Taking a Toll: The Privatization of  Our Nation's Highways

Maintaining and building highways is an expensive business. Fuel tax revenues are often not enough to cover the costs. Some budget-strapped states have turned to alternative funding. Rather than pay for road maintenance and construction themselves, they've entered into long-term lease agreements with private companies. These investors take over an agreed upon road or section of road, bridge or tunnel and charge users a toll. That's how they make their money. And none of the profits are shared with taxpayers.

In 2006, Indiana's Gov. Mitch Daniels accepted $3.8 billion from Cintra-Macquarie, a consortium of Spanish and Australian investors to lease the Indiana Toll Road for 75 years. Before the lease is up, Cintra-Macquarie stands to profit by many more billions than their original investment. In part, this is because of steady toll increases. Even before the lease went into effect, five-axle truck tolls increased from $18 to $22.50 for those that travel the road's entire 156.9 miles. That's a 25 percent increase over the previous fare. Daniels proposed two additional toll roads, but they were scrapped because of public outcry.

In addition to the Indiana Toll Road, Macquarie Infrastructure Group of Sydney, Australia, also leases the Detroit-Windsor Tunnel. As with the highways, passage through the tunnel requires paying a toll. The Detroit-Windsor Tunnel is the second busiest border crossing between the United States and Canada.

Privatized transportation systems are profitable business. Some of the players have amassed quite a real estate portfolio. In 2005, Cintra-Macquarie paid $1.83 billion for a 99-year lease for the Chicago Skyway. Not coincidentally, tolls on the Skyway increased to $2.50. In another decade, they're expected to be double that amount.

The Cost of Doing Business?

Non-compete clauses are standard in these Public-Private Partnerships, which are often called P3s. Non-compete clauses are a problem when a state outgrows its transportation system before the lease expires. It means they can't build new roads or expand existing ones because of the monopolies created by these private investors. That's exactly what happened in Orange County, Calif.

In 1995, a company owned in part by Compagnie Financiere et Industrielle des Autoroutes of France leased a section of Route 91 in Orange County for $130 million. When the county outgrew that road seven years later, the non-compete clause prevented them from doing anything about it. In the end, the county had to buy back the lease for $207.5 million.

Other states that have entered into P3s are Indiana and Illinois. Pennsylvania, New Jersey and Texas have proposals on the table.

An estimated $50 billion to $60 billion worth of privatized road construction is in the process of being proposed in the United States. This is according to Richard Norment, Executive Director of the National Council for Public-Private Partnerships (NCPPP), a group that advocates privatizing road systems. They're longtime friends of U.S. Secretary of Transportation Mary Peters, who also believes that P3s are a good thing.  

In her opening remarks to a real estate and transportation workshop sponsored by the NCPPP, Peters said, "I want to be clear about where the Bush Administration stands, where U.S DOT and Secretary Mineta stand, and where FHWA stands. We are for public-private partnerships. We support them. We want to make them easier, much easier, to do."

Not a New Idea

The privatization of highways isn't a new idea. It's been happening for years in Canada, Europe, Asia and South America. Supporters claim that drivers who don't want to pay the tolls can simply choose another route. Alternatively, those who enjoy the privilege of using the toll roads will pay as they go, saving Americans additional tax increases for highway funding.

This is how private companies gain control over our nation's public roads, tunnels and bridges. These are long-term leases, sometimes as long as 99 years. Not everyone wants to make that kind of a relationship commitment.

Critics complain that this privatization of our road system costs citizens more than if the government were to simply raise taxes. They also point out that our tax dollars should already be paying for highway repairs and construction. Caps in toll rates are not enough to keep costs reasonable for taxpayers.

The Trans-Texas Corridor (TTC) is another proposed toll road. It's intended to connect Texas to other states and Mexico. The project is currently under development by Cintra-Zachry. Does the name sound familiar? Cintra is the same company that controls the Chicago Skyway and the Indiana Toll Road. The most adamant supporter of the TTC is Texas Governor Rick Perry. Opposition to the project is widespread. Politicians on both sides of the fence are against it.

Evidence has surfaced that there is often a conflict of interest with those hired to conduct road construction feasibility studies. Roads that should never have been built were given the green light.

