A major credit rating agency yesterday released a report reinforcing a negative outlook on the financial stability of the toll road industry. Fitch Ratings analyzed the performance of forty US toll road facilities during 2007 and 2008. It predicted that the roads would not see a recovery from the recession until 2011 at the earliest and that motorists would be paying more money in tolls as a result.
“Fitch expects the cost of highway travel to increase in real terms — something that generally hasn’t happened in the US historically,” the report stated. “In other words the days of declining real toll rates may be gone. And while beneficial in the near term, higher toll rates over time could present challenges in the next downturn as the value of a low toll rate has borne itself out in this recession.”
The report emphasized how industry performance is at an all-time low. Traffic on thirty-three toll facilities dropped 4 percent in December 2008 compared to 2006 — the largest such plunge since data was first collected in 1970. Revenue did not fall as sharply as traffic because most of the toll roads introduced sharp rate hikes to cover losses. During the same period, stand-alone toll road revenue dropped only 1.5 percent. For some roads, that may not be enough.
“Most toll facilities have debt-service obligations that grow to varying degrees over the next several years, so anything more than a temporary decline in revenue would be problematic,” the report explained. “Several facilities within the dataset have actually raised rates and shown little to no revenue growth — indicating that they are already maximizing revenue and, at least for the near term, have no real ability to stem the losses. These assets also have a growing debt burden and, not coincidentally, they have the lowest ratings.”
Turnpikes, on the other hand, used their “near monopoly position” to boost rates on drivers so much that revenue increased 4.3 percent even though traffic plunged 6.4 percent. The New Jersey Turnpike, for example, raised driving costs by fifty percent. Still, no matter how high the rates are now, tolls will likely increase yet further after the economy recovers.
“Many of the toll increases put in place over the last year are funding essential system rehabilitation and/or expansion,” Fitch stated. “As a result, while revenue trends have outperformed traffic, more debt is being taken on — pushing the day of reckoning out a few years. It is Fitch’s view that traffic will remain stagnant over the next few years as the economy struggles to regain its footing and toll increases beyond those planned for will likely be needed on many facilities to maintain financial flexibility in the face of growing debt service.”
Fitch used the threat of rating downgrades to compel toll roads to make the desired toll hikes. A bad credit rating increases the cost of financing and could seriously harm the financial viability of a highly leveraged toll deal.
“To the extent individual facilities do not cut back on capital or are politically unable to raise tolls, rating action could be taken,” the report stated.
Overall, Fitch has downgraded or changed the outlook to negative on ten out of forty projects since its August report. Only two facilities improved.
Yet another way that Canada and Britain are smarter than America.
How stupid is it to charge the crap out of people for road taxes on license plates, for road construction, then allow private companies or semi-private quasi-governmental agencies to build roads and charge for their use on TOP of said taxes, in lieu of simply building more freeways?
I notice that the general public are voting with their feet (in a sense) by avoiding more of the toll roads.
Who could blame us?
They could increase the toll price 10% here, and I’d still much rather take the George Bush Turnpike or Dallas North Tollway over their alternatives. Actually, maybe I shouldn’t say that. Hopefully the NTTA doesn’t read TTAC.
Menno:
My impression is that the vast majority of the toll road agencies included in the Fitch analysis are public entities, not privately-owned roads. When they are run by boards or authorities that are separate from the main state highway department, and their bonds are not explicitly backed by the state, they get their own credit rating.
Tolling roads as the main way to support their construction and upkeep is demonstrably inferior to some sort of public support model (i.e. paid from your taxes). This is because there are many cases in which an additional ride will not cost the agency much in added wear and tear and other direct costs, and not cost the public much in terms of added congestion, yet at the same time the high price of the toll scares away the driver, who values the proposed trip somewhat but not enough to make it worthwhile once the toll is added in. Suppose a pizza place on the New York side of the GW bridge stays open all night. At 2:00 AM, they could easily send a delivery boy over the bridge to make a delivery in Fort Lee, NJ, and the NJ resident would pay an extra $5 for authentic NY pizza instead of the NJ dross. But since the round-trip bridge toll is $7, no trip gets made and no pizza is delivered. Had the toll taker made a deal with the delivery boy to charge only $4 in tolls, the deal gets done and everyone comes out ahead (mind you, the direct cost to the bridge operator of allowing the delivery car across the bridge at 2:00 AM amounts to less than $1 in all probability). Also note that the higher you make the tolls, the more trips are caught in the marginal trap — worth it on their own, but not worth it once the toll is added in.
Tolls make sense only when the actual marginal costs of each additional vehicle are high enough to matter: Heavy trucks and congested time periods are two classic examples. The first, because of an actual and substantial contribution heavy trucks make to wear-and-tear, and the second because of the actual contribution each additional car makes to the congestion delay that everyone else suffers. Mind you, the amounts collected from such tolls are almost certainly not enough to cover the fixed costs of the road, nor should they be — in the extreme case, if you build a parkway that carries no trucks and is always well used but never jammed up, you should collect no tolls and pay for the whole thing out of taxes, to the benefit of all those drivers.
Effective July 13th 2009, the toll on the Verrazanno bridge in NYC will go up to $11. Yes, that’s right…$11 to spend 3 minutes driving one way over a lousy bridge with a view of New Jersey.
Effective July 13th 2009, the toll on the Verrazanno bridge in NYC will go up to $11. Yes, that’s right…$11 to spend 3 minutes driving one way over a lousy bridge with a view of New Jersey.
I know….that’s 2 fewer drinks in Brooklyn when we head over.
Yet another way that Canada and Britain are smarter than America.
How stupid is it to charge the crap out of people for road taxes on license plates, for road construction, then allow private companies or semi-private quasi-governmental agencies to build roads and charge for their use on TOP of said taxes, in lieu of simply building more freeways?
