91 Express Lanes Owner Abandons Plans to Sell

The controversial sale of the 91 Express Lanes fell apart Monday, as the seller abandoned its attempts to unload the private tollway and the state attorney general launched a formal investigation into whether the buyer and seller had too close a relationship.

The decision to pull the 10-mile private toll road off the market came after weeks of harsh criticism from high-ranking state and local officials, many of whom said the public would be ill-served if the road were sold to NewTrac, an Irvine-based nonprofit group of local businessmen.

“It’s great. This deal needed to stop. This was not a legitimate transaction,” said Orange County Treasurer John M.W. Moorlach.

But for Moorlach and many others who were critical of the sale, simply going back to the status quo will not be enough. The troubled proposal has focused scrutiny not only on the sale itself but also on policies that allowed a private road to be built on a public right-of-way in the first place.

Of four private roads that got the go-ahead under a 1989 state law, the 91 Express Lanes is the only project to be built. Under the legislation, the private builder, California Private Transportation Co., was allowed to charge tolls on the lanes for 35 years.

“This monopoly continues to have a stranglehold on the 91 Freeway for the next 30 years to come,” said Riverside County Supervisor Bob Buster, who led a delegation of local officials to Sacramento on Monday to ask that the state buy out the lanes and make them free.

The group, which includes Moorlach as well as Riverside County transportation officials and its tax collector, met with top aides to Gov. Gray Davis and Atty. Gen. Bill Lockyer. Today, they will meet with officials from other state agencies.

“As long as [the owner] continues to operate the toll road, we will continue to have these [problems],” Buster said. “We must wrest control of the 91 from this monopolistic stranglehold.”

In a written statement released Monday, the private company’s general manager, Greg Hulsizer, said, “Public confusion over the transaction” caused it to abandon the sale.

“We believed in the sale of this important transportation system to a nonprofit organization,” he said, “because it could secure lower financing costs and pass on surplus revenues to the public in the form of transportation improvements in Riverside and Orange counties.”

The toll road’s operators on Monday said they were not in a position to speculate about the possibility of a future sale or refinancing of the road.

“Given the anticipated growth of traffic on the 91 Freeway, we’re very comfortable with the project’s financial future,” Hulsizer said.

Gary Hausdorfer, NewTrac’s president, did not return calls seeking comment.

Peter J. Siggins, chief deputy attorney general, said the investigation of NewTrac and California Private Transportation Co. would continue despite the decision to abandon the sale.

“We don’t have the same urgency,” Siggins said. “But we will continue to follow up with the information that we have.”

Siggins said the state agency will continue to scrutinize the relationships between the two parties.

“The fact that the [seller] created the nonprofit was key,” Siggins said.

Investigators will comb through documents on how the nonprofit group was formed, examine the preliminary statement sent to potential bond buyers and try to learn more about the conditions attached to the $1 million that the seller lent the buyer.

“Could that truly be an arm’s-length transaction?” Siggins asked of the arrangement. NewTrac does not have to repay the loan, according to a contract with the seller.

Buster said he would also turn over tapes of the 2 1/2-hour meeting with potential investors to the Securities and Exchange Commission, the Riverside County district attorney’s office and other law enforcement agencies. He gave copies of the tape to the offices of the governor and attorney general Monday. In the Dec. 3 teleconference, investors expressed concerns about the nonprofit status of the arrangement as well as what some called “too-rosy” traffic forecasts for the road.

Hilary McLean, a spokeswoman for the governor, said Davis was noncommittal about the issue.

“The governor has not reached any conclusion as to what role he will play in the culmination of this issue,” McLean said. “I don’t know what decision the governor will reach if he decides to weigh in at all.”

Deal Came Apart Following Scrutiny

The proposed sale, in the works for several months, unraveled rapidly over the last week under a barrage of questions, including whether the $225 million sales price was too high, whether traffic projections were inflated and whether the seller inappropriately helped create the nonprofit buyer.

The chance of a sale improved significantly two months ago. At that time, Caltrans backed away from planned improvements on the Riverside Freeway after it was sued by the private operator, which contended that ridership would plummet if the work were done.

The state agency, which had hoped to add auxiliary lanes to improve safety on the freeway, has delayed any such work for at least six years or until traffic increases 53% under the settlement reached in October.

And it was that settlement, Wall Street analysts say, that cleared the way for a sale.

But concerns about the deal led state Treasurer Phil Angelides on Wednesday to halt the scheduled bond sale.

Despite that action, executives from the California Private Transportation Co. said then that they remained committed to selling the lanes to NewTrac.

NewTrac had promised to return $9 million in planning funds to the Orange County Transportation Authority and had the potential to give back as much as $6 million a year both for Riverside and Orange County transportation improvements, if it made more in tolls than it needed to repay its debt.

Critics, however, said the seller also stood to make a substantial profit only four years into its 35-year lease. The sale price, determined without an independent appraisal, was about $90 million more than the money-losing venture cost to build.

There have been other repercussions over the failed deal.

Moorlach, Orange County’s treasurer, has advised county officials to prohibit some of the players involved in the NewTrac deal--bond counsel Orrick, Herrington & Sutcliffe and financial advisor Sperry Capital--from being hired to work on the county’s upcoming tobacco settlement.

The county’s public finance advisory committee, which was to make a decision about the firms Monday, postponed any action until Jan. 13.

“We are in the information-gathering mode right now, and it’s way too premature [to decide],” said William Utter, a member of the county’s public finance advisory committee.

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Times staff writer David Reyes contributed to this report.