I
TOLL
ROAD STUDY
COMMISSION
FINAL REPORT December, 1984
Representative Joe Lane, Chairman Senator Jack T a y l o r The Honorable Harry M i t c h e l l M r . Dave B e r r y M r . P h i l l i p Gagle
Ms. Mr. Mr. Mr.
Marilyn Hinkins Carol Jacobson, Jr. Elmer Thierman L i o n e l A. Waxman
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LG 1.2:T 55/F Toll Road Study Commission :final report Arizona. Legislature. Toll Road Study Commission. Title: Toll Road Study Commission : final report. Publication info: [Phoenix, Ariz.] :The Commission, 1984. Physical descrip: iii, 17 p. : ill. ;28 cm. Held by: RESEARCH Subject term: Toll roads--Arizona. Subject term: Fewability studies--Arizo& Added author: Arizona. Legislature. Toll Road Study Commission.
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Call Numbers for: RESEARCH 1) LG 1.2:T 55/F
1 STATE-DOC State Documents 2 STATE-DOC State Documents
Copyright O 2000 - 2005, SirsiDynix
I
JOE L A N E
WILLCOX. A R I Z O N A 85643
COMMITTEES:
TRANSPORTATION. CHAIRMAN JUDICIARY COMMERCE WAYS& MEANS
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DISTRICT 9
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PARLIAMENTARIAN
November 16, 1984
The Honorable Bruce B a b b i t t Governor The Honorable Stan Turley President, A r i zona State Senate The Honorable Frank Kelley Speaker, Arizona House of Representatives Dear Governor Babbitt: President T u r l ey : Speaker Kelley: W are pleased t o transmit t h e enclosed r e p o r t of t h e T o l l Road Study e Commission. Last year our Commission was under l i m i t e d time constraints and d i d not have adequate opportunity t o explore the t o 1 1 road issues. During t h e past year t h a t t h e Commission has been extended, an independent, in-depth study of the f e a s i b i l i t y o f t o 1 1 roads i n Arizona has been conducted. The Commission concluded t h a t t o l l roads are n o t a f e a s i b l e financing a l t e r n a t i v e t o Arizona's t r a n s p o r t a t i o n problems a t t h i s time. However, the r e p o r t d i d answer t h e questions r a i s e d by t h e Commission concerning t h e need f o r a T o l l Road Authority, ifp r i v a t e enterprise could operate to1 1 roads, the r o l e of l o c a l governments, and how federal laws and federal funds may impact to1 1 roads. With t h i s report, we conclude our study o f t h e f e a s i b i l i t y of to1 1 roads i n Arizona.
Chai an To1 1 oad Study Commission Enc. JL: ba
f
Table of Contents Page S t a t u t o r y Authority. Commi s s i o n Commission 1.
2.
3.
..................... Activity. . . . . . . . . . . . . . . . . . . . . . Recommendations . . . . . . . . . . . . . . . . . .
i i ii
Executi ve Summary
4.
5.
6.
7.
8.
........... The L e g i s l a t i v e Response. . . . . . . . . . . . . Purpose.. . . . . . . . . . . . . . . . . . . . . Study Procedures . . . . . . . . . . . . . . . . . The Toll Road Experience . . . . . . . . . . . . . The Federal P o s i t i o n P e r t a i n i n g t o Toll Roads. . . . Study Findings . . . . . . . . . . . . . . . . . . .
Hi ghway Fi nanci ng i n Ari zona Conclusions and Recommendations.
. . . . .
1
2
3
4
6 8
10 14
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STATUTORY AUTHORITY The T o l l Road Study Commission (Laws 1983, Chapter 107) i s mandated t o : 1. Conduct s t u d i e s and i n q u i r i e s , and h o l d hearings t o determine the f e a s i b i l i t y o f e s t a b l i s h i n g a t o l l road a u t h o r i t y and a t o l l road system i n Arizona.
2.
U t i 1ize l e g i s l a t i v e s t a f f s e r v i c e s and h i r e c o n s u l t a n t s necessary t o determine f e a s i b i 1it y .
3.
Report t o t h e Governor, t h e Speaker of t h e House and the President of the Senate on the Commission's f i n d i n g s and recommend any necessary steps t o implement an e f f e c t i v e t o l l road a u t h o r i t y and system t o meet the needs of t h e growing p o p u l a t i o n o f t h i s s t a t e .
COMMISSION ACTIVITY I n December, 1983, the Commission recommended t h a t i t be extended so t h a t a comprehensive study o f t o l l roads c o u l d be conducted. recommended t h a t c e r t a i n items be i n v e s t i g a t e d i n t h i s study. were : The Commission These items
1.
