Slow-Growth Move Could Be a Barrier : Toll Roads: The Answer to Orange County Gridlock?

If some tricky financial problems can be solved, Orange County expects to build California’s first public toll roads in the next few years.

Beset by traffic congestion and lacking federal, state or local money to build new freeways, county transportation planners have turned to tolls and developer fees, despite outcries that toll roads are “un-Californian” and “a U-turn to yesterday.”

More than 60 miles of toll highways are planned along three separate routes in the next 10 years. Construction will cost an estimated $1.3 billion to $1.7 billion, in 1986 dollars, but the total cost, including interest payments on the construction bonds, is likely to exceed $3 billion.

A final decision has not been made but the first to be built probably will be the San Joaquin Toll Road, which is to run roughly parallel to Interstate 405 (the San Diego Freeway) for about 15 miles, between the John Wayne Airport area and San Juan Capistrano.

The proposed Eastern Toll Road would connect California 91 (the Riverside Freeway) with Interstate 5 (the Santa Ana Freeway), helping to relieve the daily gridlock that develops as thousands of workers commute from their Riverside County homes to Orange County jobs.

The Foothill Toll Road would be the longest of the three, and probably the last built. It would run for about 32 miles through the foothills of the Santa Ana Mountains and then southeast, through the Camp Pendleton Marine base, until it reaches Interstate 5 in northern San Diego County. The Marine Corps has not yet agreed to the plan.

Toll rates have not been determined but probably would be about $1 for a one-way trip on the Eastern and the San Joaquin roads and perhaps $2 for the longer Foothill.

All three toll facilities are intended not only to relieve traffic congestion but also to allow further development in southern Orange County. County planners estimate that at least 100,000 new housing units already have been approved, or are in the pipeline, in the areas to be served by the toll roads. In addition, there would be substantial new commercial development. All of this depends on a complex financial plan, which calls for 48% of project costs to be paid by developer fees and the rest by a combination of toll revenues and federal funds.

But the financial plan could be in jeopardy because of the budding Orange County “slow-growth” movement, which has qualified the Citizens Sensible Growth and Traffic Control Initiative for the June 7 ballot. The measure, which appears to have strong public support, would tie future county development to improvements in local services, especially roads.

Loss of Developer Fees

If the initiative is approved, then growth is likely to slow down and not as much developer fee income would be available to build the toll roads.

That could mean a lower bond rating, and higher interest rates, for hundreds of millions of dollars’ worth of construction bonds that must be sold to pay for the new highways. And that, in turn, could threaten the project’s entire financial structure.

“The growth initiative is the big ‘what if?’ question,” said John Meyer, executive director of the Transportation Corridor Agencies, the new governmental body that would plan and build the roads. “If the initiative passes, I anticipate our cash flow from developer fees will drastically slow down.”

But Meyer predicted that the effect would be temporary.

“These facilities are so badly needed, I am convinced they will be built,” he said. “When you look out 25 or 30 years, this county is going to build out, slow-growth initiative or not.”

Few question the need for traffic improvements in a county that has built only four miles of new freeway in the last 16 years, as the population has almost doubled to about 2.2 million.

Serious congestion has developed on all county freeways, especially I-5 and I-405, the main north-south routes, and on California 22, 55 and 91. Motorists fume as they wait an hour or more in heavy traffic, inching through bottlenecks like the merging of I-5 and I-405 near El Toro.

“People see the attractiveness of south Orange County just slipping away,” said Irvine Mayor Larry Agran.

While the state has cut back on new freeway construction over the years, the Orange County Board of Supervisors and other political bodies in the county have approved an endless stream of new housing and retail developments, each producing a flood of automobiles and, ultimately, traffic jams.

For example, the supervisors counted on already crowded I-5 to carry most of the north-south traffic that has been generated by the vast Mission Viejo developments in the southern part of the county, where 65,000 people now live and another 25,000 are anticipated.

“We made serious mistakes in the 1970s,” said Bruce Nestande, a former Orange County supervisor who now is vice president of a Costa Mesa development firm. “We should have started to build other roads then, using developer fees, instead of counting on 5 and 405 to carry all that traffic.”

This was not done, according to promoters of the “sensible-growth” initiative, because the Board of Supervisors and most other elected officials have been under the thumb of landowners and developers.

“The county is developer-controlled,” said Sherry Meddick, president of Orange County’s Rural Canyon Residents’ Assn. and a leader in the slow-growth movement. “The politicians are just front men for the developers.”

The public apparently shares that opinion.

An early-February poll conducted for the Orange County Edition of The Times found that 58% of county voters believe that the five-member Board of Supervisors favors developer interests, while only 16% think the supervisors represent the average citizen.

