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Toll lane default deal for I-77 is under scrutiny

The Charlotte Regional Transportation Planning Organization is scheduled to vote Wednesday on a long-range transportation plan that includes I-77 toll lanes. The project is meant to ease congestion, such as this traffic near Exit 30 at Davidson.
The Charlotte Regional Transportation Planning Organization is scheduled to vote Wednesday on a long-range transportation plan that includes I-77 toll lanes. The project is meant to ease congestion, such as this traffic near Exit 30 at Davidson. mhames@charlotteobserver.com

The N.C. Department of Transportation has long said one of the biggest benefits to the Interstate 77 project is that the public gets more than $500 million of infrastructure for a relatively small taxpayer investment of $88 million.

If the private developer’s toll revenue falls short, the DOT could contribute an additional $75 million.

Proponents have said that’s still a small amount in exchange for 100 new lane miles that will be built from uptown to Mooresville.

But the state’s contract with I-77 Mobility Partners, a subsidiary of a Spanish company, also contains a provision that could make taxpayers pay much of the company’s remaining debt if it defaults.

The DOT and Gov. Pat McCrory have said they are following the wishes of a planning group, the Charlotte Regional Transportation Planning Organization, which voted in favor of the toll lanes. The group is scheduled to vote Wednesday on a long-range transportation plan that includes the I-77 toll lanes, as well as toll lanes on U.S. 74 and I-485.

Kurt Naas, the leader of the anti-toll lane group Widen I-77, has called attention to the possibility that Cintra could be bailed out by taxpayers. He said the DOT has minimized how large the payment could be, considering the company will start the project with about $290 million in debt.

Another factor, he said, is that much of the loans are back-loaded, meaning I-77 Mobility Partners doesn’t have to pay principal and interest for years.

“This is all set up so default can happen and the public bears the risk,” Naas said. “I can say based on the analysis I have done, that if it goes belly up, they will come out just fine.”

The DOT said that’s not true.

The state said that I-77 Mobility Partners would lose roughly $250 million of its own equity in the case of any default. The DOT said that’s a significant incentive not to default.

The state also said its agreement to pay much of the outstanding debt isn’t unusual.

“It is standard in the project finance lending market for there to be a floor on lenders’ potential loss,” DOT spokesperson Jordan-Ashley Baker said.

The I-77 toll lane project continues to be controversial, with Mecklenburg County commissioners, and several north Mecklenburg towns either opposed or concerned about the project’s merits.

Bill Coxe, a transportation planner with Huntersville, is a voting member of a committee that makes recommendations to the regional planning organization. He is one of the region’s biggest experts on transportation issues, but said he wasn’t aware the DOT could cover up to 80 percent of the project’s debt.

He said his impression was that the state’s $75 million payment in case toll revenues fell short was the last money it would put in the project.

“They have said the concessionaire assumes all responsibility for the debt,” Coxe said.

Other toll problems

Naas said it’s important to consider the impact of a default because other toll road and toll lane projects have gone bust.

The Indiana Toll Road, which Cintra bought in 2006, has gone bankrupt. Another Cintra highway project in Texas is struggling to make debt payments.

The CEO of I-77 Mobility Partners, Javier Tamargo, said in an Aug. 11 letter to Naas that “only one of (the company’s North American) projects, the Indiana Toll Road, has filed for bankruptcy.”

He said that was due to the 2008 recession, which caused a steep drop in toll revenue.

Tamargo also said the agreement with the state has “a strong system of checks and balances that align the various interests of the public sector, the financing community and the private developer...for the most efficient and cost-effective delivery of critical infrastructure.”

Under the deal, I-77 Mobility Partners has a 50-year lease to manage the lanes, set the price of the tolls and collect revenue.

Back-ended payments

Part of the money used to build the toll lanes is a $189 million loan backed by the federal government, called a TIFIA loan. The other debt is a $100 million loan known as a PAB loan, for Private Activity Bonds.

Naas has cited a “pre-sale report” on the bonds from DBRS, a credit rating agency, that lists the upside and risks to investors.

On the TIFIA loan, I-77 Mobility Partners won’t have to make any payment until 2023. The interest, however, will accumulate during this period, adding about $47 million to the debt, according to the report.

The first principal payment on the TIFIA loan isn’t due until 2033, according to DBRS.

The report shows the total debt at more than $300 million, through about 2037.

Naas said when the payments balloon, Cintra may find at advantageous to walk away.

In a 2014 letter to the editor in the Observer, Ned Curran, chairman of the N.C. Board of Transportation, addressed the possibility of default.

“Should the company default, the road is still widened, and the state gets the project for roughly half the cost, along with all future revenue,” Curran wrote.

Naas said he believes the actual cost to taxpayers could be higher. He said once the state’s initial equity payment and toll revenue subsidy is paid, along with 80 percent of the outstanding debt, the cost to taxpayers would be much more than half of the project’s cost.

Steve Harrison: 704-358-5160, @Sharrison_Obs

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