Whether a separate T o l l Road A u t h o r i t y i s needed and what d u t i e s
i t w i l l perform.
2.
Determine which r o u t e s i n Arizona may be conducive t o t o l l roads and what type o f s t u d i e s are needed t o determine t h e i r f e a s i b i l i t y .
3.
Determine if t o l l roads may be b e t t e r c o n t r o l l e d through p r i v a t e e n t e r p r i se.
4.
Examine t h e possi b i 1it y t h a t l o c a l governments and municipal it i e s e s t a b l i s h t h e i r own t o l l roads and t o l l road a u t h o r i t i e s .
5.
Determine how f e d e r a l laws and f e d e r a l funds may impact any suggested t o l l routes.
In January, 1984, the Commission requested ADOT t o prepare a Request f o r Proposal (RFP) t o a d v e r t i s e f o r a c o n s u l t a n t t o conduct a Toll Road F e a s i b i l i t y Study f o r t h e S t a t e of Arizona. By April 1 , a c o n s u l t a n t firm was s e l e c t e d and work began immediately on the study. The Commission s e l e c t e d JHK & Associates. JHK i s a n a t i o n a l l y recognized t r a n s p o r t a t i o n c o n s u l t i n g firm w i t h major o f f i c e s i n a number of c i t i e s including Phoenix and Tucson. JHK a1 so u t i l i z e d the firm of URS/Coverdale and Colpi t t s and the Phoenix law firm o f Gallegher and Kennedy. The Commi ssi on unanimously adopted t h e recommendations of the c o n s u l t a n t team. The executive summary of t h e c o n s u l t a n t i s r e s p e c t f u l l y submitted a s a major portion o f the Commission's f i n a l r e p o r t . COMMISSION RECOMMENDATIONS The recommendations o f t h e Commission a r e a s follows: The Legi s l a t u r e should consider the d r a f t i n g of a p p r o p r i a t e enabling l e g i s l a t i o n a u t h o r i z i n g the e s t a b l i shment o f the Arizona To1 1 Road Authority. Thi s would rep1 ace o b s o l e t e l e g i s l a t i o n which i s no longer p e r t i n e n t t o c u r r e n t Arizona needs. The purpose of such l e g i s l a t i o n i s not t o proceed d i r e c t l y t o financing any p a r t i c u l a r p r o j e c t , but t o have i n exi s t e n c e t h e a p p r o p r i a t e l e g i s l a t i o n should to1 1 roads become f e a s i b l e i n the f u t u r e . L e g i s l a t i o n should address the following points:
" The a b i l i t y o f the Authority t o plan, design, c o n s t r u c t ,
operate and maintain t o l l roads i n the s t a t e .
" The manner i n which t h e Toll Road Authority i s comprised.
" The r e l a t i o n s h i p of the Toll Road Authority t o the
Arizona Transportation Board.
" The manner in which the Toll Road Authority would
coordinate i t s program with that of the Arizona Department of Transportation.
" The manner i n which t o l l road generated funds can be
mingled with funds from other federal, s t a t e and local agencies as well as private parties.
" The role of the private sector in financing and/or
operating portions of the t o l l road or concessions along i t s length.
" The manner in which c i t i e s and counties will be permitted
to construct and operate t o l l roads.
" The treatment of t o l l roads once the bonds have been
retired.
2.
Mechanisms for co-mingling of funds should be explored separately by appropriate agencies within the Arizona Department of Transportation. Since a prime source of the non-toll portion of the com ngled funds could be the Arizona Transportation Board Revenue i Bonds, i t i s important that the constraints on these bonds be f u l l y defined and the amount of additional bonds t h a t could be sold determined both under current highway user revenue funds as well as any option for increasing such funds. Additional detailed studies of the proposed f a c i l i t i e s which were recommended as t o l l roads should be made. Arizona o f f i c i a l s should work with their counterparts in other s t a t e s to effect changes in the federal policies dealing with t o l l roads to make i t easier to use federal funds i n their construction and maintenance and to define conditions under which exi sting federal l y funded roads could be to1 led.
3.
4.
