Trend of selling-off public roads to Wall Street goes south

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Privately run infrastructure deals dry up

October 27, 209

A rush by state and local governments to sell roads, bridges and airports to private operators in return for eye-popping upfront sums has all but collapsed in the recession.

That could leave taxpayers on the hook for more of the $200 billion a year needed to maintain the nation’s transportation system, according to federal estimates.

An era of privately operated infrastructure seemed near when Chicago leased its 7-mile Skyway for $1.8 billion in 2003 and Indiana leased a 157-mile toll road for $3.8 billion in 2006, deals that had other governments rushing to cash in, too.

States had proposed selling all kinds of things, from highways to lotteries, to raise $10 billion or more. In return, the private companies would operate the assets during long-term leases and bank the revenue.

The purchase of government assets has all but stopped as credit has dried up. Now, with tax collections falling, state and local governments are scrambling to finance projects.

The biggest casualty so far: a $2.5 billion agreement to sell Chicago’s Midway Airport fell apart in June when investors could not round up enough money.

“Investors are skeptical. These are difficult times,” says Peter Samuel, editor of Toll Road News, a trade publication. The buyers of the Chicago Skyway and Indiana Toll Road “have lost their shirts,” he says.

Earlier this year, Macquarie Infrastructure Group said its toll road investments, which include the Chicago Skyway and Indiana Toll Road, had lost one-third of their value. The investments are made based on long-term, historic trends, company spokesman Alex Doughty says. “In any business, there’s likely to be peaks and troughs,” he says.

The high-priced deals were great for government, though. Indiana got paid in cash and is using the $3.8 billion to fund 400 road projects.

“We had great timing,” Indiana budget director Ryan Kitchell says. “We may never see those types of prices again.” Recent dead ends:

South Carolina. The 16-mile Southern Connector, outside Greenville, announced it will default Jan. 1 on the $312 million borrowed to build the four-lane road. Traffic has been about half what was predicted.

Pennsylvania. A Citigroup-led investor group withdrew a $12.8 billion offer to buy the 537-mile Pennsylvania Turnpike in September. Gov. Ed Rendell, a Democrat, had his proposal blocked in the Legislature.

Florida. “Alligator Alley,” a 78-mile section of Interstate 75 that crosses the Everglades, received no bids when the state put it up for auction in May.

A few small deals are still alive. A Florida company has agreed to build and own a $100 million toll bridge in Chesapeake, Va., to replace a closed city-owned bridge. “Without private money, this bridge wouldn’t get built any time soon,” Chesapeake City Manager William Harrell says.

“These deals aren’t dead,” says John Schmidt, an adviser on infrastructure deals. “The economic logic makes too much sense.” The amount paid in cash may be lower, he says.

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