OCTOBER 1, 2009 6:24 a.m. (2)Click here to view the toll revenue forecast.
The toll road built to push southern Greenville County’s economic engine into overdrive will default on $200 million in private bonds Jan. 1.
Exactly what will happen is still a matter of negotiation between South Carolina, the non-profit that runs the road and the trustee for bondholders.
The road has been in technical default for two years because traffic volume has not been enough to meet obligations. The association’s reserve fund has been used to make payments to bondholders.
Cars pay $2 to drive the 16.5-mile highway; larger vehicles pay more on a sliding scale.
Failure to fully pay about $11.5 million will push the road into full-scale default, said John Van Duys, the association’s bond attorney. The reserve fund of $4.5 million and estimated operating revenues for the year will not cover what is owed.
There are options. The association could continue to operate as it does now, but in default. The state could revoke the association’s license and take over the road. Or bondholders could opt to take less on their investment.
The Connector will continue to operate as a toll highway for the foreseeable future.
Other highways such as the Dulles Greenway in Washington have defaulted and are now on the road to recovery. Investors were told it would default within months of opening in 1995. Traffic counts were about one-third of projections at $2 per vehicle.
After cutting tolls to increase traffic the organization is showing steady increases in traffic, according to Toll Road News.
David Hartgen, professor emeritus of Transportation Studies at the University of North Carolina Charlotte and owner of Hartgen Group consulting company, said the state will likely take over the Southern Connector, which has never lived up to expectations on either traffic counts or as a force for economic growth.
“It’s not like you can roll up all those miles of concrete and close shop,” he said.
Investors have lost money on big toll projects all over the country, Hartgen said and are going to be careful about projects like the Connector in the future.
“I use the Southern Connector as an example of bad highway planning in classes and seminars,” he said. “It was really nothing more than a huge drain on TIP (transportation improvement project) funds. It was foolish to build it.”
The Southern Connector was built after the state General Assembly passed a law allowing non-profits to operate toll roads. It had been debated for years before that.
The roadway has recently reached traffic volumes predicted for its opening in 2001, South Carolina Department of Transportation figures show.
Driver resistance to paying has been consistent throughout its history, although traffic figures have increased more than 40 percent since it opened.
B.K. Jones, former Director of Transportation at SCDOT, said the agency made sure bondholders could not hook taxpayers for the bond debt before he signed the licensing contract with Connector 2000 Association to operate the toll road.
“We estimated they would be able to pay off their debt if the cost for the highway could be held to around $150 million,” he said, speaking from retirement at his home near Cashiers, N.C. Actual cost to build the road was more than $200 million.
Jones said building the road’s surface with concrete rather than asphalt helped push the association into default.
“Asphalt costs about 40 percent less than concrete, as a rule,” he said. “By using the more expensive material they increased their costs substantially.”
DOT had no control over construction of the Connector, Jones said, beyond stipulating it be built to interstate highway standards.
Documents obtained by the Journal from SCDOT under the Freedom of Information Act show the Connector Association owes the state more than $8 million in maintenance fees and license payments.
DOT notes on one document that the license money is uncollectible due to the fact SCDOT is 9th in order of payment.
The state put up $20 million in advance of the roadway’s construction and stood to inherit the highway at the end of the 40-year bond payment period.
Traffic predictions for the Connector were done by Wilbur Smith and Associates and were based on growth projections in southern Greenville County done by the county planning department.
John Owings, director of current planning for the county, was a member of many of the groups that came up with the growth projections.
“There was (and still is) a tremendous amount of land on the western end of the Connector that is ripe for development,” he said. “The owners of a lot of that property wanted to hold out for a world-class industry; a BMW-kind of company that would be sort of a crown jewel for the county. What no one really counted on was how long that would take to bear fruit. No one counted on the depth of the economic downturn, either.”
At some point in time, Owings said, the Connector will begin to drive economic growth in a major way. But not in time to save the Connector 2000 Association from default.
It is an assessment Hartgen finds plausible.
“Traffic forecasts came from metropolitan planning data,” he said. “In a city the size of Greenville, that would be a bunch of guys sitting around a table making educated guesses.”
Cities tend to grow like the layers of an onion with no gaps, Hartgen said. Successful toll roads generally run at the edge of a city and offer a generous time savings to motorists trying to get from one place to another.
That’s not the case with the Connector, he said.
“There’s nothing there to draw the motorist, no industry and no shopping,” he said. “They had to jump over a whole lot of trees to come up with that road plan.
An unpaid board of trustees operates the Connector 2000 Association, said Tim Brett, a spokesman for the group.
“They’ve made the best they could of a difficult situation,” he said.
Funding for the Connector is based on three series of bonds, said Van Duys; an A, B and C series with varying maturity rates and times.
A and B series bonds are the ones on which the Jan. 1 payment is due.
Total debt for Connector 2000 Association is about $320 million, according to documents by the association on file on their Web site.
OCTOBER 1, 2009 6:19 a.m. (0)