Transportation Corridor Agencies’ Financial Management Confirmed, Recent Communications Lauded by Orange County Grand Jury

IRVINE, Calif. - June 29, 2020

The Orange County Grand Jury has released a report (The Transportation Corridor Agencies: Are They Taking Their Toll On Orange County?) outlining its opinions about the Transportation Corridor Agencies (TCA) and claims made by opponents. According to the Grand Jury, the report is in response to the complaints of three citizens.

TCA recognizes the Grand Jury’s efforts and admission that its report has “limited findings” and that, due to the COVID-19 pandemic, it suspended its investigation at a critical point and multiple planned interviews and independent research could not be accomplished.

Although the report contains incomplete and inaccurate information, it also contains the following facts that are noteworthy and show that the Agencies are on the right path toward continued success:

  • There is no evidence of fiscal mismanagement by TCA
  • The Agencies are under new leadership and have a capable staff
  • Transparency has increased by broadcasting Committee meetings
  • The South County Traffic Relief Effort has formally concluded with the identification of a non-tolled arterial alternative

The Grand Jury initiated its investigation based on concerns regarding the South County Traffic Relief Effort Project, which has since been formally concluded and resulted in the unanimous approval by the Board of Directors and overwhelming support by the public.

The report contains outdated information and neglected to address the fact that TCA is responsible for the operations of the largest network of toll roads in the state serving nearly two million accountholders and processing more than 100,000,000 tolls last year.

“TCA appreciates the work of the volunteers who serve as the Grand Jury and is optimistic about the path in front of us,” said Samuel Johnson, TCA’s recently appointed interim CEO. “Our Boards of Directors will be discussing the report and the required formal response at a Board meeting in the near future.”

Earlier this month, TCA’s two Boards of Directors unanimously approved a Fiscal Year 2021 budget created by new leadership that addresses the unknown duration and impacts of COVID-19 and reflects a conservative approach that meets the Agencies’ financial obligations and focuses on core operating necessities while reducing operating and capital expenditures by 51 percent.

The Transportation Corridor Agencies are preparing a formal response to the Grand Jury’s report to address in greater detail the overwhelming inaccuracies. Initial responses are available below.


June 30, 2020

Steven G. Belasco
Foreperson
Orange County Grand Jury
700 Civic Center Drive West
Santa Ana, CA 92701

RE: Grand Jury Report (The Transportation Corridor Agencies (TCA): Are They Taking Their Toll on Orange County?)

The Transportation Corridor Agencies (TCA) acknowledge receipt of the above referenced report on Thursday, June 25, 2020. We are providing this initial correspondence as a preliminary response and will take immediate steps to develop our comprehensive formal response to the findings and recommendations as prescribed by law.

TCA recognizes the Grand Jury’s efforts and admission that its report has “limited findings” and that, due to the COVID-19 pandemic, the Grand Jury suspended its investigation at a critical point and multiple planned interviews and independent research could not be accomplished. It is likely that a more collaborative approach by the Grand Jury could have benefitted from current data and factual statements supported by evidence, instead of relying on sensationalized news stories and one-sided input.

Acknowledgement of Facts

While the report is replete with unsubstantiated opinion, the following factual statements are noteworthy highlights:

  • There was no evidence of fiscal mismanagement by TCA (page 6)
  • The Boards of Directors recently appointed a new CEO, placing the Agencies under new leadership (page 15)
  • TCA has capable staff as evidenced by recent work (pages 32 and 40)
  • The Agencies have increased transparency by broadcasting Committee meetings (page 15)
  • There was no factual finding of non-compliance with the Agencies governing statutes
  • The Foothill/Eastern Transportation Corridor Agency (F/ETCA) has formally concluded its comprehensive study of mobility solutions for South Orange County and adopted a Regionally Accepted (emp. Added) solution in the non-tolled Alternative 22 (page 8)
  • The Agencies’ Fiscal Year 2021 (FY21) Capital Improvement Program (CIP) excludes any funding for the south county study (page 28) and as of its formal adoption on June 11, 2020, includes no funding for Alternative 22.

