Center for Local and State Solutions
Other Resources--Neal Peirce Column

Category: Article (Journal or Newspaper)
Jurisdiction: City/County Government, International
Management Issues: Catalytic Government, Community Based Strategies, Community/Economic Development
Policy Area: Cities/Counties

For Release Sunday, April 8, 2007


© 2007 Washington Post Writers Group

SELLING OUR TOLL ROADS:
GOOD OR RETROGRADE IDEA?

By Neal Peirce

Decaying roads.  Rising traffic congestion.  Voters distrustful of government and extraordinarily leery about increased gas taxes.  What are political leaders to do?

The “hot” new idea is “monetizing” toll roads and bridges -- leasing them to a private operator in return for a big up-front payment or guaranteed year-by-year payback.

Chicago’s Mayor Richard Daley was a pioneer with a 99-year lease of the eight-mile Chicago Skyway toll road to Spanish and Australian investors for $1.8 billion.  Next came Indiana Gov. Mitch Daniels’ 75-year lease of the 157-mile Indiana Toll Road for $3.85 billion.   There have also been smaller toll road leases, again to foreign investors, in Texas and Virginia.

Now Pennsylvania’s Gov. Ed Rendell is aggressively pushing the idea of a 30-year lease of the Pennsylvania Turnpike.  And New Jersey Gov. John Corzine is looking into possible lease of the New Jersey Turnpike and Garden State Parkway.

Big global finance firms are clearly salivating over the prospect of long-term revenue streams from toll road deals.  Forty-eight firms have submitted “expressions of interest” in the Pennsylvania Turnpike, reports transportation expert C. Kenneth Orski.  The companies range from Bear, Stearns & Co. to Lehman Brothers, JP Morgan to Credit Suisse.  Goldman Sachs has announced raising more than $6.5 billion for investment in public infrastructure in North America and Europe.

So critics are clearly right in asking: Are the leases a good deal?  The long-term proceeds of the Indiana Toll Road lease to its investors, according to one independent analysis, could run as high as $11.83 billion -- not a bad return on their up-front $3.85 billion.

One thing’s certain -- the voters are turning highly suspicious.  Take the case of Indiana’s Daniels.  He’s been obliged to abandon his high-powered campaign (time to “think big and act big”, he’d claimed) for yet another toll road -- a new privately-built, $1.5 billion, 75-mile roadway plowing through rural territory south and east of Indianapolis.

Daniels claimed the road would spur rural development but found literally thousands of people turning out at meetings to decry loss of farmlands and the idea of using state eminent domain powers to enrich a private firm.  A former long-term Indianapolis mayor, William Hudnut, warned the roadway might “suction economic development opportunities out of Indianapolis.”  Transportation expert Robert Dunphy at the Urban Land Institute predicted it would be a sprawl magnet: “Building an outer belt is so 1970s.”

A new harsh fact surrounding the issue is heightened voter suspicion about taking land; a recent statewide poll in Ohio, for example, showed 65 percent opposition to using eminent domain – even “to take private property for public use projects like roads.”

Opponents also claim it’s a bad idea to lease roads to private firms whose interest is their own profits--not serving the public interest.  Private firms, they allege, will “cherry pick” profitable routes, leaving government to support other roads.  Truly smart governments, opponents contend, could raise just as much money as private concession leases.

But go and tell that to governors like Rendell and Corzine. Their states are fiscally strapped; structuring lease deals for guaranteed annual payments (instead of big up-front payouts) will cover major parts of their statewide road maintenance costs. Agreements would be designed to keep toll increases in check.  Plus, both Pennsylvania and New Jersey are eyeing toll road leases much shorter (30-35 years) than the amazingly risky Chicago (99-year) and Indiana (75-year) terms.

The private financiers, notes Orski, can produce bank loans and major equity capital far more easily than governments can raise taxes.  And also outdo governments in introducing road-building innovations and on-time construction performance.

But can we do better in this century than a patchwork of road funding and repair fixes?  Robin Chase, the founder of Zipcar and now CEO of Massachusetts-based Meadows Networks, advocates a big leap forward.  She recommends abandoning all gas taxes and shifting to wireless technology.  A small, low-cost computer on board every vehicle would report (in real time) miles actually traveled, allowing a realistic government user charge.   Fees could be adjusted for roadway congestion pricing (premiums to travel on peak roads at peak times), by wear and tear related to vehicle weight and footprint, and by the vehicle’s emissions (a carbon tax to encourage vehicles with reduced greenhouse gas emissions).

Indeed, says Chase, there could be a local government bonus -- a percentage of road user fees returned to the county, city or neighborhood through which the vehicle traveled, compensating for the burden of emissions, noise and congestion.

Sound too rational?  It would require smart government.  We’d still have to debate the whether and where of new roads.  But the payers, at least, would be the users.  The monitoring technology is already available.  Why not a smarter leap forward than the mish-mash of taxes, grants, and mortgaging our roadway futures to Wall Street, Australia and Spain? 

Comments may be addressed to npeirce@citistates.com