Failed Sale of Highway 91 Toll Lanes Refuels Debate
A proposed public bailout of the owner of Highway 91 toll lanes in Orange County has died amid allegations of financial improprieties. The experience with the 91 Express Lanes, which even privatization supporters call a "fiasco," appears to put a damper on what little interest remains in constructing private highways.
"This is not something that anyone should expect to become the dominant mode of highway building," said Marlon Boarnet, a University of California, Irvine, planning professor who has studied the issue extensively.
A joint venture called California Private Transportation Corp. (CPTC) constructed the 10-mile tollway in the right-of-way for the Riverside (91) Freeway. The lanes opened in December of 1995, and more than two years passed before CPTC turned a profit. But usage reportedly dropped by more than one-third to roughly 18,000 trips per day after the Eastern Toll Road opened in late 1998. The Eastern Toll Road, run by the public Foothill/Eastern Transportation Corridor Agency, handles much of the same Riverside County-Orange County commute traffic that the 91 Express Lanes accommodate.
For a variety of reasons, CPTC announced it would sell the 91 Express Lanes to a new nonprofit organization called NewTrac, which CPTC helped establish with a $1 million loan. The proposal called for the state to sell $274 million worth of tax-exempt bonds on behalf of NewTrac. CPTC would receive $225 million for the 91 Express Lanes, which reportedly cost about $135 million to construct, and the remaining bond proceeds would pay finance costs and create a reserve. Tolls, now topping out at $3.75, would retire the debt.
As the December 9, 1999, date for selling bonds neared, several prominent officials — including state Treasurer Phil Angelides, Orange County Treasurer John Moorlach and Riverside County Supervisor Bob Buster — publicly questioned the deal. When the proposal reached the California Infrastructure and Development Bank, Angelides abstained, but the other two members of the ban, Trade and Commerce Secretary Lon Hatamiya and Director of Finance Tim Gage, voted to approve the bond sale.
The day before the scheduled bond sale, however, Angelides, acting as the "agent of sale," halted the issue indefinitely. He could do this because legal issues were raised regarding the sale, said Cathy Calfo, an Angelides aide. In this case, the state Attorney General's office opened an investigation, she noted. Also, the Riverside County Board of Supervisors voted unanimously to pursue legal action to halt the sale.
Those who raised questions said no independent appraisal of the 91 Express Lanes was ever made. Some people also wondered about the close ties between NewTrac and the seller, a concern that the attorney general's office and the Internal Revenue Service have decided to investigate. Some people also questioned the role of Gary Hausdorfer, a former chairman of the Foothill/Eastern Transportation Corridor Agency who heads NewTrac. Hausdorfer and CPTC have denied wrongdoing and said the bond sale was attacked for political reasons.
The issue is certainly headed for the political arena, as a joint hearing of the state Legislature regarding the proposed sale and the future of the 91 Express Lanes was scheduled for February 1. The courts also will get involved, as the Riverside County Transportation Commission sued Caltrans and CPTC in late December to force Caltrans to take over the toll lanes.
The situation appears to have reinvigorated discussion of private highways. State legislation in 1989 (AB 680) authorized four private tollways — the 91 Express Lanes, State Route 125 in San Diego County, extension of the 57 Freeway in southern Orange County, and a highway linking the East Bay with Sacramento. Only the 91 Express Lanes were built. The San Diego County project is nearing final approval after years of environmental study and legal wrangling. The other two proposals appear dead.
Boarnet views the 91 Express Lanes as a successful experiment, partly because it brought forth questions that must be answered before future private roads are built. The question of competition from the public sector might be the toughest to answer. The 35-year agreement Caltrans has with CPTC prevents Caltrans from making safety or capacity improvements to the free lanes of Highway 91 until congestion substantially worsens. At the time the "no compete" clause was approved, no one appreciated how long 35 years is and how much traffic conditions could change, Boarnet said.
Hurting the CPTC is the Transportation Corridor Agency's access to tax-exempt bonds, which reduced costs. "We need to take a closer look to see if the public good would be great enough to have these private franchises float tax-exempt bonds," Boarnet said.
Robert Poole, director of the transportation program at Reason Public Policy Institute and a proponent of the original AB 680, said projected population growth and stagnant gas tax revenues mean the state needs alternatives for providing highway capacity. The California Transportation Commission estimates the state has $118 billion in unfunded highway needs through 2008.
"Toll-funded projects need to be a big part of the equation in the next 20 years in this state," Poole said. "We ought not let the hiccup that was represented by this little [Highway 91] fiasco get in the way of the role that public-private partnerships can play."
Like Boarnet, Poole said the 91 Express Lanes experience presented valuable lessons. The original contract between CPTC and the state did not contemplate a change in ownership, Poole said. The 91 Express Lanes situation and the slow pace of approving the San Diego County toll road make clear the need for more flexibility in public-private partnerships, he said. In some other states, for example, the state transportation department carries a project though the planning and environmental review stages, then turns it over to a private developer for construction and operation, he said.
A hybrid called "high occupancy toll" (HOT) lanes received a boost from a January study of high occupancy vehicle (HOV) lanes by the Legislative Analyst's Office. These HOT lanes are free for carpools, while single-occupant vehicles pay a toll. Intestate 15 has HOT lanes that carry commuters into and out of San Diego. A computerized system, which reads transponders on vehicles, charges tolls ranging from 50 cents to $4 based on highway congestion. Tolls can change every six minutes. The San Diego Association of Governments calls the I-15 HOT lanes a success, and the Legislature has extended the pilot program's sunset date to 2001.
Still, Californians' acceptance of toll roads appears limited. The San Joaquin Hills Toll Road (Highway 73) in western Orange County has not come close to traffic and income projections since opening four years ago, forcing the Transportation Corridor Agency to raise tolls. Boarnet said California motorists will accept toll roads only if the new lanes provide obvious relief from congestion on the network of free highways.
Marlon Boarnet, UC Irvine, (949) 824-7695.
Robert Poole, Reason Public Policy Institute, (310) 391-2245.
State Treasurer's office, (916) 653-2995.