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A year ago this week, a toll road opened in Central Texas that represented two milestones for the state. While its posted 85 mph speed limit — the highest in the country — drew international headlines, many state and local leaders were more interested in the road’s unique financing: A private consortium designed and built the road and agreed to operate and maintain it for 50 years in exchange for a cut of the toll revenue.

“This stretch of road holds a special place in our history,” Gov. Rick Perry said at the ribbon-cutting for the 41-mile southern portion of State Highway 130. “This is the first road built via a public-private partnership.”

But SH 130 has not been the immediate success story its backers had hoped. Last week, lower-than-expected traffic revenue prompted credit ratings firm Moody’s Investors Service to severely downgrade the SH 130 Concession Company’s debt and warned that a default may not be far off. The project’s stumbles are likely to draw increased scrutiny of how Texas plans to fund future infrastructure projects, though local and state officials are working to distinguish SH 130 from other toll projects in the works.

Moody’s downgraded $1.1 billion of debt tied to the project by five notches, from B1 to Caa3, considered junk status. It’s the second time the firm has downgraded the project’s debt, following an earlier downgrade in April.

“Bottom line is we believe they have enough money for their December payment, but they do not have enough money for their June 2014 payment,” Moody spokesman David Jacobson said.

The threat of a default could prompt the SH 130 Concession Company, a partnership between Spain-based Cintra and San Antonio-based Zachry American Infrastructure, to refinance its debt next year or inject additional money into the project. TxDOT could view an ongoing cash-flow problem as reason to terminate its toll contract with the company decades ahead of schedule, according to Moody’s.

SH 130 Concession Company spokesman Chris Lippincott said in a statement that the consortium remains committed to the project but did not dispute Moody’s assessment of its finances.

“We are meeting our contractual obligations to operate and maintain a world-class highway,” Lippincott said. “We remain confident that the recently-opened SH 130 Segments 5 and 6 will benefit our investors and the people of Texas.”

The consortium spent $1.3 billion to build the southern portion of SH 130, known as Segments 5 and 6. Combined with the publicly funded northern portion (Segments 1-4), SH 130 connects Georgetown to Seguin, providing a 90-mile bypass around San Antonio and Austin. TxDOT officials have expressed hope that the road would someday serve as a popular alternative to congested Interstate 35 for those driving through Central Texas. Backers, noting the 50-year contract with TxDOT, also predict that future development in Lockhart and other small towns along the toll road’s route would lead to increased traffic in the future.

But the road’s location — about 30 miles east of the most congested portions of Central Texas — was viewed as a challenge from the start. Most other toll projects around the state are similar to the MoPac Express in Austin, which is adding toll lanes to the median of a congested highway. At last week’s ceremony to celebrate the start of construction, Capital Area Metropolitan Planning Organization chairman Will Conley said the project’s location distinguishes it from SH 130.

“I think this project is fundamentally different,” Conley said. “[SH] 130, of course, is a greenfield project and, I think, more of a longer-term-type project. Whereas, the day this opens, this is going to impact an immediate need on MoPac.”

At a Texas Tribune symposium on transportation last week in Dallas, Texas Transportation Commissioner Ted Houghton stressed that the construction of Segments 5 and 6 of SH 130 was a bet made entirely by private investors, going so far as to dispute the notion that the project should be considered a “public-private partnership,” despite other state officials having used the label.

“I consider it a private, not a public-private,” Houghton said. “There is no public money in that road, on [Segments] 5 and 6.”

TxDOT purposely “transferred the risk” for the project, Houghton said, rather than invest the $700 million that would have been needed to build the toll road with public funding. He compared the private portion of SH 130 to the Grand Parkway, a publicly financed 180-mile tolled loop around the Houston area aimed at easing traffic in that region. Earlier this year, the state launched a $2.9 billion bond sale to fund the project.

“That’s ours. [SH] 130 is somebody else’s,” Houghton said. “We think the Grand Parkway is a wonderful asset to hold on to. We knew that 130 was tough, and somebody else said, ‘We’ll take that risk.’”

Despite the private funding behind SH 130, TxDOT has invested public resources in promoting the toll road. The agency recently helped pay to put nearly 400 signs along the I-35 corridor promoting SH 130 as an alternative route. TxDOT has also subsidized trucks to use the road at a discounted rate. Lippincott expressed hope that the truck discount could be extended past its current March expiration.

“It’s a good choice for truckers, and anything that gets trucks off I-35 is a benefit to everyone,” Lippincott said.

Houghton suggested that making it easier for drivers to access SH 130 may be what’s needed to draw more traffic to it.

“It’s unfortunate that it’s not performing,” Houghton said. “Hopefully, in the future, it will perform better with maybe some connectors back to Interstate 35 closer to San Antonio.”

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AMAN BATHEJA reports for The Texas Tribune where this story was originally published. It is made available here through a news partnership between the Texas Tribune and the San Marcos Mercury.

COVER: A speed limit sign on Texas 130. TEXAS TRIBUNE PHOTO by BOB DAEMMRICH

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16 thoughts on “Texas 130 operators could crumble under massive debt

  1. Eventually this portion of SH 130 will pay for itself. We should offer the SH 130 Concession Company some reasonable amount, say $500 million, to buy it. Then we’d be free to employ whatever marketing strategies we’d like to increase traffic. Deeper discounts for 18-wheelers, for example.

