You are here

Tolling Points

Pandemic Economy Brings Unique Challenges to U.S. Toll Operators

By: 
Neil Gray, Government Affairs Director, IBTTA

While the coronavirus pandemic is first and foremost a global health crisis, its economic impacts have quickly devastated many industries, particularly the transportation industry, that depends on employees and customers showing up as expected.

In the transportation sector, much of the initial analysis and news coverage is pointing to aviation as the mode that faces the most immediate, severe challenge. But across all forms of transportation and industries, it’s become clear that this pervasive, life-altering crisis is too big to solve through conventional market responses alone. The question is not whether government assistance will be needed to keep essential infrastructure and services afloat, but rather how much it will take, and how quickly those funds can begin to flow.

IBTTA member Fitch Ratings issued one of the earliest reviews of the scope and implications of the financial crisis COVID-19 has triggered. As one measure of the seriousness of the situation, and to its credit, Fitch forthrightly explained that its team would need seven to 10 days to get a complete picture of what’s ahead.

An Early Status Report

But the rating agency’s initial release pointed to the depth of the dislocations ahead for tolling agencies in the United States, as well as the strengths and assets the industry can depend on to weather the storm.

• Traffic and revenue will take a hit because of “unprecedented public health responses” like work-from-home notices, school closures, and necessarily dramatic limits on public gatherings.

• While priced managed lanes will see less volume with congestion so severely reduced, all-electronic tolling is taking its place as “an essential tool to ensure revenues continue to flow without person-to-person contact.”

• Publicly-managed toll roads have strong balance sheets and overall financial resilience after years of traffic and revenue growth, and are usually required to maintain healthy financial reserves. They can also defer capital projects if they have to.

• Privately-managed toll roads have less scope under their concession agreements to offset lost revenue, but can still fall back on strong financial reserves and potential equity support.

• In general, public-private partnerships (P3s) will be in a strong position to bounce back quickly once the pandemic is behind us.

Weathering the COVID Crisis

But getting from here to there will inevitably demand financial relief as part of the efforts governments are already announcing to try to keep essential goods and services moving and preserve jobs through the immediate crisis. That’s partly because the speed and scope of the pandemic has been so far beyond anything that governments or tolling agencies anticipated in their contingency planning. But the fiscal challenge is also more acute in the U.S. than in Europe, due to a difference in the way the jurisdictions structure their P3 agreements.

In Europe, toll concession agreements tend to be shorter-term operating contracts for existing facilities with limited capital demands. In the wake of national shutdowns, they hope to be held harmless in the (until now unimaginable) scenario in which customer volume suddenly evaporates.

In the U.S., the majority of toll operators are public entities with a baked-in mandate to maintain their facilities for the greater social good, a public duty to carry on with at least minimum operations no matter what. Operationally, that means contingency plans to keep essential personnel on the job, even if maintenance and operations teams have to be reorganized to ensure available backups if some specialized staff fall ill.

But unlike their European counterparts, many of which operate but do not build their roads, a crisis as big and all-encompassing as the pandemic requires U.S. agencies to keep operating and uphold significant capital debt obligations. Each system has its pluses and minuses, but in today’s reality, U.S. agencies are responsible for managing a profound risk that no one foresaw when their bond covenants were negotiated.

Points of Light

As alarming and uncertain as these times are to everyone in our industry, there are several points of light.

That tolling agencies do provide an essential public service.

That they are all-in (as always) to be a part of the solution in a moment of dire need.

That they will realistically need to be a part of any government stimulus packages to cope with the financial challenges ahead.

And, of course, that IBTTA will be front and center as a source of support, data and insight to its members, its customers and the government agencies and decision-makers that are shaping the response to the pandemic.

Bookmark IBTTA’s coronavirus page and make it one of your go-to resources for updates on the pandemic.

Newsletter publish date: 
Tuesday, March 31, 2020 - 11:00

0 Comments

Be the first person to leave a comment!