Monday, July 11, 2005

"Private companies are not necessarily more efficient at running roads, and their tolls amount to a regressive tax on highway building."

Private toll roads gathering speed

Cash-strapped states like the idea of highways built "without tax dollars."

July 10, 2005

Reuters News Service
Copyright 2005

SAN FRANCISCO - The next road you travel — and pay a toll to use — could be privately owned.

Looking for ways to finance highway projects without hitting the public treasury, Congress appears set to pass a proposal to encourage private ownership of new toll roads.

The provision, part of the highway spending bill now being hammered out by a Senate and House conference committee, would allow private companies to raise up to $15 billion for highway projects with bonds that are exempt from federal income taxes.

While the proposal has broad support in Washington and the business community, the idea of private highways has incited grass-roots opposition in some states, with some saying the government — not a profit-seeking company — is the proper owner of the public's roads.

Toll road owners such as Spain's Cintra and Australia's Macquarie Infrastructure Group stand to benefit from the move to private infrastructure bonds, since their tax-exempt status would keep interest rates and funding costs low.

The move would also bring lucrative fees to Wall Street banks and others for underwriting and trading tax-exempt debt.

"The time has come for this," Sen. Jim Talent, a Missouri Republican who co-sponsored the proposal, said in a telephone interview. "I think we have an excellent chance of the $15 billion bond issue coming out of conference."

Major shift

Many states faced with tight budgets have given corporations the right to build, operate and maintain roads.

States have the right to regulate toll rates or limit profits but generally give operators wide latitude to run the roads as they see fit.

Texas, California and Virginia are among the states at the forefront of the movement.

Jose Lopez De Fuentes, director of Cintra's U.S. and Latin American operation, said private road builders currently face complex regulations governing the issuance of tax-exempt bonds.

The provision expected to emerge from Congress would help Cintra raise funds to finance such projects as a proposed $7.2 billion toll road from Dallas to San Antonio. The plan, which would be the first leg of Gov. Rick Perry's ambitious Trans-Texas Corridor project, could eventually run from Oklahoma to Mexico and include freight and passenger railroads, pipelines and power lines on a 1,200-foot right of way.

Cintra's proposal, in cooperation with San Antonio-based Zachry Construction Corp., has triggered opposition. The Texas Farm Bureau is worried that the corridor would split landholdings and cut off access to farms and ranches. Elected officials and business groups in towns along the proposed corridor fear it would draw business away from them.

But state transportation officials are ecstatic.

"That's a pretty good deal any way you slice it," said Gaby Garcia, a spokeswoman with the Texas Department of Transportation. "They'll cover the table with $7 billion and say, 'We'll raise that money on our own without any help from you.'"

Tapping the tax rolls

But Ellen Dannin, a law professor at Wayne State University in Detroit who has written on privatization, said private companies are not necessarily more efficient at running roads, and their tolls amount to a regressive tax on highway building.

A better solution to public underfunding of the road system may be to roll back tax cuts that are squeezing the federal budget, Dannin said.

"One of the things to ask yourself is, why doesn't the government have the money to spend on the infrastructure that we need?" she said.