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Tolling Points

Tolling: A Highway Funding Tool for All Seasons

Bill Cramer

There are two sides to the coin in a recent piece of investment advice in Fortune magazine, pointing to low oil prices as a good reason to buy into toll-backed municipal bonds.

With West Texas Intermediate and Brent Crude oil both trading below $50 per barrel, personal finance advisor Janice Revell had good things to say about tolling, particularly for bondholders whose investments have been “whacked by plunging oil prices.”

“Drivers are getting a big break at the pump,” she wrote. “As a result, Moody’s Investors Service estimates that toll-road traffic will grow by about 1.5% in 2015 and average toll revenues will rise by 5%, as operators hike rates.”

The analysis is straightforward enough, as long as pump prices stay low and traffic volumes increase. But what goes up must come down (and vice versa). And sure enough, behind a link accompanying Revell’s article, Fortune carried economist Nouriel Roubini’s warning that the era of cheap oil won’t last.

“In the short term, you have lower oil prices, but in the medium term you’ve flushed out your competition,” he said, referring to Saudi Arabia’s plan to keep production high and wait out high-priced shale producers in the U.S., Russia, and Venezuela. “You take the pain for the next 12 to 18 months, but the result is higher prices and market share down the road.”

Roubini’s time horizon matters, because a stretch of 12, 18, or even 24 months of low prices is just a blip in the life of a 20- or 30-year repayment plan. It doesn’t make toll-backed municipal bonds any less attractive while oil is low. But it means toll agencies and their investors mustn’t lose focus on the enduring market advantages of tolling:

  • Whatever drivers pay for gas, they still need reliable roads to get them to work, or to their children’s day care or little league game, safely and on time.
  • Congestion is just as annoying, and tailpipe emissions are just as damaging to human health, when oil prices are low.
  • When prices are higher, the cost of the fuel that motorists waste in snarled traffic cuts more deeply into household budgets.
  • Whether oil prices are high or low, the nation as a whole incurs the same “fully burdened cost of transportation” that RideScoutTM CEO and Iraq war veteran Joseph Kopser referred to in a Huffington Post blog last fall.

It’s rarely a wrong answer to make hay while the sun shines, and cheaper fuel may well translate into a friendlier investment climate for toll roads. But we should never pass up an opportunity to remind investors that tolling is a highway funding tool for all seasons, whether oil prices are high or low.


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