By on January 21, 2010

Country road, take me home...

The first public-private partnership toll road established as a not-for-profit corporation has gone bust. The Connector 2000 Association, which operates a sixteen-mile, four-lane toll road linking Interstates 85 and 385 in southern Greenville County, South Carolina, announced last week that it was in default on its financial obligations.

“Traffic on the Southern Connector was inadequate to permit the association to collect sufficient toll revenues to pay debt service on the bonds which came due January 1, 2010,” a Connector 2000 Association statement explained. “The association has been advised that the trustee has made no payment of any such debt service. An event of default currently exists… The association is actively negotiating the restructuring of its bonded indebtedness with the trustee, the South Carolina Department of Transportation (SCDOT), and certain owners of large blocks of the bonds.”

In 1998, the association floated $200,177,680 in tax-free bonds to fund construction of the toll road that opened in 2001. These bonds were to be repaid over thirty-five years with the proceeds from toll collections. Just a few years ago, SCDOT touted this project as a prime example of the department’s “innovative financing successes.”

“Without innovative financing, this southern loop around the city of Greenville would be nothing more than a dream,” a SCDOT brochure boasted.

Like other highly-leveraged tolling efforts, the Connector was hampered by unrealistic traffic projections and rosy financial scenarios for an area expected to experience an economic boom.

“The expected growth in the region has yet to materialize,” the toll road’s 2008 annual report admitted. “This factor, the recession and consumer resistance to the payment of tolls (the Southern Connector Toll Road is the only toll road in Upstate South Carolina) have all contributed to the lower-than-forecasted traffic demands.”

There is little hope for the road’s recovery. In 2009, the association collected $3.9 million in tolls from motorists. Because SCDOT decided not to make the Connector a freeway, the majority of that revenue was swallowed by $2.8 million in expenses for things such as consultant fees, marketing, toll collection employees and legal fees — most of which would not be required if operated as a free road. With such a constrained cash flow, the road could not come close to meeting its $13.1 million annual bond interest obligation. The toll road’s bond payments had been insufficient since 2004, and now the association’s net deficit stands at $169 million.

As a result, Standard and Poor’s downgraded the toll road’s bonds from C- to the lowest possible rating of D. A copy of the road’s latest financial statement is available in a 600k PDF file at the source link below.

Source: PDF File Briefing by the Connector 2000 Association (Connector 2000 Association, Inc., 1/11/2010)

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6 Comments on “South Carolina: Innovative Toll Road Goes Bust...”

  • avatar

    Argh…site seems to be eating comments this morning!

  • avatar

    “Because SCDOT decided not to make the Connector a freeway, the majority of that revenue was swallowed by $2.8 million in expenses for things such as consultant fees, marketing, toll collection employees and legal fees — most of which would not be required if operated as a free road.”

    Not all of those expenses magically go away when it’s a freeway. They just get paid by SCDOT in different accounts.

    But in any case, we’ll take SCDOT’s word for it that the road wouldn’t have been built without rosy scenarios. Rosy scenarios and projections are typical in all megaprojects, toll roads or not. With the freeways, the entire loss is born by the taxpayer. Here, the private people foolish enough to buy the bonds are taking a big chunk of the loss.

    And somehow I think that if the road were a big success and profitable, the Newspaper would criticize it for that reason.

  • avatar

    Ok, I’m not intimately familiar with traffic in Greenville, but just look at the friggin’ map.

    Say I’m at I-385 near I-185, and I want to get to I-85 near I-185.

    According to Google maps, if I take the I-185 toll road to get there, it will take me about 13 minutes to go 14.6 miles. If I take I-385 to I-85 to get there, it will take me about 14 minutes to go 15.8 miles. On its face it’s not worth it.

    The only motivation would be if I were going someplace near the toll road away from either my start or end points. Bet that’s where the “development” failed to materialize.

    Gee, I wonder who’ll take a bath on this because of the “rosy financial scenarios”.

    • 0 avatar

      I’m not familiar with Greenville conditions either, but here in Chicagoland we have multiple ways to get from here to there where one path is toll and another is free. I’ll frequently take the toll route because it’s faster (especially with the advent of automated toll collection). Also, some toll options are more pleasant to drive, e.g. I-90 vs. I-94 east out of the city. The tolls on I-90 keep the trucks on the freeway, which can often feel like driving in a Mad Max movie. Unless the SC toll road offers faster actual travel times and/or less congestion, it seems like a solution in search of a problem, especially since, as the only toll in northern SC, I doubt they offer the convenience of automated tolls. Perhaps if the projected growth had actually happened this alternative route would have become attractive to drivers.

      As to who takes a bath on the bonds, if they are primarily held by the likes of the Greater Kalamazoo Teachers Pension Fund, look for a great deal of sad words and little more. However, if the bonds are held by major financial institutions, look for the state of SC to stand behind the “obligations made in good faith by the citizens of SC”.

  • avatar

    Geez, the 407 north of Toronto is a money press.

  • avatar
    Robert Schwartz

    This will not make the road or the tollbooths disappear. Nor will tolls go down. It will just make the recipients of the tolls change.

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