Toll Road Scenario May Play Out Again
Re “Financial Jam Mires O.C.’s Toll Highway,” Feb.11:
Due to traffic and revenue shortfalls, bonds to pay for the San Joaquin Hills toll road may go into “technical default” within five years. Last week, The Times reported that one Wall Street bond rating firm has reduced some O.C. toll-road bonds to junk status. Who pays the bondholders if the toll-road agency goes into default?
The scenario that got us here (unrealistic growth projections by overeager promoters), may soon have a second act. The county proposes financing the construction of an airport at El Toro through the sale of bonds, with debt service on the bonds to come from revenues generated by operation of the airport. What if demand for a second airport in Orange County does not meet the optimistic forecasts? What if building costs exceed projections? Denver International Airport, the most recent big airport built in the U.S., had cost overruns of 100%.
In today’s post-Enron, post-Sept. 11 financial environment, investors are skeptical of proposals based on questionable economic assumptions, particularly for airline-related projects. Some bonds to pay for airport projects are currently paying as high as 16.4% interest because of the high risk. If investors demand such high returns on El Toro airport bonds, how could the county possibly pay such interest? Answer: the taxpayers would pay for this Smith/Silva/Coad white elephant, or Orange County would go into bankruptcy--again.
Len Gardner
Laguna Woods
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After reading about the failing toll-road bonds, one wonders if the same fate awaits us with the proposed El Toro airport. Both the San Joaquin Hills tollway and the El Toro airport have no demand study. It takes no genius to realize that if a project has no demand, it will fail. Now the county wants to make the same mistake twice, only this time with a multibillion-dollar airport at the former El Toro Marine base. If the county wants us to keep letting them plan these expensive projects, we must have a professional demand study before we let them happen. Otherwise, we are setting ourselves up for a second bankruptcy.
Chris Borders
Laguna Niguel
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Re “O.C. Tollway Bonds Are Downgraded,” Feb. 6:
As a citizen using the San Joaquin Hills tollway since its inception, I have written twice to tollway authorities pointing out that their consistent rate increases would ultimately result in less revenue. The people managing the tollway apparently do not have a basic understanding of economics: To encourage greater use, prices should be reduced, not increased. I am a retired citizen on a fixed income. I like the tollway and would use it much more if the tolls had not been increased far more than the cost of living since its opening.
Robert C. Gates
Carlsbad
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Re “If Toll Road Is Like Restaurant, No Reservations Are Needed” (Dana Parsons, Feb. 8)
Parsons accurately describes the futility of fighting a developer’s misleading statements in completing a project of dubious merit. How do you beat them? We’re fighting a similar situation in Laguna Beach. It was unfortunately agreed upon to build a hotel on a beautiful bluff in Laguna based on revenue projections. Laguna was to receive millions from the bed tax. Just watch it roll into the city coffers.
The city manager negotiated a horrible contract with the developer that is almost a license for them to steal. Out of a 30-plus acre parcel, 4.7 useable acres were designated for a park that Laguna would landscape. Many local parks of that size have been landscaped for about $1.5 million. By contrast, the cost allocated by the developer and supported by the city manager has now grown to $9.6 million. And, this is just to landscape a park that will be mostly open space for people to enjoy the ocean view and have a place to park. Plus, we have to pay interest on the total.
So how do you beat them? If this isn’t corrected, it will be 10 years or more before we see any bed-tax revenue, if even then, since this hotel has new competition from the beautiful St. Regis, which just opened south of Laguna.
John Selecky
Laguna Beach