By Matt Coker
By R. Scott Moxley
By Charles Lam
By Nick Schou
By Gustavo Arellano
By Gustavo Arellano
By Steve Lowery
By R. Scott Moxley
If the environmental effects of an 11-mile private toll road built down the middle of the Santa Ana River aren't immediately obvious, perhaps the likely economic and political consequences are. To understand those, let's go back seven years, to a humid July afternoon in 1993. Governor Pete Wilson and his Sacramento entourage whisk into Anaheim to stand in front of a bulldozer parked on the side of the Riverside Freeway. Wilson is in deep political trouble. California is in the midst of its worst recession since the Great Depression, and Wilson's likely Democratic opponent in the upcoming election is running 30 points ahead in the polls.
Wilson had chosen this spot for his media event of the day: the groundbreaking of the nation's first privately owned and operated toll road in 50 years. Orange County—perhaps the most decidedly anti-government region in California—would be ground zero in the state's high-profile private toll-road experiment.
"This is the beginning of what is not lightly described as a historic project," a characteristically stiff and squeaky-voiced Wilson said before he grabbed a ceremonial shovel and—amid cheers—tossed a clump of dirt. Governments throughout the nation had been struggling to find alternative ways to fund expensive transportation projects after costs skyrocketed and gasoline taxes shrank in the 1970s. Before the event ended, the governor touted what he claimed were the merits of "public-private partnerships" and predicted that at least 10 other similar for-profit arrangements would help solve the state's mounting traffic woes.
The man standing next to the governor that day was Gerald Pfeffer, a managing director of California Private Transportation Co. (CPTC). It was Pfeffer's company that had negotiated the unprecedented, non-competitive private toll-road deal behind closed doors in 1990 with Governor George Deukmejian's administration. Three years later, the public knew little if any of what the Republicans had arranged in their name, but such pesky details went unmentioned at Wilson's 1993 press conference. For those in attendance, it was a time for optimism, a moment when the government finally admitted that the private sector had the answers—at least when it came to traffic congestion. "All of us here today are pioneers," Pfeffer said. "We're on the edge of the frontier, on hand for the beginning of a new era."
But perhaps most ecstatic was Robert Poole of the Santa Monica-based Reason Foundation, a libertarian think tank that had been pushing Republicans for years to privatize just about all of California's government services, including public roads. According to Poole, roads should operate on a free-market basis where more affluent citizens can pay tolls for the right to use private lanes and highways. The man who says his transportation ideas were inspired by director Ridley Scott's futuristic movie Blade Runner could not contain his enthusiasm about a portion of the publicly owned 91 freeway being converted into a private, for-profit operation. Poole skipped jury duty to attend Wilson's ceremony. "I wouldn't have missed it for anything," he told the Los Angeles Times. "CPTC is going to make money hand over fist from this."
For anyone who did not realize that the event was pure political salesmanship, a large green-and-white banner served as a backdrop to the roadside festivities. It proclaimed "New Roads, No Tax Dollars, New Jobs." The banner could not have been more deceptive, or Wilson and Pfeffer and Poole more misguided. Not one of the major promises made by road-privatization proponents has come true. Few additional roads (three) have been built. Tens of millions of taxpayer dollars subsidize the toll operators annually. And the 91 tollway—which the governor foresaw as an economic boom that would "work to put California back to work"—produced an anemic 300 new jobs, half of which were temporary.
While newspapers such as The Orange County Register unquestioningly praised the privatization of public roads as an example of good government, not everybody was suckered. Then-state Senator Bill Lockyer (D-Hayward), now California's attorney general, was apparently one of the few who studied the proposed toll-road deals. He came away horrified. To the ire of Democrats (particularly conservative ones in Orange County) and Republicans alike, Lockyer shared with reporters his memorably stark conclusion about the privatization plans: "I think they are a polite form of highway robbery."
A decade into California's toll-road experiment in Orange County, it is painfully obvious that when it comes to the toll roads, a crime—at least figuratively—was committed. The supposed goal for building the roads was to significantly reduce near-intolerable daily traffic. But that's not what has happened. For example, you would think that the multibillion-dollar 16-mile San Joaquin Hills toll road would have dramatically reduced congestion on nearby Interstate 405 and Interstate 5 when it opened in late November 1996. But according to a Weekly review of daily traffic reports provided by Caltrans, the state's transportation agency, congestion on the freeways has essentially remained the same or worsened since the tollway opened. At one section of I-5 below the infamous El Toro Y, the average number of daily vehicle trips increased by more than 8,000 from 1996 to 1998. "That's really shocking," a Caltrans official said after double-checking the agency's traffic count. "You wouldn't think that would be the case, would you?"
It's hard to imagine road conditions getting worse, but that's what is going to happen, according to transportation experts. The average local driver —who is now forced to waste 82 hours per year stuck in traffic —is expected to suffer an 81 percent longer commute to and from work during the next 20 years.