EXECUTIVE SUMMARY
I. HIGHWAY FINANCING I ARIZONA N
Financing an adequate highway system has become a severe problem for s t a t e agencies during t h e last decade. In t h e f a c e of continuing increases in traffic, highway funds (in constant dollars) have decreased while t h e c o s t of building and maintaining 11ighways has increased. Meanwhile t h e highway system continues t o age, requiring greater attention t o maintenance and revitalization. Faced by this dilemma of increased needs and decreased funding, highway officials at t h e local, state and Federal level have utilized various m e a n s t o keep up with t h e problem. One response was t o push for increases in t h e gasoline fuel t a x a t t h e s t a t e level. Since 1978 most states have increased their gas tax. At t h e present time, Arizona's gas t a x stands at 13 cents which is close t o t h e national average. However, even with an increase in t h e gas tax, t h e e f f e c t s of t h e high inflation r a t e s of recent years has dampened any major funding improvement. The Federal government through t h e Surface Transportation Assistance Act (STAA) of 1932 also responded by passing a five c e n t Federal fuel t a x increase. This was t h e first increase in t h e Federal fuel t a x in over 20 years, but again t h e ravages of inflation meant t h e Federal dollars, in terms of their buying power, were substantially less than was t h e case 15 years ago. The S t a t e of Arizona has long recognized i t s financial needs with regard t o highways and had taken several steps t o improve t h e situation. In 1980 t h e Arizona Transportation Board was authorized under t h e S t a t e Highway Bonding Authorization Act t o issue bonds up t o a total of $500,000,000 outstanding at any t i m e for t h e purpose of highway construction and improvements in Arizona. In 1980 the Board issued $50,000,000 in bonds and in 1982 issued an additional $168,125,000 in bonds. The bonds a r e backed by the Arizona Highway User Revenue Fund (HURF) which consists of fuel taxes and other vehicular generated revenues. To ensure t h a t t h e legally required coverage of these bonds would be available and t o provide for t h e ongoing operation and maintenance costs, t h e Arizona fuel t a x was also increased over a period of several years. A t o t a l increase of five cents per gallon was approved which consisted of a two cent increase on July 1, 1982, another 2 cents on July 1, 1983 and a final c e n t on July 1, 1984. At this t i m e t h e issuance of
additional Transportation Board bonds would require another increase in HURF funds or a decrease in some other ADOT highway program which uses HURF money. Although t h e fuel t a x increase both in Arizona and a t the Federal level have made t h e problem more bearable, years of insufficient funding of the highway system has resulted in numerous projects being indefinitely postponed and the others being built in phases over a long period of time. Amidst this environment, a number of agencies have considered a financing mechanism which, over t h e years, has been very popular in some states, namely toll financinq. The use of tolls in transportation has a long history in the United States. Most early Colonial roadways were built as toll roads. The Nations first freeways were also constructed as toll roads beginning with such facilities as the Pennsylvania Turnpike in t h e early 1940's. Many of this countries major bridges and tunnels were also built as toll facilities. However, toll roads began t o lose their popularity once the Interstate System was under construction. The Interstate Highway Trust Fund replaced tolls as a means of financing and although some toll road construction continued into the l a t e 1960's and t h e early 19709s, i t was on a very limited basis compared t o the heydays of toll roads during t h e 1950's.
2 THE LEGISLATIVE RESPONSE .
Given t h e financial situation of Arizona's roads and t h e potential that toll road financing might provide some relief, a number of Arizona's senators and representatives introduced legislation t o consider the concept of toll financing in the State. On April 12, 1983 Governor Babbitt signed into law House Bill 2427 which provided for a "Study Commission on the Feasibility of Establishing Toll Roads and a Toll Authority1' for t h e state of Arizona. The legislation created a nine member body empowered t o make studies and conduct inquiries concerning the feasibility of toll roads for Arizona. The Toll Road Study Commission was interested in a number of specific questions, namely: Is a separate toll road authority needed and what a r e the duties i t would perform?
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.
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Could toll roads be better controlled through private enterprise? Should local governments and municipalities establish their own toll roads? How do Federal laws and funding programs impact proposed toll roads?
What financial arrangements would be necessary t o permit potential routes t o operate as toll roads? To assist in responding t o these questions, t h e Toll Road Commission was authorized t o retain t h e services of a Consultant knowledgeable in t h e matters of toll road financing. The Consultant Team headed by JHK & Associates assisted by URS/Coverdale and Colpitts, and Gallagher & Kennedy, was selected t o develop information for use by t h e Toll Road Study Commission. Arizona's action in establishing a toll road study commission follows similar actions in other states as well as renewed interest at t h e Federal level. The Reagan administration had proposed t o allow Federal funds t o be used in t h e construction of new toll roads on t h e Federal Aid System, but this proposal did not g e t included in t h e approved legislation. In a recent p a p e 1/ Richard 8. Robertson, Associate r Administrator for Planning and Policy Development, Federal Highway Administration, made t h e following comments concerning Federal funding foe toll roads: "It is absolutely necessary that we seriously consider all financing mechanisms with a potential for increasing t h e revenues which a r e necessary t o finance t h e highway improvements, thus improving highway related productivity." Thus both the Federal government and Arizona a r e considering t h e potential for toll roads and the timing of this project is opportune as t h e state assesses its highway financing options.