“There is no question that people think the Board of Supervisors is biased toward developers,” said Mark G. Baldassare, the UC Irvine professor who conducted the poll.

Caltrans has tried to relieve some of the traffic congestion--with an extra freeway lane here and a car pool lane there--but has lacked the money to make a serious dent in the problem.

Existing Freeways

For the next decade or so most of the federal and state highway construction money to be spent in Orange County--at least $1 billion--will go into widening 23 miles of I-5, the Santa Ana Freeway, to 12 lanes

“This is so big and so expensive a project that you don’t build anything more in Orange County with state or federal funds until the year 2000,” said Stan Oftelie, executive director of the Orange County Transportation Commission.

So county officials began to seek other funding sources. In 1984 they tried for a 1-cent countywide sales tax increase to pay for new roads and other transportation improvements, but voters rejected the measure by a 70%-30% margin.

Then they turned to toll roads.

In 1987, Congress, seeking to provide a new source of highway money, changed the law to permit the use of federal funds for toll road construction in seven pilot projects, including Orange County.

The California Legislature also approved a bill authorizing the Orange County toll roads, after a heated debate, during which state Sen. Bill Lockyer (D-Hayward) said “toll roads are a symbol of Eastern decadence” and Assemblywoman Delaine Eastin (D-Union City) called them “un-Californian.”

But the legislation passed both the Senate and the Assembly easily and was signed into law by Gov. George Deukmejian, who insisted that toll roads must be built parallel to existing free roads so motorists would have a choice.

(The Eastern and San Joaquin routes run roughly parallel to existing roads, but the Foothill does not.)

“This isn’t a panacea for the entire state,” state Sen. John Seymour (R-Anaheim), the bill’s sponsor, said in a recent interview, “but Orange County is in such a gridlock situation that they need every tool they can get and this is one.”

Satisfied Proponents

Supporters of the Orange County pay as-you-go roads greeted the federal and state authorizations with jubilation.

“The toll road opportunity seemed the medicine to make our dreams come true,” said Supervisor Thomas F. Riley.

“This gives people a clear-cut choice,” said Tom Blum, executive vice president of the Santa Margarita Co., whose Rancho Santa Margarita project in southeastern Orange County is expected to generate homes for 50,000 people, as well as 26,000 new jobs, in the next 20 years. “I think people will pay a dollar toll if they can cut their commuting time.”

Blum’s view is supported by public opinion, according to UC Irvine’s Baldassare, whose most recent Orange County Annual Survey found majority support for toll roads, if they would cut travel time in half.

But the Baldassare poll also found that majority support disappeared when the toll rose above $1.

Much of the planning for the new roads is being done by the two new Transportation Corridor Agencies--one for the San Joaquin corridor, the other for the Eastern and Foothill corridors.

These agencies were created by joint-power agreements between the county and 10 of its cities. They are called “corridor” agencies because the intent is to build transportation corridors, with room for busways, car pool lanes or rail lines, not just roads.

The idea of paying for the new highways with construction bonds backed by a combination of developer fees and toll revenues began to develop shortly after John Meyer left a toll authority job in Jacksonville, Fla., to become executive director of the corridor agencies in October, 1986.

Other Funding Sources

After a few months in the new job, “it became clear to me . . . there was no federal or state funding in sight and we had to find other means,” Meyer said recently.

Developers must pay $1,010 to $1,305 for each new single-family home, and $590 to $760 for each new apartment unit, in the areas to be served by the toll roads. More than $70 million in fees had been collected by the end of 1987, according to Meyer. The money goes into a toll road fund managed by the county treasurer.

Some developers resisted the idea of paying for roughly half the cost of the construction bonds, said John Erskine, executive director of the Building Industry Assn. of Orange County, “but eventually they realized that if we don’t help to solve the transportation problem, then we’re going to be shut down.”

Although the proposed financial plan is discussed in confident terms by Meyer, Oftelie and other county officials, it appears to contain at least as many questions as answers.

Publicity releases and other material published by the Transportation Corridor Agencies say construction of the three new toll roads would cost between $1.3 billion and $1.7 billion in 1986 dollars, depending on final route alignments and construction time.

What the agencies do not say is that the real cost of the three toll facilities is likely to be at least $3 billion, when bond interest payments and even minimal inflation are included.

For example, estimates are that the total cost of 30-year bonds, at 8% interest, would be more than $1.3 billion for the San Joaquin Toll Road alone. But the Irvine Co. estimates that developer fees will yield only about $272 million for the San Joaquin through the year 2020. That is about 20% of the total cost, not the 48% always mentioned in statements by officials of the Transportation Corridor Agencies.

Where will the other $1 billion be found? Presumably it will come from some combination of toll revenues and federal funds but statements and published material emanating from the corridor agencies is silent about a plan to make up the difference.

