Usually snow is not something toll road operators welcome — it keeps people off the roads. But in Colorado, the rules about snow and roads are a little different. The state is one of a handful in the United States that is increasingly turning to private investment to help deliver and maintain infrastructure, including toll roads and lanes. It also happens to be the state I call home.
Since our family moved here in 2012, Denver has used a public-private partnership to revamp its downtown Union Station train station, and toll lanes have been added to Highway 36 between Denver and Boulder and, just a few weeks ago, opened along Interstate 70, which runs from Denver to many of the major Rocky Mountain ski resorts.
It has been interesting speaking with friends and family about these particular toll lanes to the slopes. A ski trip already costs a small fortune for a lot of families. Tacking on another $3 to up to $30 depending on the hour and type of pass a person has — to travel to what most Coloradans feel is a birthright — might be a bridge too far. But then again, the traffic on ski weekends is atrocious, so maybe people will get used to the added cost over time.
The backers of the toll lanes are opening the lanes in an encouraging environment for driving, with the cost of gasoline at its lowest in decades. They also got an assist from Mother Nature — Colorado was blanketed with 12 to 20 inches of fresh snow just a few days before the lanes were set to open.
Outside of Colorado, in the rest of the United States, toll roads and lanes also are experiencing something of a renaissance. Moody’s Investors Service expects a 3 percent increase in traffic and a 5 percent jump in revenue in 2016 for the 45 toll road operators the ratings agency tracks; it has changed its outlook for the sector from stable to positive.
Why the rosy outlook? Lower gas prices, an improving economy and room for toll increases are the drivers for Moody’s positive outlook:
“Low gasoline prices and continued improvement in the U.S. economy, which Moody’s Macroeconomic Board expects will expand 2 percent to 3 percent in 2015 and 2016, are supporting the gains. This year through June, traffic grew 5.7 percent, on a median basis, compared with the same six months last year, based on information from 13 toll roads, including data posted to issuer websites. This rate of growth significantly exceeds our previous forecast of 1 percent to 2 percent for 2015, though it is based on data from 30 percent of the operational toll roads we rate. It is our expectation that this growth will continue and is the main reason we are changing our outlook to positive from stable.
We also expect that median toll revenue will rise 5 percent to 6 percent in both 2015 and 2016, compared with our forecast of 3 percent to 5 percent growth for 2015. Increased traffic volume should support financial metrics, provided that operating expenses remain stable and debt leverage remains moderate and manageable.”
Moody’s outlook for 2016 comes after a year that saw toll roads experience healthy revenue growth and sustained strength after bottoming out in the years after the global financial crisis.
If Moody’s analysts turn out to be correct, then toll lanes and roads across the United States are poised to earn strong returns for investors, and the new lanes to Colorado’s ski resorts could not have been opened at a better time. That’s not just good news for investors in toll roads, but also great timing for my two young kids — Henry and Emily — who are going to have their first year of skiing this year — and my wife, Jenn, and me — who have the option to pay a toll to beat the traffic getting to the slopes and back.
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Drew Campbell is senior editor of Institutional Investing in Infrastructure.
