Potholes found in the privatization of roads
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The toll for years of neglect of the nation's road system might be more tolls -- levied not just by governments but by private businesses that build or buy highways.
With a huge and growing backlog of needed road and bridge projects, and with revenue sources drying up, governments increasingly are looking to private investment to fill the gap.
But two new reports from public interest groups have raised warnings about the movement toward private financing.
"Road privatization offers a hard-to-resist 'quick fix' for state budget and transportation challenges. But there are hidden costs to privatization ... and big potential downsides for the public," said a report released by the U.S. Public Interest Research Group, titled "Private Roads, Public Costs."
"The deals are complex, typically stretching for decades and involving billions of dollars," said the Pew Center on the States, in its report "Driven by Dollars."
"If Pennsylvania and other states want to pursue successful public-private partnerships, more questions need to be asked -- and answered."
Dozens of road-privatization projects are under way or being considered across the United States, most of them involving private investors who finance construction or pay upfront cash in exchange for long-term rights to impose and collect tolls.
A plan to lease the Pennsylvania Turnpike to private interests who would pay the state $12.8 billion in exchange for the rights to collect tolls for 75 years has been sidetracked. But the turnpike commission is considering private investment as a way to pay for two projects that lack sufficient public funding -- the northern leg of the Mon-Fayette Expressway and the remainder of the Southern Beltway linking Jefferson Hills and Pittsburgh International Airport.
Support for such partnerships is growing, with U.S. Transportation Secretary Ray LaHood and several congressional leaders having expressed interest in or support for the idea.
Two commissions created by Congress to study transportation-funding issues also have encouraged development of public-private partnerships with appropriate safeguards.
A group of investment banking and law firms reported in January that $180 billion in private capital was available to be channeled into highway and bridge construction projects, a number that has grown to more than $200 billion, according to Frank M. Rapoport, chair of the global infrastructure and public-private partnership team at McKenna, Long & Aldridge, an international law firm.
Mr. Rapoport said 24 states have enacted laws authorizing public-private partnerships for various infrastructure projects, but not Pennsylvania.
He said public-private partnerships will play an increasing role because states lack other funding to pay for needed projects.
There is little disagreement that America is spending only a fraction of what is required to maintain its highway and bridge system.
According to a recent American Society of Civil Engineers report, current spending is only 40 percent of what is needed to upgrade the transportation network, and it gave a D-minus grade to the nation's roads.
Because state and federal gasoline taxes --the principal source of road construction funding -- haven't kept pace with inflation, state gas taxes have lost 43 percent of their buying power and the federal tax nearly a third, various reports have said. A decline in driving and motorists' use of more fuel-efficient cars has exacerbated the problem, as has skyrocketing inflation in the construction industry.
Meanwhile, state budgets face billions in projected shortfalls in the coming year, and the federal Highway Trust Fund is essentially depleted.
According to PIRG, 15 U.S. highways had been privatized as of the end of last year. Another 79 road-privatization projects are under way or being considered, the group reported.
"Though privatization may offer short-term relief to transportation budget woes, it often has grave implications for the public," PIRG indicated.
Among them is the threat that states will get insufficient upfront value for the tolling rights they give away.
In 2006, the Indiana Toll Road was leased for 75 years for $3.8 billion, which was to be used in part to finance a 10-year transportation-improvement program.
"Whatever structural budget shortfalls Indiana faced before the deal will return in the 11th year, but the state will need to face these shortfalls without revenue from its toll road," PIRG reported. It quoted a University of Notre Dame economist who concluded the lease should have been valued at nearly $11.4 billion.
Phineas Baxandall, author of the report, said such deals are appealing because they produce immediate cash and avoid the need for public officials to raise taxes or fees.
PIRG cited other problems with highway-privatization deals.
Some have clauses barring states from making other transportation improvements that would reduce traffic on the toll road.
"In Colorado, one deal went so far as to require adjacent municipalities to add stop lights and reduce speed limits on local roads as a way to reduce potential competition," it reported.
Indiana is restricted from building or expanding highways within 10 miles of the toll road for 55 years without compensating the road's private operator for lost toll revenue.
And there is the uncertainty attached to any deal that stretches for 75 or 99 years, according to PIRG, which recommended that no agreement exceed 30 years.
Mr. Rapoport agreed that taxpayers "were not well-served" by the Indiana deal and another early privatization, of the Chicago Skyway toll bridge. He said his group wants Congress to establish a "Partnerships U.S." agency to provide independent, impartial expertise to states that want to pursue private-sector investment.
Robert L. Darbelnet, president and CEO of AAA, said in a recent National Journal blog posting that public-private projects that add new capacity to the highway system "are likely to provide greater value to the public than 'brownfield' projects that lease or sell existing capacity to the private sector."
Concurrent with the movement toward private investment is a growing likelihood of new and higher tolls on the highways that remain in government hands.
The Pennsylvania Turnpike raised tolls 25 percent on Jan. 4 to fund Act 44, the state legislation passed in 2007 to fund highways, bridges and public transit systems.
After just six increases in 68 years, turnpike tolls are projected to rise about 3 percent each year going forward.
Also, the turnpike commission is likely this year to revive a request to impose tolls on Interstate 80. The Federal Highway Administration blocked the proposal in September.
The National Governors Association has urged the federal government to lift all restrictions on states' authority to toll federally funded highways.
That push might intensify as Congress gropes for ways to finance a new multiyear transportation-funding-authorization bill this year.
Pennsylvania Turnpike CEO Joe Brimmeier predicted recently that every interstate highway in Pennsylvania would be tolled within the next 10 years.
"Tolling is the wave of the future. There's never going to be enough fuel taxes or registration taxes to meet the needs for transportation infrastructure in this state and this country," he said.
First Published April 12, 2009 12:00 am
