State Auditors Support Agencies’ Plan to Merge 2 Orange County Toll Roads

A plan to merge the operations of two Orange County toll roads is reasonable and should proceed without delay to save one of the turnpikes from financial collapse, state auditors concluded in a report released Monday.

The review by the California controller’s office supports a proposal by the Transportation Corridor Agencies to combine the operations of the struggling San Joaquin Hills toll road and the successful Foothill-Eastern tollway.

The merger of the two highways, each governed by its own board of trustees and separately financed, has encountered increasing skepticism from state and local officials.

If the proposal is approved, both tollways would be controlled by a single board of directors and their total debt refinanced with a $4-billion bond issue.

It is perhaps the only way, toll road officials say, to keep the San Joaquin Hills from partially defaulting by 2012 on interest payments to investors who hold $1.5 billion in TCA bonds.

“This really confirms that everything we have done for almost two years is prudent and reasonable,” said Peter Herzog, chairman of the Foothill-Eastern board of directors. “The controller has given us a clean bill of health.”

The TCA, a joint-powers authority based in Irvine, manages a 51-mile network of toll roads, including the San Joaquin Hills, the Foothill-Eastern and a short stretch of Highway 133.

The 16-mile San Joaquin Hills tollway, which opened in 1996 serving west Orange County, is expected to earn less than half the money predicted when the highway was refinanced six years ago. In contrast, the 35-mile Foothill-Eastern system is running about 8% ahead of projections after almost four years of operation.

State Controller Steve Westly began reviewing the merger proposal in mid-November at the request of Assemblyman Lou Correa (D-Anaheim), who was concerned by the scale of the merger and the feasibility of the $4-billion refinance plan.

Out of 13 possible solutions studied by the TCA, state auditors agreed with the agencies’ conclusion that a merger was the “the best option available” for ensuring the financial stability of both toll roads.

State auditors concluded that a merger would maintain local control of the San Joaquin Hills and help the TCA build the Foothill-South extension through south Orange County to Interstate 5 south of San Clemente.

TCA officials have feared that a default on San Joaquin bonds might lower the agency’s credit rating and make it difficult to obtain financing for Foothill-South.

But Assemblyman Correa said the controller’s report “raises more questions than it answers” because the review assumes that the Foothill-South will be constructed.

“What if it isn’t built?” Correa said. “What effect will that have on the Foothill-Eastern’s revenue and the ability to pay for the merger? Again, we are talking about projections.”

Correa also said the report does not consider whether the Orange County Transportation Authority or Caltrans could run the toll road system cheaper than the TCA. Nor does it address continuing the TCA’s non-compete agreements that restrict improvements to nearby highways, such as Interstate 5 unless OCTA or Caltrans compensates the TCA for lost revenue.

“These are public policy issues that were not touched upon,” Correa said.