Information gridlock: Questions remain on I-77 toll lane project

Opponents of the planned tolling of lanes on Interstate 77 continue to raise questions about the state’s contract with a Spanish construction company, and the North Carolina Department of Transportation has been slow to answer them.

Uncertainty remains about taxpayers’ obligation should the project go belly up and what the DOT knew about the developer’s legal issues when it signed a $647 million contract with Cintra Infrasestructuras to build and operate the 26 miles of toll lanes.

Over the past two months, The Mecklenburg Times has submitted queries and Freedom of Information Act petitions to the DOT, which has provided few answers and no response to a FOIA request.

The Mecklenburg Times has attempted to contact company and DOT officials to obtain toll revenue projections which are critical in ascertaining if Cintra subsidiary I-77 Mobility Partners will be able to cover payments on the $189 million in federal loans and $100 million in proceeds from private activity bonds it is contributing to the project. Cintra also will provide $250 million in private equity. The DOT is adding $92 million in taxpayer funds, and up to $75 million more if revenue is significantly less than project estimates.

Fitch has assigned a ‘BBB-‘rating to the bonds and federal loan. It is the lowest of the agency’s investment-grade rating, indicating a current low risk of default but a repayment capacity that is subject to adverse business or economic conditions.

Revenue projections

The Mecklenburg Times requested revenue projections from the transportation department in mid-August and was referred to I-77 Mobility Partners, which responded that “revenue projections are something that we do not share as a company.” The newspaper then asked the DOT how it could obtain revenue estimates and a clarification on the department’s policy on providing information on the private/public partnership.

The DOT told The Mecklenburg Times in late September to file a Freedom of Information Act application as it did not have revenue projections at its disposal. The DOT has yet to respond to the newspaper’s previous, and separate, FOIA request filed in late August requesting emails and documents between the DOT and the four bidders for the project. The department says on its website that it strives to respond to FOIA requests within 10 business days.

An I-77 Mobility Partners-commissioned report by traffic-forecast company C&M Associates of Dallas puts annual toll revenue at $34.5 million in 2020, once ramp-up is completed. C&M based its assumption on population growth estimates and economic factors.

Plans call for building one toll lane in each direction from the Brookshire Freeway near uptown to Exit 36 in Iredell County, and converting the existing high-occupancy vehicle lane between Brookshire and Exit 28 into a toll lane. Segments will be tolled separately via an electronic system. I-77 Mobility Partners will determine the pricing, which will change based on congestion levels.

According to a DOT-commissioned report from analytics company Stantec, average weekly traffic volume is currently lowest at the northern end of planned construction near Exit 36 in Iredell County, where daily volume averages around 30,000 vehicles. It is highest at the southern end near uptown, where a maximum of 90,000 vehicles travel in each direction daily.

By comparison, $39.3 million was collected in tolls last year from a 10-mile, four-lane Express Lane project on Highway 91 in Orange County, California, just 14 percent more than projections for I-77 tolls. The Los Angeles Times, citing figures from the California Department of Transportation, reported in August that traffic on Highway 91 averaged between 209,000 and 338,000 daily trips last year on various sections of the 59-mile road serving the greater Los Angeles area.

The traffic on I-77 would need to increase between 132 and 275 percent to reach the levels that generated 14 percent more in tolls on the California road.

Financial default

Questions also still remain on the fallout that a financial default could bring. The DOT categorizes as “absolutely false” claims that the state would be required to cover a large portion of I-77 Mobility Partners’ outstanding debt should a default occur.

“In any situation involving developer bankruptcy, the state’s liability is zero,” the department says in a “Correcting Project Misinformation” document on its website.

But that’s only in the case of an I-77 Mobility Partners’ bankruptcy. According to an April 2014 report from the DOT to the state’s Joint Legislative Commission on Governmental Operations, a provision in the contract requires the DOT, under certain circumstances, to pay I-77 Mobility Partners an amount equal to 80 percent of its outstanding debt.

“In the unlikely case of an incurable developer default, and if the lenders to the project are unable to bring in a replacement developer, NCDOT would be responsible for termination compensation in the amount of the lesser of (a) 80 percent of senior debt or (b) fair market value less NCDOT’s damages from the default…,” the letter says.

DOT Spokeswoman Jordan-Ashley Walker said in an Aug. 20 email that I-77 Mobility Partners would then use DOT funds to repay the company’s lenders. She said the project’s lenders, in the case of developer default, have an incentive to find a replacement developer. Otherwise, they would lose 20 percent of their principal. “This is an added layer of protection for the department,” Walker said.

A groundswell of local residents and state and local officials have called for the department to terminate the agreement, calling toll lanes elitist and criticizing contract provisions that require taxpayers to compensate I-77 Mobility Partners for lost revenue stemming should the state decide to add more general purpose lanes to that span of highway.