Huh? You know nothing of Canada. Build-Operate-Transfer is precisely the way that Canada operates its toll roads, like South Korea, Australia, New Zealand, Japan, China, etc.
The US is actually very unusual in being late to the party in building roads and then leasing or selling them to private concessions.
Note that, of course, if toll roads are losing money, then the states like Indiana and Texas (with the George Bush, not the North Dallas Tollway) that sold or leased private concessions at a top are doing very well. They got far more money then than the private operator is going to be able to make.
I know that the Newspaper is against toll roads. But it’s amusing that somehow both high profits and low profits for toll roads are both equal signs of problems with toll roads.
Tolling roads as the main way to support their construction and upkeep is demonstrably inferior to some sort of public support model (i.e. paid from your taxes). This is because there are many cases in which an additional ride will not cost the agency much in added wear and tear and other direct costs, and not cost the public much in terms of added congestion, yet at the same time the high price of the toll scares away the driver, who values the proposed trip somewhat but not enough to make it worthwhile once the toll is added in.
Paid from which taxes? You’re right to consider the problem of deadweight loss, but deadweight loss occurs with other taxes as well. It’s only demonstrable if you can demonstrate that the alternative tax causes less deadweight loss.
In general, though, your point is sound. Tolls are appropriate when congestion is an issue, and when congestion is not an issue, are generally not appropriate. That said, I’m not generally aware of an effort in the US to provide toll roads in areas that don’t suffer from congestion. (As opposed to Japan, where close to all expressways are tolled.)
Where congestion exists, it’s just as easy to demonstrate that tolls can serve as a public good.
The problem of less traffic possibly leading to higher tolls to pay for the road is analogous to the issue with lower vehicle miles traveled possibly causing a need to a higher gas tax. However, since this Administration, like the last, has taken a gas tax off the table, we’ll continue to see the historic infusion of general funds into transportation that we saw with last year’s supplement and the stimulus.
Looks like the cash investors will be willing to pay for privatized toll roads may go down. Indiana and other governments that privatized their roads a few years back may have gotten the best deal for the forseeable future.
johnthacker : But it’s amusing that somehow both high profits and low profits for toll roads are both equal signs of problems with toll roads.
What low profits? The whole point of the report is that motorists are being gouged with higher tolls to make sure there’s always profit.
The problem is the debt will grow faster than the profit because these deals are scams and the “day of reckoning” has only been put off for a few years. When it comes, who do you think is going to be screwed? Us. Guess who is guaranteeing this garbage? Hint:
http://www.fhwa.dot.gov/
I haven’t looked at the financing structure of the Indiana scheme, but I put my money on Cintra-Macquarie’s lawyers being about 100x smarter than the polyester-suited IDOT lawyers when they inked that contract.
Toll roads are despicable.
Hit me up at the gas pump, the way it has been done for decades, and make all roads freely accessible. For first rate surface and ample lane supply, personally, I would be happy paying around $1 per gallon, or even more.
On the soap box here, seems in my younger years, providing an excellent service or product was priority, and profit was the natural byproduct. Our culture has turned into a “profit at all costs” mentality that is destroying the quality of products and services. It is killing the goose that lays the golden eggs.
Any Star Trek Fans? We have become the Ferengi!
As an example, the Golden Gate Bridge was built using US tax dollars (okay US debt, which tax dollars were obligated to pay). The original toll of $.25 per car was to maintain the bridge. It now cost $7 per car (more for trucks) to maintain the bridge. Does anybody really believe that it costs several $100M per year to maintain the Golden Gate Bridge? If it does, that would just be another example of government inefficiency.
As an example, the Golden Gate Bridge was built using US tax dollars (okay US debt, which tax dollars were obligated to pay). The original toll of $.25 per car was to maintain the bridge. It now cost $7 per car (more for trucks) to maintain the bridge. Does anybody really believe that it costs several $100M per year to maintain the Golden Gate Bridge? If it does, that would just be another example of government inefficiency.
The price is $6, not $7.
Please provide an analysis of the bridge district’s books, then find a comparable bridge with comparable traffic (including all the bike and pedestrian traffic, suicide prevention, as well as the rest areas) and managed by a private firm – and then compare their books to that of the GG Bridge.
The toll was 50 cents one-way originally. The $6 people pay now is only paid in one direction (southbound), so you would need to compare the round trip costs then ($1) with now ($6). People can also use FasTrak and lower than to $5.
The bridge was open to automobiles in May 1937. One dollar from that time is equivalent to $14.80 today – or nearly triple the cost of the current toll for FasTrak users.
http://goldengatebridge.org/tolls_traffic/toll_rates_carpools.php
http://gocalifornia.about.com/cs/sanfrancisco/a/ggbridge_3.htm
I have no problem at all with directly charging for road use through tolls. In my state of Maine, the Maine Turnpike (Southern 100 miles of I-95) is by far the best maintained road in the state, and it is largely subsidized by tolls collected from the zillions of out-of-state vacationers who use it. Locals can get a commuter pass with a HUGELY discounted rate if they need to commute or do business along the Turnpike. I think the cash rates should be even higher, actually. Double for a start, maybe triple for cars with MA, NY or NJ plates…. ;-)
“Currently, 50 percent of bus and ferry operations are funded by Bridge tolls,”
http://goldengatebridge.org/research/facts.php
Pretty much answers the question of why the bridge toll is so high — to subsidize uneconomic and inefficient modes of transport. From the same fact sheet:
“Painting the Golden Gate Bridge is an ongoing task and the primary maintenance job.”
Yes, the bridge is such a money pit. It only attracts a bajillion tourists from around the world and tolls are 2/3 less today than they were when it opened.
Oy.