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Reason Foundation

The Wall Street Journal

Show on the Road

Seismic shift in the way our roads are financed

Robert Poole
February 27, 2007

Lou Dobbs recently griped on his popular CNN show that parts of the Interstate highway system "built with your tax dollars are now being sold to the highest bidder. And incredibly, it's being done with the federal government's encouragement." Worse, according to America's loudest economic nationalist: "Some of the leading bidders: foreign investors."

I was interviewed for this segment and pointed out, helpfully I thought, that a Spanish company sinking $7 billion into new highways in Texas, meanwhile creating thousands of U.S. jobs, is the very antithesis of protectionists' dreaded "outsourcing." But that tidbit was left on the cutting-room floor.

Mr. Dobbs and others are riled up, but the public-private toll road partnerships sweeping the nation promise to revitalize our highway system. It's a seismic shift in the way roads are financed and managed -- the biggest change since the launch of the Interstate system 50 years ago. In these deals, investor-owned companies pay for the right to design, finance, build, operate, maintain and rebuild an existing or new toll road. In return they get the right to collect tolls on the road for 50 to 99 years.

Headlines may scream "New Jersey Turnpike for Sale!" but highways are not "sold" under these concessions. The government still owns the roads and the contracts spell out exactly what the company can -- and must -- do. The deals (whether for a new or existing road) typically include limits on allowable toll increases and rates of return, maintenance requirements, etc.

Private roads aren't exactly new: In the 19th century, private toll roads provided much of England and America's pre-auto-era highway capacity. Public-private toll road partnerships were rediscovered in France, Spain and Italy during the 1960s and '70s as the main method for building nationwide toll motorway systems.

The re-emergence of this model in the U.S. has been driven by a transportation system burdened with pork projects and funded by gas taxes that fail to keep up with construction and maintenance costs, let alone travel demand. From 1980 to 2000 highway travel increased 80% and the number of drivers rose by 30%, but highway capacity grew by just 2%.

Woefully short of funds, states are turning to the private sector. But private capital will only invest in projects people or shippers are willing to pay tolls to use. Money is therefore directed to routes and roads most appealing to users, not according to the agendas of pork-happy politicians.

State and city governments are also realizing that they are sitting on billions in untapped assets. Chicago's Democratic Mayor Richard Daley moved first, leasing the 7.8 mile Chicago Skyway for $1.8 billion in 2005. The Spanish-Australian consortium leasing the road quickly improved traffic flow by installing state-of-the-art electronic toll collection equipment.

Republican Gov. Mitch Daniels leased an Indiana toll road for $3.8 billion and is working to partner with the private sector on a new one that would connect several counties. Democratic Gov. Ed Rendell may lease the Pennsylvania Turnpike, while his Democratic cohort, Gov. Jon Corzine, is considering the same for New Jersey's.

While states are trying to reduce congestion and build roads without raising taxes, we can never underestimate the federal government's power to stop progress dead in its tracks. At a recent hearing on toll road public-private partnerships, Oregon's Democratic Rep. Peter DeFazio mused that "the federal government may have to step in" if the leasing of existing toll roads continues.

Congress would be wise to get out of the way and let a crucial experiment play out, in which some states embrace the new approach and others don't. In 10 years, we'll all be able to see whose highways resemble packed parking lots, and which states have booming economies because they're moving goods on free-flowing roads.

Mr. Poole is founder of the Reason Foundation and director of its transportation studies. An archive of his work is here and Reason's transportation research and commentary is here.


Robert Poole is Searle Freedom Trust Transportation Fellow and Director of Transportation Policy


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