Grassroots opposition group Widen I-77 went as far as filing a lawsuit in Mecklenburg County Superior Court seeking to halt the project from going any further. The suit alleges that terms of the 50-year contract, as well as the authority of the transportation department and I-77 Mobility Partners to set toll fees, are unconstitutional. A hearing on the case is slated for Jan. 8.

The DOT has repeatedly said terminating the contract for convenience would cost taxpayers $100 million in penalty fees. Walker says that amount is “a rough estimate” covering costs incurred by I-77 Mobility Partners to obtain its loans and equity financing, the anticipated costs of dissolving such funding, and “a determination of what the value of the contract is to the private market.”

When asked for a breakdown on how the department arrived at the $100 million figure, Walker said she was unable to provide further information.

Construction stalled

Construction on the toll lanes was slated to launch this summer, with a completion date scheduled for the end of 2018. But construction appears to be a way off. Ned Curran, chairman of the N.C. Department of Transportation Board, said at a recent panel discussion hosted by The Mecklenburg Times that construction had been sidelined because of I-77 Widen’s lawsuit.

I-77 Mobility Partners Director of Corporate Affairs Jean Leier said in an email that construction will begin soon and the project remains on schedule for completion by the end of 2018. She did not respond to requests for information on the delayed start date.

Construction funding begins with I-77 Mobility Partners tapping into bond proceeds and a subordinated loan granted under the Transportation Infrastructure Finance and Innovation Act. The DOT will then kick in $92 million, followed by the private equity. Remaining funds will come from interest income and capitalized interest on the TIFIA loan, the DOT says.

The DOT has already spent $8 million from its allotment “for work performed under the first notice to proceed, which included design work, preparation of numerous management documents, and other pre-construction activities,” Walker said.

Legal questions

Meanwhile, Cornelius resident Diane Gilroy has highlighted several ongoing legal issues faced by Cintra parent company Ferrovial in Spain. Gilroy provided The Mecklenburg Times with a copy of a November 2013 request for proposals document in which Cintra told the DOT that Spanish authorities had investigated a Ferrovial executive “in relation to the possible embezzlement of money” in Barcelona. No formal charges had been brought following conclusion of a preliminary investigation, Cintra said.

Gilroy, a Spanish teacher at UNC Charlotte and wife of Cornelius Town Commissioner Dave Gilroy, wrote a letter to N.C. Inspector General Mary Morton in July and N.C. Gov. Pat McCrory in October saying that Cintra failed to disclose pertinent information regarding antitrust and past insolvency issues in its 2012, 2013, and 2014 responses to the DOT’s request for proposals. Those documents ask bidders to provide information on corporate convictions, indictments, bankruptcies, and pending claims.

In an email response, Ferrovial’s U.S. Vice President of Corporate Affairs Patrick Rhode wrote: “The allegations of systematic corruption made by Ms. Diane Gilroy are absolutely and categorically false. Furthermore, we have fully complied with all of the various disclosure requirements throughout the multiple-year procurement process for the I-77 project.”

DOT spokesman Steve Abbott said the Inspector General’s office is looking into Gilroy’s allegations. The office of Gov. McCrory did not respond to requests for information on whether Gilroy’s letter would spark any action. Gilroy said she has not received a response to her letter from McCrory’s office.

Asked whether the DOT knew about Cintra’s involvement in the ongoing case in Barcelona and other legal issues when it signed the contract with Cintra in 2014 and closed on financing in May, the department said, “At this time, NCDOT believes that I-77 Mobility Partners and all affiliated companies accurately completed all forms and fully disclosed all items in the I-77 Express Lanes contract process.”

Cintra subsidiary and Indiana Toll Road operator ITR Concession Co. declared bankruptcy in September 2014, saying the recession had caused revenue to be lower than expected. And in May, news agencies reported that a Spanish judge concluded that Barcelona politicians received millions in kickbacks from Ferrovial in exchange for public contracts.

Meanwhile, the lead design firm on the project, Louis Berger Group, paid $69.3 million in civil and criminal penalties to the U.S. government in 2010 over charges of overbilling on reconstruction contracts in Afghanistan. This summer the company agreed to pay $17.1 million to resolve U.S. Department of Justice charges that it had violated the Foreign Corrupt Practices Act by bribing officials in India, Indonesia, Vietnam and Kuwait to secure construction-management contracts.

Earlier this year, the World Bank banned Louis Berger Group from competing for bank-financed contracts for one year. The Asian Development Bank had debarred the company in 2006 after “discovering significant integrity deficiencies in consultation services (the company) was hired to fulfill,” according to a January letter sent by U.S. Sen. Bob Corker, R-Tennessee, the Senate Foreign Relations Committee chairman, to the U.S. Agency for International Development that asked why the agency was still conducting business with Louis Berger Group.

“These included forging signatures on documentation, falsifying documentation, and replacing proposed consultants with less qualified candidates without prior notification,” the letter said.