S&P - Public Finance Criteria (2007). - The Global Clearinghouse

Transportationan inflation-adjusted basis, remained very low and,historically, price increases have not had a dramaticeffect on travel or gasoline consumption trends.However, the long-term effects of significantly higheroil prices, on a real basis, on traffic and demandlevels are unknown.Within the private travel sector, a breakdown ofnondiscretionary (business) and discretionary(recreational) trips is useful. Business-related trips,while obviously sensitive to levels of economicactivity, tend to be less so than recreational travel.As a general rule, a diverse traffic mix cushions theimpact of a decline in any one segment.Demand is affected by demographic characteristicsand local economic performance. However, for startuptoll roads, Standard & Poor’s also assesses theoverall acceptance of tolls in the region as the economyin the area may be vibrant but the road usersmust also demonstrate a willingness to pay tolls.CompetitionSince most toll roads and bridges are designed torelieve existing traffic congestion or reduce commutingtime in a heavily traveled corridor, well-plannedprojects generally encounter little competition in theimmediate years following an opening. Nonetheless,subsequent development of toll-free thoroughfarescan attract traffic away from a toll facility.In assessing the potential for such competition,Standard & Poor’s examines the capital improvementprogram of the appropriate state or federaldepartment of transportation, as well as the plansof regional and local transportation commissionsand the private sector. Where a high degree ofcooperation exists among various levels of governmentaltransportation departments and private tolloperators and authorities, the likelihood that competingroadways will be developed is lessened. Alack of coordinated planning is behind almost allcases where toll-free roadways were constructed tothe detriment of a toll facility. In addition to standardissuer meetings, discussions or meetings withthe appropriate national, state and local transportationplanning boards are helpful.Where competitor facilities exist, especially freecompetitors, as is often the case with congestionrelief projects, the level of traffic diversion projectedfrom the existing roadways to the new road isan important indicator of project success. Projectswith conservative diversion factors tend to beviewed more favorably. If start-up traffic historyand diversion levels exist for other local facilities,whether free or tolled, it can further help to analyzethe forecast traffic.The key to a facility’s competitive analysis is thecost-benefit analysis that drivers make in the formof timesavings or increased access versus cost. If, inthe mind of the decision maker, the new road doesnot get one to work faster or allow deliveries fastenough to recover the cost of the toll, the project isnot likely to succeed. The use of electronic toll collection(ETC) systems has improved traffic flows,though it is not clear that such systems produceoverall annual savings relative to manual toll collectionsystems given the pace and scale of technologicalreinvestment of second, third and fourthgeneration systems. It is also uncertain what theimpact of such ETC systems on the overall elasticityof demand if users of the system do not easilynotice toll increases. Clearly, the introduction ofelectronic toll collection will allow for more efficientand potentially variable toll changes, ultimatelygiving operators more revenue-maximizingoptions. With the increased use of ETC systemsalso comes a thorough analysis of the toll roadoperator’s violation rates and its violation enforcementsystem process.ManagementIn addition to assessing management’s overall abilityto coordinate its activities with planning boardsand governmental bodies, Standard & Poor’s evaluatesmanagement in the context of quality of planninginvolved in the budget-making process foroperations, maintenance, and capital improvements.For existing systems with an operating history, successfulfinancial performance serves as a broadmeasure of management capabilities. The degree ofautonomy enjoyed by the directors of a toll facilityhas an important bearing on its capacity to manage.Of particular importance is the ability and willingnessof management to increase tolls as needed.When the level of a rate increase is limited byconcession agreement terms or governmentalapproval, a history of being able to increase tollrates when needed to the maximum level allowedis considered a positive. It is also considered astrength if ratemaking decisions are shieldedfrom normal political processes or influence.Failure to increase toll rates when neededbecause of intervening political influence is a frequentsituation with existing facilities thatStandard & Poor’s has evaluated.OperationsEvaluation of maintenance procedures is also somewhatdifficult. While it is fairly common practice fortoll road entities to hire independent engineeringfirms for periodic facility inspections and to determinethe need for repairs, the reports derived fromthese surveys often are general in nature and offerlimited insight to third parties. Moreover, membersof the engineering profession often have differingviews on what constitutes adequate maintenance.146 Standard & Poor’s Public Finance Criteria 2007