. .
What routes in Arizona show t h e greatest potential as toll roads?
3- PURPOSE OF TMS REPORT
This report provides a summary of t h e studies, investigations, research, analyses and evaluations made concerning toll road feasibility in Arizona. The seven month long effort conducted by t h e Consultant Team, in close coordination with the Toll
Road Study Commission and staff of the Arizona Department of Transportation, resulted in a series of working papers which addressed the major issues of the study. Each of t h e working papers was presented t o t h e Commission in a forum open t o t h e public and as a result received considerable attention from t h e media. A comprehensive report covering all aspects of the study is available as a separate
1/ -
Statement to the Senate Committee on Environment and Public Works, Subcommittee on Transportation, July 6, 1983.
volume in order t o document t h e methodology and details of t h e study. This report which is identified as t h e Executive Summary provides a more concise presentation of t h e key elements of t h e study and t h e general conclusions and recommendations which t h e Consultant has come to. Readers of this document may wish t o review t h e main report for additional information.
A S N D Y PROCEDURES
t 1 I I
The study was conducted by obtaining a broad range of perspectives and information pertaining t o highway needs and financing in the State. At the outset of t h e project, t h e Consultant Team interviewed a number of key decision makers in the S t a t e t o g e t their ideas on highway needs and t h e advisability of toll financing. They were also asked t o suggest certain roadways, both existing and proposed, which they might consider as potential toll roads. While t h e interviews were underway, information was also being gathered on existing s t a t e and federal laws pertaining t o toll roads. The institutional framework in Arizona and the unique characteristics of the state were believed important t o tailor a program for Arizona. Information was obtained from the Arizona Department of Transportation on current and future needs and plans, proposed highway improvements, available long range studies and forecasts of highway usage. Similar data was obtained from the major urban areas, primarily Phoenix and Tucson. Finally, an assessment was made of the current status of toll roads in other
states in this country and the manner in which toll financing was taking place under current economic conditions. The next step in the study involved the development of a screening and evaluation process by which existing and proposed roads on Arizona's highway system could be evaluated for potential as toll roads. Screening and evaluation criteria were developed which considered financial impacts, social and environmental impacts and the potential for improved traffic services. Through this process a number of routes both existing and proposed were eventually selected for more detailed analysis. The screening and evaluation process is schematically depicted on Figure 1.
These detailed analyses looked closely a t the financial feasibility of the candidate routes although not t o t h e extent that would be required for a formal feasibility study. Traffic forecasts were prepared for each route and a toll collection plan was developed. Construction, maintenance and operating costs were estimated and inflated t o represent conditions when t h e project could be built and over its lifetime.
5.
THE TOLL ROAD EXPERIENCE
The pressures of building roads in this day and age have provided renewed
interests in using tolls as a funding source.
Using toll financing, t h e money needed t o plan, design and construct a facility can be assembled quickly and in an adequate
In addition, if Federal money is not involved in the process, Federal regulations, particularly those related t o the environmental process, can be avoided or at least mitigated. Needless to say, these reasons a r e very important from both a local and state perspective. Modern toll roads have developed principally as vital parts of the intercity highway network for which public funding was not available. The pressures built up by the national traffic explosion after World War I1 required a rapid expansion of our major highway network. In the interval before t h e Interstate Highway System was authorized in 1956, a t least 14 major toll road systems were fully or partially implemented in as many states, following in t h e footsteps of Pennsylvania, which had opened t h e modem toll road e r a with sections of its Turnpike in 1940. These early toll roads were all built under t h e jurisdiction of separate authorities or commission authorized as "public benefit corporationsn or similar entities by their respective state governments. They all issued revenue bonds; they all had broad independent powers t o carry out their mandates; and they all met urgent needs for better highway transportation by proceeding with their projects with dispatch and a minimum of interference. They established certain patterns of procedure: t h e marketing of revenue bonds required a team consisting of consulting and traffic engineers t o determine t h e feasibility and cost of the projects; bond counsel t o draw up trust indentures and assist in drafting needed contracts and legislation; and a financial advisory and/or bond syndicate manager to prepare the many details required for issuing and marketing revenue bonds.
amount t o build t h e highway expeditiously.
