Thanks to Rob Dougherty of Stupidslab for sending out a news story in the Denver Post that has explosive implications for toll roads across the country.
In the story, highly placed toll road officials admit to what sounds like fraud on the bond market.
The Denver Post story is about more than tollroads that fail to meet their financial projections. That's no secret and is a story we have posted about many times here and here and here.
No, in this story, people like Steve Hogan admit to having inflated financial projections by as much as 25%:
Its director, Aurora City Councilman Steve Hogan, said that before seeking outside investors in the road, he didn't believe the optimistic forecasts for its profit potential. But, he said, he treated those estimates as a tool to persuade bond experts to give the debt a favorable rating, not as a solid predictor.
"My personal opinion was that the numbers were probably a little high," said Hogan, who thought the projections for the critical, early years could be as much as 25 percent above the mark. He expected bond raters to trim the revenue estimates and base their ratings for investors on more realistic projections, but they did not.
While Hogan apparently sees this as a game, the SEC would call it something else.
In 1994, the SEC first warned that anyone selling municipal bonds should make sure they were giving potential investors the full picture.
"Municipal dealers must have a reasonable basis for recommending the purchase of securities," the SEC said.
Former SEC enforcement attorney David Zisser said the federal agency could easily become concerned about the failure of a tolling authority to disclose doubts about their revenue forecasts.
Hogan's admission that he doubted the numbers struck rating-agencies analysts as surprising. Analysts said they expected good-faith, rigorous estimates.
"It's interesting to actually hear an open acknowledgment of it, because when we sit here, we wonder if that's going on," said Tom Paolicelli, a senior analyst at Moody's, one of three agencies that gave the parkway strong initial ratings. "We wonder if there is an inflation because they expect us to cut (the revenue estimate) down."
Hogan excuses the overstatements by saying that they saved taxpayers money.
Hogan says he's thankful the toll road managed to save $20 million in construction costs it set aside as a rainy-day fund.
"If we hadn't done that, we would have been in trouble," he said. "Big, big trouble. There's no two ways around that."
Hogan is saying that had they not grossly inflated the figures the citizens might have been in big, big trouble, meaning the toll roads would never have been built. But with admissions like this Hogan might find that "we" who is in trouble is far more personal.
The Denver Post story today is the first in a three-part series.
Update by em: Front page image of the May 28, 2006 edition of The Sunday Denver Post
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