  2. Maybe…the federal government could subsidize this tollway along with the subsidies that are provided to keep the workers of Texas fed and provided with health-care. Then…not only could Texas lead the nation in the highest number of people who have jobs and still qualifying for food-stamps; and, the highest number of workers without health-care coverage, but also… ‘workers paid for using a toll road’ that benefits private investors. Add that accomplishment to the vast ag subsidies that pour into Texas and then Texans would have something to ‘actually’ brag about, and, those complaints about ‘big government’ would no less ludicrous than those are now.

  3. Why not go all the way and make it the American Autobahn with the same rules that apply on the German Autobahn.

    For sure, that would attract a lot of car drivers.

    And, the it is a myth that the number of fatalities on the Autobahn is high. In fact it is much lower than on US interstates.

    Without speed limit, I am sure, this road would be profitable.

  4. Wow Ray, you’ve covered a lot of ground making the topic fit your outrage. I think the answer to your pique is not for Texas to quit taking so much federal money but for the fed to quit offering it.

  5. Wow SM, How does subsidy-related commentary not fit here? Maybe you should read the article again.

    And the “fed” doesn’t offer subsidies such as those I mentioned. The federal government does though, and if not offered, maybe the workforces in these parasitic States would rise up and fight for higher wages? So maybe you are right, but the quality of life would be greatly affected for a very long time.

    Meanwhile though, as things really are, the ‘private-sector-does-it-better’ argument has been shown as folly once again. And if you don’t understand why that applies here, and directly so, then you need to more reading than I suggested above.

  6. Isn’t it grand when Republicans come through on their promise to spend dollars to save pennies?

  7. In this context I don’t think anyone would think I meant the Federal Reserve. I will agree that certain enterprises are not the domain of the private sector and road construction is one. Not very many others though. Health care, for example. As the famous Republican Abe Lincoln said, the worst thing you can do for those you love is that which they should and could do for themselves.

    This private sector SH 130 solution was less about gov’t subsidies and more about desperate options available to a starved out TxDot.

  8. SM,

    I’ve never, in decades’ worth of reading on related subject matter, seen anyone use the term “the fed” to refer to the federal government, and that is of course because the term is taken.

    Plus, road ‘construction’ is almost always done by the private sector and ‘funded’ by the public. So, for someone so critical to say “that certain enterprises are not the domain of the private sector and road construction is one”, is muddled at best.

    Then, for someone who criticized me with:”covered a lot of ground making the topic fit your outrage”, when subsidies are far more germane than “Health-care”, or what Abe said in regards to charity, well… that is quite a load of hypocricy. Especially considering how much ‘ground” you “covered”, it is in fact a very long way from “that which they should and could do for themselves”, and how road systems are paid for, or, how Abe’s advice might solve the health-care crisis (let ’em die if they ain’t got the money? And so what if medical costs are pricing our exports out of the global marketplace?).

  9. Ray, you can’t insult Texas and not expect somebody to react. For goodness sake, don’t be so picky and thin-skinned. The article is about Cintra making a bad investment. It’s not about subsidies. It’s not about how much restaurant workers are paid or ag subsidies or complaints about big government or your disdain for Texas.

  10. SM,

    What makes you think I didn’t expect someone to react? Or that I care? It doesn’t surprise me either that the only defense of Texas is one rife with foolish hypocricy.On top of the hypocrisies aforementioned and left undefended, now you call me “thin-skinned” while being ‘thin-skinned’ about a state where most citizens either complain about ‘big government’, or at least accept those complaints as legitimate, when the truth is that Texas relies on federal aid more than any other state, and all the while promoting its citizens as models of self-reliance and so on.

    And had you read the article more intelligently, you would realize that it does apply to the subsidy issues. The public has already paid subsidies to truckers to encourage use, and for signs, and for regulatory and administrative costs, and there is a mention of a buy-out and further subsidies to increase use. More broadly too, the ‘private-public’ partnership is always a subsidy concern because of ‘too-big-to-fail’ dynamics that all too often leave the public holding the bag.

  11. Ray, you might have a point if you were not wrong. Last I checked, Texas is a donor state meaning its citizens pay more into the federal treasury than is spent on or for Texans.

  12. My only defense of Texas is the people, the places, the food, the music, the river, the weather, the wildflowers, the traditions, and everything else that makes me love every day I’ve been here.

    I guess you got me.

  13. If you look at the Google on the inter-tubes you will find that Texas is a getter not a giver. Well, that is based on the most recent figures I could find, 2012 if anyone cares to look.

  14. Every year from 1981 to 2007, Texas was a “donor” state, meaning that Texas paid more in federal income taxes than it received in federal spending.

    In 2008-2012, Texas became a “net recipient” state for the first time. The primary reason has been increased defense spending. Texas’ heavy concentration of military bases and facilities (not to mention a continuing concentration of these bases, as more and more troops are moved to Texas from other states) leads to a disproportionate impact of defense spending on the calculation. Defense spending in Texas has risen an estimated 86% since 2001…effectively killing our status as a “donor state”.

    I would argue, though, that after being a “donor” for 26 years, we’re entitled to make a withdrawal from that balance for a few years…..

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