Monday, April 27, 2009

"If you are skewing these [privatized] deals because of tax benefits then maybe they’re not such great deals after all."

Two Bills Target Road Lease Deals


By Sean McNally, Senior Reporter
Transport Topics
Copyright 2009

Prominent members of the Senate’s tax-writing finance committee introduced legislation April 23 that would pare back the tax benefits private companies gain from leasing public highways, making those privatization deals less attractive to investors.

Sen. Jeff Bingaman (D-N.M.), chairman of the Senate Finance Committee’s panel that oversees infrastructure issues, and Sen. Chuck Grassley (R-Iowa), the finance committee’s top-ranking Republican, co-sponsored the bill.

The Bingaman-Grassley measure would stretch out the depreciation and amortization periods for highway investments. Bingaman introduced a second bill that also would deduct privatized highway miles from a state’s mileage total used to calculate federal aid for roads and bridges, a move that would cut into a state’s share of federal highway funds.

In introducing the bills, Bingaman said states “should have some latitude to determine how to operate their own highways, [but] that doesn’t mean that the federal taxpayer should subsidize selling off these highways.”

Bingaman said that his subcommittee “uncovered . . . [that] the federal government — and taxpayers in all states — now subsidizes these deals through exceedingly generous tax provisions.”

“The goal is to make sure that taxpayers are treated fairly in regard to the privatization of highways,” said Jude McCartin, a spokeswoman for Bingaman.

Federal tax law now allows companies that lease highways to depreciate the value of the lease over 15 years, while the actual length of highway leases and proposals tend to be much longer. Indiana, for example, has leased its toll road for 75 years.

Also, concessionaires can amortize, or recover the costs, for the intangible benefit of the right to collect tolls over 15 years, while receiving that benefit over the full length of the lease.

“We’re subsidizing these transactions in a way that’s just not fair,” McCartin said.

The tax bill would change the tax code to allow companies leasing a highway or a bridge or other piece of infrastructure to depreciate the cost over 45 years, the estimated useful life of highways and streets.

The bill also would push out the amortization period to either 15 years or the length of the lease, whichever is longer.

The bill “takes the thumb off the scales so that these deals will either go or not go on their own merits but not because of tax advantages,” said Tim Lynch, a senior vice president of American Trucking Associations.

ATA has been a vocal opponent of privatizing highways, a trend that began in 2004 with Chicago’s 99-year lease of its Skyway for $1.8 billion to a Spanish-Australian conglomerate headed by the Macquarie Infrastructure Group.

The same conglomerate, which includes Spanish bank Cintra, paid $3.8 billion for its 75-year lease of the Indiana Toll Road.

Lynch argued that those deals — and others proposed or discussed in Pennsylvania, New Jersey and Massachusetts — are helped greatly by the tax provisions allowing quick repayment of costs.

“These are supposed to be privatized deals where the private sector can do something better than the public sector, but if you are skewing the deals because of tax benefits then maybe they’re not such great deals after all,” he said.

McCartin said she thought the fact that the bill would collect additional revenue aided its chances of passing, either on its own or as part of a larger bill later this year.

“We’re in the rare position of actually making money for the government,” she said. “I think in a time when we are looking for revenue, we will look for any opportunity to enact this legislation; we’re trying to save taxpayer dollars anywhere we can.”

Lynch said that since the bill aimed to address the public-private partnership issue “from the tax side, you will have several opportunities” to move the bill. He specifically cited the “tax title to highway reauthorization.”

The Obama administration has touted public-private partnerships as a way to help fund infrastructure improvements — without increasing fuel taxes, which Transportation Secretary Ray LaHood opposes.

Lynch said changing the tax code to dim enthusiasm for privatization projects, rather than banning or restricting them, fits with LaHood’s position that “everything has to be on the table.”

“The fact is that this doesn’t necessarily prohibit the transactions. Again, the beauty of this proposal is that the deals will stand on their own merits, so they’re still on the table,” Lynch said.

McCartin said preventing states from counting privatized highway miles when calculating federal aid formulas, is also aimed at maintaining fairness in infrastructure funding.

“What happens is states provide the amount of highways that they have,” she said, “and right now they are able to count privatized or leased roads, but they are not using that funding to maintain those roads.”

Collecting federal money for roads that are being maintained privately after a state has received lease payments for it “doesn’t make sense and it isn’t fair to other states,” McCartin said.

© 2009 American Trucking Associations, Inc.:

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