91 Toll Lanes’ Sale Is Halted Amid Outcry

Today’s planned $274-million sale of the 91 toll lanes was abruptly halted Wednesday, withering under a storm of opposition by top state officials and the threat of a lawsuit by combative Riverside County transportation commissioners.

State officials and representatives of the California Private Transportation Co., which had planned to sell the toll lanes to an Irvine-based nonprofit group, decided to pull the plug indefinitely after a flurry of teleconferences.

“The bond sale has been postponed,” announced state Treasurer Phil Angelides. “We made the determination because of the cloud of potential litigation. It did not make sense, from the state’s standpoint, to sell the bonds.”

Angelides said officials were uncertain when a new bond sale would be scheduled. Meanwhile, state Atty. Gen. Bill Lockyer said his office would continue its investigation of the proposed transaction and try to resolve whether there are legal conflicts because of the close relationships between the proposed buyer, NewTrac, and California Private Transportation Co.

The toll lanes’ general manager, Greg Hulsizer, criticized Riverside County’s threat of a lawsuit.

“We believe that today’s action by the Riverside County Transportation Commission was without merit, politically motivated and not in the public interest,” Hulsizer said in a written statement. “We are firmly committed to the sale of the 91 Express Lanes to NewTrac.”

Representatives of Lehman Bros.--which had worked for two years to put the deal together--declined comment.

Earlier Wednesday, 22 Riverside County transportation commissioners--including all five members of the Riverside County Board of Supervisors--voted to sue to block the sale of the toll lanes.

Although the transportation officials had earlier supported NewTrac’s application to the IRS for nonprofit status, they have become increasingly alarmed by the deal. Some Riverside officials now believe that they were hoodwinked by the prospective new owners and that the millions of dollars promised for road improvements would never materialize.

They are also upset that NewTrac never involved them in discussions prior to the sale, which they said was promised in a written agreement.

“The other board members felt they had been burned. They felt betrayed,” said Riverside County Supervisor Bob Buster, who led the charge to derail the bond sale.

“This is a threshold moment for transportation in Southern California and Riverside County,” he said. “We’re asking to meet with the governor. We need to press forward and unite with the state, Orange County and San Bernardino County to retake this critical corridor and return it to the public.”

Riverside officials want the state to reclaim the road by buying out the interests of the current owners. Two weeks ago, Buster acted as “a lone wolf” in opposition to the deal. On Wednesday, he was not alone.

Opposition Mounted as More Voiced Concerns

Momentum began building after Angelides--California’s top fiscal officer--earlier this week aired his concerns that the project’s projections for future toll revenue were unrealistic. Angelides--who serves as a director of the state financing bank, which planned to issue the bonds--abstained from a vote on the project last month.

Lockyer added to the pressure this week, calling the deal “deplorable” and vowing to have his staff comb through the transaction. In particular, he asked them to determine whether there were illegal conflicts because of close ties between the seller and buyer.

On Wednesday, two Republican state lawmakers from Orange County--Sen. John Lewis of Orange and Assemblyman Dick Ackerman of Fullerton--fired off a letter to Gov. Gray Davis expressing serious reservations. The two lawmakers asked Davis to delay the bond sale because of questions surrounding it.

“It is imperative that we ensure the sale of the bonds will not put public money at risk or act as a catalyst for increased consumer fees,” Ackerman and Lewis wrote. They were especially troubled that NewTrac failed to get an independent appraisal of the toll lanes and accepted a $1-million loan from the seller.

“If this was a private company selling to a private company, none of us would care. They could pay anything they want,” Ackerman said. “But when they plan to use tax-exempt bonds, that changes everything.”

Hilary McLean, a spokeswoman for Davis, said, “The governor has heard from local officials, and the situation is under review.”

Buster said he would push for a meeting with Davis next week and would take aerial maps showing the gridlock on the Riverside Freeway at daybreak.

“I think we can make a silk purse out of this sow’s ear,” Buster said. “This corridor is so critical to our economic and social future. There are so many commuters, so many parents, who are bottled up, sitting out there in traffic every day. It destroys their commute and their quality time with their families.”

Orange County Treasurer John M.W. Moorlach, an outspoken critic of the deal, was jubilant over the indefinite delay of the bond sale.

“We stopped the train in its tracks,” Moorlach said. “The cram-down has been prevented. Now we’ll have the chance to give this transaction the scrutiny it deserves.”

At least two Orange County supervisors, Jim Silva and Todd Spitzer, said Wednesday that they now have concerns about the proposed sale. Spitzer, who as an Orange County Transportation Authority board member, had supported NewTrac’s application for tax-exempt status and had earlier praised the proposed sale, said Wednesday that new details of the deal have alarmed him.

“There obviously needs to be a hard look at why the road that cost about $120 million to construct is priced at twice as much when it is barely breaking even,” Spitzer said.

Spitzer said he was shocked to learn that NewTrac had gone to a state-sponsored bank for financial backing for the deal. He said his understanding was that the nonprofit group would go to the private market, as did Orange County’s toll roads when they issued more than $3 billion in bonds for their construction.

Financial Terms of Transaction Unusual

NewTrac’s proposed financial arrangement was unusual. After receiving its nonprofit status in June, NewTrac officials went to a government bank in Sacramento that issues bonds on behalf of nonprofit organizations, economic development groups and municipalities.

The bank, called the California Infrastructure and Economic Development Bank, agreed to issue $274 million in tax-exempt bonds to finance NewTrac’s purchase. In essence, the state would sell the bonds and then loan the sum back to the nonprofit group.

Under the arrangement, state tax dollars would not be at risk should NewTrac fail to make payments on the bonds. Nearly half of the bonds would have carried insurance, so the insurance company would have had to come up with the money if NewTrac defaulted. The remaining bonds would have been sold without insurance, and bond buyers would have been at risk.

The sale price, estimated at about $220 million, has especially angered Riverside County officials, who say their residents will shoulder the burden of the road’s debt through the tolls they pay.

NewTrac Chairman Gary Hausdorfer has argued that the expected savings of $500 million in interest and taxes over the lifetime of the franchise will benefit the public. The nonprofit group planned to immediately allow cars with three or more people to travel free and planned to return $9 million in planning costs to Orange County transit officials.

In a prepared statement, Hausdorfer said: “NewTrac remains fully committed to the purchase, to the integrity of the transaction and the long-term benefits of the project.”