IRVINE, Calif. - June 21, 2021
The Orange County Grand Jury has completed its review of the Transportation Corridor Agencies (TCA) – which commenced in 2020 but was suspended due to the COVID-19 pandemic.
In the report, the Grand Jury "congratulates the Transportation Corridor Agencies on their delivery and operation of excellent roads," later commenting that "the roads are a regional success, serving drivers equally from OC and several surrounding counties."
In the report, the 2021 Grand Jury – like the Grand Jury before it – found no evidence of fiscal mismanagement by TCA. They also noted that:
"TCA respects the work of the volunteers who serve as the Grand Jury and appreciates the positive highlights in their report as an indication that we are on the right path as we move forward into the future," said TCA CEO Samuel Johnson.
"The agency has achieved most of its original goals, including (initial) construction of highways, growth in ridership, financial stability and robust toll-collection. It survived a recession, a pandemic, a debt crisis, and some political battles. It is finally in a position to execute a proactive financial strategy," said the Orange County Grand Jury.
TCA’s two Boards of Directors are devoted to the financial strength and stability of the Agencies. The Boards are committed to considering all options for reducing debt and the funding of important regional transportation projects.
TCA has Debt Management Policies that memorialize longstanding practices that have resulted in continual credit rating upgrades and allowed the Agencies to weather financial storms while enhancing transparency and bolstering the Agencies’ creditworthiness. The policies ensure that debt is managed prudently, with direction to staff to constantly explore reductions without extending maturity dates while also allowing for the consideration of accelerated repayment schedules.
TCA’s management strengths and long-term financial model have been recognized repeatedly by credit rating agencies including Standard & Poor’s, Fitch and Moody’s, which have rated all of TCA’s bonds as investment grade.
Furthermore, TCA’s recently-approved budgets for Fiscal Year 2022 reinforce the Agencies’ commitment to meeting bond obligations following an innovative bond refunding for the Foothill/Eastern Transportation Corridor Agency (F/ETCA) in 2021 that saved the Agency in excess of $210 million net of all transaction costs, in addition to the $400 million saved in two prior transactions. These refundings, which were applauded by the Orange County Grand Jury as "positive financial moves," have decreased annual debt payments without extending any bond maturity dates. Both Agencies are financially responsible and have never missed a bond payment – which occur semi-annually and are scheduled through the life of the bonds.
One source of revenue for TCA is Development Impact Fees (DIFs). As noted by the Orange County Grand Jury, "Although they resemble taxes, DIFs are not taxes." DIFs are one-time fees paid by developers on new development only in the "areas of benefit" surrounding The Toll Roads. In the 1980s, TCA’s member agencies decided that for the benefit of their regional communities, they would pool their DIFs to partially fund the repayment of the debt incurred to build the transportation system infrastructure necessary to support the quality of life we enjoy today.
Each TCA member agency voted to impose the DIFs as part of their requirements of new development within their communities because they understood the regional nature of transportation needed to support growing communities. Member agencies must continue to collect DIFs and remit them to TCA, as the fees are a financial commitment pledged to secure bonds issued by TCA. A member agency’s obligation to collect DIFs continues as long as the fees are pledged as security for any financial commitment.
TCA worked with the land development community to gain their support and take guidance on how to structure the program for the mutual benefits transportation infrastructure provides. As the Agencies are focused on paying down their debt and funding required improvements to the existing system without new debt, it is appropriate that developers continue to pay their fair share for the infrastructure that supports their development.
While the Agencies respect the Grand Jury’s opinions and analysis, the Agencies do anticipate correcting substantive items in a formal response to the Grand Jury’s report. For example, the report fails to fully acknowledge TCA’s Capital Improvement Program (CIP) and the projects discussed therein. The most recent CIP was adopted by the Boards at their June 10 meeting and identifies timing and funding needs for major projects over the next 15 years, along with conceptual projects which require more analysis to determine phasing and scope. The Grand Jury’s report largely ignores these projects and the associated funding requirements – which could fall in the $4 to 5 billion range – when it discusses the future of the Agencies and how the Agencies anticipate using future funds.
The report also begins with a tag line of "$28 Billion for a $2.8 Billion Road," but this tag line ignores the system of roads that were constructed, the financing costs associated with a first-of-its-kind public-private financing that would later become the model for the industry, and the fact that the $28 billion dollar revenue figure is based on 60 years of operations and assumptions as to how future Boards may operate over the next 30 years – decisions that clearly haven’t been made. The report also fails to acknowledge the billions of dollars the roads provide as an economic driver for Orange County. Our region’s transportation system is core to the quality of life we enjoy, making this one of the best places in the world to live. The tangible economic value transportation infrastructure provides should always be a consideration when reviewing the total cost of the investment.
TCA’s Boards have already taken proactive steps to develop a plan for the Agencies’ financial futures through strategic planning discussions and adoption of their separate CIPs. The adopted CIPs include using $400 million of reserves to complete the 241/91 Express Connector along with Catalina View and Loma Segment widening projects over the next 10 years. The F/ETCA Board is also considering using reserves to retire $125 million in bonds in 2022 when they become callable.
The Boards’ strategic plans are anticipated to be adopted later this calendar year and will be updated annually thereafter, providing clear direction on the Agencies’ individual priorities for improved mobility and debt reduction.
TCA staff is preparing a draft formal response to be considered by its two Boards of Directors. A final formal response must be submitted no later than 90 days from the report’s date.
June 21, 2021
Mr. Scott Kelly
Orange County Grand Jury
700 Civic Center Drive West
Santa Ana, CA 92701
Subject: Initial Response to the 2020-2021 Grand Jury Report on the Transportation Corridor Agencies
Dear Mr. Kelly:
The Foothill/Eastern Transportation Corridor Agency and the San Joaquin Hills Transportation Corridor Agency (collectively, TCA or Agencies) acknowledge receipt of the 2020-2021 Orange County Grand Jury’s Report on Monday, June 21. We are providing this initial response and will provide our formal response to the report’s findings and recommendations by September 20, the required date set forth in your transmittal letter.
As noted in your report, TCA has constructed excellent roads with minimal tax dollars. TCA also utilizes state-of-the-art technology and its toll operations have a high degree of efficiency and attention to customer service. These findings in the report are supported by the feedback we receive from our customers. In addition to providing high quality toll operations, our Agencies’ finances are on solid ground, as recognized by the Grand Jury report.
Our Boards of Directors fully recognize the Grand Jury’s citing of being "in a position to execute a proactive financial strategy" and will be considering the adoption of reflective annual strategic plans during the next fiscal year. To build upon its financial successes and contributions to Orange County’s quality of life, the Boards will explore opportunities to fund their respective capital improvement plans while prioritizing debt reduction and balancing support for congestion relief in the region.
We appreciate the time the Grand Jury took over the past many months to request data and background material on the Agencies, to gain as much of an understanding of the Agencies as possible, all within a limited window to distill the many complex agreements, operations, financials, capital undertakings and other details while recognizing the essential services The Toll Roads offer to the traveling public. There are inaccuracies and missing elements within the report, some of which involve background information and others that will influence our formal response. The notable items include:
The key oversights in the report are 1) the assumption regarding how the Boards may operate over the next 30 years – decisions that clearly have not been made; and 2) the implication that the Boards are not developing plans around their respective financial stability.
Again, we will provide our formal responses to the Grand Jury’s findings and recommendations, and the report in its entirety by the date required. As always, please reach out to me with any questions.
Chief Executive Officer