crossposted from
unbossed
High up on the Right Wing Think Tank agenda are toll roads, privatized toll roads if possible. But the truly interesting action in support of privatized roads is with publically owned toll roads. (See Part II) There, state and local governments, under the lash of tax cuts, are testing methods for making toll roads profitable.
First, on the privatization scene.
The advocates for privatizing highways are making the talk show circuit. Had you been listening to
NPR's Talk of the Nation (TOTN) on May 3, 2005, you would have heard:
Enterprising Innovations on Highways, featuring an interview with
Robert Poole, Director of Transportation, Reason Foundation. Poole was extolling privatizing highways as the solution to drivers' woes. One caller was thrilled by the opportunities private highways created and willing to pay a lot to be freed from the tyranny of traffic jams. She was even more excited when Poole agreed that on private tollways, there need be no speed limits. When the next caller complained that these highways would create an unequal system, condemning poor people to congested roadways, Poole and the TOTN host chided him for not accepting that, since life is generally unequal and unfair, why should highways be an exception.
Poole has been promoting private roads for years. His arguments in their favor have varied with the times. In 1996, Poole spoke of private roads as salvation for cash-strapped states:
Besides avoiding over $3 billion in rebuilding costs, the proposed public-private partnership would generate several billion dollars in. additional revenues to the state over a 25-year period, which could be applied to the projected $8.9 billion shortfall and/or used to cover a portion of local roadway costs now paid for by property taxes. That would permit significant local property-tax relief.
Poole was wrong, as it turned out. So far, these public-private partnerships have been failures.
Yet, despite the failures, the drumbeat for privatization continues. Failures do not mean reconsidering the wisdom of privatization. Failure only means changing the rationales for privatization and keeping up the fight.
The Urban Mobility Corporation (UMC), a Washington-based consulting firm that specializes in transportation management discounts failures as old news. http://www.innobriefs.com/abstracts/2005/mar05.html It may be right. The intense advocacy by Right Wing Think Tanks, such as the Reason Public Policy Institute and the Cato Institute, are having some success in persuading Congress take the first steps to chop the federal highways system up and turn the pieces over to the private sector.
The Highway Bills currently pending in the Senate (S.732) and House (H.R.3) include provisions to establish a "Public-Private Partnerships Pilot Program" to contract out "not less than 10" projects and to provide subsidies to them. The bills say the legislation is not to test the wisdom of private highways but, rather, to "demonstrate the advantages of public-private partnerships for critical capital development projects, including highway, bridge, and freight intermodal connector projects authorized under this title."
So confident are privatization proponents of success that the National Council for Public-Private Partnerships has already scheduled a conference, Partnerships in Transportation: Funding Large Transportation for September 29, 2005, in St. Louis, Missouri.
The United States Department of Transportation's Report to Congress on Public-Private Partnerships (December 2004) is also sanguine about privatization. It says its goal is "identifying the impediments to the formation of large, capital-intensive highway and transit projects involving public-private partnerships" and working "with States and local entities to identify and eliminate existing impediments." DOT sees its role as attempting "to provide a resource document for States interested in using public-private partnerships as a method of procurement.
The push to privatize highways is part of a one-two punch by conservative ideologues. First, promote legislation to starve state governments so they cannot afford to build and maintain roadways. As roads crumble and citizens grumble, use these failures as proof that government is incompetent - and that the competent private sector should be allowed to save our roads. As the Council of State Governments (CSG) Eastern Regional Conference observes in Transportation Trend: For sale: Roads and bridges available for lease.
With constrained budgets at the state and federal level, states are looking to increase revenue. The privatization of toll roads and bridges presents some lucrative opportunities, but also poses some challenging policy questions.
While the Bush DOT favors privatization, the General Accountability Office has carefully examined the history of private highway projects and found serious problems. In Highways and Transit: Private Sector Sponsorship of and Investment in Major Projects Has Been Limited, GAO-04-419, March 25, 2004, the GAO found that the "private sector encounters many challenges to becoming more actively involved in highway and transit projects because of limited opportunities and barriers to financial success." In plain English, the problem is that it is hard to make money in private roads . . . if you rely on the "magic" of the market.
To build a highway means acquiring a large amount of contiguous property in a specific location. Governments can do this through the power of condemnation, but private purchasers have only the power of offering enough money to persuade property owners to sell. That's how free markets are supposed to operate, but it is costly.
Second, it takes many years of planning, investing, and building before the first revenues begin to trickle in through tolls.
Third, it is not cheap or easy to capture that revenue. According to the World Bank:
Typically 95 percent of revenues for a toll road come from toll receipts themselves. The other 5 percent come from advertising or small concessions such as service areas. Hence the toll level and collection are of critical importance.
Each toll booth costs money to build and staff. Unfortunately pre-paid electronic tolling does not eliminate the need for toll collectors. There has to be a way to allow drivers who have not pre-paid to use the road and then collect tolls from them. Costs can be kept down by having fewer toll booths, but fewer toll booths means fewer entrances and exits. But when entrances are too far apart, toll roads are less attractive.
The World Bank and others are trying to find ways to overcome this problem. One is "shadow tolling." Basically, a count is made of traffic flows, and the government uses that count as the basis for calculating the toll road owner's revenue. These are best estimates. It is not yet technologically possible to count every car, so the system is necessarily based on inaccurate counts and faulty information. As a result, error and the opportunity for corruption are high, and the ability to exercise oversight is weak. When technology permits close monitoring, there will be new problems involving civil liberties and government monitoring of drivers' movements.
All these problems make it attractive, and perhaps even necessary, to escape the rigors of the market. The term of art is "noncompete" agreement. Private companies want the government to agree not to compete with the private toll road. This creates a conundrum. When there is no competition, there is no market. But unless there is no competition, there are no profits.
Of course, competition in this arena is complicated. There is no choice as would exist in choosing a brand of peanut butter. There cannot be two roads in the same spot competing with one another. Privatization proponents ignore this problem and focus their attention on the fact that public roads are paid for by federal and state taxes and have no need to generate a profit. They argue that it is therefore impossible to compete head on with public roads. They are certainly correct on this point. The question is what lessons one draws from it.
CATO advocates cutting public funding for roads. There may be some cuts, but the prospects of radical change that cuts off all public funding for roads is poor. On the other hand, privatization proponents are not lobbying to eliminate the subsidies Congress has included in the Highway Bill.
So noncompete agreements or actions to hobble public highways and make them unattractive have become key to private roads. In Part II, we look at the new form those noncompetes are taking. If the roads you are driving suddenly have lowered speed limits, unnecessary stoplights, and no maintenance, this next part is for you.