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NY, NJ traffic woes could get fix from private sector
By Robert W. Poole, Jr. and Peter Samuel
New York state's toll roads and bridges generate revenues of more than $2 billion a year; New Jersey's top $1 billion. Together, the two states represent nearly half of all U.S. toll revenue. So when someone proposes selling one of those toll roads, the world pays attention.
A new bill in the New Jersey Senate calls for selling 49 percent of the New Jersey Turnpike to investors. Sen. Raymond Lesniak (D-Union) wants private companies to help run the toll roads and hopes to generate at least $6 billion to help pay the state's pension deficit.
Lesniak's proposal is a great idea — mostly — and should start a serious debate that could quickly spread throughout the Tri-State area.
There's a world-wide trend to get governments out of the toll-road business, delegating the risks and rewards to investor-owned companies. Canada, France, Italy, Spain and Portugal have all done so in recent years. And a host of others, including Australia and Britain, are enlisting the private sector to finance, build and operate new toll roads that those governments can't afford to build on their own.
America has a history of investor-owned toll roads. New York's parkways were pioneered by investors. The Long Island Motor Parkway — which from 1907 to 1938 ran 45 miles from Flushing, Queens to Hauppauge, L.I. — was the first modern highway designed to cater exclusively to automobiles and showed the way for the state-sponsored parkways and expressways that followed.
Last year, things really heated up when Chicago got $1.8 billion for a 99-year lease of the 7.8 mile Chicago Skyway, its major link to the east. Just this month, Indiana's Legislature approved a bill to lease the Indiana Toll Road to private investors for $3.85 billion. And proposals for investor-built toll roads are now being negotiated in Florida, Georgia, Oregon, Texas, Virginia and other states.
Why should governments consider the sale or lease of valuable assets like roads and bridges? What's in it for taxpayers?
Other countries have found that toll roads work better under commercial management. They have access to larger sums of money that isn't handcuffed by government red tape, can attract and keep professional management and staff (unconstrained by politics or civil service rules — think of last year's transit-workers strike), are less likely to do favors for the politically connected, and can operate across state lines to meet the needs of their customers.
Longterm concession contracts set specific limits on toll rates and amount of toll increases that can be charged to drivers, while also laying out exactly what maintenance, road and capital improvements are required.
What taxpayers can get, beyond billions of dollars in up-front concession fees, is a much better-funded (and hence better-performing) overall transportation system.
Of course how this money is spent is of utmost importance. In the Garden State, the main drawback to Sen. Lesniak's proposal is his plan to use the proceeds to bail out the state pension fund.
Recent studies have shown that New Jersey needs $10 billion in highway rehabilitation, $7 billion in bridge rehab and $5.5 billion to relieve traffic congestion (which costs metro area drivers some $6 billion per year in wasted time and fuel). Yet in the face of these needs, the New Jersey Transportation Trust Fund will have zero funds available for new projects starting this year.
Jersey's not alone. New York's state Department of Transportation (which recently held a workshop to assess private-sector interest in investing in toll projects) says the backlog of unfinanced transportation projects in the state is around $70 billion.
Jersey Gov. Jon Corzine says the proceeds from any Turnpike sale "should go into long-term benefits." He's right. And given the dire straits into which New Jersey's highways are about to be plunged by lack of funding, selling part or all of the Turnpike and dedicating the proceeds to highway improvements would be a winning proposition.
In Indiana, the entire $3.85 billion Toll Road proceeds will go to fund a 10-year program to modernize the state's highway system. That approach plays fair with motorists whose toll payments created the value realized by the lease deal. Both New York and New Jersey should consider doing likewise, with initial proceeds focused on such urgent projects as replacing the obsolescent Goethals and Tappan Zee Bridges.
Leasing government-owned toll roads to investors is a good move. But revenue from such deals should go to building infrastructure, not to cover the latest budget crisis.
Robert Poole is director of transportation studies at the Reason Foundation; Peter Samuel is editor of TOLLROADSnews.com. Their study "Should States Sell Their Toll Roads?" is available here. An archive of Poole's work is here and Reason's toll roads research and commentary is here. This column was originally published by The New York Post on March 28, 2006.
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