Nothing about the scheme is "free market."
January 20, 2007
Across the country, state highway officials are almost giddy about the prospects of selling the right to build toll roads to private investors. Financial wizards have learned how to amass gigantic pools of capital to pay the states for the privilege. Prestigious financial institutions are promoting the new method of financing infrastructure as the greatest development since sliced bread.
Left out of the equation is the consumer – the poor working stiff who has paid exorbitant local, state and federal taxes on every gallon of gasoline he ever purchased so that highway officials would have the funds necessary to construct new highways as needed and keep them in good repair. Under this new scheme for financing infrastructure, the poor working stiff gets to continue paying the exorbitant gasoline taxes and pay an additional "toll fee" for the privilege of driving on a highway for which his tax dollars should have already paid.
Abuse of the consumer doesn't stop there. Toll roads are profitable because the operators not only get the toll fees, they get revenue from the concession contracts as well. Concessionaires must raise their prices to cover the contract costs. They can because they have no competition in toll road corridors from other vendors. The toll road user must pay whatever the concessionaire charges for gasoline, food and whatever other services that may be available.
Traveling on a non-toll roadway, a consumer may choose from an incredible array of restaurants, service stations and other vendors, all eagerly competing for his business. On a toll road, the consumer is stuck with whatever food, gasoline and other services the toll operator chooses to make available. The vendors have no competition, and the price for goods and services is always higher on a toll road than on a non-toll road.
Yet, politicians and economists hail this new form of infrastructure financing as a great example of free-market ingenuity. Nothing about the scheme is "free market."
In the first instance, the land on which a road is to be constructed requires the eminent domain power of government. Free market entrepreneurs would have little hope of acquiring sufficient right of way without the power of eminent domain. Very few functions in society can be performed better by government than by a free market; highways is one of those functions.
If gasoline taxes are not sufficient to provide the roadways required, they can be raised. The consumers, who are the taxpayers, can control the quality of their highway system by allowing, or not allowing, an increase in the gasoline tax.
Should a special roadway become necessary, such as the proposed Trans-Texas Corridor project, which requires more funding than current taxes allow and which will benefit a narrow, definable consumer group, government could obtain the funding through bond sales tied to the future toll revenues. This is essentially how the private sector raises the funds, by pledging future revenues. The difference is the profit taken by the private sector; this profit could stay in the pockets of the consumers if the project were constructed and operated by government officials. Moreover, the consumers might have some hope of oversight by elected representatives if the project were operated by the government.
When government turns over the right to operate a toll road to a private operator, the consumer is at the mercy of the contract agreed to by the initiating government and the operator. These agreements tend to be for many years, binding future generations.
The Trans-Texas Corridor agreement with Centra-Zachry lasts for 50 years. Centra, a Spanish company, partnered with an Australian firm in a 99-year contract to operate the Chicago Skyway, and a 75-year contract to operate the Indiana Tollway.
The users of these facilities will be paying handsome tolls, premium prices for food and services, in addition to the exorbitant gasoline tax, for most of the rest of this century.
What makes this form of infrastructure financing so attractive to highway officials is the initial cash payment from the private-sector operator. The city of Chicago was paid $1.83 billion for the right to operate the Chicago Skyway. The Indiana Tollway deal produced $3.85 billion for state officials. And the Texas deal will produce a total of $7.2 billion for state officials.
This is just too much money – all at once – for government officials to resist. No, it will not be used to reduce gasoline taxes, or any other tax, for that matter. Government will simply find ways to watch it evaporate long before the contract expires. Government benefits from the cash windfall; the private operator and its financiers benefit from consumer revenues; and the consumer – the poor working stiff – gets to pay the bill.
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