By on September 15, 2011

Toll roads at one point appeared to be unstoppable. Steady growth in traffic yielded rapidly rising profits, especially for pioneers in the field such as Australia’s Macquarie Bank where executives became so rich from deals that included the leasing of US roads that it was dubbed the “millionaires’ factory.” That all changed when the recession took hold and motorists scaled back on the mileage driven each year. Losses began to mount, and as a report released last week by Fitch Ratings argues, the dynamics for tolling may not improve in the near future.

“Fitch tracks data on toll roads, bridges, and tunnels across its ratings portfolio,” Fitch analysts wrote in the report, Downshifting: US Transportation Reacts as GDP Growth Flattens. “Traffic declined year over year as much as 10 percent during the Great Recession. Sustained positive growth in traffic commenced in February 2010. The most recent Fitch data indicates that growth in traffic volumes began slowly declining on tolled facilities, heading to zero growth in second-quarter 2011.”

The US Bureau of Transportation Statistics reported a similar decline in commercial transportation services for both goods and passengers. Despite some recovery, the index remains below pre-recession levels. These transportation statistics mirror figures for consumer spending which began recovering early last year only to falter this March. Growth in consumer spending for the second quarter of 2011 was under 0.1 percent.

The credit ratings agency argues activity in the economy at large and the in the transportation sector are directly linked. When someone gets a job, he generally gets in his car to drive to work. When stores sell goods, the supplies, raw materials and final product are usually transported by truck. When unemployment is high and sales are low, such transportation activity drops.

“Higher oil and other commodity prices account for some of the change in consumer spending,” the analysts explained. “Unlike past downturns, these prices are increasingly influenced by external factors as well as US demand. Consumers are reacting to increased prices and a weak labor market with belt tightening.”

Fitch will not downgrade any existing credit ratings for toll roads because these operations have a monopoly position that enables them to recover from downturns by hiking tolls that many motorists have no choice but to pay.

“Tolled facilities have experienced low and even negative traffic growth since 2007,” the analysts stated. “Revenues have grown at a much higher rate as facility operators reacted to the downturn by raising rates to preserve financial and operational flexibility.”

The ratings agency warned that sustained periods of low economic growth imperils the financing of deals built with healthier traffic and economic forecasts in mind.

“Most public infrastructure facilities should be able to weather little to no growth scenarios over the next three to five years,” Fitch wrote. “However, there are a number of issuers whose escalating debt profiles could pose a problem in the medium term. Newer toll facilities generally have such debt service profiles… Stand-alone, concession-based facilities, originally financed in 2006 – 2008 when expectations for future economic growth were very high, will be more vulnerable.”


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8 Comments on “Credit Ratings Agency Warns of Tolling Troubles...”

  • avatar
    Chicago Dude

    Sounds like the cities and states that entered into long-term leases in exchange for upfront cash are (very) inadvertently making out like bandits.

    • 0 avatar

      Yes, but their constituents are screwed. The end of the article reminds me of Chicago selling it’s parking meters to Morgan Stanley, who immediately began raising the rates.

      • 0 avatar
        Chicago Dude

        The Chicago parking meter rates were set in the contract for all to see, up until 2012 or 2013. At that point, they can be increased by an amount that doesn’t exceed inflation.

        As far as the constituents getting screwed… Well the Chicago Skyway and Indiana Toll Road were part of this privatization deal. A driver has two choices when going south out of Chicago – the private, more expensive, shorter route or the public, freeway, longer route. People make that choice every single day and are not locked into either one by any stretch of the imagination.

        I almost always choose the toll route because the time savings and fuel savings are worth it to me. However, the freeway route is wrapping up a long construction project that should improve travel time while the toll route is still mired in construction for years to come. Maybe my preferred route will change. In the meantime, I am far from screwed.

  • avatar

    CA state route 125, the so-called “South Bay Expressway,” was a privately financed toll road and is now seeking to be bought out by the regional planning agency for $344.5 million, because it was going broke on its own.

    Seems like local, or even state, governments are always going to get hornswoggled on these contracts because they just don’t have the legal muscle to deal with the powerhouse lawyers of Big Concrete who write heads-we-win, tails-you-lose language into the deal. Or maybe they just lobby harder.

    • 0 avatar

      CA state route 125, the so-called “South Bay Expressway,” was a privately financed toll road and is now seeking to be bought out by the regional planning agency for $344.5 million, because it was going broke on its own.

      It sounds as if they’re buying it for a fraction of the cost of construction. The government is getting a hell of a deal.

      That’s actually not a bad plan — privatize the front-end costs, then buy it back on the cheap after it fails, shedding the excess costs in bankruptcy court. Pretty shrewd.

    • 0 avatar

      Municipalities and states have the constituent issue to deal with. Even if it’s a privately financed and operated road, if it goes out of business the city or state can’t say “Oh, well, that was that company, and they blew it.” They’ve got people banging on them to keep that road open, and take it over.

      But there *should* be more of a bankruptcy sale. Otherwise these roads end up being the same kind of bad deal that the bailouts were: privatizing profits and socializing losses. The municipality should pay what the market cost would be, and even open it up to other private bidders. Why should taxpayers take a bath?

  • avatar

    Maybe our stupid Ohio guv won’t be able to lease the turnpike after all. (It’s dumb anyway)


  • avatar

    I first read the title of this article as “Trolling troubles”. Which makes sense, doesn’t it? Trolls are famously known to collect tolls for roads/bridges.

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