Fix 5 First

FOOTHILL-SOUTH
A risky proposition

 Opinion by Michael Metcalf

 In addition to all the environmental degradation that is a huge real cost of the proposed Foothhill-South Toll Road, there is also a substantial monetary cost that may ultimately be the deciding factor as to whether or not the controversial highway ever gets built.

 The estimated cost of the highway was said by Toll Road officials in 2006 to be increasing at a rate of $3,000,000 per month, so arriving at a figure of final cost is problematical.

 However, a good starting point for the cost of the road might be $1,278,000,000, a figure used by the TCA in a document dated March 2007. Foothill-South TCA has cash and investments on hand of $627,000,000 (as of June 30, 2007). In order to fund the shortfall, investors must be persuaded to the provide an additional $651,000,000.

 At an interest rate of 5.56%, equivalent to the rate on the existing bonds, an additional $37,000,000 interest cost must be paid annually.  In order to break even, additional tolls of  $55,000,000 must be collected.  Refer to the accompanying Table 1 – REQUIRED INCREASE IN TOLLS.

 This is a conservative scenario. It assumes all cash on hand can be used for construction, leaving none for working capital. It assumes a stable cost in the period increasing inflation. It assumes a stable interest rate in time when the value of the dollar is collapsing.

 It also assumes that drivers will be willing to pay a huge increase in tolls. This is the heart of the matter. At a one-way toll of $12, who will be willing to pony up? I think it’s a huge gamble.