What A Real Transportation Boondoggle Looks Like
California’s passenger railroads are doing a healthy business, shattering ridership records left and right. High speed trains across the globe routinely have high ridership and cover their operating costs. The independent peer review found the ridership projections for California high speed rail were sound. Yet many critics charge that high speed rail is still some sort of huge risky boondoggle that the state should abandon as soon as possible.
Those critics are wasting their time by focusing on railroads, which have huge growth potential and a significant ridership waiting to be tapped. No, the real boondoggle in California transportation is the freeway network. And nothing shows that more clearly than the case of the Orange County toll roads.
The toll road concept was first floated in the 1980s by Republicans looking for a way to build more highways in Orange County while also enriching private investors. Governor Jerry Brown had halted most freeway construction in the late 1970s in order to save money as well as address the oil crisis, and although construction on those unfinished projects resumed in the early 1980s, the state made it clear it didn’t have money to build new routes. So the idea of using bonds backed by tolls appealed to the Orange County sprawlocracy.
Public opinion wasn’t unanimously supportive. Laguna Beach bitterly opposed what became the Highway 73 toll road, which destroyed the upper part of Laguna Canyon when it was built in the mid-1990s. But most others hoped that the toll roads would provide relief to the 405, the 5, and the insane backups that developed from the 1980s onward on the 55 and 91 freeways leading from central Orange County to more affordable housing in the Inland Empire.
Backers promised that no new tax money would be required for the roads, that they would pay for themselves. Hardly anyone questioned this. In Orange County in the early 1990s, it was just taken as gospel that of course people would continue to drive everywhere for the rest of human existence, and so naturally new freeway lanes would be needed to handle the load.
But that wasn’t what happened. Here at the end of 2012, it’s clear the toll roads are a colossal failure:
The roads, which rely on motorist tolls and fees from new developments in the area, have been battered by economic recessions, lower-than-expected population growth and competing public highways, such as Interstates 5 and 405, both of which have been widened and improved by Caltrans.
Wall Street ratings agencies have reduced the San Joaquin Hills toll road’s bonds to junk status and the notes for the Foothill-Eastern corridor to the lowest investment grade.
To meet expenses and debt payments, the corridor agency has refinanced the San Joaquin Hills bonds, raised tolls more than originally planned, slashed administrative costs and obtained repayment concessions from bondholders. Early next year, officials plan to refinance about $2.4 billion in notes issued to build the Foothill-Eastern tollway.
In 2011, ridership on the San Joaquin Hills, which has never performed as predicted, was only 43% of original forecasts, and its revenue was 61% of projections. The road parallels the Orange County coast, slicing south from Irvine through Newport Beach, Laguna Beach and Aliso Viejo to the San Diego Freeway.
Motorists on the Foothill-Eastern last year numbered 33% less than projected, and revenue was 75% of forecasts. Previously, the part of the corridor between Yorba Linda and Rancho Santa Margarita had a revenue surplus and ridership that was often 8% to 10% ahead of projections. The extra money was used to help shore up the finances of the San Joaquin Hills road….
“It is hard to see how they can grow their revenue to keep up with the rapidly increasing levels of debt service,” said attorney Tom Vandiver, a public finance expert at the law firm.
Vandiver described the toll road’s situation as “a time bomb waiting to happen,” adding that the economic problems could lead to a default on bond payments or a potential bankruptcy.
The LA Times article does a good job of describing the overall financial woes. But it doesn’t really get at the heart of the problem: freeway “ridership” is only going to decline as gas prices continue to rise and as the great shift away from driving continues. Freeways and toll roads in the suburban fringe will be hit hardest by these declines, as growth there stalls and instead boomerangs back into the urban cores. While the Foothill-Eastern toll road might have had a few good years at the height of the housing bubble, those times are never ever coming back. The rise of gas prices means that people will find ways to avoid the toll roads, especially since each of those toll roads lies just a few miles away from a perfectly good parallel route. And even though those parallel routes sometimes are jammed with traffic, Southern Californians are voting with their wheels and choosing them over the toll roads anyway.
As gas prices rise and climate change worsens, California will also be building out more alternatives to driving, especially passenger rail. Metrolink has had an Inland Empire-Orange County line for several years now and one can expect that service to improve in frequency, coverage and speed over time. That too will cut into an already weakening demand for toll roads.
While some might point to Orange County’s failing toll roads as reason for caution over high speed rail, the truth is that the two are fundamentally different because of the underlying factors of gas prices and the shift away from driving. Freeway “ridership” will only continue to decline over time, whereas passenger rail has a bright future.
This isn’t to say that toll roads are inherently flawed. There are many reasons why tolling existing freeways makes sense, whether it’s congestion management, revenue generation, or carbon reduction. But if one is hoping to pay off construction bonds with tolls, or if one is counting on increasing “ridership” to generate toll revenue, well, you’re going to find yourself screwed when the “riders” choose trains instead.
Eventually the Orange County toll roads will have to be bailed out, just as the 91 toll lanes were. OC would have been better off without them. Its transportation future, like that of the rest of the country, lies in trains and buses, not in more freeway lanes.