Texas Toll Road Goes Bankrupt, but Taxpayers Don’t
This month, a major toll road company filed for bankruptcy in Texas. The company in question is the SH 130 Concession Company, which manages segments 5 and 6 of SH 130 between Austin and San Antonio. Like the bankruptcy of the Indiana Toll Road Concession Company in 2014, the problem for the SH 130 Company was that traffic estimates turned out to be optimistic following the recession.
Some toll road opponents have latched onto this bankruptcy as an example of how privatized toll roads are a bad idea. But when we look closer, the case of SH 130 (as well as the Indiana Toll Road) teaches the opposite lesson. A private, international investment consortium—and not the Texas Department of Transportation—spent almost a billion dollars improving highway infrastructure in Texas. Traffic estimates did not live up to expectations, but that is a normal risk with highway expansion, a risk that would normally be that of state taxpayers.
SH 130 received no money from the state of Texas. The only public support for the project came in the form of over $400 million in Transportation Infrastructure Finance and Innovation Act (TIFIA) loans from the federal government. If the SH 130 Company is unable to restructure its debt and cannot find a buyer for the toll road, the federal government (and hence the taxpayer) is at risk of taking some loss on the loan. But as we have pointed out before, financing part of infrastructure projects with federal loans (with the risk of losses) is a vast improvement over the current modus operandi, where the federal government provides 80 to 90 percent of a highway project’s funding with no mechanism for getting a return.
So what is the future of SH 130? While the bankruptcy is proceeding, SH 130 Concession Company will continue to operate the road. The company will then either restructure its debt or the toll road will be sold to a new operator (as happened with the Indiana Toll Road). It is too early to say whether the company will default on any federal TIFIA loans. Whatever the end result, Texas residents will continue to enjoy the highway that private investment built.