Nonprofit Group Cuts Deal to Buy 91 Toll Lanes

Operators of the 91 Express Lanes--one of the few privately built and operated roads in the nation--have reached an unprecedented deal to sell the road to an Orange County-based nonprofit group.

The lanes--which had been losing money since opening in late 1995 before turning a slim profit last year--had been shopped by their owner, California Private Transportation Co., for more than a year.

The impending $260-million sale may signal the end of the state’s experiment in private road building, say transportation experts, many of whom had advocated privately financed roads in the face of dwindling tax dollars.

“Clearly now that they’re passing it back to some other organization, it hasn’t worked,” said G.J. “Pete” Fielding, a UC Irvine professor who is a former director of the school’s Institute of Transportation Studies. “Even under the most favorable conditions, it appears unlikely for a private road to be profitable enough.”

The express lanes--two in each direction--run parallel to the Riverside Freeway for 10 miles between Anaheim and the Riverside County border.

A major obstacle to the sale had been a pending lawsuit filed by the private toll road owner against Caltrans to block that agency’s plans to add lanes to the Riverside Freeway. Toll road officials said Caltrans’ plans would damage the economic viability of their lanes.

Three days after Caltrans agreed to abandon those improvement plans, agency officials gave their blessings to the nonprofit group, making the sale possible.

Caltrans officials said they had to cancel the work--four miles of additional lanes along one of the region’s most congested stretches--because it violated the road’s franchise agreement.

Some industry observers question how the business will be run under a nonprofit corporation--which doesn’t have the same incentive for efficiency--and whether it will eventually seek federal and state transportation funds.

“With the government, at least you have a politician who has to run for reelection from time to time,” said Tom DiLorenzo, an economics professor at Loyola College in Baltimore, who studies nonprofit groups. “And with business, you have market pressures. The stockholders can sell the stock if they don’t like the way the company is run.”

That’s not what happens with nonprofits, he said.

“I’m not that optimistic that it will be a well-run facility,” DiLorenzo said.

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A previous proposal to sell the roads to a nonprofit group was rejected under former Gov. Pete Wilson’s administration. Former Business, Transportation and Housing Secretary Dean Dunphy said he opposed the deal while he was in office because he was worried about how the road would be managed. He said he had not seen the current proposal.

Dunphy said he was uncomfortable with the deal floated last year, which he believed gave the road’s current operator too much control. Not only would the private owner have the power to select its bosses, but it also would get a 15-year contract to continue operating the road as well as a significant chunk of the bond sale.

“I didn’t want the fox to be watching the henhouse,” he said. “I rejected out of hand what they were trying to do and how they were trying to do it.”

Robin Witt, a Caltrans spokesman, said he was unaware of the earlier controversy. The agency’s oversight role, he said, is limited to whether the potential buyer is capable of running the road.

The current acquisition will require the sale of about $260 million in bonds, which are scheduled to be offered to the market Nov. 30. That money will be enough to pay off investors and take over the company’s assets, according to a source close to the deal.

The nonprofit group set to buy the road, called NewTrac, is headed by former San Juan Capistrano Mayor Gary Hausdorfer and three other Orange County businessmen. Hausdorfer declined comment Wednesday, saying a formal announcement was expected today.

Nonprofit status could be a boon to the road’s finances.

As a private business, the road’s owner paid more than $1.2 million in property and franchise taxes last year, much of which a nonprofit operator would avoid.

Some critics also maintain that the sale will absolve the California Private Transportation Co. of significant financial risks, even as they profit from the deal.

The CPTC was founded by three corporations in a joint effort: French-based Cofiroute, Kiewit Pacific of Omaha, Neb., and Granite Construction Inc.

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Road officials said the motivation to sell came when Kiewit executives decided to move away from road building and into the communications field.

The road--which has seen four toll hikes in as many years--has struggled to turn a profit.

Even with more than $20 million collected in tolls last year--a 45% increase from the previous year--the road cleared only $307,000. That profit was achieved only after more than $400,000 was trimmed from the previous year’s operating expenses.

The Nov. 30 sale of the bonds have received an investment grade rating from major investment analysts, the same as that of the county’s 51 miles of toll roads, which are overseen by a board of elected officials.

Jodi Hecht, a Standard & Poor’s analyst, said bonds for the 91 Express Lanes are considered to be a stable investment, but not without risks.

Among the risks, she said, are high tolls on the road, competition from freeways and other tollways, and the untested new ownership.

“There is a lot of uncertainty over what’s going to happen over the next 30 years.”