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Today there a r e over 20 states in t h e Nation which have created toll road authorities or commissions. Currently there a r e approximately 4,300 miles of toll roads in operation in this country. Both benefits and disadvantages can be associated with toll roads. Some of the more significant of these factors are cited below.
TOLL ROAD BENEFITS
1. Toll roads permit revenue bond financing based on toll payback, alleviating t h e need for tax revenues.
2. Toll financing speeds up completion of facilities, since all needed funds become available either prior t o or during t h e construction period, and a r e not dependent on tax revenues or public budgets. This not only permits earlier use of t h e road, but reduces costs by minimizing t h e inflationary effect.
3. Toll financing relieves the highway capital budget and makes more funds available for other projects.
4. Toll financing may avoid or reduce t h e magnitude of t a x increases or public budget allocations for maintenance and operation by placing t h e burden directly on facility users who voluntarily pay for t h e service; many from outof-state.
5. Toll roads generally provide higher quality facilities for motorists because of better maintenance, greater safety, less traffic interference due t o spacing and design of access points, better policing and breakdown service, roadside restaurants and service areas.
6. Toll roads produce jobs both during design and construction and also for longterm operation and maintenance.
There a r e disadvantages, however, which are cited below.
TOLL ROAD DISADVANTAGES
1. Some people object t o tolls and toll increases, which can be used a s political issues. They may feel they a r e being taxed twice for the same service. Truckers and others who depend upon highways for their business may feel that they a r e being unduly burdened.
2. Pressure often builds for additional interchanges, which, for reasons of operating efficiency, cannot be spaced as closely as those on similar non-toll freeways.
3. Costs of toll collection and interest a r e incurred (but are covered by toll revenues).
4. Cost increases during planning or construction phases may result in inadequate funds under a revenue bond issue, sometimes requiring supplemental funding t o be provided by state or other means. The economic conditions faced by highway construction agencies has caused many states and local jurisdictions t o look once again a t t h e advantages of toll roads. The result of this interest has been a resurgence of activity with regard t o toll roads. Several states have continued t o be active in planning, designing and building toll roads while several other state and localities have conducted feasibility studies t o determine what benefits might accrue from a toll road system. Both Pennsylvania and Wisconsin have recently conducted state wide toll feasibility studies. Other states like Texas, Virginia and Florida have continued t o use toll financing t o build roadways and local jurisdictions like Harris County (Houston, Texas area) have recently approved referendums allowing them t o sell bonds t o finance toll roads.
6. THE FEDERAL POSITION PERTAINING TO TOLL ROADS
The Federal government's regulations on toll roads a r e contained in t h e Code of Federal Regulations, Title 23, Sections 301 and Section 129. follows: Section 301 reads as
Freedom from tolls Except as provided in section 129 of this title with respect t o certain toll bridges and toll tunnels, all highways constructed under the provisions of this title shall be f r e e from tolls of all kinds. Section 129 limits Federal participation t o toll bridges and tunnels and their
.
approaches and goes on t o specifically prohibit participation in toll roads. This prohibition has been reinforced on a number of occasions although several states have attempted t o g e t t h e current regulations changed. The basic Federal policy is that any road built partially or totally with Federal funds will be a f r e e road. Once t h e road has been opened t o traffic there is no existing means that would permit i t t o be converted t o a toll road. At this time there a r e no highways in this country built with Federal money that have become toll roads. Thus,
t o consider tolling any highway in Arizona t h a t was planned and constructed with any Federal money will require a change in Federal legislation. A number of states, most recently Wisconsin and Pennsylvania, have conducted studies suggesting that all or portions of their Interstate systems be tolled. They c i t e the problem of existing Federal laws but appear t o assume that getting Federal legislation changed is a good possibility. Our own assessment of the situation is t h a t it will be an uphill battle t o change current Federal law at least as i t relates t o converting free roads t o toll roads. The Administration has gone on record opposing such a change and previous administrations also have not been supportive of t h e concept. highways as toll roads. What is more likely in the way of revised Federal legislation is the ability t o use Federal funds t o help finance proposed
In t h e past a number of states have received federal funds for toll roads which had been initiated prior t o t h e Interstate System. These roads, largely in the East, essentially were "grandfathered" into the Interstate System. The agreement which permitted this t o occur required t h a t all revenues less operation and maintenance costs be used t o retire the bonds and t h a t once retired t h e roadway be free. Since those agreements were made, a number of these roads have reached t h e point where t h e original bonds have been paid off. However, because of t h e need t o rebuild t h e roadway or increase its capacity, new agreements were made with the Federal government which permitted a continuation of tolls.
