"The downside, for taxpayers, is that government could be underselling."
April 03, 2006
So, you've come into some money — a whole bunch of it, really — and you're casting about for a way to invest it. Then you hear from a guy.
Have I got a product for you, he says! It's something everybody uses, it's in chronically short supply, and you'll be the only one selling it in this market. Based on history and common sense, the demand can only get larger over time.
And, by the way, the other party in the transaction is strapped for cash and will probably give you a great deal. Wanna play?
"Hand me the pen."
That's pretty much the situation with toll roads, according to a March 20 Merrill Lynch analysis of why private companies such as turnpike operator Cintra are throwing billion-dollar bundles at U.S. government officials like so much confetti.
"With gas taxes — traditionally used to fund highway projects — not bringing in enough revenues to properly maintain existing roadways, let alone build new ones, some states can no longer afford not to consider leasing their toll roads," the study says.
From a private company's point of view, "the combination of traffic growth, toll increases and operating efficiencies can result in solid and steady revenue growth over the long term. . . . (and) large U.S. toll roads usually operate from a monopolistic position where there are few alternative highways."
From the driver's point of view . . . well, that depends on your point of view.
Gov. Rick Perry's gubernatorial opponents have been making hay over the governor's transportation department tentatively agreeing to let Cintra, a Spanish company, join with a Texas company to build and operate a toll-road twin to Interstate 35 for the next half-century or so. Now, Cintra has offered to build a freight rail line alongside it.
Of course, our last war against Spain occurred more than a century ago. Remember the Maine? Me neither.
But Cintra is just the start.
It joined with the Australian bank Macquarie in acquiring long-term leases on the Chicago Skyway toll road (paying $1.83 billion upfront) and the Indiana Toll Road (for $3.85 billion).
Another Australian company is about to buy a Richmond, Va., toll road. And according to the Merrill Lynch analysis, six other European firms have become players in the private toll road market. There are no U.S. companies listed. Yet.
What politician, loath to raise taxes and with spending demands from the electorate, can resist the lure of such big checks? Anyone? Anyone?
So where's all this money coming from? Macquarie offers an interesting example.
Australia passed a law in 1992, Merrill Lynch writes, requiring workers to save large amounts of income for retirement. Macquarie has accumulated $550 billion of that money in an investment fund, far too much to keep under the mattress. Better to put it into a toll road and make a return of more than 12 percent.
The downside, for taxpayers, is that government could be underselling. By one estimate, Cintra and Macquarie will break even on the Indiana tollway in 15 years and clear $21 billion over the next 60 years. Such a deal.
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