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NCDOT Keeps Three -Fourths of Toll Revenues

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Today executives from Cintra are meeting with the TIFIA Credit Council to obtain financing for the I-77 toll lane project.  TIFIA is a federally-backed loan program, and Cintra is seeking $189 million from this program. That’s down from their original request of $215 million. We expect them to approve the plan despite what you’re about to read.

As we’ve reported here and during our public meetings, we’re skeptical the toll project can generate enough revenues to service the debt.  The Lake Norman region is home to 150,000 residents. Most toll lanes are in huge metropolitan areas like LA or Miami. Those toll lanes gross around $10M on average. (The highest is CA 91, about $45M.)

According to Cintra’s own repayment schedule, during one particular year the toll lanes would have to generate over $60 million to cover debt and operating expenses. That’s more than any toll lane has grossed in the history of the United States.

But hold on. It gets worse. Much worse.

Revenue Payment Schedule

This assumes all of the revenues would go toward paying debt and operating costs. But they don’t.  The contract contains a revenue sharing provision that requires Cintra to pay NCDOT a percentage of revenues based on an annual gross amount.  The greater the total, the greater the percentage paid to NCDOT.  Think of it like tax brackets- the more you make, the higher the percentage. Per the contract, the percentages look like this:

RevenuePercentageTable-300x260

Of course, this raises the question: what are the revenues for each “band”? They vary by year, but the gross amount before the revenue sharing kicks in is small.  Shockingly small.  For instance, when the toll lanes open, band 2 kicks in at a mere $12,000.  Above that number Cintra pays 12.5% to NCDOT until we hit band 3 at around $14,000 total. Then Cintra pays 25% of that up to band 4, and so on.  And yes, that’s fourteen thousand, not fourteen million.

When the TIFIA loans starting coming due in 2023, band 5 (the highest “tax bracket”) kicks in at $321,000.  That means Cintra will be remitting 75% of anything above that amount to NCDOT.

That year Cintra will owe about $25 million in principal and interest.  Let’s say the toll lanes gross $50 million that year, more than any toll lane ever.  Because of the Revenue Payment Provision, Cintra sends nearly three-quarters of that to NCDOT ($37M), leaving a mere $12.7M for debt service. So even if the toll lanes are wildly, spectacularly successful (at least from Cintra’s point of view), Cintra is only able to pay half of the required debt.

Taxpayer Subsidy to the Rescue

However, the contract contains a provision called the Developer Ratio Adjustment Mechanism, or DRAM.  If toll revenues fail to cover debt service the taxpayer will subsidize any shortfall up to $12M per year and $75M total.  Given the above, the DRAM kicking in is a certainty.  But Cintra will be on the taxpayer dole only until the DRAM funds run out, which would be around six years.

After around 2030 they’re on their own. The debt repayment in those years is around $25M per year. Since only a quarter of revenues go toward debt repayment, the toll lanes would have to gross over $100 million per year to repay the debt.  The other three quarters, of course, would be paid to NCDOT.

Who Wins?

We’re not sure the TIFIA Credit Council is aware of this provision. We cannot fathom they would fund this project knowing only a quarter of revenues will go toward debt service.  We sent them a memo today just to make sure (it’s attached below).

This raises some disturbing questions:

Why on earth would anyone fund this?  A difficult question. We have two explanations: Either the Credit Council didn’t know or we just misinterpreted the numbers. If the former it’s pretty disconcerting given they are supposed to be the experts and a little citizen’s group uncovered this.  If the latter we’ll issue a mea culpa.

Why would Cintra do this?  Another tough question. We just don’t know why, but it may involve some fancy balance sheet manipulations ala the Pocahontas Parkway. That road went bankrupt three times and every time the toll companies were right back ready to snatch it out of bankruptcy for pennies on the dollar. The Indiana Toll Road seems to be experiencing similar treatment.

Who wins?
That one is easy.  Three quarters of revenue go to NCDOT.

Memo to TIFIA

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