Monday, October 03, 2005

Road privatization deals have ended in new, deeper levels of debt for taxpayers.

Plan to privatize roads may have bumps

Fundraising proposals such as Gov. Daniels' have met with mixed success in other states.

October 3, 2005

By Theodore Kim
The Indianapolis Star
Copyright 2005

With fuel prices rising and traffic congestion worsening, Gov. Mitch Daniels wants to turn over two of Indiana's interstates to private hands.

Leasing out tolling and concessions rights on the roads, the Republican governor believes, will spare motorists who are in no mood to hear about a new levy at the pump. Privatizing also frees up money for other road needs.

Paying on the go

Gov. Mitch Daniels' plan to make a yet-to-be-built stretch of I-69 between Indianapolis and Evansville a toll road conjures up images of multilane plazas, coin baskets and lines of traffic.

Experts, however, say those days are fast fading as states turn to so-called "open-road" technology that allows vehicles to pay their toll without slowing down. State officials say the new I-69 will probably use such a system.

The E-470 tollway in suburban Denver, opened in the early 1990s, was among the first roads in the nation to incorporate overhead sensors that deduct fares electronically from transponder-equipped vehicles driving at full speed. Traditional toll booths in separate lanes are available for vehicles without transponders.

A system along the 407 Express Toll Route in Toronto, Ontario, goes further. A network of sensors and cameras built by Massachusetts-based Raytheon bills full-speed vehicles without transponders as well. License plates are recorded by video, and motorists are mailed their toll bill.

Yet private roads remain a grand experiment, representing a clash between advocates of smaller government and those who worry about weakening the public's say over what historically have been public assets.

Since going private, highways in California and Colorado have been plagued by maintenance issues. Other privatization deals have ended in new, deeper levels of debt for taxpayers. And a few localities have found themselves saddled with lease terms that favor private profits over the public good.

In most cases, privatization has led to an almost immediate increase in tolls. And as more states and counties test new approaches to pay for roads -- including imposing even higher tolls at rush hour -- motorists again end up paying more.

Ellen Dannin, a law professor who specializes in privatization issues at Wayne State University in Detroit, equates privatization to "buying a lottery ticket."

"There has always been some private-sector involvement in building roads," Dannin said. "Now there's more involvement at a deeper level, at the financing level. And it's had a powerful effect in terms of what's happening out there."

Privatizing the 49-year-old Indiana Toll Road and a yet-to-be-built stretch of I-69 between Indianapolis and Evansville is just part of Daniels' 10-year transportation plan, which was unveiled last week. The blueprint is meant to resolve a $2.1 billion gap between road construction needs and available gasoline tax revenues. That gap would widen to $2.86 billion if the construction of the new I-69, which the governor said will be a toll road, is included.
Daniels believes privatization is key to advancing more than 200 future road expansion projects over the next 10 years without raising the state's 18-cents-a-gallon tax or taking on more debt. Any privatization plan would require General Assembly approval.

State transportation officials say privatization could mean a windfall for the state, one perhaps amounting to billions of dollars.

In exchange, the company taking control of the roads would be responsible for all operations and maintenance. In return, it would collect tolling and concessions revenue over the course of its lease.

Privatizing existing roads is an especially complicated undertaking.

The first large-scale privatization in the United States came in January when the city of Chicago forged a 99-year lease with Cintra-Macquarie, a Spanish-Australian conglomerate, for $1.83 billion.

That money, which Chicago has used to pay off old debt and fund other road projects and programs, has stoked hope among officials here of a similar agreement for the 157-mile Indiana Toll Road.

But privatization experts say a lease involving the Toll Road might not fetch nearly as much.
For one, millions of dollars in improvements to the Chicago Skyway were recently completed, enhancing the road's value.

Robert Poole, director of transportation studies for the Reason Foundation, a Los Angeles-based group that advocates free-market principles, likened the Skyway upgrades to enhancements a house might get before it is sold.

