Foothill Tollway Revenue Falling Below Estimates

Using colorful slides and charts, the acting director of Orange County’s toll road operations painted a glowing picture last month of the one-year anniversary of the Foothill Transportation Corridor, California’s first modern public toll road.

Rod Holtman reeled off the superlatives: the highest traffic day on record on the Foothill tollway--a 7.5-mile road that passes through some of Orange County’s most rapidly growing communities; the record number of motorists purchasing an automated toll debit device; the fact that toll revenue was up 30% over a year ago.

What he did not highlight was the bad news. The road’s toll revenue is below projections by nearly $800,000 and has fallen below estimates each of the last 13 months, despite an aggressive and expensive marketing effort aimed at persuading homeowners in the area to take the road.

Where $6.54 million should have been collected during that period, $5.75 million was taken in.

Toll road managers and elected officials who oversee the project downplayed the shortfall when contacted last week, saying that revenue is only slightly below predictions and that traffic estimates by a Connecticut consultant had been “too ambitious.”

But others fear that if the lower-than-expected revenue on the Foothill are any indication of what will be collected on the full 30-mile tollway and two other toll roads being built in Orange County, the billions of dollars borrowed to construct the tollways may not be repaid on schedule.

“This doesn’t surprise me a bit,” said Mark Goodman, a Laguna Niguel city councilman and frequent toll road critic, “because their predictions were based on rosy development projections. . . . I have never felt comfortable with their traffic forecasts or toll revenue projections.”

The toll roads, the first to be built in California in modern times, are being financed through a combination of special fees on new development, revenue bonds, state funds and other sources. The bonds are to be redeemed with development fees and toll revenue. The ability to retire the tollway’s debts is based on the traffic projections.

Last year’s sale of $1.26 billion worth of bonds for the Foothill tollway and development of the neighboring Eastern Transportation Corridor was based in part on expectations that traffic on the Foothill segment already open would exceed traffic forecasts.

The figures provided by the tollway agency were the first to be publicly released about toll-paying customers on the completed 7.5-mile stretch of road that passes through or near Lake Forest, Mission Viejo, Rancho Santa Margarita, Dove Canyon and Coto de Caza--South Countydevelopments where thousands of new homes have been built in recent years.

Revenue figures for the county’s toll roads have been hard to come by. Revenue collected on the privately financed toll lanes built alongside the Riverside Freeway have been a closely held secret since the lanes opened six months ago.

In an interview last week, Holtman said he unintentionally rushed past the slide showing the economic bad news during a public board meeting last month marking the Foothill’s first anniversary. “By the time you blinked, it was probably off the screen,” he joked.

But Holtman and tollway finance managers insist there is no cause for alarm.

After a shorter, 3.2-mile segment of the Foothill was opened to the public in late 1993 amid great fanfare, it exceeded revenue projections in 12 of the next 17 months, according to studies by Wilbur Smith Associates, a traffic and revenue consultant based in New Haven, Conn.

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But when the second, 4.3-mile section of road was opened in April 1995, the toll was increased from 50 cents to 75 cents, and Wilbur Smith officials predicted that revenue would more than triple, because access would open up to more housing developments and provide an attractive alternative to slow-moving Interstate 5.

“When we first marketed the [tollway to the] Rancho Santa Margarita area, we got a lot of people to use the 3.2-mile segment. But when the other section opened, Wilbur Smith figured there was a lot more population out there going to use the toll road,” Holtman said.

“It was too ambitious an estimate, because the market was really saturated and everyone was already using the road,” he said.

Tollway officials say they are not worried about the Foothill being 6% below revenue projections since 1993 and 12% below projections over the last 13 months. Should the percentage drop a great deal lower--say to the vicinity of 30%--”then we’re in trouble,” Holtman said.

Even then, says Wally Kreutzen, the toll road’s finance vice president, the agencies have a number of safeguards in place in case the toll revenue doesn’t pick up: emergency reserve accounts that are accumulating interest and a $120-million “ridership risk” line of credit.

