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San Diego agency presents South Bay financing options

At a public meeting last week, the San Diego Association of Governments presented two options for financing the $345m purchase of the South Bay Expressway. Residents and local officials showed nearly-unanimous support for the acquisition of the privately developed toll road.

The San Diego Association of Governments (SANDAG) has presented two financing options for the acquisition of the South Bay Expressway, a Macquarie-backed toll road that entered into bankruptcy proceedings last year.

In a closed meeting at the end of July, SANDAG’s board, which is comprised of mayors, council members, and other officials from both city and county governments, agreed to acquire the remaining lease on the South Bay Expressway, contingent on approvals from the public as well as further due diligence. SANDAG agreed to pay $344.5 million for the 10-mile toll road in southern California, while the cost of developing the road was about $658 million.

At a public hearing last Friday, SANDAG members presented two options for financing the purchase of the remaining lease, which runs until 2042, and received nearly-unanimous support for the acquisition from residents, local government officials and business operators.

The first financing option would require toll revenue-backed bonds to fund the purchase, while the second option would require that SANDAG complete a $192 million “project swap”, meaning that the association would defer a project to construct two high-occupancy vehicle lanes on Interstate 805 in order to fund the South Bay acquisition, thereby eliminating the need to raise South Bay’s tolls. The second option would also require SANDAG to use a loan from its TransNet fund, which is generated by sales tax revenues.

Both financing options include a loan from the US federal government’s TIFIA programme, which provides long-term, low-cost credit to infrastructure projects. TIFIA, named after the Transportation Infrastructure Finance and Innovation Act of 1998, loaned $140 million to the South Bay Expressway in 2003, marking the first time a TIFIA loan was given to a privately backed toll road. TIFIA has agreed to remain in the project for about $92 million, according to a SANDAG presentation.

Most of those whose spoke at SANDAG’s meeting last Friday said they supported the second financing option. Under the second option, SANDAG could reduce tolls by 40 to 50 percent in order to increase ridership on the South Bay Expressway and relieve overall congestion in the region, according to the board’s presentation.

Chula Vista mayor Cheryl Cox emphasised that the price of the road would make the acquisition worthwhile.

“When I go by a store and it says 60 percent off of something that’s really good, I take a look at it,” Cox said. “Sixty percent sale is the price of this road and it’s an excellent road,” she added.

The idea of acquiring the road grew out of bankruptcy proceedings, which SANDAG was involved in because the association had financed an additional $159 million in project costs in order to support construction of a mile-long stretch of highway that connects South Bay to State Route 54, according to Gary Gallegos, SANDAG executive director.

Nancy Singer, a spokesperson for the US Department of Transportation (DOT), said SANDAG’s original offer and the eventual negotiated sale price were higher than “any of the informal inquires or valuations that were presented during and after the Chapter 11 bankruptcy proceedings”.

Singer wrote in an email that the US DOT, commercial lenders for the project, and the South Bay project company concurred that SANDAG’s offer presented the best value.

Singer added that the US DOT wanted to arrive at an agreement “as expeditiously as possible” in order to ensure “good stewardship of taxpayer dollars by maximizing the potential recovery of the TIFIA loan”.

SANDAG’s board expects to vote on whether to proceed with the acquisition on 2 December.