If the toll roads have not and will not offer relief for the general public, they have been a welcomed convenience for a minority of citizens who can afford to pay about $1,200 annually for use of the private lanes. State Senator Tom Hayden (D-Santa Monica) derisively pegged the toll roads "Lexus Lanes." Other winners in the toll-road experiment have been Wall Street investment-house giants and their lawyers, who have taken an estimated $40 million for bond sales involving the publicly managed Transportation Corridor Agencies (TCA). In four massive deals during the past seven years, the TCA has sold more than $3 billion in private bonds to help fund the roads.
Some observers believe that the tollways were never meant to relieve traffic but were instead built by state and local politicians to aid Orange County's powerful real-estate developers. The argument has merit, if only because such politically connected developers as the Irvine Co. worked so feverishly behind-the-scenes for the roads. It is also true that the tollways (and thus the $150 million-plus in taxpayer funds that helped build and maintain them) translated into pure unearned profit for the area's largest landowners. At last count, the San Joaquin Hills toll corridor alone has spurred more than 102 residential projects (totaling more than 20,000 new homes) and 52 commercial developments. Several dozen more large-scale housing and commercial projects were made possible by the opening of the Foothill/Eastern tollway.
Although those new developments boost the economy, they also exacerbate the original problem: oppressive traffic congestion. A 1997 study of California highways by the trade journal Transportation Research found that every increase in road capacity was matched by an increase in traffic within five years. In Orange County—where business interests have long won public-policy debates—the statistic is more alarming. Although the Reason Foundation's Poole claims a community can "build its way out of congestion," Caltrans reported that new highway lanes here reach capacity in a matter of months.
The developers are not bothered, however. Regardless of costs, they wanted new highways that lead to their now-ultravaluable properties. The chairman of Parker Properties, developers of a 1.7 million-square-foot project along the toll corridor, was blunt in his assessment of the road's value. "Without the tollway, [that project] would have never happened," he told the Los Angeles Times.
The sales and marketing director of the Irvine Co.'s swank Newport Beach mall was equally straightforward. She said, "The [toll roads] have been fabulous for Fashion Island."
If the tollways have been fabulous for a powerful few, they are nothing more than a future real-life nightmare for local citizens. In a few short years, the county's privatized toll-road system has amassed an appalling record:
•The TCA has yet to meet even one of its financial or ridership objectives since it opened in 1996. For example, the agency's 1999 revenue estimates were off by a whopping 420 percent. Instead of receiving $81.5 million, it took in roughly $20 million, an amount drastically insufficient to repay private bondholders.
•Although the toll roads are routinely cited as an example of the merits of privatization over government involvement, it is taxpayers who have helped fund the projects to the tune of more than $150 million, an amount that increases every year. (Caltrans officials strenuously claimed that not one tax dollar has gone into TCA coffers until they were presented with documents to the contrary.) Additionally, TCA officials have routinely claimed that the roads' bondholder would be responsible if the roads go bankrupt, but a backroom deal slipped into federal law holds taxpayers liable to the bondholders for up to $240 million in potential toll-road losses.
•The toll roads' popularity was so overestimated that the agency's "worst-case scenario" projections—based on a near collapse of the local economy—estimated 20 million more users than actually showed up during an economic boom. Even though toll-road officials predicted the road would sell itself, they had to spend more than $3 million on marketing.
•Horrendously low user levels caused the San Joaquin Hills tollway to refinance its debt in 1997. The move gave the agency short-term payment relief but added $400 million to the road's debt load. The Foothill/Eastern tollway debt of $1.75 billion was also refinanced last year, pushing the repayment on the toll roads back an additional seven years, to 2041.
•The success or failure of the 91 tollway is masked behind a corporate wall. CPTC, the company that runs the publicly licensed road, routinely refuses to answer financial and ridership-level questions, claiming—even though they have a government charter—that such details are "proprietary information." In 1998, a company official told the LA Times that they had lost $21.5 million during their fiscal year. Two weeks later, the same official flip-flopped and told the Riverside Press Enterprise that his company was in the black. Who knows?
•Last year, CPTC—which Poole predicted would make cash "hand over fist" from the road—attempted to arrange a secret deal to sell their public license to run the toll road to another private concern. The bizarrely secretive deal was nixed by embarrassed state bureaucrats and local politicians who had not been consulted.
•TCA bureaucrats—who have a knack for dubious financial maneuvers, deceitful public-relations strategies and secrecy—demanded in 1997 that the public officials who govern the agency sign "confidentiality certificates." The certificates prohibited the officials from ever divulging information the senior staff deemed unfit for public consumption. A majority of the elected officials signed the document.
•One of the major arguments for privatizing the toll roads was that the TCA could build them better and cheaper than Caltrans. But according to agency records, administrative costs alone for the San Joaquin Hills tollway will top $700 million over 38 years. The TCA agreed to pay Lockheed Martin more than $423 million over the same period just to collect tolls on the road.