The Agencies appreciate these positive highlights in the report as an indication that we are on an appropriate path as we move forward into the future.

The financial strengths, position and management of the Agencies have been independently confirmed annually by nationally recognized financial rating agencies and Certified Public Accountant firms, that have provided unmodified opinions regarding the Agencies’ financial statements and fiscal controls and have conducted performance audits of various contracts as requested by the Boards of Directors in exercising their thorough oversight.

Inclusion of Incomplete/Misleading Information

Likely due to the abbreviated investigation effort, the report lacks complete information, (similar to that cited above concerning the adoption of the FY21 CIP) and mischaracterizes the Agencies’ enabling legislation and governing statutes. The report refers to the California Streets and Highways Code and Government Code § 66484.3 selectively. The report inappropriately suggests that the Agencies’ enabling legislation requires a specific timetable for repayment of debt and discontinuance of the Agencies’ operations, disregarding the fact that TCA is authorized to collect tolls and Development Impact Fees until the bonds issued to pay for project development costs are repaid.

A more complete read of the statute shows that TCA, with its 18 member cities and three supervisorial districts, retains decision making authority (i.e. local control) rather than automatically conceding to others to determine whether to continue tolling and at what amount.

To prevent unnecessary angst with the public, complete information is vital and misleading innuendos should and could have been avoided.  

Presence of Bias

A Grand Jury report is expected to be fair, balanced and independent. Unfortunately, the report does not appear to meet these expectations and, again, we are forced to assume that is a result of the abbreviated nature of the investigation.

The report gives little recognition to the elected leadership of South Orange County cities and County Supervisorial Districts. From the noted editorial comments throughout, the report paints a picture that the Grand Jury took at face value the allegations of the three citizens who requested the investigation and, in fact, took their side, implying that any “pro-TCA elected source” was not legitimate, honest and open. In contrast, the report holds in higher regard those who seek to diminish the “local control” authority the cities and county forming the TCA established for its self-reliance through self-determination.

The report fails to recognize the appropriate committee structure and processes of the Agencies, which is typical of other similar agencies, the California legislature and the United States Congress (page 2). It is important to cite that TCA committees are typically comprised of 11 to12 Board Members, equaling nearly half of the Board membership. This approach allows maximum engagement by the Board while complying with the Brown Act. In addition, it should be noted that any Board Member can, and many do, request and receive a briefing on an item regardless of its placement on the Board Meeting agenda.

Unfounded allegations that arise out of discontent with public processes should always be carefully weighed to avoid baseless broad accusations of impropriety. Clearly, the oversight and function of any body or agency can, and should, be scrutinized, but doing so without fairness only casts inappropriate aspersions on the agency examined and calls into question the integrity of the report.

Correction of Invalid/Inaccurate Information

The report also contains a significant amount of invalid and inaccurate editorial information. The following information counters some of the misinformation presented in the report.

  1. Contrary to the report’s unsubstantiated suggestion (page 34), TCA is not nefariously working to develop toll lanes on Interstate 5, seeking projects beyond its legislative authority or attempting to extend bond retirement dates.
  2. Contrary to the report’s unsubstantiated suggestion (page 1), internal and external audits have always been an integral part of TCA’s commitment to its fiduciary responsibility, transparency and continuous improvement.

An external CPA firm provided an independent review of the Agency’s and referenced consultant’s compliance with contract requirements and reported that, in all significant respects, the Agency and consultant met the audit objectives and were in compliance with the requirements set forth in the contract. 

Additionally, annual financial statements have always resulted in an unmodified opinion, indicating the Agencies’ commitment to ensuring strong internal controls around its financial processes. We welcome any agency, organization or entity with the authority to do so to perform an audit if it is determined that it is an efficient use of taxpayer dollars. 

