The California state controller's office announced Tuesday that it will review plans by Orange County's largest toll road agency to merge the operations of the financially ailing San Joaquin Hills turnpike and the successful Foothill-Eastern tollway.
Controller Steve Westly said he ordered the audit in response to a request by Assemblyman Lou Correa (D-Santa Ana), who has been concerned about the proposal to combine oversight and financing of the two roads and refinance their debt with a $4-billion bond issue.
"I am pleased that Westly will look into the proposed transaction, the legality of the merger, and the feasibility of the $4-billion bond deal," Correa said. "More money is at stake than in the Orange County bankruptcy. This is big. What if this merger is not viable?"
For almost two years, the Transportation Corridor Agencies has been studying a merger to salvage the San Joaquin Hills road, which runs for 16 miles through west Orange County from Newport Beach to just north of San Juan Capistrano.
The TCA, which is a governmental agency based in Irvine, manages a 51-mile network of toll roads, including the San Joaquin, the Foothill-Eastern and a short stretch of Highway 133. The San Joaquin and Foothill-Eastern roads have their own boards of directors and are financed separately.
The latest traffic and revenue studies show that the San Joaquin Hills road will earn less than half the money predicted when the highway was refinanced six years ago.
If nothing is done, the road might be in technical default on at least $1.5 billion in bonds by 2005 and in partial default on interest payments to investors by 2012. Technical default means the TCA would violate an agreement with bondholders to earn $1.30 in revenue for every $1 in expenditures and debt payments.
The controller's office, which is the state's fiscal watchdog, plans to begin the audit by Nov. 14 and report to Correa within eight weeks. Westly said the office will look into the TCA's finances, revenue projections and merger plans to make sure "they are fiscally sound."
Lisa Telles, a TCA spokeswoman, said the agency will cooperate. She noted that the corridor agency already has done much research related to the feasibility of combining operation of the two highways.
The state audit represents the second review of the pending merger ordered in the past few weeks by outside agencies. In early October, the Orange County Board of Supervisors unanimously decided to hire a consulting firm to analyze the proposal.
Supervisors said they were concerned that many of the TCA's financial and bond consultants who are studying the merger have a potential stake in the refinancing.