Wednesday, December 24, 2008

“This is a truly radical rule that sets a dangerous precedent.”

New Federal Rule Requires Public Toll Roads to Mimic Profit Motives of Private Companies

Triggered by Government Reorganization, Ruling Sets Precedent Criticized by Congress

For more articles on "market based" tolling, click [HERE]


The Federation of State Public Interest Research Groups (PIRGs)
Copyright 2008

Last week a little-noticed action was published in the Federal Register that will make it difficult over time for states to keep their toll roads public or to operate them differently from private toll roads.

The final rule, issued by the Federal Highway Administration (FHWA) on December 19th applies to state reorganization or transfer of authority for operating public toll roads to require a market valuation process that would determine what private entities would bid for operating the road under a private concession agreement. The state would moreover be required to charge that market-determined value to the public entity, regardless of whether this is best for the public.

“This is a truly radical rule that sets a dangerous precedent,” said Phineas Baxandall, a Senior Analyst for the U.S. Public Interest Research Group. “Although the rule allows agencies to determine the criteria, it nonetheless dictates that public interest considerations must take a back seat and public entities must operate to maximize market value.”

Previously, public entities could transfer operations to another public entity while giving precedence to public interest concerns. States have transferred operations without raising tolls to levels that a private investor would charge to cover their upfront payments for a toll concession. Under the new rule public-interest-based transfers would need to be justified under market-based valuation.

The House Transportation and Infrastructure Committee chair, James Oberstar and Chairman of the House Subcommittee on Highways and Transit, Peter DeFazio had issued a strongly worded letter in protest of the proposal. They questioned the judgment of the Federal Highway Administration in declaring that its rule did not constitute a regulatory action. The letter closes by saying, “this proposed rule would mark a significant departure from existing federal policy and should be considered through the upcoming reauthorization of the nation’s surface transportation programs, not through a hastily written rule in the final days of this administration.”

According to Baxandall, “If extended to other areas of government, the logic of this action dictates that no public entity can reorganize without mimicking the pricing and financing of private shareholders that would operate to maximize profit. Since private entities currently operate some water works, schools, prisons, security services and even town administrations, none of these public functions could be reorganized without comparing private bids and mandating that public entities charge what a private company would extract based on what the market will bear.”

The U.S. House letter can be viewed here. A U.S. PIRG report on private toll roads can be found here.

© 2008 U.S. PIRG: The Federation of State Public Interest Research Groups (PIRGs):

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