Typically, before a road is constructed, its potential revenue and traffic volume are determined. Naturally, these studies should be performed by a neutral, third-party. Last year, the Denver Post determined that since 1985, five of 23 toll roads had sold bonds based on projections made by companies that stood to gain financially if the roads were built.

In 1998, Wilbur Smith Associates, an independent transportation and infrastructure consulting firm, convinced investors to build the Southern Connector in Greenville, S.C., for $200 million. Since that time, according to the Denver Post, Wilbur Smith has pocketed more than $12 million from the construction of that road.

Five of Wilbur Smith's forecast projections have met or exceeded actual revenues. By comparison, 15 of their projections were off. In some cases, way off. And who has to pay for the shortfall? Taxpayers, of course.

Truck-Only Tolls

Truck-only tolls (TOTs) may be the next big thing on the horizon. The idea is that commercial vehicles will pay a toll to use truck-only lanes, or they can opt to skip the fee by using the regular lanes. Engineers can create TOT lanes for existing roads or else incorporate them into new road designs.

To date, no truck-only tolls exist but both Georgia and Texas are considering them. The federal government awarded the Georgia State Road and Tollway Authority (SRTA) $400,000 in 2004 for a feasibility study on TOTs. They're now looking at ways to make a TOT enticing to the commercial trucking industry. Ideas include  reducing transportation time, easing size and weight restrictions, and including perks like rest areas with showers and parking.

It's unclear how popular the TOT lanes will be, but toll costs will be in addition to what trucking companies are already paying for excises taxes, federal diesel fuel taxes, annual vehicle use taxes and other costs.

No More Tolls

Bill Graves, President and CEO of the American Trucking Associations, had something to say about how toll road privatization can impact toll rates. In a statement he made earlier this year to the National Surface Transportation Policy and Revenue Study Commission, Graves made it clear that private operators have too much power over taxpayers.

According to Graves, it's the old supply and demand issue. When drivers are limited in their road choices, operators can get away with charging higher tolls. They don't care who can't afford those tolls, as long as their profits stay healthy. They also don't care how much traffic is diverted to more dangerous roads in an effort to avoid the tolls.

Graves is also concerned about the rising costs of tolls. "Toll rates will increase by 150 percent over the first 12 years of the lease and then are capped at about six percent (based on historical GDP/capita). Most Skyway users are Indiana residents, so there is little political impact from these increases and little recourse for users of the toll road other than to vote with their wallets and use an alternative route if possible. The toll increases are essentially a commuter tax, with the lessees and the city, not the payers of the tax, enjoying the benefits of the revenue."

A Solution to the Problem?

So what's the alternative to privatized toll roads? No new or improved road systems? Raising taxes even higher? Actually, no. There may be a solution, but probably not one the Federal government wants you to know about.

A report released this year from the American Transportation Research Institute (ATRI) may offer the solution. In the report, "Highway Funding Analysis: Defining the Legacy for Users," they identify a little known source of potential highway revenue. Government fleet vehicles. Why? Because they're exempted from paying fuel taxes. ATRI estimates that this includes more than five million federal vehicles in addition to an unknown number of local government vehicles. The majority of public transportation snowplows, buses and road construction vehicles also don't pay state or federal fuel taxes. Clearly, vehicles with such heavy axle-weight pressures contribute substantially to road wear and tear. And yet, the burden of highway funding falls to those in the private sector.

When you add up just the Federal Highway Trust Fund (HTF) revenues not collected from government vehicles, the total is more than $1 billion per year. ATRI also identified an additional $6 billion in HTF transit subsidies provided to those same vehicles. ATRI is part of the American Trucking Associations (ATA) Federation and represents over 35,000 motor carriers. They believe that transit exemptions should be publicly disclosed and included in calculations.

ATRI is also in favor of eliminating state "leaking underground storage tank" or LUST funds. The legality of such funds has often been challenged in court. In most of these court cases, it was ruled that LUST funds should be removed from HTF revenues. Altogether, more than $72 million in diesel and gas fuel taxes goes into the federal LUST fund every year.

Rather than charge trucking companies and private citizens for the right to drive on their own roads, alternatives to tolls must be found. Lining the pockets of foreign investors is clearly not the solution to building and maintaining our nation's road system.

©2007 by Jennifer Hawks