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Monday, May 16, 2005 | On April 21, the state senate approved a bill authored by state Sen. Denise Ducheny that would bail out a stalled private Otay Mesa freeway project. The privately funded project, known as the State Route 125 toll road, is being built to support increased development along the eastern edge of Otay Mesa.
The project is currently in financial trouble. Initial cost projections have turned out to be too low and the project sponsor has turned to the state legislature for help covering its cost overruns.
California Transportation Ventures, the company that designed the project, is the sponsor of Senate Bill 463.The bill would extend CTV’s lease with the California Department of Transportation from 30 to 45 years, thereby generating more than $236 million in additional income the company needs to cover cost overruns that are threatening to kill the project.
At a time when the legislature is considering several legislative bills pending to expand the state’s support for private toll roads, the SR 125 toll road project shows what can go wrong when the government and private companies try to put together “public/private” freeway project funding ventures.
California Transportation Ventures originally proposed that it be allowed to build SR 125 as a “privately funded toll road.” The company offered to pull together private financing to build the project, in return for Caltrans signing a 30-year lease that allowed the company to charge commuters tolls to recoup its investment. In 1989 the state legislature approved special legislation to allow Caltrans to sign lease agreements for four pilot toll road projects, including SR 125.
CTV obtained federal grants to start up its project. CTV then convinced Caltrans and the San Diego Association of Governments to agree to provide tax funding for over $150 million in freeway interchanges and other infrastructure costs needed to make the project viable.
CTV agreed to put up $400 million in private to pay for its part of the project. When CTV had locked up all those agreements, it obtained funding for the project from a large Australian infrastructure finance group. Since then, according to a senate staff analysis, unexpected delays and cost overruns have increased CTV’s estimated share of project costs to $635 million, more than 150 percent higher than its initial cost estimates. Instead of seeking additional private financing to cover its cost overruns, CTV has turned to the state legislature for assistance.
One reason the Australian firm, the Macquarie Infrastructure Group, agreed to lend CTV funding for the project in 2003 was that Caltrans and SANDAG have not placed any limits on what CTV can charge toll road users over the life of its 30-year Caltrans lease. According to the Senate staff analysis of the bill, under its current agreement with SANDAG and Caltrans, CTV will be allowed to make an 18.5 percent rate of return on its investment.
As part of that agreement, the state agreed to lease the toll road project back to CTV for 30 years. SB 463 would extend the lease period to 45 years. The Senate staff analysis estimates that the lease extension, if approved, would allow CTV to charge toll road users an additional $235 million, instead of the project reverting to state ownership in 30 years and becoming a free public freeway. This action could increase CTV’s potential profits by more than $40 million, while requiring Otay Mesa commuters to continue paying tolls to use the road for 15 more years.
Over the last 20 years, South Bay governments used the prospect of the SR 125 toll road project as justification to upzone hundreds of thousands of acres of rural lands for sprawl development. Now that hundreds of new housing subdivisions have been built on east Otay Mesa, the project is being justified as needed to relieve the serious traffic congestion residents experience trying to get into and out of the area via surface roads to the I-805 or I-5 freeways.
CTV has asked SANDAG to support SB 463. According to the minutes of an April 8 SANDAG Executive Committee meeting, CTV is insisting that any extension of its current 30-year agreement must include an extension of a “no-compete” clause in its current franchise agreement, under which Caltrans and SANDAG would agree to refrain from making any improvements to the section of I-805 paralleling its toll road that might allow that public freeway to handle more traffic, thereby reducing ridership on its toll road, for another 45 years. SANDAG has conditioned its support for the bill on CTV dropping that demand.
Having passed in the state senate, SB 463 is now awaiting its first committee hearing in the state assembly.
Don Wood served from 1988 to 1990 as president of Citizen’s Coordinate for Century 3, or C-3. He also designed and implemented San Diego Gas and Electric’s first low-income customer home weatherization program in 1981, which was the first ratepayer-funded utility energy conservation program in the country.