Some of you may remember the great “Cheers” episode where Norm the barfly/accountant held an office party at the Boston watering hole. Worst. Party. Ever.
So, a warning: This column is chock full of accounting. Grab your party hat.
The ledgers in this case involve the Central Texas Turnpike System, the four Central Texas toll roads operated by the state. That 73 miles of tollways on Austin’s north and eastern fringe, which are financially linked by their owner, the Texas Department of Transportation, have been seeing ever-increasing traffic since the first pieces opened in 2006, and are bringing in an increasing amount of toll revenue each year.
And yet after making a decade of substantial payments on its initial $2.2 billion in debt — including about $109 million paid this past year — the turnpike system now owes $2.4 billion.
I don’t know about you, but I found that disturbing and more than a little confusing. How can this be?
TxDOT had a credible (if complicated) explanation, which I’ll get to shortly.
The clear transportation success of the four roads — Texas 130 is seeing rush-hour congestion in certain sections, and is about to have its first expansion — will eventually be just as clearly a financial success, TxDOT says.
In the fiscal year that ended Aug. 31, the combination of Texas 130, Texas 45 North, Texas 45 Southeast and Loop 1 generated 142 million toll transactions, 14 percent more than occurred on the tollway system the year before. Traffic on the system has more than doubled since 2009. That many vehicles weren’t expected until about 2025, officials said.
Toll revenue, meanwhile, was $170.7 million in the 2015-16 fiscal year, up $19 million from fiscal 2015.
What’s more, the system on an annual basis for the past four years has been producing what you and I would think of as profit, although TxDOT prefers to call it “remaining reserve.” In 2016, that surplus — after paying to operate and maintain the roads, and to make debt payments — was about $23 million.
At this point, some of you might be saying, “Wait, I’m pretty sure I heard that the foreigners running Texas 130 went bankrupt last year. Fake news!”
No, no, no, although I can understand the confusion. The turnpike system, built and operated by TxDOT, includes the northern 49 miles of Texas 130, the part from near Georgetown to Mustang Ridge. The troubled section that was built and operated by a consortium led by Spanish toll road company Cintra, under a long-term lease from TxDOT, is the southern 40-mile stretch running to Seguin. That’s the part that failed and is being taken over by creditors.
TxDOT, while it gets a small percentage of the toll revenue on that other part of Texas 130 under the lease agreement, isn’t tied to that bad debt.
So, back to TxDOT’s toll roads.
The unexpectedly heavy traffic on Texas 130 between Hutto and Texas 71 led the Texas Transportation Commission last week to approve a $195 million project to expand that middle 21 miles from four lanes to six lanes. Expect to see construction starting on that project in about a year, with completion sometime in 2020.
TxDOT, it turns out, already has the money for that project. When the agency in 2002 first borrowed $2.2 billion to build Texas 130, Texas 45 North and Loop 1 (Texas 45 Southeast was done later using regular gas tax funds, with no borrowing), it set aside almost $200 million for future rehabilitation or expansion. That rainy day fund will be used to add the new lanes.
Which brings us to the accounting part, and how a $2.2 billion debt can grow even as the state is making payments.
TxDOT officials had two explanations.
First, the original debt has been refinanced more than once, each time lowering the interest rate and thus the total debt payments between now and 2042 (when all the debt will be paid off). But those transactions carried what a home mortgage holder might think of as “points,” or an added cost for doing the refinance, and that was added to the principal owed.
I was assured by Ben Asher, TxDOT’s director of project finance, debt and strategic contracts, that the total payout from TxDOT was decreased, even with the added principal.
Second, some of the original debt, Asher said, was a type that carried a “premium,” added principal that in effect bought down the interest rate. So the original $2.2 billion of debt, listed in official investor documents, was actually somewhat higher than that, TxDOT said.
Just as with a home mortgage, TxDOT up to now has mostly been paying interest on the debt, officials said. The $114 million to be paid this year, they said, will include only $7 million in principal, or 5 percent. But, also as is the case with a mortgage, that percentage of the payment for principal will be escalating in each of the 25 years left on the payments, Asher said.
The people who hate toll roads, I’m quite sure, will look at all of this as verification of their worst fears: TxDOT will end up paying a multiple of that $2.2 billion in total payments. The original cost of the road was inflated to some degree by the need to build toll facilities. And each toll transaction carries a cost of something like 25 cents. Better to just raise the gas tax, they say, and build things with cash like TxDOT used to do.
All those things are true. But what was also true 15 years ago, when the Central Texas Turnpike System was in the works, is that the Texas governor and the Legislature had no interest in raising the gas tax. Without this debt, and the tolls to pay for them, those roads likely wouldn’t be there even now.
The Legislature, and voters in 2014 and 2015 constitutional amendment elections, have now pushed some more cash TxDOT’s way (about $4 billion a year from existing taxes) and that will make it possible to build more roads without tolls.
But the turnpike system is there, people are using it in numbers and, though still deeply in hock, it is apparently financially sound. That’s better than the alternative. Just ask Cintra.