USA Today: Governments salivate at cash pay-outs in return for private control of public highways

Link to article here.

Toll roads with a cash-out option
Governments look at leasing highways to private sector

By Dennis Cauchon

State and local governments are singing a new tune in operating toll roads: selling or leasing them for cash and letting private companies run them.

The governments plan to use money from the transactions to build new roads, repair old ones or pay for other programs.

The idea has caught fire since Chicago leased its Skyway — an 8-mile elevated highway that carries traffic from the city to the Indiana border — for $1.8 billion in cash to Spanish and Australian investors in January.

The Skyway had lost money for decades and only recently had turned profitable, generating $40 million in tolls and $20 million in profits last year. The price for the 99-year lease was more than twice as much as any other company bid.

Now other governments around the country are examining what their toll roads are worth and wondering whether they can get a Chicago-style windfall — or at least a good deal.

“A toll road is a wonderful financial asset, and we need money for roads,” says Charles Schalliol, director of Indiana’s Office of Management and Budget.

It’s hard to say how private operation of a toll road would change life for the motorists who use it because each deal is different. Potential benefits: The private ventures might operate and maintain the roads better than government can. Possible negatives: Rising tolls that could push traffic onto local streets.

Some deals being studied:

•The Indiana Toll Road. This 157-mile interstate across northern Indiana connects to the Chicago Skyway. The state is soliciting bids that are likely to top $2 billion. Indiana Gov. Mitch Daniels, a Republican, wants to spend the money on new roads, including extending Interstate 69 fromIndianapolis to Evansville.

Harris County, Texas, toll roads. The county operates 83 miles of toll roads in the Houston area that could be worth more than $10 billion. Investment banker Goldman Sachs told county commissioners in September that the system could generate a $7 billion upfront payment.

•The Dulles Toll Road. Virginia plans to lease this 14-mile road near Washington, D.C., for 50 years. The state is studying four bids of about $1 billion each. The bidders also promise to pay for improvements such as express lanes on the busy commuter road. Virginia may use the cash to help build a rail line between Washington Dulles International Airport and the region’s subway system.

Other states are weighing the idea. Delaware Gov. Ruth Miner, a Democrat, is awaiting a task force recommendation on whether to privatize the state’s toll roads, including a 24-mile stretch of Interstate 95. New Jersey Gov.-elect Jon Corzine, a Democrat, has said he is open to considering leasing parts of state toll roads such as the New Jersey Turnpike. The issue also has been raised in California and Wisconsin.

The wisdom of privatizing roads depends on the specifics of the deal, says David Schulz, director of the Infrastructure Technology Institute at Northwestern University. He says the 99-year lease of the Skyway was a great deal because of the extraordinary price.

“The Skyway has been a money-losing headache for city government for years. I know. I used to run it,” says Schulz, former Chicago deputy public works commissioner. He says he’s confident that the new management can run the road better, enabling the city to focus on other matters.

Chicago has managed its windfall prudently so far, saving most and paying off old debts on the Skyway, he says. He doubts that other governments will get such huge bids, “but you never know until you put it up for auction.”

Skeptics of privatizing toll roads worry that communities will lose control of their road systems.

“We have concerns about fairness,” says Mark Eagan, president of the St. Joseph County, Ind., Chamber of Commerce. His group fears that a private operator will raise tolls and push traffic onto local streets and that the state will spend its money on projects elsewhere in the state.

In Texas, Harris County Commissioner Steve Radack says it would be shortsighted for his county to give up toll revenue of more than $1 million a day.

“The toll roads belong to the people of Harris County,” Radack says. “We manage it well and need this money to shape our future.”

But Harris County Judge Robert Eckels, the county commission’s top elected official, says leasing part or all of the system could provide more than $10 billion for road construction. “The biggest issue in transportation today is how to pay for it,” Eckels says. “We need to look at the whole range of financing possibilities.”

He agrees that loss of control is the disadvantage of privatizing toll roads. “But the amount of money Chicago got for the Skyway — that got folks’ attention. How can you not look at the value of your toll roads?”

A few private toll roads have been built in Virginia, California and Texas since 1995. But efforts to privatize existing toll roads are new.

Options range from outright sale of roads to long-term leases that last 25 to 100 years. A private company could do everything — maintain roads, operate rest stops, pay for police — or just run the toll booths. A contract could limit future toll increases or require discounts for local residents — moves that may be popular but would lower the road’s economic value.

Private toll roads are common in some countries, says Peter Samuel, editor of TollRoadsNews, a Web newsletter. Italy privatized its state toll authority a decade ago, and France has three publicly held toll road companies. Foreign investors should have a lot of interest in U.S. toll roads, he says.

“The Chicago Skyway opened a lot of minds,” Samuel says. “That $1.8 billion is a big hunk of money.”