  1. Contrary to the report’s unsubstantiated suggestion (page 1), TCA completed the “initial” build-out of The Toll Road network as originally envisioned, which consisted of two to three lanes in each direction, several on- and off-ramps, and truck climbing lanes for the entire length of the 73, 133, 241 and 261 Toll Roads. As part of original design and approvals, a wide median was left in the center of The Toll Roads to accommodate future widenings when demands necessitated and future on- and off-ramps would be constructed as warranted through discussions with local jurisdictions and traffic needs. Therefore, through solid planning practices, TCA constructed the initial skeletal system of The Toll Roads in a way that minimized the future need for additional right-of-way as all future improvements would be constructed within The Toll Roads’ existing rights-of- way.

While the “initial” construction of The Toll Roads was completed in the late 1990s, the identified and anticipated future projects have occurred over time as anticipated and planned. Currently, many facilities throughout the state require additional right-of-way to complete needed improvements, which can create obstacles to funding and/or completing; however, TCA planned its projects as phased improvements within existing rights-of-way. This is viewed as sound planning. 

  1. Contrary to the report’s unsubstantiated suggestion (page 2), TCA’s debt structure has a unique history that relates to the formation of its Agencies. TCA's innovative approach to financing 30 years ago enabled the delivery of new transportation infrastructure that has a present-day value in excess of $12 billion funded by issuing non-recourse toll revenue bonds backed only by tolls and Development Impact Fees (DIFs) rather than by subsidizing with federal or state funding or sales tax bonds. The investors who purchased these bonds have no ability to seek repayment from any governmental entity or by assessing taxes, security is solely from toll revenue and DIFs. 

The vision of the leadership who formed these roads in response to the exploding population, worsening traffic congestion and shrinking government transportation funds has proven to be a successful model. 

 TCA’s creation and the financings executed in the 1990’s were unique to the United States at the time. Akin to a “start-up” entity, the Agencies needed to respond to various factors that impacted the financial stability. Although there have been periods of economic pressure, the Agencies have always taken action where necessary and made all bond payments on time and for full value. Unlike some of the other start-up toll facilities that have struggled to the point of bankruptcy, the Agencies were able to use their 20 years of operating experience to refinance and place the debt in a solid financial position. 

Because of the uniqueness of the bond security, which was from revenue generated from The Toll Roads rather than from taxes or other public funds, interest during the construction period had to be either funded through debt or deferred since toll revenue isn’t generated until the road is built and open to traffic.  

The refinancing executed by the F/ETCA in 2013 and the San Joaquin Hills Transportation Corridor Agency (SJHTCA) in 2014 were structured to include small two percent inflationary toll rate increases designed to keep the traffic on The Toll Roads and off the highly congested freeways and city streets. The F/ETCA transaction was approved by the California Treasurer and both the F/ETCA and SJHTCA transactions were recognized by rating agencies for their contribution to the improved credit standing of each Agency.   

 The rating agencies, independent third parties, have recognized the better debt profile, strong management and improved performance in their ratings at the time of the refinancing and by their subsequent upgrades. 

 The TCA financings are the model for the non-recourse start-up toll road financings that have been executed across the country to finance highway infrastructure on both a public and a private basis. The financings were recognized both in the United States and internationally for their innovative and unique structure. The Agencies remain poised to continue as two of the nation’s most successful toll facilities utilizing non-recourse financing.  

  1. Contrary to the report’s unsubstantiated suggestion (page 2), TCA has an extensive and deliberate Board Member Committee structure in place where staff presents business items for discussion and consideration at the Committee level. The Committee provides thorough oversight through clarifying questions and specific direction on items presented. The Committee then makes recommendations to bring items to the full Boards of Directors for consideration and approval/denial. This provides Board Members, through the Committee process, a defined and structured process to receive and thoroughly analyze and understand the Agencies’ various business items. No final decisions are made at the Committee level and all materials presented at Committee and Board Meetings are available to the public per the Brown Act.
     
