CHICAGO — The Illinois State Toll Highway Authority board Thursday approved a $12 billion, 15-year capital program that relies on a steep increase in passenger tolls to repay $4.8 billion in borrowing and raise cash to maintain and expand its existing 286-mile system.
The 7-1 vote in favor of the program came one day after Gov. Pat Quinn offered positive comments about the plan crafted under the leadership of his hand-picked executive director and after the board rejected an alternative proposal from board member Bill Morris for a lower rate increase. Morris, a retired public finance banker, was the sole member to vote against the capital plan and toll hike.
"Now is the time to move forward with these critical infrastructure improvements to provide congestion relief on the tollway and coordination with the other transportation and transit agencies to do something new and innovative with an eye to the region's future transportation needs," executive director Kristi Lafleur said.
The agency unveiled the plan at its board meeting last month, saying it was needed to relieve congestion in the Chicago area, create jobs and spur economic growth. Officials said the projects would eventually create at least 120,000 jobs and generate $21 billion in economic activity.
At a series of public hearings throughout the Chicago region, planning agencies and local elected officials offered their endorsement along with contractors and unions who stand to reap financial benefits from the projects. Opposition was less organized, with testimony from a taxpayers' group and individuals concerned over the impact of the steep hike that will take effect Jan. 1.
"We have reviewed many proposals, had many discussions, listened to many people and now believe that this is the best plan to improve the tollway system, deliver the new projects our region demands to maintain global competitiveness and — anticipating future needs — incorporate transit in our highway travel to relieve congestion and reduce pollution," said board chairwoman Paula Wolff, who was appointed by Quinn.
Morris, also a Quinn appointee, sought to soften the blow by limiting the toll increase to 20 cents, but no other board member offered up a "second" to his motion. He offered a plan that called for a review of rates every three years. Morris expressed concerns over the impact of an 87.5% rate hike on motorists still feeling the recession's impact and on lower-income drivers who cannot afford to purchase a tolling devise and pay double what devise users do.
"My plan does make the tollway take a more conservative approach to its rate structure and would stop the tollway from executing a plan which will more than double the tollway's debt service, put our bond rating in jeopardy, and have the tollway rate payers paying for the decision made this year for the next 30 or more years with little or no flexibility," he said.
He also proposed that the agency seek legislative approval to extend final bond maturities to 35 years from the current limit of 25. The authority criticized Morris' plan, saying it fell $4 billion short and that capital markets would dislike the three-year review for future rate hikes.
Facing an end-of-the-year legislative deadline, the agency worked over the last year and a half to craft an encore to its $6.1 billion program launched seven years ago that relied on $3.6 billion of bonding. The tollway wrapped up debt for that program in 2009, and nearly 85% of projects are complete. The congestion-relief capital plan that introduced electronic tolling to Illinois relied on an increase in tolls paid by cash users and commercial traffic.
Debt service on existing bonds has a priority claim on toll and system revenues after the authority's operating expenses. The agency has exhausted its borrowing capacity under the current toll structure and would not be able to maintain a two-times debt service coverage ratio considered critical to its double-A level ratings.
The newly adopted plan funds construction of new toll roads and projects aimed at keeping the 52-year-old system's existing roadways in a state of good repair through 2026. The program provides $8 billion for improvements to existing roads and $4 billion for new and expanded roadways.
New borrowing would be repaid with revenue from the toll hike for all passenger vehicles and a previously approved commercial vehicle increase that takes effect in 2015. Additional revenue would also come from tolls collected on new toll roads.
The authority proposes to issue 25-year bonds with higher interest payments in the early to middle years and much of the principal backloaded to 2035 and beyond when existing bonds are retired. The proposed schedule allows the authority to maintain a two-times debt service coverage ratio and is based on a conservative estimate of 6% interest rate costs.
An analysis conducted by Columbia Capital Management LLC concluded that the authority has capacity within its current bond indenture to support between $4.5 billion and $5 billion of senior-lien debt based on projected revenue growth from the toll increases.
"In the event increased revenues do not materialize for any reason, the authority may be able to generate additional bonding capacity through the use of capital appreciation bonds on its senior-lien tier and-or through subordinate-lien bonds," the report read.
The hike is projected to generate an additional $250 million next year, bringing total revenue to $960 million. It should generate an additional $390 million in 2020, bringing revenue up to $1.5 billion, and by $470 million in 2026 lifting revenue levels to $1.7 billion.
The average toll plaza rate would rise to 75 cents from 40 cents for passenger vehicles with the cost of the average car trip on the system rising to $1.18 from 63 cents. Cash payers would continue to pay double the rate of electronic transponder users, who make up about 75% of the 1.4 million daily users of the system. Commercial rate increases approved in 2008 that will lift rates by 60% between 2015 and 2017 would go unchanged.
The major projects include the reconstruction of the Jane Addams Memorial Tollway, the reconstruction of a portion of Interstate 294, and a new Elgin O'Hare West Bypass. The program also funds planning studies on the extension of Route 53 and the Illiana Expressway, and funding for road and bridge maintenance. Morris wanted the authority to go further on the Route 53 project, adding funding for construction, but the board voted it down.
Moody's Investors Service. Fitch Ratings and Standard & Poor's rate the tollway's $4 billion of debt double-A minus. Fitch assigns a negative outlook, while Standard & Poor's is stable. Analysts said the rating reflects the tollway's status as a key part of the Chicago area's transportation network, a history of strong debt-service coverage and operating reserve levels, on-budget and on-schedule capital plan implementation, and increased revenue concentration in commercial traffic.