their ratings and approval, they have put hundreds of millions of taxpayer dollars at risk- profligate risk. Unfortunately this appears to be the case; the memo containing these figures is titled “Fitch Equity T&R Case”.  (T&R – Traffic and Revenue.) Fitch was the ratings agency hired to review the project’s creditworthiness, and they gave it a BBB- rating, meaning the project is of “investment grade” and therefore carries “low to moderate credit risk.”

So the taxpayer stands to be on the hook for hundreds of millions… unless there is another sleight of hand yet to be played.  As it turns out, there is.

About these projections

Traffic and revenue projections for toll lanes have been notoriously optimistic.  One study of 26 toll roads in the U.S. showed that on average revenue projections were more than double actual revenues for the first five years of operation.[1] Stantec, the firm who made the I-77 projections, also did the projections for the Capitol Expressway. They predicted revenues of $54.7 million in the first year of operations. Actual revenues were less than a third of this.[2]

Given this history and the economics surrounding the I-77 case, how could a ratings agency in good conscience believe the I-77 project carries “low to moderate” risk?

Because in order to secure the required “investment grade” bond rating, the NCDOT agreed to kick in up to $12 million per year anytime toll revenues fall short. (This provision is referred to by the innocuous-sounding term “Developer Ratio Adjustment Mechanism, or DRAM. The total taxpayer liability under the DRAM is capped at $75 million.)

For months I have been saying the toll lane financials do not make sense and that no ethical bond rating agency would ever rate the project as sound. What I failed to envision is a scenario where the taxpayer directly subsidizes toll revenues for the private company. That is what is happening here.

The public bears the risk while profits are privatized.

The original maximum public contribution was capped at a total of $170 million.  When the lone bid came in requiring a taxpayer contribution of “only” $88 million, the NCDOT and some local officials made quite a point of telling the public the “good” news. They never mentioned another $75 million in taxpayer-funded subsidies.

However, in their summary to the NC Legislature, the NCDOT did note that “during the 50 year contract period, (Cintra) will … bear substantial revenue risk.”

Travel Time & Congestion

The report estimates a morning trip from Mooresville to Charlotte takes about 39 minutes TravelTime2015ppttoday.  By the year 2035 that time will nearly double, to 1 hour and 12 minutes.  The most congested section is from Catawba to Hambright, a five mile stretch where the average speed today is 25mph. By 2035 traffic is expected to crawl at 13 mph.

Northbound in the afternoon doesn’t fare much better, where the average speed in 2035 is a pedestrian 15mph TravelTime2035pptand the trip home will take you 1 hour and 9 minutes. Congestion mitigation is, of course, no concern to the private company- in fact quite the opposite. The more congestion, the more they can charge for tolls. The consultants admit that operating the toll lanes to maximize revenue is “a condition where their utilization would be well below capacity, thus by definition not providing the maximum congestion relief in the Speed2015corridor.”

Yet in their official report to the legislature and governor, the NCDOT resorted to a half-truth saying managed lanes will help “ease congestion on the free lanes for other drivers.” They failed to mention  Speed2035average commute times
are expected to nearly double in less than twenty years.

Capital Structure

The total project cost is estimated at $655 million. Of this the taxpayer will directly contribute $88 million. $315 million comes from government-backed loans from two sources- TIFIA loans and private activity bonds, or PABs. These loans are guaranteed by the taxpayer, meaning if the project fails the taxpayer is liable for a bailout. The private company is also providing an equity infusion of $234 million, and $16 million in deferred interest payments will be added to the outstanding debt.

The average cost of the financing, called the weighted average cost of capital, or WACC, is 7.4%. This is significantly higher than interest rates on other collateral-backed loans. For instance, 30 year mortgages on private homes are less than 4%. Average interest rates on municipal bonds are around 4%.

This financing method is therefore very expensive. Assuming a 30 year term, the total interest paid on the project at the WACC interest rate is $832 million. If the project was instead financed through municipal bonds, total interest paid would be $403 million. If the project was funded through normal allocation means, the interest cost would be zero. Granted, this would be a few years down the road, but there is no definitive answer on when funding would be available because the NCDOT has never ranked an alternate project.

Summary

  • Initial tolls are expected to be $9 one way, escalating to $20 one way by 2035
  • Total toll payments are projected to be $13 billion over the life of the contract
  • Travel times on the free lanes are expected to nearly double in less than twenty years
  • The taxpayer will subsidize any shortfall in toll revenues up to $75 million

-Kurt

[1] Wilbur Smith’s Traffic and Revenue Forecasts: Plenty of Room for Error, Reston Citizen’s Association, January 27, 2012

[2] “495 Express Lanes went to financing in 2010 with boom-time projections….”,Toll Roads News, October 11, 2013

Source documents:
I77HOTTechmemos     I-77 JLTO Report 4-25-14     I-77 JLCGO Report 4-25-14

Secret Government: In NC, It’s Legal

Next month the NCDOT is scheduled to sign a 50 year contract with a private company to add toll lanes to I-77 through Lake Norman.  As we’ve reported previously, the public knows almost nothing about this plan.  We don’t know:

  •  Where drivers can access the toll lanes. Will they bypass Cornelius or Huntersville (probably not)? Once in the toll lane, will a driver have to stay on them all the way to I-85, thereby maximizing the toll (probably so)?
  • How drivers will access the toll lanes. Will there be dedicated center drop-down lanes? Will drivers crawling at fifteen mph have to merge with zippy lane customers barreling along at seventy?
  • How bad traffic is expected to become in the beleaguered four general purpose lanes
  • How much the tolls are expected to be

In early April we submitted a FOIA request along those lines and have made several follow up phone calls and emails. We even contacted the NC Attorney’s General office.  We’ve received nothing except the cut and paste we’ve posted here.

