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Financial woes lead CTRMA to find innovative financing for Manor Expressway

Thursday, October 9, 2008 by Kimberly Reeves

The Central Texas Regional Mobility Authority will be using its existing US183-A toll project as collateral to finance the proposed Manor Expressway, or US 290 East.


Executive Director Mike Heiligenstein outlined the financing plans at a work session of the Capital Area Metropolitan Planning Organization on Wednesday. The session – intended to talk about both toll plans and future road construction – was a sobering experience, as the group heard just how much the bond finance market has changed in a just a few months.


“Either we approve this funding plan or we take the next 15 years of revenue to fund this road,” Heiligenstein said.  “There’s no other way to fund it.”


The finance picture for bond financing – even in the relatively safe world of government bonds – is dire right now. Already, Council Member Lee Leffingwell and Mayor Will Wynn are asking City Manager Marc Ott to reassess the city’s financial situation – and the financial picture for bond sales – in light of the current financial crisis.


Heiligenstein’s presentation outlined the differences – and the different world – between financing the CTRMA’s first toll road and its second project. Financing for US 183-A was financed through four categories of funding: local equity of $19 million; TxDOT equity of $77 million; a TIFIA loan from the federal government of $66 million; and $167 million in toll revenue bonds.


The performance on the toll road has far exceeded the CTRMA’s projections. In fact, it has far exceeded the acceptable projection of transactions to guarantee bond financing. So, in the hopes of guaranteeing more bond funds and lowering the projected toll rates, Heiligenstein has proposed the toll road revenue as a type of “co-signer” for the financing package for the Manor Expressway.


It is a bold move, but Heiligenstein said he considers it a rather safe one. The US 183A toll rates are being pledged as collateral to secure more bond financing. Revenue from the toll road would only be used as a last resort, and Heiligenstein is hopeful will not be any time soon, given the way the debt is structured to make sure it is the last, and not the first, to be accessed.


When Heiligenstein opened his presentation to the CAMPO work group, he was blunt. In the current financial climate, the Manor Expressway simply will not be completed any other way. The funding gap—about a third of the project’s cost – remains uncovered in the current financing plan, even with the help of financing partner JP Morgan, which is going to help the CTRMA to secure debt.


According to figures presented by Heiligenstein, the construction cost estimates for US 290 East has risen by almost $100 million since January 2007, from $309 million to $398 million. Combine that with other factors – final engineering and environmental preparation and utility relocation – the figures rise to $623 million.


Under the proposed scenario, the full cost of the Manor Expressway can be funded if 183A is a co-signer. The funding for the Manor Expressway, at that point would be subordinated debt and toll revenue bonds – with the help of JP Morgan – as well as an anticipated TIFIA loan.


Heiligenstein outlined the upside to this financing package; a no-concession project; lower interest rates; lower toll rates; momentum toward the fulfillment of the current transportation improvement plan; and public ownership and operation of the Manor Expressway facility, rather than private operation.


After the presentation, Heiligenstein said his goal for the financing, if approved, would be to borrow an initial $40 to $50 million to keep the region’s current toll plan in play until each project could be financed. Those projects include US 183 S, SH 71 E, the “Y” in Oak Hill and SH 45 Southwest.


The biggest critic of the revised funding package is likely to be Commissioner Sarah Eckhardt, who was not at Wednesday’s meeting. Eckhardt’s amendment – actually, a covenant on toll roads – is that all excess revenue be spent in the corridor of origin. So if US 183-A generates better than expected funding, that funding would be used to improve road projects within that corridor.


Heiligenstein acknowledged that Eckhardt did have reservations about the Manor funding package. However, he emphasized that the use of that funding would be a last resort and highly unlikely if the parkway performs well.


Another concern – expressed by Sunset Valley Mayor Jeff Mills at Wednesday’s meeting – is that the collateral that US 183-A might offer is now tied up in the Manor Expressway for a number of years. The Manor project goes first, although Trube pointed out that the actual need for a toll road is greater on US 183 South.


Heiligenstein said he was hopeful that the performance of the Manor Expressway would be strong enough to release the collateral sooner on US 183-A. The CTRMA currently intends to extend the toll road right up to Leander because the toll road’s strong performance, providing even more solid income, income that could be enhanced by the operation of CapMetro’s commuter rail line.


According to the presentation made by Heiligenstein, the terms and conditions of the Manor Expressway that must be approved by the CAMPO Transportation Policy Board would be the project scope; the initial toll road; the direct connector toll road; and an annual escalator on the potential toll rates for the project.

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