Conflict has surrounded the South Bay Expressway, the southern extension of State Route 125, since its inception. Prior to groundbreaking in 2003, the privately held four-lane toll road was opposed by community and environmental groups. Since opening, riders have complained about toll hikes, unwarranted notices of toll evasion, and problems with automated toll-collection machines. Caltrans had predicted that 162,000 vehicles a day would travel this road by 2010. But the South Bay Expressway looks like a ghost road. Where are the shoppers, commuters, and truck drivers that so desperately needed this road?

The South Bay Expressway traverses nine and a half miles of eastern Chula Vista, linking SR 125, northwest of the Sweetwater Reservoir, to State Route 905, which runs south to the Otay Mesa border crossing. The ten-minute trip costs a car, light truck, or motorcycle $4.50. A three- or four-axle vehicle pays double that, and a five-axle vehicle pays triple.

The expressway’s route and toll rates were common threads among comments I heard when I recently spoke with 12 people in an EastLake shopping center. Some called it the road to nowhere. “It doesn’t go anywhere I need to go,” said John Markham. “I’d have to travel out of my way to get to it.” Others said the cost was too much when you could get to the same place on surface streets. Alex Lloyd said simply, “It should be free.” One woman, who declined to give her name, said she was canceling her prepaid FasTrak account on principle. She said that when she signed up, South Bay Expressway told her there would be no minimum-use charge, and now there is one.

Truck traffic is often the financial backbone of a toll road, but on the South Bay Expressway freight trucks are a rare sight. Jaime Vasquez, secretary-treasurer of Teamsters Local 542 and a Chula Vista resident, says, “The cost of fuel impacted freight cost tremendously.” Instead of adding to expenses by paying a toll, “Companies are going to choose the regular highway to send their merchandise.” Besides, says Vasquez, SR 125, to which the expressway connects, “gets you over to El Cajon, basically, but most of the shipping heads over to L.A. Those trucks headed for L.A. are going to use the 5 and the 805.”

Easing truck traffic on I-805 was one of the biggest promises made, says Harriet Taylor, a founding member of Preserve South Bay, a group that fought the toll road. “But that has just not happened.” Taylor notes that the expressway “doesn’t really take people who live in Chula Vista’s bedroom communities to Sorrento Valley, Del Mar, Mission Valley — it just doesn’t take them where the major businesses are.” Another promise was that the toll road would relieve surface street congestion, and Taylor says initially it did in Bonita, but since the economic downturn, surface traffic has increased again.

The toll road is operated by an Australian outfit, Macquarie Infrastructure Group. Macquarie Infrastructure, which is managed by Macquarie Bank, bought the 35-year toll franchise in 2003. In 2006, a New York Times article, titled “Turning Asphalt to Gold,” called Macquarie Bank “the envy of Wall Street.” According to the story, Macquarie acquires “giant assets by borrowing other people’s money, then packages the assets into funds, which are sold to investors through public offerings.… Along the way, it makes a killing on fees.”

But the “Macquarie model” came under scrutiny in 2007, when Fortune magazine published an article titled “Would You Buy a Bridge From This Man?” In the story, James Chanos, president of Kynikos Association and famous as an early critic of Enron, called the Macquarie model a Ponzi scheme. Matthew Davison, a Morgan Stanley analyst, pointed out that Macquarie has an “ ‘aggressive structuring’ of the debt at the asset level,” which the article said was “akin to a mortgage with a low teaser rate.” Last year, a Time magazine story, “End of the Toll Road?”, predicted the future for Macquarie Infrastructure Group: “But with asset prices falling and easy debt a thing of the past, some believe the Macquarie model is in for a shakeup.”

And Macquarie Infrastructure has been shaken up. The company’s end-of-the-year report, given in June 2009, stated that toll-road revenue and traffic have been down across Macquarie’s portfolio. (On the South Bay Expressway, between July and September, traffic was down 13.6 percent.) Macquarie’s year-end report acknowledged that the company has a $30 billion asset debt. On October 30, Macquarie’s chief executive announced that in order to “create value for security holders,” the company was proposing to stockholders a split in the toll-road portfolio, calling one group of toll roads “mature” and the other group “active.” The “active,” or poorly performing, portfolio includes the South Bay Expressway. Online publication Tollroadnews on August 19 said that the South Bay Expressway “is totally written off now — A$0.00 [Australian dollars].” But even back on April 18, an Australian stock analyst told the Sydney Morning Herald, “We basically view [the South Bay Expressway] as worthless.”