During t h e last decade there has been a gradual lessening of t h e anti-toll road attitude in t h e Congress and by the Administration. In the 1978 Surface Transportation Assistance Act, Congress for t h e first time allowed Interstate rehabilitation funds t o be used t o provide improvements for toll roads. The use of such funds does require a Federal/State/Toll Authority agreement with the usual stipulations t h a t at some point in t h e future t h e road be converted t o free use. The current Administration wanted t o go even further in its own version of a highway bill which was introduced in 1982. It recommended that states be able t o use Federal funds at the s t a r t of t h e highway process t o investigate, plan and design a project, which later would depend upon bond financing for the major construction cost, without any penalty t o t h e s t a t e or even t h e need t o pay back such money. The
J'hk
associates
Administration further wanted t o deregulate toll bridges and tunnels where Federal funds were involved. This would have gotten t h e Federal government out of t h e rate setting loop for such facilities. Neither of t h e above provisions got included in the 1982 bill t h a t was passed but it indicated t h e Administration's attitude.
7. STUDY FINDINGS
Twelve candidate routes shown on Figure 2 were evaluated as potential toil roads in t h e state of Arizona. These consisted of several projects that have been proposed for construction over t h e next two decades, as well as a number of existing roadways where improvements are needed or where maintenance costs are high and tolling is being considered as one means t o finance t h e identified needs. The evaluation process included a determination of t h e volume of traffic that would use t h e highway if tolls were imposed, t h e location and type of toll collection system, t h e amount of toll that would be charged, t h e various costs associated with t h e project and the size of t h e surplus or shortfall in debt service that would result. The evaluation also considered t h e difference in social and environmental impacts that result if t h e project were constructed as a toll road rather than toll free. Table 1 summarizes t h e results of the financial evaluations that were conducted. The evaluations indicated t h e following:
. . .
The revenues generated from each of t h e projects a r e sufficient t o provide their annual expenses for operations, maintenance, pavement preservation and a portion of their debt service. Excluding those projects which were primarily for providing maintenance expense, none of t h e projects which require major construction would be able t o pay back t h e capital costs solely from toll revenues. A substantial improvement in the results of the financial analyses would result from t h e following occurring:
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A decline in interest rates, a t t h e time the toll revenue bonds were sold, from t h e 10 percent r a t e assumed for this analysis.
A decline in the inflation factors for highway construction, over the next several years, from t h e inflation factors assumed in this analysis.
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Traffic volumes on highways in Arizona a r e generally not as high as those found in t h e high density eastern states where most toll roads a r e located.
TOLL ROAD
aemsrelrrTv
RECOMMENDED PRELIMINARY TOLL ROAD SYSTEM
The route8 ahown on thir map Were the eandidater which were evaluated. Only certain of these later in thl8 report. router were recommended for further con8ideration 80 d i 8 ~ ~ 8 r a d
Table 1. Summary Evaluation of Candidate Routes
Operating, Current Maintenance Construction and Pavement Cost Res. Cost Req. to Meet Debt Service
Recommended
T011
Length (miles) Rillito Parkway Superstition Freeway Outer Loop 1-10 ehrenbergl Phoenix 1-10 Phoenix1 Tucson Hoover Dam Bypass SR 95 Parker Bws :
--
Opening Year and Year 2007 A D 1
Opening Year and Year 2007 ~evenue@ Total $
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Annual Level Debt Service(>)
A
Ratlo-Nct Rev ue to ~ e b service) t Opening Year Year 2007
"I
N
SR 90 1-10 Sierra Vista Snow Bowl Access
US 93 I-~O-HOOVU Dam Bypass
71
76,000,000
3,167,000
8.00
3.50
4,82517,030
7,244,000 10,508,000
4,077,000 7,500,000
13,605,000
.30 -55
nl
(2) (3) (4)
At barrier. Total revenue refers to the gross total of all toll revenues collected a t the barrier or ramps over the course of the year. Net revenue is the difference of tht total revenue minus the annual cost of operations, maintenance and pavement preservation. Annual Level Debt Service is the amount required each year over the l i f e of the bond to pay the interest and principal costs and t o provide for all financing, legal and other fees associated with the sale of the bonds. Ratio of Net Revenues to Debt Service is an indication of what percentage of the average annual debt service would be covered by revenues from the tolh. It provides an indication of the magnitude of outsrde funds that would be required i n a cost sharing arrangement. The ratio improves in the later years of a project as traf fic volume and toll revenue increase.