Our requests for information actually started over a year and a half ago. Back then the NCDOT told us they cannot comply because of the competitive bidding process.  But that process is now over- bids were received last March and NCDOT accepted a bid.  (As it turns out, it was the only bid.)

So there is no more competition nor will there be until 2067.  Yet, NCDOT refuses to release the most basic information.  Why?

Because they don’t have to.

But isn’t there a law that requires them to release public information? There is. That would be GS 132-1, North Carolina’s Public Records Law.  So how, you may ask, can they get away with keeping this all a secret?

Because they’re allowed to.  Another statute exempts public bids from being made public.

Here’s the exact wording:

NC GS 136-128.5 (c) Notwithstanding G.S. 132-1, bids and documents submitted in response to an advertisement or request for proposal under this Chapter shall not be public record until the Department issues a decision to award or not to award the contract. (1987, c. 380, s. 1; 1991, c.716, s. 1; 2012-78, s. 11.)

So the NCDOT doesn’t have to tell the public anything about the contractor’s proposals until after they’ve decided to award the contract. Note, however, that the statute doesn’t say anything about information the NCDOT has developed.

With this in mind, our FOIA request asked for NCDOT’s information, not the private contractor’s. Specifically, we requested NCDOT’s “Base Case” model they used to judge the proposals.  This included things like revenue and traffic projections.  Surely something developed by a public department should be public information, right?  Wrong.

Again, there’s a handy exemption:

 NC GS 136-128.5 (b) Analyses generated by the Department of Transportation’s Bid Analysis and Management System, including work papers, documents and the output of automated systems associated with the analyses of bids made by the Bid Analysis and Management System, are confidential and are not subject to the public records provisions of Chapter 132 of the General Statutes.

The reality is the NCDOT doesn’t have to tell the public anything about this contract- the details of the winning bid, their evaluation process, their traffic projections, their finances- until they are poised with pen in hand.

You might want to bring this up the next time a state-level politician waxes eloquent on transparency in government. In the meantime, we’re probably in for a rude shock sometime in June.  Of course, by then the 50 year contract will already be signed.

And Then There Was One…

After three weeks of cajoling the NCDOT with a FOIA request, and a couple calls to the NC Attorney Generals office, I finally got a response about who actually bid on the toll lane contract.  I received a cut and paste of a carefully worded statement.  Here it is (emphasis added):

Four potential bidders were shortlisted and participated in more than 70 intensive, one-on-one meetings with NCDOT. These meetings helped us produce several drafts of the final contract documents. These documents lay out the instructions for bidding, the design, construction, and maintenance performance requirements and the overarching agreement. They reflect the minimum contract requirements and the public protections that we require (e.g. bonding, insurance, termination rights, revenue sharing, etc.)
In addition, we stated that the maximum contribution from traditional state funding would be capped at $170 million.
Each of the four bidders conducted exhaustive analyses to determine if they could meet these contract requirements while ensuring that the long term contract would generate enough revenue to offset their initial investment.
Bidders requested varying amounts of additional state and federal funding beyond the $170 Million, and/or requested that a multitude of the contract requirements be relaxed. We determined that the $170 million public contribution was reasonable and the public protections in place in the contract were prudent. The cap would not be increased.
Bids were due on March 31, 2014 and one bidder submitted a compliant technical proposal and financial proposal. The proposals were subjected to roughly 200 pass/fail criteria and further evaluation of the relative merits of their technical proposal.
The apparent best value proposer was announced on April 11, 2014 as Cintra Infraestructures. Cintra proposed a total project investment of $655 million, of which only $88 million is the NCDOT contribution (less than the projected $170 million contribution).
So there you have it… after three years, 70+ meetings and umpteen hours working the agreement, only one consortium was interested in bidding.  Somewhere a red light should be flashing.

 

Out of Four Bidders, Successful One is Sole ALEC Member

In 2011, Speaker Thom Tillis was named ALEC’s “Legislator of the Year.” The membership of ALEC (American Legislative Exchange Council) is composed of private companies and legislators with the goal of promoting “limited government, free markets, and federalism” according to their website.

In reality they craft model legislation for, among other things, public-private partnerships (P3’s) like those being proposed for the I-77 toll lanes. So it probably comes as no surprise that in the summer of 2012 the North Carolina House passed legislation enabling the state to enter P3 contracts.

In Spring of 2013 Tillis jetted off to Oklahoma City to attend the annual ALEC conference and was named a Board Member.

Two weeks ago, NCDOT named Cintra as the “best value” proposer for the I-77 toll lane project.

What do these developments have in common?

Cintra is a member of ALEC. In fact, of the four potential bidders, CIntra is the only one who is a member of ALEC.

Granted these developments are loosely connected- loose enough to plausibly deny crony capitalism, but you have to wonder. And you have to wonder given the NCDOT refuses to release the names of those who actually submitted a bid, let alone any information regarding the bid (like how many taxpayer dollars are at risk). Even though NCDOT has made their selection, we don’t know where the toll lanes can be accessed, how they’ll be accessed and even how much the freaking tolls will be. You have to wonder.

Public agreements made in secret rarely benefit the public.