"The more people talk about these things, the less they are enamored of them."
December 1, 2006
By Joe Mysak
Sell the roads? Not so fast.
That seems to be what the nation's lawmakers are saying in a year that began so well for the so-called public-private partnership movement, where states lease their toll roads to private companies in return for a big chunk of cash up front.
It seemed like such a good idea. In return for billions of dollars, states or localities would get out of the toll road business, arguably not one of their core competencies.
It has been done in Chicago, and in Indiana, and in Virginia -- and where is everyone else? Selling the roads seemed like the financial innovation du jour just a few months ago. Merrill Lynch & Co. last year estimated that at least 18 states contained good candidates for privatization, and everyone seemed to be talking about it.
So where are these deals? It's not as though they can be done in secret.
And maybe that's why we haven't seen a whole slew of them. The more people talk about these things, the less they are enamored of them. It turns out that most lawmakers tend to be pretty conservative when it comes to selling a state's or locality's assets, even if billions of dollars are at stake.
Those public officials looking for ammunition to stave off such sales are advised to take a look at a new report from Dennis J. Enright, a principal at the NW Financial Group, a Jersey City, New Jersey-based adviser to municipalities.
Things to Consider
The report, "Then There Were Two,'' looks at the Indiana Toll Road transaction, which took place this year, and compares it with the Chicago Skyway deal in 2005.
Chicago leased its Skyway, a 7.8-mile, elevated highway connecting the Dan Ryan Expressway with the Indiana Toll Road, to a Spanish and Australian group of companies for 99 years for $1.8 billion. The same group this year leased the Indiana road for 75 years, for $3.8 billion.
The question for lawmakers is "whether ceding control of toll road assets to the private sector for extremely long periods of time is in the best interest of the public sector,'' asks Enright, who wrote about the Skyway deal back in May.
And the answer is? Be careful.
There's a lot to be considered in these toll-road transactions. How much money is the private company paying for the right to operate the toll road? How high might the tolls go in the future?
Perhaps most troubling, from a public policy point of view, is: What are we giving up?
"Indiana's sale of the Toll Road, while helping fund transportation projects for the next 10 years, will result in depriving the public transportation funding network of very large and much needed future revenues in the final 65 years of the concession agreement to pay for publicly needed capital projects both on and off the toll road,'' writes Enright.
"Instead these revenues are directed to private corporate profits and shareholders. If road users are willing to pay higher tolls these funds should be captured for the public good,'' according to the analyst.
And then there's the "hidden cost'' of the privatization approach. The private operators will have to finance capital improvements at a much higher cost than the tax-exempt financing that would have been used by a state or municipality. Drivers are going to have to absorb those costs "if the state wishes to expand the roadway for public policy purposes, including new exit/entrance ramping to encourage economic development projects.''
Loss of Control
Enright boils down the significant question to be considered by policy makers studying proposals like the one for the Indiana Toll Road: "How will the loss of state control over a statewide thoroughfare impact future economic development efforts, given the critical role that transportation infrastructure plays in driving economic development and growth?''
What are we giving up? Years and years of toll road revenue, and, perhaps most unsettling of all, control of an asset that has the potential to spin off some real money.
Public officials now have several examples of toll road privatizations to examine. Perhaps they're finding that getting out of the toll road business isn't as easy as it sounds. Like it or not, states and localities are already in the street and highway business, and there are some real benefits to it.
(Joe Mysak is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: Joe Mysak in New York at firstname.lastname@example.org
Last Updated: December 1, 2006 00:04 EST
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