BRADENTON, Fla. – North Carolina's first tollway pact with a private developer closed financially a year ago, yet remains so controversial that some want it terminated no matter the cost.
Two state lawmakers have filed bills to end the public-private partnership with I-77 Mobility Partners, a move that a state analysis said could cost $300 million or more.
North Carolina's attorney general has opened an inquiry into the P3, whose main backer is Cintra Infraestructuras SA.
And state transportation officials are continuing to assess the viability of their first P3 following the bankruptcy of a Cintra-led P3 in Texas a month ago.
Though the deal was inked a year ago, the fate of the $648 million project to add tolled managed lanes to Interstate 77 is shaky despite studies concluding that express lanes would improve severe congestion in the fast-growing Charlotte region.
The deal closed May 20, 2015. Bonds have been sold and work is underway, yet two bills before the General Assembly would cancel the project.
Under House Bill 950, sponsored by Rep. Tricia Cotham, D-Matthews, the state Department of Transportation would be required to terminate the P3 agreement, and pay damages or monetary penalties from unobligated funds in the agency's budget.
The "Cintra toll road project is a bad deal for North Mecklenburg and for taxpayers," Cotham, who is running for a congressional seat in a district that includes north Mecklenburg County, said on her website.
"Over the last year, the proposed NCDOT toll road project has lacked transparency and there has been too much false information surrounding the Cintra contract," she said in an April 25 post, after filing HB950.
HB 954, filed by Rep. Charles Jeter, R-Huntersville, also seeks to cancel the agreement.
Jeter's bill appropriates $25,000 from the highway fund to pay legal fees to determine the amount of damages, although it does not designate a funding source to pay any penalty.
The concession contract is "almost universally viewed as flawed," Jeter, who is running for reelection this year, said in a Twitter video.
Twenty-six lawmakers have signed on to co-sponsor HB954, while HB950 has 10.
As the bills move through the legislative process, critics have said they are concerned that Charlotte could be required to pay the termination fee if the project is canceled.
The North Carolina General Assembly's session runs through mid-July.
The I-77 project is North Carolina's first public-private partnership using the international design, build, finance, maintain and operate model.
The long-planned improvements to the 26-mile route include adding new capacity for express lanes from Charlotte in Mecklenburg County to Mooresville in Iredell County.
The concession agreement was financed with an upfront NCDOT subsidy of $94.7 million, $100 million in senior private activity bonds, a $189 million low-interest federal loan under the Transportation Infrastructure Finance and Innovation Act, and $248 million in equity from Cintra and co-sponsor Aberdeen.
Fitch gave the bonds and TIFIA loan an investment-grade rating of BBB-minus.
The contract also contains what Fitch called a "unique" provision known as a Developer Rate Adjustment Mechanism, which requires the state to provide up to $75 million as an additional contingent subsidy if debt service coverage falls below 1.0 times.
The state's rate mechanism provided "considerable" additional credit enhancement support to the project, according to Fitch.
Construction began in December and is expected to take about 3.5 years.
I-77 Mobility will operate and maintain the project for 50 years with "relative toll-setting freedom," meaning there will be no caps on tolls after the first six months of operations, Fitch said.
Two free general purpose lanes will remain open for drivers who don't want to pay to use the express lanes.
Toll rates, which will vary depending on the time of day, have not been announced.
Fitch also said that no new free lanes are expected to be added during the concession's 50-year term, a factor that has fueled opposition to the project.
Unwinding the deal could be an expensive proposition.
The cost to terminate it could run from a low of $82.1 million, pegged to taking out the senior debt, to a high of $300 million using a fair market valuation as of last October, according to an analysis by Florida-based Clary Consulting.
Clary, commissioned by the legislature last year to explore the cost of ending the deal, said that based on its experience the exit price could be negotiated, although the final tab depends on the status of the project at termination as well as the potential for litigation.
NCDOT has not commented on the bills filed by Cotham and Jeter.
However, numerous documents and the results of an in-house inspector general's report completed in January are posted on the agency's website.
Cintra spokeswoman Jean Leier said the company could not "speak to the political process," when asked to comment on the pending legislation.
"I can tell you that we continue to work with both local and state officials to keep them informed about the project," she said. "We are focused on the construction of the I-77 Express Lanes, and we are making great progress."
Leier also said that I-77 Mobility Partners is continuing to provide documents requested by the attorney general's office.
NCDOT has said that the P3 will allow it to advance the critical congestion reliever project in 3 and a half years as opposed to the 20 years it would take to fund through its normal budget process.
Since its inception, however, the I-77 project has been controversial partly because opponents disagree with tolling the Interstate as opposed to building new free lanes.
Some critics have also said they were blindsided by the late release of concession terms that limit the state's ability to add new free lanes on the Interstate for five decades.
NCDOT could add a third general purpose lane in a portion of the project area, but analysts said the state would be required to pay I-77 Mobility for lost revenues.
In January 2015, the local anti-toll group Widen I-77 filed a lawsuit in an attempt to block the project contending that the state law authorizing P3s and the power to set toll rates was an unconstitutional delegation of authority from the legislature to NCDOT.
On Jan. 9, Judge W. Osmond Smith struck down the suit. Widen I-77 has said it will appeal.
Continued opposition to the project led Gov. Pat McCrory to ask Charlotte and the Regional Transportation Planning Organization to affirm their support for using managed lanes in the metro region, including on I-77.
State officials warned that rejecting I-77, included in the regional plan, could jeopardize funding for other projects.
Last August, and again on Jan. 20, the Charlotte Regional Transportation Planning Organization voted to reaffirm its support for the plan.
In mid-December, the North Carolina Department of Justice's Consumer Protection Division opened an inquiry into the project that is still ongoing, the state Attorney General's office told The Bond Buyer Wednesday.
Special Deputy Attorney General Jennifer T. Hafrod sent a civil investigation letter to I-77 Mobility Partners demanding the company produce a wide range of documents, emails, rating reports and analyses, memorandums, business plans, and presentations on the project.
Hafrod also sought projections on the tolls to be charged, and disclosures made to the state officials and local planning boards regarding the bankruptcy of ITR Concession Co. LLC, the Cintra-led Indiana toll road that filed for bankruptcy in 2014.
Hafrod also demanded information regarding the failure of the State Highway 130 tollway east of Austin, Texas, and its inability to meet traffic and revenue projections.
SH 130 Concession Co., another project led by Cintra, filed for bankruptcy on March 2.
The filing prompted McCrory to send state transportation secretary Nick Tennyson to Austin to meet with Texas DOT representatives.
"The governor has directed us to immediately review every available option — both legal and financial — to reassess the I-77 Mobility Partners' business model and current contract," Tennyson said in a statement at the time. "It is important to note that the current contract protects taxpayers from financial losses."
Tennyson's findings have not been made public.
"There is no relationship between one Cintra majority-shareholder project and another Cintra majority-shareholder project," Cintra spokesman Patrick Rhode told the Charlotte Business Journal March 2 about the Texas bankruptcy. "So the bottom line is that there is no impact whatsoever in North Carolina."
Neither the Indiana or Texas bankruptcies involved managed lane projects like the one in North Carolina.