By tomorrow afternoon, it’s likely the final phases of financing the $800 million Downtown Bridge/Interstate-65 junction redesign will begin as the bi-state tolling body considers tolling recommendations.
The 6-member Kentucky-Indiana Tolling Body will hold a public meeting on Thursday, Sept. 5, at 11 a.m. to decide whether to accept a newly released tolling study by Boston-based transportation consultants Steer Davies Gleave.
The meeting is scheduled to be held at the Sheraton Louisville Riverside Hotel, 700 W. Riverside Dr. in Jeffersonville, said Ryan Watts, public information officer for the Kentucky Transportation Cabinet.
Watts said the Tolling Body members “more than likely” will approve the tolls, which will range from $1 per crossing for frequent commuters to $12 for some commercial vehicles.
That approval is unlikely to end the controversy. The Steer Davies Gleave tolling study actually predicts far less usage of the new bridge and the existing Kennedy Bridge than first projected by environmental impact studies.
Drivers, especially those most likely to pay the highest tolls, will make a conscious effort to avoid the downtown bridges, using the untolled Sherman Minton and Second Street bridges, according to Steer Davies Gleave analysts.
That would have an impact on the revenue needed to pay for the new bridge and the reconfiguration of Spaghetti Junction. In fact, the toll study will be now used to structure the bonds for the Downtown Bridge. So, analysts at a market maker such as Goldman Sachs will have to interpret the tolling data to decide how much money can be raised in the debt issue.
The traffic study will also shape details such as interest rates on various bond tranches, rates assigned according to the perceived risk of default.
To ameliorate that risk, the tolling contracts will have a built in annual 2.2 percent increase. Finally, there is a covenant that states tolls can be raised should tolling revenue fall short of debt servicing.
So, months after construction has begun, it is unclear how much the bridge will cost, or even if recommended tolling rates will be what commuters actually end up paying or whether there will be sufficient traffic to generate enough toll revenue to cover bond servicing.
For greater clarity, we went to the one person who’s followed this through the process.
Louisville businessman Tyler Allen co-founded 8664 in 2005. The group supported an East End Bridge, but proposed riverfront revitalization by removing the section of Interstate-64 running through downtown, paralleling the Ohio River. The plan, which inherently excluded building an additional downtown bridge, ultimately was rejected in favor of a $2.6 billion plan to build both an East End Bridge, and a Downtown Bridge.
Insider Louisville: So, what did you take away from the meeting last Friday during which the tolling study was revealed?
Tyler Allen: It basically opened up more questions for me than answers. But it was clear the way the authorities were looking at this was, this was their final answer. They got the answer they wanted, and they could carry on.
What do you think was the most important question they failed to answer?
It wasn’t so much that. They released what is supposedly the most serious kind of study you could do. One with which you can use to underwrite (a bond issue) in the public markets. So one would assume that it was expensive. The best kind of study. And it appears to differ greatly from any of the studies done for the actual public environmental process.
Those studies were circa 2005?
Yeah. They did a preliminary toll study three years ago. What (the final toll study) seems to indicate, and obviously we should ask to know more, is that the total demand for bridges in this community instead of going up by 100 percent, as they claimed the need was to justify two bridges …. it appears the expectation now is, it’s only going to increase by 20 percent over the next 17 years.
Not only that, they seem to indicate there will be less demand for the I-65 corridor downtown by an enormous amount than there is today. That’s in the study. It says today there are 122,000 cars per day that use the downtown bridge … the Kennedy Bridge and Spaghetti Junction. After we spend $1 billion downtown to rebuild the junction and build a new bridge, the expectation is, 17 years from now, there will 82,000 cars a day going across the Kennedy.
Well, right, because you’re adding a bridge.
Correct. You’re adding a bridge. And because of the toll, you’re diverting a bunch of traffic. You need to carry through that thought. “You’re adding a bridge. Of course you’ll take off traffic.” Well, that’s the whole point. You’re adding an East End Bridge. The East End Bridge will take traffic off the Kennedy.
So you think maybe these projections … these early revenue projections to service the debt … were wildly optimistic?
No, no. In this case, I think they’re trying to be very …. The consultant would say these are conservative. But I’d think the folks in the business of doing this are trying to be as accurate as they think is justifiable.
Because they have to go to the markets … to institutional investors and say, “We need a billion dollars.” So based on the tolling studies, do we even know how much bridge we can afford?
I have yet to see in this report the calculation of, “This is how much this tolling revenue will provide for debt financing.”
They have to go to the debt markets and raise X-amount of dollars.
The markets probably don’t care about that question you’re asking. From a public policy perspective, we do care about that question. The markets only care about, when they sell a bond, will there be enough toll revenue … can they be confident there is enough toll revenue to pay their bills?
They know what kind of bridge they’re building at this point. They got a quote from Walsh to build what they’re going to build.
Well, it’s design build. It could all change.
Well, my point here is this. From a public policy perspective, they’re saying that we’re going to use toll-backed bonds to cover the gap in the financing. So they have a target amount they want to spend on this bridge. And they want to justify a bond sold to the market at X. My question is, your question is, what’s the stack beyond that? What’s the stack of money we’re already paying in gas taxes? We’re going to pay for what? Half of this in gas taxes? Yet the concessionaire is going to get what?
My concern from that meeting Friday was, instead of being 360-something thousand per day in the foreseeable future, they are saying in 2030, the total river crossings will be 285,000. Today it’s 224,000.
So, it would be almost 30 percent more, right?
When we justified this through the environmental impact statement, they suggested it would go up more like 50 percent over the same period of time. In fact, a shorter period of time.
So, to account for this difference, what we’re looking at is the fact they’ve captured more accurate data and the fact they have to give realistic projections to the public markets. Also, societal changes such as telecommuting will affect the rate of traffic increase.
For We the Public, they said, “Oh my gosh, we’ve got all this need! You better build these two bridges!” When they go study for real, they have to have more rational demand, and demand doesn’t look that great! That’s my frustration.
I don’t understand how this can happen. One of the reasons you do a supplemental environmental impact statement when you add a new way to pay for (infrastructure) is, you have to know which way the traffic volume is going to go. According to their study, if we impose this tolling regiment they’re talking about now … “These are the (tolling numbers) we want. Tell us what that does.” In this scenario … 17 years from now, instead of handling 220,000 cars, (the Kennedy Bridge) is handling less than 90,000 cars … why would you spend that money?
Well, you dispersed a lot of traffic, and you likely have society changes where people don’t drive as much to work or haul as much freight.
Well, they’re trying to justify the tolls. These numbers would indicate you should question what you’re building.
If they proceed with all this, what’s your main concern? My main concern is, they end up with dramatic revenue shortfalls and can’t service the bonds a la KFC Yum! Center.
That is a big concern of mine. The other big concern of mine is, we will have built more than necessary and damaged this city in the process. Not only damaged it financially, but also damaged it from the development perspective.
When you toll this way…the public money from gas taxes is enough to build the East End corridor. The predictions were, you’d have 60,000 cars per day in a few years on the East End Bridge. Under this tolling regime, by 2030, you’ll only have 45,000 cars per day using the East End Bridge. The really scary part is, we’ve justified the downtown bridge … by saying the (Kennedy) bridge is over-capacity.
The minute they open these two new bridges, instantly, they’ll put the Sherman Minton bridge over capacity according to their own diversion numbers. People trying to avoid the tolls. They said we’ll go five years from now from 78,000 cars per day on the Sherman Minton … to 110,000 cars per day on the Sherman Minton. They’ll induce the situation they say they have today on the Kennedy Bridge overnight on the Sherman Minton.
Doesn’t that seem like bad policy?