“We have a number of what we call belts and suspenders,” Kreutzen said.

Part of the reason for the low numbers, Kreutzen said, is that the Foothill has no direct connection to any freeway, and the 7.5-mile stretch is mostly a commuter road that is difficult to find by any but those who live nearby.

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Traffic counts will grow, he said, when the rest of the Foothill Transportation Corridor is connected to the Interstate 5 near the San Diego County border, and the Eastern Transportation Corridor is constructed through eastern and southern Orange County to link with the Riverside Freeway.

The Eastern tollway is not expected to open until late 1999, however, and the southern section of the Foothill is not scheduled to open until 2004. Together, the Foothill and Eastern are 54 miles long.

Harold R. Kaufman, a Dana Point city councilman who is a member of the tollway board, said he sometimes becomes annoyed with tollway staffers who talk only of the positive aspects of the Foothill, rather than dwell on important financial questions.

“We get car counts, and car counts are great, but what about the revenue?” he asked. “It’s a question I’ve asked often, and I’m told that ‘Yes, we are below projections,’ but well within the parameters of paying off our obligations. We have a big nut to cut and we don’t want to fall too far below what we’re expecting.”

Unlike financing for toll road projects in other parts of the country, the Orange County tollway bonds can be redeemed only with tolls and development fees. No other state or local taxes or agency funds are to be used to pay off the debt.

That’s part of the reason last year’s $1.26-billion bond issue for the Foothill/Eastern received the lowest investment-grade rating by the major rating agencies, including Standard & Poor’s Corp.

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Wilbur Smith executives did not return calls for comment regarding their traffic predictions.

On two other major toll road projects built in the last decade in Fort Lauderdale, Fla., and Houston, Wilbur Smith’s traffic projections were far too optimistic.

In the case of the Sawgrass Expressway in Florida, traffic counts were off by 15,000 cars a day, and the expressway authority required $15 million a year in state loans and gas taxes to retire the debt. The company said the projections were based on the assumption that the toll road would be linked to two interstate highways by the time it opened, but that didn’t happen.

In Houston, Wilbur Smith miscalculated the volume of cars that would use the Jesse H. Jones Memorial Toll Bridge, which nearly went bankrupt. On some Houston toll roads, revenue has fallen short of company projections by almost 60% over the years.

For the county’s San Joaquin Hills Transportation Corridor, which is being built along with the Foothill and Eastern, Wilbur Smith has already lowered its traffic projections from 150,000 to 120,000 cars a day by the year 2010, because of a poor economic forecast rendered some years back.

“They have no idea whether people in Southern California are going to ride toll roads,” said Goodman, the Laguna Niguel councilman. “They are trying to apply an East Coast attitude toward this area and I have a real fear that, especially on the San Joaquin Hills Transportation Corridor, the ridership won’t be anywhere near what they think.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Low Road

The Foothill Transportation Corridor is not generating the amount of tolls it was projected to collect from users of the 7.5-mile stretch now open. Toll revenue for the 13-month period, April 1995 through April 1996: *--*

1995 Estimated Actual Shortfall Percent Deficit May $451,000 $397,143 $53,857 -12 June 465,000 405,107 59,893 -13 July 505,000 397,008 107,992 -21 August 517,000 448,117 68,883 -13 September 500,000 434,958 65,042 -13 October 517,000 470,143 46,857 -9 November 502,000 453,651 48,349 -10 December 525,000 461,194 63,806 -12

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1996 Estimated Actual Shortfall Percent Deficit January 535,000 481,684 53,316 -10 February 492,000 465,050 26,950 -5 March 558,000 512,827 45,173 -8 April 567,000 515,099 51,901 -9 Total $6,541,000 $5,751,779 $789,221 -12

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Source: Orange County Transportation Corridor Agencies; Researched by Mark Platte/Los Angeles Times