Thursday, September 23, 2021

HCTRA Annual Report Shows Impact of Covid and Toll Diversions

This week we have a guest post from Houston Freeways author Oscar Slotboom (highlights mine).
The Harris County Toll Road Authority fiscal year 2021 annual financial report recently became available on the HCTRA web site. HCTRA's FY 2021, from 1-March-2020 to 28-Feb-21, coincided with the period of worst impact of Covid 19 and also included the February 2021 freeze, which closed most or all toll roads for several days. HCTRA waived tolls from March 24 to April 29, 2020, further depressing revenue. Since 10 months of HCTRA fiscal year are in the previous calendar year, I will report FY 2021 data as being for 2020 (and similarly for all other years).

No surprise, traffic and revenue were way down.
values in millions 2019
(FY 2020)
(FY 2021)
Traffic Transactions 577 461 -20.1%
Toll Revenue $855 $551 -35.5%
Total Revenue $901 $563 -37.4%
Income Before Transfers $463 $157 -66%
Transfers Out $137 $545 +298%
Change in Position $326 -$388
Outstanding Bonds $2247 $2618 +16.5%
Liability, principal + interest $3162 $3667 +16%
Since HCTRA had a very strong financial position prior to Covid, it easily handled the financial setback. In fact, even with the reduced revenue, Harris County Commissioners Court proceeded with the huge $545 million diversion of funds out of HCTRA, shown above as the "Transfers Out" (more on that below).
We can expect a very strong rebound in traffic and revenue for 2021, probably getting within 5 or 10% of 2019. While no recent or monthly data is available for HCTRA, I'm a regular user of the Sam Houston Tollway and traffic is close to pre-pandemic levels.
Here is a plot of HCTRA's toll revenue for the last 15 years.
Here is a plot of monthly data from the North Texas Turnpike Authority, showing the sharp drop in April and May 2020, and then a strong recovery. (HCTRA was certainly similar.) The recovery of toll traffic in North Texas has been slower than overall traffic. (This plot also shows SH 360 since NCTCOG had a financial interest in the tollway.)
The plot below shows the effect on separately-reported toll road sections. No surprise, the biggest losers were facilities with nearby freeway alternatives: the Katy Managed lanes and the Hardy Toll road. The Tomball tollway was the best performer, sustaining only a 1% traffic loss due to the opening of the new section of tollway north of Tomball around April 2020 which brought in new customers. Revenue loss is larger than the traffic loss for all facilities due to the non-collection of tolls in March and April 2020. Note that the -28.3% revenue loss differs from the value in the table above because this value is facility revenue only and excludes a $33 million charge for the Covid Emergency declaration and also excludes revenue transfers between toll road agencies.
Transfers Out
Other than the drop in revenue due to Covid, the big news in this year's financial report is the massive increase in "transfers out". For a long time, HCTRA has shifted some toll revenue out of HCTRA. This is reported in the financial statement as "transfers out". This money has always been used for road and bridge improvements, originally to improve access to the toll roads but I don't know if that's still the case. The table below shows the transfers out in recent years.
The massive increase in the transfers out was due to the action of Harris County Commissioners Court (3 in favor, 2 against) to harvest money from HCTRA to use on other government functions, with initial withdrawals being used to supplement flood control funds. The Houston Chronicle reported on this in September 2020, with Harris County establishing a special corporation that immediately transferred $300 million and is slated to transfer $90 million annually in future years. The amounts of $300 million plus $90 million plus the traditional transfer are in the ballpark of the $545.1 million revenue diversion.
Page 7 of the annual report states the following:
Unrestricted net position of $477,101,449 represents the portion available to meet ongoing obligations of the Authority. Unrestricted net position decreased $487,721,988 from the previous year. This decrease was mainly due to the increase in transfers out to Harris County.
The financial report has very little information about the use of the funds being transferred out, with a vague explanation on page 12 and a note about the creation of the Harris County Flood Resilience Trust on page 50.
Tory has previously sounded an alarm about this practice. Toll diversion has been a longstanding practice in New York City, New Jersey and Pennsylvania. What do residents of those regions get? Perpetual tolls, including sky-high tolls on the NYC bridges, for basic maintenance on 60- to 100-year-old facilities which are generally still in their original (often inadequate) configuration.
While some folks may be okay with using toll money for flood control, there was nothing to prevent ongoing and increasing diversions for other government activities. State-level leaders were concerned about this diversion, prompting the legislature to pass SB 1727, which was signed by Governor Abbott on June 7. SB 1727 appears to prohibit the diversion of toll revenue for non-road use. We'll need to see how the law affects toll revenue diversion in future years.
Long-Term Bond Obligation
The data below summarizes information presented on pages 31 and 32