Uncompleted Studies

Meyer said it is “too early to say” because final traffic volume and toll revenue studies will not be completed for about six months. At that time, he said, “we will be ready to seek a rating for our bonds and to begin serious discussions with investment houses.”

In the meantime, Orange County residents are being led to believe that developer fees will pay for almost half of the cost of the three new roads when it appears likely that the developer contribution will be closer to 20%.

“In my humble opinion, they have never told the truth to the public,” said Bob Bennyhoff, who publishes Common Talk, an Orange County community newspaper. “What will the inflation rate be? How much interest will they have to pay on the bonds? What is the real cost?”

Toll revenues presumably will have to make up part of the difference between developer fee contributions and total costs but planning to date has assumed that tolls would provide only 15% to 20% of overall project financing. If tolls are raised substantially, to pay a larger share of project costs, traffic volume can be expected to decline.

The new federal “pilot project” legislation allows up to 35% U.S. financing of local toll road projects but the money will have to come out of existing federal highway funds.

Thus, any federal money to be spent on Orange County toll roads must be taken away from other California projects. This will pit Orange County against other areas of the state, posing delicate political problems for the California Transportation Commission, which allocates the federal funds.

A recent auditors report prepared for the Orange County Transportation Commission said $100 million in federal funding “will be required to make the (San Joaquin) project financially feasible,” but there is no assurance that such an amount will be forthcoming.

Optimism Holds Up

However, Oftelie, the commission’s executive director, remains optimistic.

“Every step in this program has been incremental,” Oftelie said. “When we got started with developer fees, we didn’t know where the rest of the money would come from. Now we have developer fees, toll revenues and the prospect of federal funds. . . . If we need other revenues, I think we’ll be able to find them.”

The thorny question of how to pay for the new toll roads was made even more complicated when the “sensible-growth” initiative qualified for the June 7 ballot.

The initiative would bar major construction projects in unincorporated areas unless they are accompanied by major road improvements. It would also establish minimum response times for emergency vehicles, would require developers to donate more land for park space and would set higher flood-control standards.

Although the initiative applies only to unincorporated areas, similar measures will be on the ballot in several Orange County cities, including San Clemente, San Juan Capistrano, Huntington Beach, either in June or November.

By slowing county development, the measure would reduce the amount of developer fee income available to pay for toll road construction bonds.

“If your project can’t proceed because of clogged arterials, then you aren’t going to be able to make any contribution to the toll roads,” said Erskine of the Building Industry Assn.

Landowners and developers have tried to insulate themselves from the effects of “sensible growth” by signing agreements with the county that require developers to make road improvements but exempt them from the initiative’s provisions.

But the cities of Irvine and Laguna Beach have sued to invalidate these agreements--part of the cascade of litigation that the controversy has produced in recent months--and the outcome is uncertain.

Expected Election Results

Meyer said directors of the Transportation Corridor Agencies assume the sensible-growth initiative will be approved by voters but predicted that it would not set back development of the new toll roads.

He noted that more than $70 million in developer fees had been collected by the end of 1987--more than 10% of the total that developers are expected to contribute to construction of the new highways--and that more than $100 million is likely to be in the fund by the time the initiative takes effect.

Meyer also said that 80% to 90% of the area to be served by the San Joaquin Toll Road corridor is covered by agreements with the county that would exempt developers from the initiative’s requirements, provided these agreements survive legal challenge.

“Our cash flow will be impacted for a period of time,” Meyer said, “but I don’t think it (the initiative) endangers the goals we have set for ourselves.”

Some investment bankers and bond specialists interviewed by The Times agreed with Meyer but others thought one or two of the new highways might have to be delayed or might have to open with four lanes, instead of the planned six to 10, or that higher tolls might have to be charged.

Ralph Stanley, former administrator of the Urban Mass Transportation Administration under President Reagan who now is vice chairman of the Municipal Development Co. in New York City, said the Eastern and San Joaquin routes are “eminently financeable” but that the Foothill “is more of a question mark” because it does not appear to provide as much relief from traffic congestion as the other two.

Scott Sollers, a public finance specialist with the San Francisco bond house of Stone & Youngberg, said the toll roads could be affected by the slow-growth movements that have emerged in Riverside County as well as in Orange County.

“If both ends of the project have slow-growth policies, it could affect one or more of the corridors,” Sollers said.

But Tom Bradshaw of the First Boston Corp. was optimistic.

“Slow growth could have some impact but I don’t think it will affect bond sales,” he said. “Orange County is going to grow. California is going to grow. There’s a perception that California is traditionally a good investment, that it’s a growth area. . . . If toll roads will work anywhere in the country, they will work in Orange County.”