A State Should Never Lease Its Roads: NMA E-Newsletter #614

Reason Foundation’s Transportation Guru Robert Poole released a study in August of how nine states could financially benefit if they were to lease their toll road systems to private concerns. Poole writes that these states would gain significant income from a long-term public-private partnership (P3), especially if the state had already paid off its outstanding tax-exempt toll road bonds.

Apparently, this kind of P3 is an accepted practice in Australia and several other countries. The idea is that the government sells or leases its revenue-producing assets to unlock those assets’ future value. Proceeds, either by an upfront or annual payment, could then be used for other high-priority public purposes, and the government gets out from under managing that asset.

The city of Chicago has done that with its Skyway Road. So has the Indiana Toll Road, a P3 project that went bankrupt in 2014, only to have it turned over to another private party to try again. Even though the Chicago and Indiana roads are both part of the Interstate Highway System, the two vital transportation routes are not owned or operated by the state or federal governments.

Poole indicated in the study that the following nine state-owned toll road systems would benefit from a long-term P3 lease:

  • Florida Turnpike is a 309-mile northwest to southeast axis spanning from north of Tampa to Fort Lauderdale.
  • Illinois Tollway has 294 miles of toll roads in 12 counties (including the Chicago area) in Northern Illinois.
  • Kansas Turnpike is a 236-mile-long toll road from the southeast near the Oklahoma border to the northeast and ends in Kansas City.
  • Massachusetts Turnpike is a single 138-mile toll road extending from the western part of the state to Boston on the Atlantic coast.
  • New Jersey Turnpike has 117 miles of controlled-access highways, a major thoroughfare providing access to localities in New Jersey plus Delaware, New York, and Pennsylvania.
  • New York Thruway spans 570 miles in upstate NY. Cashless tolling will be implemented in November 2020.
  • Ohio Turnpike is a single 214 mile-long toll road that serves as the primary corridor between Chicago and Pittsburgh.
  • Oklahoma Turnpike Authority has an extensive turnpike system with ten toll roads (and a few more planned), totaling 606 miles across the state. Fourteen percent of Oklahoma highways are toll roads.
  • Pennsylvania Turnpike is a 360-mile east-west toll road highway. Much of the proceeds go to the state’s DOT to help pay for transit.

The Reason Foundation also provided a second post of Frequently Asked Questions on Poole’s report. Last month, Poole wrote an additional opinion piece called Would Leasing a Toll Road Contradict the Users-Pay Principle?

In that article, he examined in more detail the concept of state-owned enterprises. States create SOEs to carry out a specific business purpose, but Poole writes that they are constrained by political obligations, unlike private businesses. He argued that “monetizing” the asset value of a state-owned road would be wise if three criteria were respected:

  • A competitive bidding process would only be open to highly qualified toll road operators with positive track records.
  • The long-term lease’s terms and conditions will need to include critical outcomes such as emergency response, pavement quality, and early termination if things go wrong.
  • The company would need place limits on toll increases and should index for inflation.

NJ.com transportation reporter Larry Higgs wrote an article about the Poole study asking readers to remember back to 2007 when then-New Jersey Governor Jon Corzine’s promoted his ill-fated “monetization” plan. The idea was similar—lease the state’s toll roads to a private company for decades to earn fast cash to help pay state debts and fund its Transportation Trust Fund. Higgs wrote that the plan proposed four 50-percent toll hikes over the lease’s duration plus annual toll hikes. Angry drivers (especially in South Jersey where there are few travel options), opposed to the idea, came to public meetings en masse and quashed the plan.

NMA New Jersey Government & Public Affairs Director Steve Carrellas said in the article about the Poole study, “This is an interesting perspective on toll road “monetization,” but as these things usually turn out, they are too good to be true.”

In Florida, where at least four new toll roads are currently under consideration, Poole claimed that taxpayers could save between $11 billion to $17.9 billion if a 50-year P3 lease for the Florida Turnpike’s outside operation was signed. Poole added, “The bottom line is the immense value of the Florida Turnpike system could be used to improve the state’s fiscal condition greatly.”

Using comparable data from long-term P3 leases worldwide, Poole estimated that after paying off outstanding turnpike bonds, the state of Florida could receive an upfront payment of $14.5 billion for a 50-year lease. He suggested three possible uses for the lease proceeds:

  • Address $64.3 billion in unfunded 2045 Multi-Modal Plan projects
  • Reduce state debt to secure a higher bond rating and then receive future lower interest rates
  • Slash the state’s retirement system’s $22 billion “unfunded liability.”

Poole claimed that most of these worldwide P3 long-term leases limit annual toll rate increases to the rate of inflation. The toll road company would likely speed up modernization efforts and implement electronic tolling. Instead, a more likely scenario is that any private enterprise would optimize profits by continuously hiking tolls and skimping on maintenance, as evidenced by post-lease actions in past P3s deals.

States might be tempted to pursue a P3 for existing toll roads as the COVID-19 pandemic has drastically cut traffic volumes and revenues. City and state officials would need to chop budgets and public services to stay solvent. As The Atlantic pointed out recently in an article, these measures reflect a serious problem in American policy: The systematic neglect of public infrastructure since the 1970s. Public investment, instead of privatization, should again become the norm.

We reached out to the Alliance for Toll-Free Interstates, of which the NMA is a corporate member. Stephanie Kane, Director of Communications, provided this written statement on the privatizing of already established toll roads:

“Privately financed infrastructure requires a revenue stream – which in terms of roads and bridges, it’s just taxation via tolls. Consumers will be shouldering the burden by paying more for goods every day, making tolls an underhanded tax on the general public.” 

“Privatization of our interstates turns public assets into privately controlled assets, left to be operated and maintained in a way that first and foremost meets the expectations of the private company’s shareholders and investors. With a fiduciary responsibility to shareholders, how can a company be expected to also act in the public’s best interest when those interests are at odds with each other? Private dollars in road funding will rob everyday drivers to line the pockets of Wall Street and international investors.”

States should never sell out their roads or their motorists.

Not an NMA Member yet?

Join today and get these great benefits!