crossposted from
unbossed.
Part I may be found here at unbossed or here at dailykos.
Part I looked at the push for privatization of roads and the problems encountered with privatized roadways. The pro-private roads lobby has said that they cannot make a profit on roads unless they are given noncompete agreements. This Part examines the use of noncompete agreements in both public and private toll roads.
The poster child for noncompete agreements is California SR 91. The private contractor and the state agreed that public highways near SR 91 would not be maintained or improved until the year 2030. In other words, the state was to allow the state highway to crumble for decades, forcing the public onto the private toll road. But California found it could not leave the roads to deteriorate and endanger drivers' lives. When the state fixed the nearby roads, the private owner sued for breach of contract, and the public learned the true cost of the private road. The public was furious and turned against the project and the government that had agreed to it.
It is worth noting that SR 91 was
never exposed to the rigors of the market. It was built within the median of an eight-lane freeway. This allowed the private company to avoid the problems of building a new road - condemning property, grading it, creating access roads, and the like. This was a tremendous subsidy to the private contractor. But the state
dissembled, and touted this as "innovative financing."
SR 91 made noncompete agreements anathema. California Attorney General Bill Lockyer described the Hwy. 91 as a "polite form of highway robbery."
The problem is that when there is no "noncompete" provision, the private sector is not interested in funding toll roads.
The GAO found that 4 of the 5 tollways examined included noncompete clauses in their contracts "under which the public sector agrees to varying degrees not to build any new roads or improve any of the existing roads that may result in additional capacity within a predetermined distance of the newly constructed road for a certain period of time." Where these did not exist, there were "understandings" the state would not build a competing road.
The SR 91 experience has forced privatization proponents to find creative ways to achieve the same end. One is to require the state to compensate the private owner for any revenues lost when improvements are made to nearby roads. California's State Route 125 includes a provision that allows the state to build a competing road but only if the state reimburses the private company for revenues lost to the new road. Calculating those lost revenues is, again, an enterprise filled with uncertainty and opportunities for overreaching.
The private sector takes the position that "eliminating or limiting noncompete provisions is not a solution, because the private sector would be unwilling to invest in highway projects without adequate protection against future competition." Robert Poole said, in January 2005, "Nearly all new toll road projects, in order to sell bonds to investors, must offer some degree of protection from unlimited taxfunded competition from competing free highways."
The testing ground for the success of private roadways is now pitting state highways against state toll roads. If the state toll roads can find ways to generate enough income this will prove that private roads can make profits.
The states are interested in being guinea pigs because many are now facing revenue shortfalls as a result of laws that limit their ability to raise enough taxes to fund necessary state functions. Among these functions is road building. As a result, they are eager to use toll roads as a funding mechanism. Tolls are, of course, just taxes in disguise, but a form of taxation that the public has so far not forcefully resisted. This may be, in part, because many do not pay their own tolls. A study found that 18% did not pay their own tolls. These business expenses are deductible on federal and state tax returns, so they are subsidized by the public. The same study found that poorer people tend to use toll roads more than do wealth people. This makes tolls a highly regressive tax, falling most heavily on the poor.
States that use toll roads as disguised taxation face the same problem as do private contractors: persuading drivers to use the toll roads when there are often alternate free routes. Just as noncompete agreements are necessary for private toll-road operators to invest in projects, states striving to survive economically need ways to ensure sufficient tolls are being paid. Experience has shown that cutting tolls is not enough to prevent "traffic diversion" from toll roads.
The key to success is ensuring that free roads are so congested that drivers are forced to use toll roads. States recognize this and are quite candid about the desirability of congested roads. The Colorado Tolling Enterprise, a part of the Colorado Department of Transportation, refers to the importance of noncompete covenants, significant congestion on free roads, and lack of availability of competing free roads as ways to enhance "the credit profile" and gain private financing.
Unlike private toll road owners, states have the power to make alternate routes congested and unpleasant. "[T]raffic-control measures can be taken to discourage diversion - e.g., additional traffic signals, speed bumps, through-traffic barriers, and other "traffic-calming" methods.
Congestion translates into delay, so anything that can create a speed advantage for tollways is crucial.
Toll road owners can capitalize on this by marketing speed. Colorado's Denver area toll road E470 uses slogans such as "70 mph optimism," "Road Nirvana," "Home Swift Home," and "Arrive Fashionably Early."
Even a private Denver airport parking website touts the advantages of using E470 and urges customers to buy an express toll pass to avoid stopping at toll plazas. Once a driver has pre-paid tolls, those toll roads will be used to recoup the sunk costs, and psychology will take over to persuade the driver that it was worth it. Commuters typically overestimate time saved using a toll road by 5-30 minutes.
In addition to advertising speed as an advantage, it appears that the state or county has decided to ensure that the alternate route to E470 is decidedly slower and less pleasant to drive. Slow roads are unpleasant in themselves and may also lead to desirable congestion. Before E470 opened, Tower Road had a speed limit of 55 mph. The speed limit became 40 mph, when E470 opened, and several unnecessary stop lights have been added.
While these changes may not mean there is a written covenant not to compete between the Toll Road Authority and the communities that maintain Tower Road, they have the same effect as other covenants not to compete have. It will, of course, take time to see if there is a failure to maintain the road. Failing to maintain a road for any length of time means destroying an important asset. For example, water that seeps into cracks that are not filled slowly erodes the surface and then causes deeper damage. Even worse, the failure to maintain roads causes expensive damage to vehicles which shifts the costs of maintaining the road to car - and sometimes even bicycle owners - and insurance companies.
By not raising enough taxes to fund road building and maintenance, as well as other public infrastructure, state governments are being pushed into game playing that does not serve the public interest. Instead, cash-strapped governments are focusing their efforts on developing complex strategies to raise disguised revenues.
Cheering them on are privatization zealots - who are also the folks who promote cutting taxes in order to make government smaller and markets larger. In the case of roads, they have made governments both leaner and meaner.