Thursday 20 October 2011

SANDAG debates how to pay for the South Bay Expressway

I've written before about the bankruptcy and "nationalisation" of the South Bay Expressway near San Diego California. Why does San Diego want to buy a bankrupt toll road? and San Diego Association of Governments (SANDAG) deciding to buy the toll road.

Sign on San Diego reports on SANDAG attempts to figure out how it is going to pay for it:

It cost $847.3 million to build with a combination of private bank and federal Department of Transportation loans. On emerging from bankruptcy, the South Bay Expressway was valued at $309 million although outside parties have placed the figure as high as $896 million.

So SANDAG has decided it should pay $247 million in cash, with loan payments paid to the federal Department of Transportation of $92.6 million from toll revenue, while retaining a small lien for the banks and federal DOT of $4.5 million.

The options to raise the cash include:
- A toll revenue bond (effectively what a private buyer might have done);
- A loan from TransNet, which manages the 0.5c sale tax dedicated for transport projects (I'll let you guess why people buying food or books should pay for a road);
- Using other sources of public funding.

Despite the need to find the money, Mayor Cheryl Cox of Chula Vista says it is good value being at a "60% discount". Property developers and residents of South Bay have high expectations, hoping for growth if tolls get cut in half. In other words, they are hoping that San Diego taxpayers subsidise the new asset.

If successful, then SANDAG can lower the tolls, but still make enough money to pay for the purchase and pay to keep the road maintained.  The expectation being that it will relieve the parallel congested Interstate Route 5.   The difference between public and private ownership will be the difference between maximising usage of the road and maximising revenue from it, or rather whether it can generate a financial surplus or need an effective subsidy.

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