The Toll Road ‘Challenge’

After years of bad financial news about the toll roads serving south and central parts of the county, it appears tolls will rise next year for cash customers and some regular Orange County drivers such as those who use the San Joaquin Hills corridor at rush hour. Revenue again is characterized euphemistically as a “challenge.” Despite the best efforts of the Transportation Corridor Agencies to portray this as something being done for the regular customers, it is they who are challenged--challenged to stay patient with an additional 50 cents a day on the San Joaquin.

In September 1999, agency officials acknowledged that they had badly overestimated economic growth, which had not kept pace with population growth. Traffic was said to be more than 20% below expectations. A look ahead wasn’t very encouraging either. Revenue estimates for the next 35 years were said to be running more than 40% below original estimates.

Nearly a year later, needing more money, operators announced plans to raise fares, doubling them at some locations. That included places where more cars were now competing for the free lanes and thoroughfares. A case in point was the area near Bonita Canyon Road and MacArthur Boulevard in Newport Beach, now sprawling with new houses and apartments in coastal hills and canyons, with more on the way in the south end of Irvine.

One San Clemente rider complained at the time that instead of finding more drivers, the tollway authority was taking it out of the hides of regular users. A member of the roads’ board of directors said bluntly that the financial plan for building the San Joaquin Hills toll road had been unrealistic.

And there’s the rub. In the beginning, favorable projections created a favorable picture for investors. The toll roads’ financial problems arising from obligations to bondholders subsequently have created a series of calculated pricing choices that translate into higher commuting costs to this day. There is a delicate relationship between the roads and their loyal customers. Many ride for convenience, but many are prepared also to take another route if the roads get too pricey or congested.

You don’t want to turn off the regulars like the San Clemente rider. The decision to raise tolls is a variation of the old political problem of whether new fees and taxes will be counterproductive, creating less money in the end by discouraging use or consumption of the thing being taxed. This problem becomes especially acute during a recession when people may simply go around the toll road to a free route, or worse, may not drive at all because they are out of work. Recessions can’t be good for toll roads at any time.

Last spring, along with yet another declaration of fewer riders than expected, agency officials said the toll roads had reduced freeway congestion by as much as 20% and were suffering their own congestion. Although there were almost 5% fewer customers than expected, the roads were saving motorists lots of time. Good news but not enough.

All of this makes for some lessons learned the hard way about the quasi-public toll roads like the San Joaquin, Eastern and Foothill corridors. Don’t make investors promises you can’t keep. Don’t expect to meet your obligations on the backs of your loyal customers. And if you’re in government, don’t make agreements with private toll operators that prevent freeway expansion, as happened on the Riverside Freeway.

Because of disappointing revenue and traffic levels, the TCA’s bonds have remained in a funk. It’s been more than 20 years since backers said such roadways were needed, but about five years after they opened, toll road officials found themselves spending more than $3 million on marketing. With money having been spent to persuade people to ride, here we have prices going up again.

The Orange County toll roads seemed innovative when the state concluded it couldn’t build new roads to meet population growth. But the financing was never really thought through realistically. The bitter financial lessons are now coming in. With still more tollway construction envisioned in environmentally sensitive areas of South County, much better financial scrutiny is warranted before any new pavement is laid.