  2. Contrary to the report’s unsubstantiated suggestion (page 4), all projects undertaken by TCA are well within TCA’s legal authority. State law authorizes TCA to fund, plan, acquire and construct major thoroughfares and bridges in Orange County (Government Code section 66484.3.). TCA is authorized to charge and collect tolls to pay the cost of constructing the major thoroughfares and bridges (including finance costs) and the cost of collecting tolls. All roads planned or constructed by TCA to date are major thoroughfares expressly contemplated by the joint powers agreements forming TCA. 
     
  3.  Contrary to the report’s unsubstantiated suggestion (page 4), state law does not establish a particular schedule or milestone for TCA to cease operations. TCA is authorized to collect tolls and DIFs until the bonds issued to pay for the cost of the projects are repaid (Gov’t Code, § 66484.3, subd. (f).). 
     
  4. Contrary to the report’s unsubstantiated suggestion (page 5), beginning in 1986, the study and inclusion of I-5 alternatives have always been included for analysis. Prior to the creation of TCA, the County of Orange (in 1986) prepared a route location study that evaluated various alignments of the 241 Toll Road, including numerous alignments that intersected with and were on I-5.

Subsequent to the County’s 1986 study, TCA conducted a follow up study for the 241 Toll Road in 1990 that also evaluated I-5 alignments and again as part of its 2006 South County Transportation Infrastructure Improvement Project. The study and inclusion of alignments on I-5 were at the request of state and federal transportation and regulatory agencies, and required under state and federal environmental laws that require all projects consider and analyze a reasonable range of alternatives.

  1. Contrary to the report’s unsubstantiated suggestion (page 6), following bond refinancing transactions and other actions taken throughout the years to strengthen the Agencies’ finances, the Boards of Directors have had an opportunity to consider paying bonds earlier than scheduled. The Boards have been considering strategies for early payment and/or reducing the Agencies’ debt as a high priority. The recent bond transactions executed by the Agencies, reduced the overall debt payments by approximately $400 million without extending the maturity dates. The Agencies have also approved debt management policies that include best practices and guidance, as well as ensuring the Agencies’ commitment to transparency.
     
  2. Contrary to the report’s unsubstantiated suggestion (page 8), Development Impact Fees (DIFs) are only collected on new development in the areas of benefit – they are not collected throughout the entire county, nor every city or from every resident. 

As the Grand Jury report acknowledges, DIFs are not taxes, they are one-time fees paid by developers on new development in the “areas of benefit” surrounding The Toll Roads.

TCA built the roads in advance of collecting the fees by issuing toll revenue bonds that are being paid back with tolls and DIFs. 

 When developers build projects, they have a responsibility to underwrite some of the cost of the infrastructure that is required to support their projects. Water and sewer lines, schools and roads are all part of the infrastructure needed. Thus, DIFs are paid by developers to ensure they pay for the infrastructure from which they benefit, and make sure that developer’s projects have the infrastructure support they need to succeed. 

  1. Contrary to the report’s unsubstantiated suggestion (page 11), TCA’s DIF Program supports the development of affordable housing by waiving fees for developments which qualify for exemptions from property taxes. In addition, pursuant to the Agencies’ DIF Program, accessory dwelling units of less than 750 square feet are not charged any fees. 
     
  2. Contrary to the report’s unsubstantiated suggestion (throughout), TCA has formally concluded its South County Traffic Relief Effort Project and is not pursuing a tolled extension of the 241 Toll Road from its current terminus as Oso Parkway to the San Diego County line. Instead, the County of Orange will advance an untolled extension of Los Patrones Parkway for further consideration as an alternative that could provide significant traffic relief with minimal environmental and community impacts. The Agencies adopted Fiscal Year 2021 (FY21) Capital Improvement Program (CIP) excludes any funding for the south county study (page 28) and as of its formal adoption on June 11, 2020, includes no funding for Alternative 22.

Conclusion

TCA appreciates the work of the volunteers that serve as the Grand Jury and is preparing a formal response to be approved by its two Boards of Directors and submitted no later than 90 days from the report’s date.

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