Tuesday 13 September 2011

Texas toll road revenue forecasts look bleak

The global economic slowdown has particularly hit toll roads in a number of countries. I’ve already noted how Ireland, Spain and California have all seen toll roads financially affected by the economic situation (as opposed to toll roads that are performing badly because demand hasn’t met overly optimistic expectations. Now Texas has reported a particularly poor financial outlook for one network of toll roads, but it is unclear whether this can be blamed on demand or poor forecasting. However, a report from Statesman.com does give the appearance of it being the latter rather than merely a reflection of the economy (given Texas is not exactly performing that poorly by national standards). 

According to the report, the Central Texas Turnpike System has seen a shortfall of US$100 million in revenue since 2007, which has meant the roads have had to be subsidised from fuel taxes to cover debt servicing and operating costs. The Texas Department of Transportation now estimates a US$38 million subsidy per annum for the next decade, with the roads not generating a surplus until 2030.

However, one of the reasons for this appears to be the cheapness of the toll rates. The same report states that “The Texas Transportation Commission has not raised the system's initial toll rates, which, at about 12 cents a mile, are less than a third of what the Central Texas Regional Mobility Authority charges drivers on the 183-A tollway in Cedar Park “.

Now if there is a public policy purpose of encouraging use of the toll roads with subsidised prices to reduce delays and externalities elsewhere, then that can be respected, but it shouldn’t be pretended that the toll roads are there to do anything other than supplement revenue, not be self sustaining.

Of course, given the success in Indiana in privatisation and talk in Ohio of the same thing, it is inevitable that there is now talk of repeating this in Texas. The roads cost US$2.7 billion to build (nominal prices) opening between 2006 and 2009, one could expect that this, and more might be recovered if sold and the new owners were allowed to increase prices sufficient to make money.

There is hope that new connecting highways and some land development could increase demand, but it remains a risk carried by the state. I can imagine that there are more than a few in the state keen to see some serious investigation into comparing the risk and cost of the state maintaining ownership vs the price it would have to get to make it worthwhile to transfer that risk, with the offsetting opportunity of net positive revenues in the future.

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