Tollway Merger Spinning Its Wheels

A decision to combine the highway operations of Orange County’s largest toll road agency was postponed again Thursday, this time despite objections from board members who warned the delay might be a political move to give merger supporters time to purge opponents from the agency’s board.

The Transportation Corridor Agencies is considering ways to prevent the faltering San Joaquin Hills toll road from defaulting on $1.5 billion in bonds. The turnpike has been plagued by lower-than-expected ridership.

After a 20-month study, the TCA’s staff and a passel of Wall Street advisors have recommended that the operations of the San Joaquin Hills, which runs from Newport Beach to San Juan Capistrano, and the Foothill-Eastern corridor, a sister highway to the east, be combined.

The plan includes a $4-billion bond issue to refinance the debt of both turnpikes. About $1 billion of those bonds would involve so-called interest rate swaps between the TCA and financial institutions.

A vote whether to proceed with the merger was scheduled for Thursday during a meeting of the Transportation Corridor System board of directors -- a 21-member body created by the agency’s other two boards to decide on the merger. A decision was delayed the first time in February.

The proposal needs a super-majority of 16 votes to pass. But seven board members remain opposed to the merger and want to explore alternatives.

Tensions on the board have mounted over the last few months as skepticism about the bond issue has escalated among the opponents, who believe it is a costly and risky venture.

When discussions began Thursday, county Supervisor Tom Wilson, chairman of the corridor system panel, said he wanted to delay the vote until May 13 to give directors more time to analyze three alternatives to the recommended proposal. They include ways of supplying surplus revenue from the Foothill-Eastern toll road to the San Joaquin Hills.

After Wilson moved for the postponement, a heated exchange ensued. Anaheim City Councilman Bob Hernandez, a TCA board member and opponent of the merger, warned his colleagues that the Anaheim council tried to pass a measure Tuesday night to force him to vote for the consolidation and bond issue. The item was pulled off the agenda before a vote could be taken.

“This sends a chilling message. I believe it is the intent of the council to replace me,” said Hernandez, who was appointed to the tollway board by the Anaheim City Council. “Not once have I seen another Anaheim council member here, yet they are trying to make the decision. It is abominable.”

Eric Norby, an alternative board member who also opposes the bond issue, said it appears there are efforts underway to remove board members who don’t like the plan. Santa Ana City Councilman Brett E. Franklin, another board member who is skeptical of the bond proposal, agreed.

“There could be a move afoot to remove opponents of the merger,” Franklin said. “Only people who stand to make a lot of money are coming to me. They will put the squeeze on the board if the vote is delayed.”

The opponents called for a vote on the merger in hopes of derailing it. They said that unless the plan was killed the agency’s staff would not evaluate the alternatives fairly because they were too invested in the bond deal.

“The fixed-rate and the interest rate swaps need to be cleared from the table to get an objective discussion,” said Norby, who is chief of staff for his brother, Supervisor Chris Norby.

Their effort was turned back, however. The board voted 14 to 7 to postpone the matter until May 13.

Some pro-merger board members, like Irvine Councilwoman Beth Krom, said she supported the delay out of deference to Supervisors Norby and Bill Campbell, who have offered alternatives.

Lake Forest Councilman Peter Herzog said he wanted a full analysis of the alternatives and chided the opponents for criticizing the agency’s employees.

“The staff has been trying to do an objective job,” Herzog said. “They are smart people. They have been diligent. Now some board members want to assassinate their character.”

Wilson tried to assure the opponents that the only motive behind the delay was to determine if the three alternatives were possible. More time was needed, he said, to see if they were legal, economically feasible and would not change the tax-exempt status of TCA bonds.

Under consideration is a proposal from Supervisor Norby, who wants to use projected surplus revenue from the Foothill-Eastern to help the San Joaquin Hills pay its debts.

John M.W. Moorlach, Orange County’s treasurer-tax collector, has suggested that the Foothill-Eastern system offer $190 million for the option to buy the San Joaquin Hills. The deal would provide cash to the ailing toll road and avoid the added debt and costs of a bond issue.

In a last-minute proposal, Supervisor Campbell has proposed loans to keep the San Joaquin Hills out of the first stages of default. He also calls for an upfront payment of $120 million if the San Joaquin Hills board agrees not to sue the Foothill-Eastern over construction of the Foothill South tollway, which would complete the 65-mile tollway system.

The Foothill South, which would run from Laguna Niguel to just south of the county line, might draw traffic away from the San Joaquin Hills. The San Joaquin, however, is protected by a special agreement that precludes construction of highways that might pull away customers.