Wednesday, February 17, 2010
The Upstate's Southern Connector is in default
The idea of creating a bypass under the Greenville area was a good one in theory. Anyone who has driven through the headache that is traffic around Interstates 85 and 385 will agree that area is to be avoided if practicable. Thus, it was proposed a little over a decade ago to extend the short Interstate 185 under the Greenville metro area and connect it with Interstate 385 in the Mauldin area. The Southern Connector was born.
The Southern Connector was to be funded privately, through a nonprofit cooperation, dubbed Connector Association 2000. The nonprofit sold bonds to finance the road. The road was licensed by the South Carolina Department of Transportation. Tolls from the road were to be collected to pay back the bondholders for their investment.
The problem with the Southern Connector is that the traffic and tolls expected never materialized. For whatever reason, the income just did not come in.
That lack of tolls resulted in Event Notice 2010-1 from Connector Association, Inc, issued on January 11th, 2010. In that Event Notice, it was made clear to the public that $200,177,680 in bonds issued by Connector 2000 Associates, Inc, and underwritten by Lehman Brothers, Inc and Mesirow Financial, Inc. were in default. Indeed, the debt service payment due on January 1st, 2010 was not paid.
Thus, Standard and Poor’s downgraded the Southern Connecter bonds to a grade of “D.” That rating is so low, it is not even described in detail on the Standard and Poor’s website. In sum, the investment in the Southern Connector was a failure by those who chose to do so.
What happens next? Who knows? There appear to be efforts in the South Carolina House and in the SC DOT to refinance the bonds that the Southern Connector has defaulted on. That will probably take some sort of payment from the taxpayers of South Carolina to make happen. Others contend that the state could just take over the road. No matter what course is taken, it is going to cost money and it is going to be tricky to get over the failure of the Southern Connector.
Such opens the question about how wise any other “public-prvate” ventures might be for South Carolina. Some in the General Assembly are contending that a new Interstate 73 in the Pee Dee be funded similar to the Southern Connector. They argue tolls from people outside South Carolina will fund the road as those outsides travel to the Grand Strand. Fair enough.
But, the Southern Connector should give the taxpayer pause. For, if such a project encourages private risk takers to invest in it, and if it fails, efforts are made to use public money to try to make those private investors whole, what are the savings to the taxpayer? Further, how many of us, as individuals, who made a bad investment in a company will have the government make us whole? Why should those who invest in a “private-public” road be guaranteed a profit for their risks with taxpayer money?