•The politicians gave CPTC and the TCA "non-competition" guarantees (the Orange County edition of the LA Times reported this as a new fact in December—two and a half years after it was disclosed in the Weekly) that prohibit Caltrans from improving certain major public arteries for the next 40 years. Toll-road officials argue that their roads won't be financially successful unless the public freeways are constantly congested. Colleen Clark, chief financial officer at the TCA, arrogantly told The Bond Buyer in April 1998 that her agency is sure the public will eventually warm to the tolls because "they really have no choice" with mounting freeway congestion.
•Despite this catalog of disasters—and others the public may never learn about—TCA officials spent $24,000 to unsuccessfully lobby for a 50 percent bonus system for agency bureaucrats, who were already the highest-paid toll officials in the nation.
Despite the failures, most if not all of the county's politicians have hopped on the toll-road bandwagon. They're proceeding full speed on two new projects, both of which are likely to have the same disastrous environmental, economic and political consequences as their predecessors. Nevertheless, Assemblyman Scott Baugh (R-Huntington Beach) says, "Toll roads are the future." State Senator Bill Morrow (R-San Juan Capistrano) talks about the "positive success" of the roads. Even Orange County's Third District Supervisor Todd Spitzer (R-Brea), generally considered a government reformer, steadfastly maintains that tolls are a main solution to reduce congestion.
The proposed Foothill South toll extension—which would connect Coto de Caza to I-5 at San Clemente after cutting a swath through the 3,126-acre San Onofre State Beach Park near Camp Pendleton—demonstrates conclusively how wrong the politicians are. County supervisors, Caltrans bureaucrats and TCA officials all claim that a failure to build the new 16-mile, $900 million road would crush the region's transportation system by 2020. Ironically, the TCA told federal authorities that the Foothill tollway was needed for "avoidance and minimization of impact to the natural and urban environment."
Not everyone has swallowed that bizarre view. The well-organized citizens' protest group Stop the Toll Road Coalition formed in 1998 and successfully raised numerous questions about the merit of the road. The TCA reacted by budgeting more than $400,000 for local public relations. Time and again they have issued dire traffic projections. But one simple question unraveled their whole argument: Is the expected need for the new road contingent upon converting what is now largely undeveloped, agriculturally rated land into more residential and commercial properties? Oddly, neither TCA nor Orange County Transportation Authority (OCTA) officials knew the answer. A Caltrans spokesperson said that they had no idea what factors were used but noted that the traffic projections were calculated in 1996 by a professor at Cal State Fullerton. We contacted the school's Center for Demographic Research, where professor William Gayk said he based his projections on historic local growth activity—which assumed large-scale future development in South County. Instead of building a destructive toll road through a historic and environmentally sensitive state park, elected officials responsible for approving new developments could slow traffic increases by nixing the developers' plans to build out South County.
It's unlikely, however, that the developers will lose any time soon. They have a lock on Orange County politics. For years, it has been no secret that members of the Board of Supervisors are beholden to an elite circle of Newport Beach-based developers who generously fund their campaigns. To reduce the risk that a renegade politician could rise and thwart their control of the county's $3.8 billion annual government, the most powerful local agencies are controlled by only a handful of elected officials. Supervisors Spitzer and Tom Wilson, for example, also sit as key board members at the TCA and OCTA. This arrangement almost guarantees unanimous but not necessarily good policy-making among the three supposedly independent local public transportation agencies.
At this point, it's safe to say there are many things about Orange County's toll-road operations that remain puzzling. Perhaps most interesting is that local and state government officials continue to campaign for a private developer to build, operate and own a new toll road above the Santa Ana Riverbed. The proposed elevated road would give drivers willing to pay $5 each way a new route from I-5 near Disneyland to the San Diego Freeway in north Santa Ana. It would also give thousands of longtime local residents in Fountain Valley a depressingly close view of the highway from their back yards and jeopardize environmental health (see accompanying story).
Most shocking: our local politicians are still giving public financial support (so far more than $13 million) to the multinational corporations that want to build a for-profit 57 tollway. Just last May, OCTA spent an additional $250,000 to help the Phoenix-based American Transportation Development LLC decide if their plans were profitable. Lockyer seems to have been the only truly concerned public official in the state. Nine years ago, he argued, "It's terribly unfair to require taxpayers to subsidize these roads."
To be sure, former Governor Wilson still isn't listening. It's likely that he couldn't care less about mounting traffic congestion for the masses. You could say he is above it all. As a well-paid member of the Irvine Co.'s board of directors, he has access to the company's private fleet of helicopters and jets. But he's not the only person who should be embarrassed. The Reason Foundation's Poole, whom Republicans credit with the road-privatization concept, recently made a confession to the Register. "I think we were naive in thinking that the private sector could bear all the risks of the early stages," he said—conveniently ignoring the fact that it was massive tax-dollar input and a $240 million public line of credit that bore the risks. "It is proving to be quite difficult to do these projects fully privately."