WASHINGTON - Two lawsuits in federal courts seeking class action status that claim it's illegal for tolling authorities in Rhode Island and Massachusetts to discount tolls for certain residents and not others could spell trouble for toll-backed muni bonds and potentially affect issuers in other states, some market participants said.
Debt service payments could be affected if the lawsuits - which claim residence-based toll discounts are discriminatory - are successful and issuers are forced to pay class members, who do not get the discounts, the difference between the tolls they paid over the resident rate. But the effect of these cases on bonds will depend on other factors as well, including the diversity of the tolling properties from which issuers get their revenue, they said.
There is no definitive tally of toll authorities that provide resident discounts, according to Neil Gray, government affairs director of the International Bridge, Tunnel, and Turnpike Association.
But issuers that charge lower resident tolls on some bridges and highways include New York's Metropolitan Transportation Authority, the New Jersey Turnpike Authority, and the New York State Thruway Authority.
Miami-Dade County offers resident discounts, and offers a low annual fare for unlimited passage through the Venetian Toll Plaza to Venetian Island property owners and their co-resident children up to age 21.
The most recent of the two suits was filed on March 27 in a federal court in Providence against the Rhode Island Turnpike and Bridge Authority by Isabel S. Cohen, a resident of Fairfield County, Conn.
The other suit was filed on March 20 in federal court in Boston against the Massachusetts Turnpike Authority and Massachusetts Port Authority by Carol Surprenant, a resident of Washington County, R.I.
Cohen and Surprenant both charge that higher toll rates for out-of-state or out-of-town residents violate the U.S. Constitution's dormant commerce clause, privileges and immunities clause, and equal protection clause.
They are asking for damages equal to the total difference in fares paid by non-discount-eligible drivers as well as reimbursement for other costs.
The dormant commerce clause was the backbone of a closely-watched U.S. Supreme Court case, Department of Revenue of Kentucky vs. Davis, that was decided last year. The clause, which is meant to prevent economic protectionism, suggests that only Congress can erect barriers to interstate trade.
In the Davis case, the court ruled 7-2 that Kentucky and 41 other states can continue to tax interest on out-of-state municipal bonds while exempting interest on bonds issued in-state.
The high court rejected the claim that this practice would violate the commerce clause, stating that "a government function is not susceptible to standard dormant commerce clause scrutiny, because it is likely motivated by legitimate objectives distinct from simple economic protectionism," and that municipal bonds issued to pay for public projects are a "quintessentially public function, with a venerable history."
The court cited as precedent a previous waste management case, United Haulers Assn. Inc. vs. Oneida-Herkimer Solid Waste Management Authority.
The toll lawsuits could adversely affect debt service on outstanding bonds if they are successful and issuers are forced to pay all members of the class action suit the difference in tolls they paid over the resident rate, said Jack Finn, senior vice president and national director of toll services at HNTB Corp., an infrastructure engineering and construction firm based in St. Louis.
But if the suits force the authorities to level their tolls, there may be no impact on the debt service payments, he said. The residents eligible for a discount are "typically a smaller percentage of the overall users of the toll facility" and the suits could just prompt the authorities to raise those discounted rates to obtain the same level of revenue, Finn said.
Of the three issuers involved in the lawsuits, MassPike has the most toll revenue pledged to bonds, according to its disclosures. The authority had $410.6 million of toll revenue pledged as security for revenue bonds for the 18-month period that ended June 30 out of the $413.7 million it collected during that time, according to a MassPike financial statement.
The agency recorded electronic toll revenue of about $15 million in March, and a year-to-date total of $41.7 million, according to its records. Last year it earned $175.2 million from electronic tolls paid during more than 119 million transactions.
Surprenant claims that non-resident drivers who use MassPike's Ted Williams and Sumner Tunnels "are required to pay up to 10 times more than resident travelers are required to pay."
MassPike's board of directors recently approved a toll increase on the tunnels of $7 for non-resident travelers that takes effect July 1, while residents will continue to pay 40 cents, the lawsuit notes. Residents must live in east, south, or north Boston to qualify for the discount.
A spokesman from the Turnpike Authority declined to comment citing pending litigation.
Surprenant charges that drivers crossing MassPort's Tobin Memorial Bridge, which connects the Charlestown section of Boston with Chelsea, pay as little as 30 cents a trip if they live in Charlestown or Chelsea. The non-resident fare is $3 or more.
However, the Tobin bridge accounts for only 7.2% of MassPort's net revenues, Standard & Poor's said. The bridge tolls generated $31.3 million of revenue for the authority during fiscal 2007, according to a rating report from June. Most of the revenue that MassPort pledged to its bonds last year came primarily from its airport properties rather than the bridge.
MassPort officials declined to comment.
The RITBA suit is noteworthy because the toll facility in question is the sole generator of revenue backing its bonds. The agency currently has $23.6 million of outstanding toll-backed bonds. Its sole source of revenue comes from tolls levied on the Claiborne Pell Bridge, also called the Newport bridge, which links Newport and Jamestown, R.I. The authority also administers the Mount Hope Bridge between Portsmouth and Bristol, R.I., although that bridge is owned by the state.
In her suit, Cohen complains, "Rhode Island residents are given a significant economic advantage over non-residents who are, by definition, traveling in the course of interstate commerce."
The RITBA charges Rhode Island residents with state transponders 83 cents to cross the Newport bridge. That is less than half the toll charged to non-Rhode Island residents who travel the bridge less than 30 times in 30 days, according to the suit
Officials of the three authorities either scoffed at the suits or declined to comment.
"We believe that the lawsuit is baseless. We intend to vigorously defend our current policy and believe that there will be no impact on revenue," said David A. Darlington, chairman of RITBA's board.
A key question in the cases will be whether there is a compelling state interest for Rhode Island and Massachusetts to charge lower tolls to people who live in Rhode Island or in certain portions of Boston, respectively, according to Cohen's attorney and the complaints.
Another question that will have to be addressed is whether the commerce clause applies to state or local decisions about tolling on the tunnels and bridges, said Cohen's attorney, Stephen R. White of Rhode Island.
"Is it interstate commerce or is it simply local commerce? That's what we need to establish," he said. He added that the bases for the lawsuits are "most likely" applicable to other areas of the country where tolls are discounted for local or in-state residents.