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Co-mingling or cost sharing t o fund several of projects is a feasible option with toll revenues combined with Federal, state, local government, and private contributions, all potential sources. The first few years of a toll project are t h e most critical financially because traffic volumes and toll revenues are low. It is in t h e first few years t h a t t h e necessary cost sharing arrangements a r e essential t o meet debt service requirements. The twelve candidate projects may be logically grouped into two categories. Category I consists of proposed routes which could be implemented by Arizona passing t h e appropriate enabling legislation. Category I1 consist of those existing highways currently on a Federal aid system which would require congressional legislation t o permit tolling along with t h e appropriate Arizona enabling legislation. Category I1 projects, because of t h e major hurdle requiring changes in Federal legislation, can be considered It is problemmatical with regards t o their potential as toll roads. recommended t h a t no actions be taken t h a t would preclude their becoming toll facilities should this be t h e legislature's desire at some future date. The Category I projects which are recommended for further consideration in a statewide toll road program are:
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.
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The Outer Loop in t h e Phoenix area The Superstition Freeway in t h e Phoenix area US 93, t h e Hoover Dam Bypass
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The Category I1 projects which would warrant further consideration should t h e appropriate Federal and S t a t e legislation be enacted are:
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1-10 (Phoenix t o Ehrenberg; Phoenix t o Tucson) SR85(I-lOt01-8) US 93 (Wickenburg t o Hoover Dam)
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There were several major issues which emerged during the evaluation process for which assumptions were made in order t o complete t h e analyses. If toll roads a r e implemented, these issues would have t o b e dealt with in greater detail. These issues are:
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equitable r a t e for trucks considering current truck taxing requirements. The Federal requirements if Federal law does change with regard t o tolling existing Federal aid highways. The appropriate mechanism for co-mingling of funds including Transportation Board Highway Revenue Bonds.
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Should toll road funding be implemented in Arizona, t h e toll road program should be fully integrated and coordinated with t h e total Statewide Highway Development program.
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& CONCLUSIONS AND RECOMMENDATIONS
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The State of Arizona is faced with the problem of raising additional funds to accelerate a badly needed highway program. It must choose between some form of increased tax at the state or local level such as higher motor vehicle registration fees, an increase in the sales.tax or an additional increase in the fuel tax. The use of motor vehicle receipts and fuel taxes, the so called highway user revenue funds (HURF), have been the traditional means of raising revenue. Toll road financing would represent a departure from past practices. The subject of toll roads is a controversial one in Arizona. Comments a t the
public meetings of the Toll Road Study Commission as well as from newspaper, radio and television coverage indicates that there are strong feelings on both sides of this
ol issue. The successful implementation of a t l road program will require a thorough explanation t o the motoring public of its benefits as compared t o other funding
alternatives. Toll roads in Arizona would generate substantial additional revenue for highway construction purposes. Revenues generated in the first year of operation range from three million t o 15 million for the projects recommended for further consideration. By the 20th year of operation this range has grown to 4.5 to 45 million dollars. Approximately 15 million dollars in revenues represents the equivalent of a one cent rise in the fuel tax on a statewide basis. Toll road financing is feasible if the appropriate cost sharing arrangements can
be agreed upon.
This study did clearly demonstrate that under current economic
conditions there are no projects in the state that could be totally supported through the tolls they generate. However, this finding is consistent with the findings from other toll feasibility studies undertaken in other parts of the country. Today's economic conditions which includes a combination of high municipal bond interest rates with high construction costs rules out, with but few exceptions, the financial feasiblility of a toll project which must rely fully on toll revenues. Thus the findings of this study were not unexpected. Construction of toll roads will require additional funding from other sources. The study did indicate that each of the recommended routes would be able to fully cover all its operating and maintenance expenses from toll revenues and would further make significant contributions t o debt service. Thus by using toll financing the road could be built a t a net savings to the public agency.
Private financing of toll roads is not a viable option for Arizona at this time for a number of reasons. From an economic standpoint none of the candidate routes could be fully supported from toll revenues. Thus public support would be needed in any case. Privately issued bonds would not be exempt from Federal and State taxes thereby diminishing their appeal t o investors. Finally the lack of private sector involvement in toll roads during the last half century makes i t doubtful if there is any interest by the private sector t o seriously consider this type of investment. The private sector would still play an important role in toll road financing through their typical involvement in the feasibility determination, design and construction of the highway as well as that of bond counsel, underwriters and concessionaires. The enabling legislation should not preclude private sector involvement should conditions change in the future. There does not appear t o be any overriding reason t o preclude counties and municipalities from establishing toll roads. Existing Arizona law provides for the operation and funding of roads and highways by counties and municipalities and the provision of toll road financing would be a logical extension of this power. Statewide legislation should, however, establish the means for interjurisdictional cooperation and the coordination of any such facilities within an overall highway improvement program.
