Blake: Bailing out NW Parkway

Published August 30, 2006 at midnight

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How do you bail out the underutilized Northwest Parkway, which is saddled with $416 million in bad long-term debt?

You find somebody willing to buy in and assume an even longer debt, says Steve Hogan, the parkway's executive director.

The problem with current Colorado law, he maintains, is that it limits state-chartered authorities to debt that runs no longer than 40 years.

That might seem like long enough for any public project, but according to Hogan, privately funded highway projects everywhere else in the world are built with bonds that extend out 50, 75 or even 99 years.

"We want a partner with patience and deep pockets," he says.

The 11-mile highway, which opened in November 2003, has made all its interest payments to date and can continue to do so through 2008 with $43 million to spare, maintains Hogan.

But when the authority has to start paying off on principal in about three years, trouble begins.

The Northwest Parkway's debt is structured for high payments early and lower payments later, and that clearly isn't working. Traffic has run as much as 45 percent under projections, a problem Hogan lays to less traffic moving to Denver International Airport after the Twin Towers disaster in 2001, falling employment at Broomfield's Interlocken business park and lower than expected homebuilding in the area.

Hogan claims at least one highway-investment firm has already made an unsolicited proposal to his authority and a half-dozen other "potential partners" are sniffing around. His board voted unanimously Monday to start looking around for firms willing to buy out current bondholders and then manage and operate the 11-mile roadway under a lease-equity ageement.

The authority would set the standards for maintenance, operation, road improvement and law enforcement and make sure the partner adheres to them. The investing partner shouldn't need much encouragement to keep the road attractive if it wants to make sure its own bonds are paid.

Such "public-private partnerships" are very common in Europe and Australia but are still considered innovative in the U.S., according to Peggy Catlin, who heads the Colorado Department of Transportation's tolling enterprise.

Bidders might well include foreign firms, and that can make legislators nervous. Rep. Gwyn Green, D-Golden, objected to that possibility at a meeting of an interim legislative transportation committee Tuesday.

But if foreign firms are shut out, bids are likely to be lower.

Apparently no action by the legislature is required to enable an outside investor to partner with the authority so long as it takes over the debt. On the other hand, lawmakers could do damage by throwing up roadblocks such as a ban on foreign participation.

"Public-private partnership" is a term that should make taxpayer skins crawl since it usually involves governmental bodies shoveling tax dollars to profit-making companies.

But in the case of toll roads, the private investors who work with a public authority have to rely on revenue bonds. They must generate the traffic necessary to pay them off and aren't entitled to taxpayer bailouts.

To be sure, there are occasional rumors that local governments sometimes help out tolling authorities by doing little or nothing to improve the "free" streets that compete with adjacent toll roads.

Hogan suggests that tolling is here to stay, whether drivers like it or not. "Financing the infrastructure through gas and sales taxes isn't working," he says.

The fact that the state gas tax can't be hiked without a popular vote, and that new cars are getting more fuel efficient as gasoline prices rise, means the state is going to have to consider new forms of financing new or improved highways.

CDOT's Catlin agrees. She noted that when she arrived at the department six years ago, it had a budget of $1.2 billion. Then it slipped to $780 million when the state economy suffered a recession.

An earlier toll road authority, E-470, is in better financial shape and says it isn't contemplating looking for an investment partner.

But maybe it should. In addition to tolls, it has relied for years on a hidden $10 fee that is collected from most automobile owners in the eastern suburbs. Many of them don't know they're paying it since it isn't broken out on the annual vehicle registration renewals.

If an outside investment company could make it possible for E-470 to shed this hidden subsidy, it should be encouraged to do so.

blakep@RockyMountainNews.com or 303-954-5119.

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