In contrast, the 49-year-old Toll Road will need more than $200 million in fixes over the next 10 years, according to the Indiana Department of Transportation, an outlook that could dim the roadway's perceived worth.

What's more, the Skyway at only 7.8 miles long is much shorter than the Toll Road, making maintenance easier.

"With the Skyway, the buyer doesn't have anything to deal with as far as improvements or debt," Poole said. "The purchaser is buying an asset free and clear. With the Indiana Toll Road, you're not going to get the same type of conditions."

Whether a private firm will maintain the road as well as the government also remains unclear.
Building new roads from scratch with private money is a more common strategy -- a model the Daniels administration hopes will cover at least one-third of the cost of the long-debated, 142-mile new stretch of I-69 between Indianapolis and Evansville.

Yet similar deals elsewhere have had mixed results, too. The critical factor, experts say, is how much traffic -- and, thus, toll revenue -- such a road will generate. Consider:

• Frustrated transportation officials in Orange County, Calif., in 2003 decided to buy out a group of private investors that had built and operated express toll lanes in the median of the heavily traveled Riverside Freeway. A "noncompete" provision in the deal with the company prevented the county from making improvements to the road's free lanes and, as a result, worsened congestion. The express lanes themselves struggled to meet initial revenue projections.

• The $1.4 billion San Joaquin Hills Transportation Corridor south of Los Angeles, a toll road built through a public-private partnership, also has fallen far short of ridership projections. The jam has left the public authority that controls the road facing a default on its debt.

• A public-private partnership formed to build E-470, a $1.2 billion tollway around Denver's high-growth suburbs, has been deemed a mixed success. It struggled to meet debt payments after the road saw sparse traffic when its first segment opened in the early 1990s. That said, as traffic has increased, so has the road's returns.

Despite varying degrees of success, Poole argues that such public-private arrangements work in the public's favor -- if officials move with caution.

"These are areas you have to craft very carefully so that you don't create monopolies and other problems," he said.

Privatization, in other words, can be an uneven road.

-- Theodore Kim

Privatization deals in other states

• 91 Express Lanes: A four-lane toll road stretching 10 miles in the median of the Riverside
Freeway, or State Road 91, in Orange County.
• Private partner: California Private Transportation Co., a U.S. conglomerate.
• Public financial benefit: $135 million.
• Background: The project opened in 1995 and was financed and operated by the California
Private Transportation Co. The road pioneered several innovations, including
"pay-at-full-speed" tolling and rates that vary depending on the time of day.
• Results: Orange County was forced to buy out the private investors in 2003, largely to get out
of a rigid agreement that severely restricted expansion and improvement of the non-toll
lanes. Revenues have struggled to meet initial projections.

• I-35 Trans Texas Corridor: A new toll road, railway and system of utilities to be built parallel
to the 800-mile I-35 corridor in Central Texas.
• Private partner: Cintra-Zachary, a Spanish-U.S. conglomerate.
• Public financial benefit: As much as $7.2 billion.
• Background: Should it receive federal environmental approval, the project will be built in
pieces over the next few decades. Its cost is undetermined.
• Results: Too early to tell. Cintra-Zachary would pay Texas $1.2 billion for tolling rights along
the corridor for 50 years.

• Chicago Skyway: A 7.8-mile toll bridge-highway that links Northwest Indiana with Chicago's
Dan Ryan Expressway.
• Private partner: Cintra-Macquarie, a Spanish-Australian conglomerate.
• Public financial benefit: $1.83 billion.
• Background: The city leased out tolling and concessions rights on the Skyway for 99 years.
The agreement includes language that would allow the city to exit the lease under certain
• Results: Too early to tell. The city and conglomerate agreed to limit toll increases on the
Skyway over the course of the lease.

Call Star reporter Theodore Kim at (317) 444-6247.

Copyright 2005 All rights reserved: