O.C. Toll-Road Boards Move Closer to Merger

Officials of the successful Foothill-Eastern tollway Wednesday agreed to consider a merger with the financially ailing San Joaquin Hills toll road--a sister highway that might not be able to meet its debts if nothing is done.

The operations and finance committee for the east Orange County turnpike recommended the dramatic move based on economic studies that show a consolidation might be the best way to keep the San Joaquin Hills tollway solvent.

Unless the road’s outlook improves, the situation would make it difficult to obtain bond financing for the proposed Foothill South tollway through southern Orange County, the analysis revealed.

The Foothill-Eastern and the San Joaquin Hills tollways are managed by the Transportation Corridor Agencies, a government entity based in Irvine. The TCA’s toll roads are financed independent of each other and governed by separate boards of directors.

TCA officials are planning the Foothill South, which would run 15 miles from Oso Parkway near Mission Viejo to the San Diego Freeway south of San Clemente. If built, it would complete the agency’s 67-mile network.

“The whole system is at stake,” said San Clemente City Councilman Scott Diehl, chair of the Foothill-Eastern board and a member of the operations and finance committee. “This is one more hurdle we will have to get over.”

Plan to Consolidate

The committee, made up of Foothill-Eastern board members, directed TCA staff to study and prepare a detailed plan to consolidate the toll roads into a new joint powers authority.

The Foothill-Eastern board is scheduled to approve the committee’s recommendation on the merger deal June 13. The San Joaquin Hills board passed a similar measure in April. If the TCA staff determines that a merger is possible, the leadership of both tollways might be able to approve a consolidation by May 2003.

“I’m confident and convinced this is the right action to take,” said Mission Viejo Mayor Susan Withrow, a member of the Foothill-Eastern board. “Given the analysis, it makes sense to merge the agencies, even without the dire straits.”

The Foothill-Eastern has been the TCA’s most successful toll road, consistently running about 10% ahead of its traffic and revenue forecasts.

The San Joaquin Hills has been another story. The 16-mile route that cuts through the coastal hills from Costa Mesa to Mission Viejo has failed to attract enough paying commuters to meet traffic and revenue projections.

Bond Payment at Risk

A team of financial advisors warned in April that without quick action, the San Joaquin Hills tollway might miss crucial bond payments as early as 2012 unless revenue grows by 11.5% a year--a rate the highway is unlikely to achieve.

Three months earlier, a major Wall Street ratings agency downgraded about $1 billion in San Joaquin Hills bonds to junk status. Two other ratings agencies have yet to revise their ratings.

Analysts say that if the tollway boards fail to act, they run the risk of creating a domino effect that could further erode Wall Street’s ratings of TCA bonds and undermine its ability to borrow.

A merger, TCA officials say, would allow the new authority to subsidize the San Joaquin Hills and refinance the debt of both tollways, which is about $4 billion.

Any merger, however, will be contingent upon the results of a new traffic and revenue study for the Foothill-Eastern and San Joaquin Hills tollways.

The TCA is particularly concerned about a recent Irvine Co. decision to dramatically scale back commercial and resident development in east Orange County.

Although the performance of the Foothill-Eastern is running ahead of projections, the Irvine Co.’s action is expected to reduce the anticipated number of daily vehicle trips in the area by 400,000 a day.

The Foothill-Eastern was built on the assumption of heavy growth in east Orange County. If the lost growth is not made up elsewhere, the toll road could find itself in the same predicament as the San Joaquin Hills.

There might be a short-term loss of developer fees paid to the TCA, Diehl said, but growth is expected to continue in Riverside and Orange counties, providing the Foothill-Eastern with more and more commuters.

“Lots of housing is going to be built,” Diehl said. “Long-term, we will be OK.”