Lien Bonds and Tax Bonds $2,335
Unamortized Premiums 284
Total 2,619
Other obligations, mainly employee retirement 175
Total Liability $2,794
Interest Expense $1,332
Approximate total obligation through 2050 $4,126
The the plot below, using data presented on page 61, shows the payment schedule for the $2.355 billion in lien bonds and tax bonds, which comprise 90% of HCTRA's bond liability.
This plot shows that total liabilities will be around $175 million per year until around 2035, when obligations drop sharply to around $75 million per year through 2047, then tapering to the final payment in 2050. Since HCTRA's revenue should be back in the range of $800 million to $1 billion per year from this year forward (barring any new disruptions), we can see that HCTRA should retain its strong financial standing going forward, assuming SB 1727 does in fact prevent more diversions.
The current 3-2 majority on Harris County Commissioners Court seems to be intent on ending improvement and expansion of the toll road system after current obligations are completed. Judge Hidalgo is well-known to be anti-tollway and anti-freeway. The $962 million ship channel bridge is the most expensive project in progress. Remaining projects include $130 million for connection ramps at the Sam Houston Tollway and SH 225, $71 million for connections between the Hardy Toll Road and BW8, and the currently suspended Hardy downtown connector, which should cost around $250 million if it proceeds. With all these projects finishing by the mid-to-late 2020s and bond obligations a small fraction of expected revenue, this begs the question: should regional toll road users ever get relief from the high tolls? For example, a customer passing through one Sam Houston toll plaza each way on a daily commute will pay around $700 per year. For a person in a lower-paying job, this is a substantial financial burden.
If surplus toll funds are not going to be used to improve the toll road system or Harris County roads, my view is that tolls should be reduced or selectively removed so Houston-area residents can keep their money. Another way to say this is that Harris County should not price gouge the public with high tolls if the tolls are not going to be used for their original intent, which is to finance the toll road system. Sure, many of HCTRA's customers are from Fort Bend and Montgomery counties, and Harris County Commissions Court may be glad to continue to impose high tolls on those customers. I think suitable criteria for toll reduction or removal are
  1. Sections that have generated revenue far in excess of their cost
  2. Sections which predominantly or overwhelmingly serve Harris County residents
  3. Sections serving low-income areas, to provide these low-income communities relief from high tolls.
The original three sections of the Sam Houston Tollway between the Southwest Freeway and North Freeway meet criteria 1 and 2, and the south Hardy Toll Road meets criteria 2 and 3. Toll removal on these sections would save area residents $350 million per year, and this loss of revenue could easily be accommodated by the late 2020s if Commissioners Court does in fact terminate new investments in the toll road system, and diversions are limited by SB 1727.
Opportunities for Improvement
The HCTRA financial statement provides a large amount of data, but there is minimal or negligible reporting for certain uses of agency revenue, and I would like to see more explanation of the following
  • More details about the specific use of funds transferred out. This should include a listing of specific projects or activities which are financed with toll funds.
  • More detail and explanation of the expense category "services and fees". The expense was $143 million in 2020 and $157 million in 2019. This could include a listing of consultant contracts.
  • More detail about ongoing construction and improvement programs. For example, for each ongoing project (such as the Ship Channel bridge), there should be reporting of the amount spent and the source of the funding (toll revenue or bonds). This could also include upcoming initiatives, listed on page 4. For example, how much is the conversion to all-electronic tolling going to cost?
  • Reporting on the size of the HCTRA workforce. For example, what happened to all the toll collectors when all manned tolled plazas were closed? What were the expenses involved with this transition?
  • While a lot of information about bonds is included, it is difficult to analyze the specific use of the bonds. A summary that shows the following would be useful: total bonds sold during the year, bonds sold for construction projects, bonds sold for financing transfers out, and bonds sold for refinancing.

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At 8:31 PM, September 24, 2021, Anonymous Anonymous said...

Re: $500M transfer out of HCTRA,

It's good that Abbott and the Leg passed a law prohibiting future diversions!

Seems like that would be prohibited in the terms Bond Issue?

It smacks of Soros and all his manipulative ways.

Keep it up!

At 12:32 AM, November 25, 2021, Anonymous Mike Richardson said...

A brilliant write up! Thank you!

At 6:45 PM, November 28, 2021, Blogger Tory Gattis said...

Agreed! Thanks Oscar!


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