A key ingredient t o the financial analyses of a project is its construction costs
and the interest rates a t the time the bonds are sold. This study assumed current interest rates and utilized preliminary costs estimates based upon a design for a free road. Means of reducing construction costs by phasing the project, eliminating low demand interchanges, and other cost reduction measures would be helpful. Likewise the timing of when bonds are sold is critical t o the overall financing. Although there is little that can done with regard t o the general market trends, there are substantial fluctuations which take place even on the short term and taking advantage of such opportunities would be valuable. Recognizing the constraints of the municipal bond market along with the need for expanding the highway construction program in the state and considering the options available t o do so, the following recommendations are offered: 1. The Arizona legislature should consider t h e drafting of appropriate enabling legislation authorizing the establishment of the Arizona Toll Road Authority. The legislation would replace archaic Territorial legislation which is no longer
relevant. There is no immediate urgency to this legislation since there is no specific facility whose construction is contingent on toll financing. However, early consideration of this legislation, independent of a specific project, could avoid potential controversy that might be related t o that project. Membership on this Authority would be a t the discretion of the Governor and the legislature, although it i s recommended that both the Chairman of the Transportation Board and the Director of ADOT be included on the Authority in some capacity. One option which is worthy of consideration would be t o define an Authority built around the existing Transportation Board. Additional members could be included and the Authority would be a legally separate body but the dual membership of Transportation Board members would ensure coordination of Arizona's highway program. The legislation should address the following points:
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The ability of the Authority t o plan, design, construct, operate and maintain toll roads in the state. The manner in which the Toll Road Authority is comprised. The relationship of the Toll Road Authority t o the Arizona Transportation Board. The manner in which the Toll Road Authority would coordinate its program with hat of the Arizona Department of Transportation. The manner in which toll road generated funds can be mingled with funds from other Federal, State and Local agencies as w e l as private parties. toll road or concessions along its length.
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;-The role of the private sector in financing and/or operating portions of the
The manner in which cities and counties will be permitted to construct and operate toll roads. The treatment of toll roads once the bonds have been retired.
The purpose of such enabling legislation is not to proceed directly to financing any particular road as a toll facility, but t o have in existence the appropriate legislation should this course of action be in the interest of the State in the future. Such legislation would also clarify the terms and conditions under which toll financing could be considered and therefore permit a more careful analysis of the feasibility of a specific project.
Mechanisms for co-mingling of funds should b e explored separately by appropriate agencies within t h e Arizona Department of Transportation. Since a prime
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source of t h e non-toll portion of t h e co-mingled
funds could be the Arizona
Transportation Board Highway Revenue Bonds, it is important that t h e constraints on these bonds be fully defined and t h e amount of additional bonds that could b e sold determined both under current highway user revenue funds as well as under any option for increasing such funds. These bonds are backed by t h e taxes and f e e s which go into t h e highway user revenue fund and as such they command low interest rates in t h e municipal markets. Toll road revenue bonds could not be expected t o receive as good a rating and would probably have interest rates H t o 1 percent higher than t h e Transportation Board bonds. them. Thus using purely transportation board highway revenue bonds t o fund new projects may not be adequate t o fund a major construction program unless there is a significant increase in the highway user revenue fund, namely a major increase in the fuel tax. The Transportation Board Highway Revenue Bonds meet their debt service requirements solely from HURF revenues. assist in t h e debt service. There are no toll generated revenues t o However t h e Transportation Board bonds that may be issued a r e limited legislatively in their aggregate and have stringent coverage requirements placed upon
The combining of Highway Revenue bonds with toll revenue bonds as a financing mechanism would mean stretching t h e available funding that would be available solely from t h e Transportation Board Highway Revenue Bonds. 3. Additional detailed studies of those several proposed facilities which were
recommended as toll roads should b e made. These studies would focus specificaily on t h e design and operation of these roads with t h e idea of determining t h e most cost effective means of constructing the project as a toll road by phasing the construction, eliminating financially unwarranted interchanges, obtaining donations of right-of-way and assessing cost sharing contributions from non-state agencies. This more comprehensive analysis, including traffuc surveys, would provide a clearer picture on which t o determine a course of action for implementing these major projects.
4 Arizona officials should work with their counterparts in other states t o effect .
changes in t h e Federal policies dealing with toll roads t o make it easier t o use Federal funds in their construction and maintenance and t o define conditions under which existing federally funded roads could be tolled. There have been initiatives by other states in this regard and Arizona should stay involved t o ensure that it's own interests a r e considered.
