Sunday, October 23, 2011

Paying for the new Tappan Zee

In an earlier post I mentioned Planet Money's story of how Governor Dewey built the Tappan Zee Bridge where it is so that he could use the toll money to pay for construction and maintenance of the Thruway all the way to Buffalo. I pointed out that the ongoing structural problems of the bridge have steadily increased the cost of maintenance, so that it eats up an ever-growing share of the revenue from the tolls, leaving less and less for the rest of the Thruway.

Given that, one weird thing about this project is that it would not only take the toll revenues away from the Thruway, but it would remove them from the funds available to maintain and administer the existing bridge. In 2008, the Preliminary Financial Studies assumed that the full $50 million annual toll revenue would be available to finance the reconstruction (page 7):

Directing additional tolls to this project will require careful legal and financial analysis of the resulting impact on the Thruway Authority, especially because current Tappan Zee tolls support the operation of the bridge and also subsidize the rest of the Thruway system.

In fact, one of the reasons that the project has been stalled for so long is that even if the tolls were doubled, they would only bring in $100 million a year, and if they were doubled and then indexed to inflation, they would still average $137 million a year over fifty years. If the State issues bonds against the tolls, because they we would have to pay interest, we could only get $1.3-2.4 billion up front to build the bridge. The Federal government was only expected to kick in a further $100 million a year, for a maximum of $2.6 billion.

So where does the rest come from? Well, we get a hint from this Journal-News article, which honestly leaves me scratching my head. Reporters Jorge Fitz-Gibbon and Ken Valenti quote several Experts, including Robert Poole of the Reason Foundation and Nancy Singer of the Federal Highway Administration. The remaining money, they say, would come from "investments from labor union pension funds and other nongovernment sources."

What's not clear to me is this: when the State borrows money by issuing bonds, they promise to pay it back with interest. They get the money up front, and the investors get the interest. In the case of the Tappan Zee, the interest is paid with toll revenues.

So why can't these pension funds and other investors just buy the toll bonds? Why do they want anything else? They're not going to give us money for nothing. What would they get out of it?

It's not spelled out in the Journal-News article, but Fitz-Gibbon and Valenti do mention the Goethals bridge replacement, where the plan is to pay the private investors extra interest. So I'm guessing the answer is that the State would promise to pay the investors back a certain amount above and beyond the toll revenues. That money, of course, would come from other revenue sources, like the sales tax or income tax we pay.

Oh, and how about the $20 million a year for the rest of the Thruway? Yeah, that'll either come from higher tolls in Woodbury or statewide, or else it'll come out of our tax dollars too. And that means one of two things. Either our taxes will go up, or in a few years some "brave" politician - maybe Cara Cuomo - will be forced to cut funding for education, Medicaid and transit, because "the state is in hard times."

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