When asked by email in mid-October if Macquarie was considering unloading any of its U.S. toll roads, Jane Rotsey, media manager for Macquarie Infrastructure Group, replied: “MIG continually looks to create value for security holders through a number of different mechanisms, which in the past has included asset sales. Should an offer be made for a MIG asset it is incumbent on the directors to consider whether it is in the best interests of security holders.”

Greg Hulsizer, chief executive of South Bay Expressway, said in an interview in early October that the expressway has a 35-year franchise and that his company is not going anywhere. Hulsizer said that, like every business, the expressway has been affected by the recession. Although traffic is down from 30,000 cars per day last year to 25,000 to 28,000 this year (22,500 in July–September), Hulsizer is confident that when the economy turns around, the expressway will turn around as well. He was enthusiastic about a new 80-block development in Chula Vista, the Eastern Urban Center, which he expects to contribute to toll-road business. When asked about Macquarie Infrastructure’s financial situation, Hulsizer said he couldn’t comment on that.

Some people say that the South Bay Expressway costs only the person who chooses to ride on it, but people pay for it whether they ride it or not. Public funds are an integral part of this barely traveled road. The cost of the road, $635 million, was paid partly with private funds, but $140 million came from a low-interest federal loan. Additionally, in order for the toll road to be viable, two “gap connectors” had to be built at the northern end. The San Diego Association of Government’s website states that the gap connectors cost $160 million. This money came from a combination of public funds, including sales tax (TransNet, the half-cent local transportation tax) and federal highway funds. Recently, the City of Chula Vista asked for $27 million in stimulus funds to build an interchange at Rock Mountain Road.

The City of Chula Vista also subsidized South Bay Expressway. According to a 2007 Union-Tribune article, the City spent $19.5 million on tollway-related projects, including direct payment of toll costs. (Chula Vista city manager Jim Sandoval was contacted twice but did not respond to questions.)

Chula Vistans may be supporting the South Bay Expressway through local taxes in the future. In December 2008, South Bay Expressway sued Chula Vista for $10 million, alleging breach of contract. When asked if the suit was resolved, Hulsizer said that South Bay Expressway and Chula Vista were reaching an “amicable” agreement.

Ironically, while the City was being sued, Chula Vista’s Mayor Cheryl Cox nominated the South Bay Expressway for a Transportation Innovation Award, and when Forbes magazine called Chula Vista one of the ten most boring cities in the USA, Mayor Cox countered that the South Bay Expressway is the city’s third-best attraction.

Traffic density is another way people pay for the toll road. South Bay Expressway enjoys a noncompete clause with the San Diego Association of Governments, the City of San Diego, the City of Chula Vista, and other agencies. Noncompete clauses protect toll-road revenues by prohibiting enhancements on surrounding freeways that might divert toll-road traffic. According to Hulsizer, the noncompete clause allows safety-related improvements on the I-805 and anything that’s in the 2020 Regional Transportation Plan. But, Hulsizer said, “If there were to be a plan to add six lanes on I-805, and there was a negative impact on our revenue, then we would be due compensation.”

There is no doubt that the South Bay Expressway has been affected by the economic downturn, in particular foreclosures in Chula Vista. However, between 1995 and 2003, Hulsizer was the general manager of another toll road, the 91 Express Lanes in Orange County, that performed poorly even though the economy was strong. Owned by the California Private Transportation Company (CPTC), the 91 Express Lanes ran in the median of State Route 91, the Riverside Freeway.

According to a 2006 background paper prepared for California senator Alan Lowenthal, chairman of the California Senate Transportation and Housing Committee: “Although usage of the [Orange County] toll road increased from 1995 to 1998, the toll road experienced only one profitable year (1998). The CEO of CPTC suggested in a newspaper article that the company would not turn a profit until 2004 unless the company could refinance its debt or find a buyer.”

The contract between California Private Transportation Company and Caltrans included a noncompete clause. When Caltrans proposed to make safety improvements on the Riverside Freeway because of an increase in congestion-related accidents, the toll-road operator sued for violation of the noncompete clause. The issues surrounding the noncompete clause were resolved when the Orange County Transportation Authority, a public agency, bought the toll road in January 2003, paying $207.5 million for a road that had cost the operator $135 million to build only eight years earlier.

Senator Lowenthal’s report concludes, “The long-term implications for the state, for local communities, and for individual users relying on privately-operated transportation facilities as California continues to grow are murky at best.”