Business Week has a great article (“Roads to Riches”) this week on the sell-off or leasing of public infrastructure to private companies. Bottom line, it’s a GREAT investment opportunity.
The reason why it’s such a great investment is exactly the fatal flaw from a public point of view: the ability to increase tolls sharply. The idea is that the private companies can charge tolls that politicians who are accountable to voters could not get away with. So the political calculus is: current officeholder gets the credit for a one time revenue boost (or new projects in lieu of cash). When the chickens come home to roost, someone else is in office and says: “don’t blame me, I didn’t cut this deal and I can’t break the contract.”
This is what Peter DeFazio called “outsourcing our political will.”
14 responses to “Business Week Highlights Fatal Flaw in Private Toll Roads”
Chris, thank you for placing this article up on the blog. We are at a cross roads where where the State of Oregon could head down a path that I personally believe is wrong.
It is time that we step to the plate and fund needed transportation infrasturcture. To the surprise of many the State of Washington increased their Gas Tax two time in the last 6-years. The last increase was challenged with a vote that affirmed the legislation.
What they did in the State of Washington was identify given projects that were brought to legislature from all over the state. They were prioritized and scheduled and they all addressed local needs assessment.
Oregon can and should do the same thing.
We are too smart to get caught up in this trap of selling out our soul for todays gain, placing the true burden on the next generation.
I’d say the bigger issue to consider with privatized toll roads is whether or not they lead transportation and land-use planning in the direction of automobile dependency. When the corporate interests who profit from automobile dependency need highway expansion to protect their transportation monopoly (travel by car only), there are no savings to the gas tax paying motorist when construction of new toll roads is funded privately. The bigger question is still: Is the additional highway capacity Constitutional?
Funny. I view this as a good thing. Politicians are typically too spineless to do anything that might rock the boat and – gasp! accomplish something.
Its hard to know what the outcome would be of turning the freeway network over to private parties. Its likely that they would seek to maximize revenue including letting the freeways fill to capacity. Since the speed at capacity is about 35-45 mph, I am not sure that will please those who see this as helping end congestion. On the other hand, its likely the new monopolists would oppose attractive alternatives like improved transit, rail etc. It seems to be moving away from recognizing the full public value of transportation where many of the benefits go to those who may not directly use the system.
I still don’t understand why transit advocates are so against this? Not allowing this is exactly what killed off transit services in the first place.
I’m seriously starting to think that the real consensus here is not to have transit, but to solely have public/subsidized transit? I mean, if transit could support itself via real competition with entities that are forced to maintain the roads without taxpayer subsidies and such…
Why not?
Private roads would most likely lead to nothing but increased transit use, or insanely efficient roadway usage.
What’s the real problem here? I mean really, the functional problem?
The problem is that in a purely market-driven solution with inelastic demand, the market is able to provide minimal, highly substandard products at a high profit margin – i.e., since people “have” to get to work, those driving will accept really crappy roads at a high cost when ordinarily they would not.
Sure, they can take transit, but transit will be driving on those same roads. If this model is extended to include local streets, bicycles will be affected as well.
Look at what happened when public utilities were privatized – service went down. Our electrical system teeters on the edge of collapse because power resellers don’t have to provide infrastructure. In order to compete with the resellers, power producers have to undercut themselves. In times of energy shortages, the free market enormously increased the price of power and heat (natural gas) – not a good thing if you’re dying of heat exhaustion in the southwest, or freezing in the northeast. Here in Oregon, we’re not as affected by that due to our massive hydroelectric investment.
Industries with inelastic demand (the basics), IMO should be managed by public entities, and not privatized. Privatizing roads is a bad idea.
Here in Oregon, we’re not as affected by that due to our massive hydroelectric investment.
Just to be clear, the “massive hydroelectric investment” by the United States government.
Privatizing roads is a bad idea.
I agree. However, introducing more accurate economic signals to people about the cost of their own usage is not a bad idea.
Are toll roads getting the cold shoulder? It seems that there was an avalanche of information about toll roads being the future for Oregon. Since that time there seems to be not much enthusiasm. Was the publicity a test run to see how the people of Oregon felt? My impression is that the idea of toll roads was not accepted well at all. Especially with Macquarie leading the way. Are the ODOT powers regrouping, or what. There is absolutely no information being disseminated about the Newberg-Dundee Bypass, or any of the Oregon Innovative Partnerships Program projects. Did U.S. Highway 20 put a damper on design/build for the foreseeable future?
I definitely get the sense that the first paradigm blew up, both because the toll rates were a shock and because the terms from the private partner were hard to swallow.
I don’t think the conversation is dead (it might come back regarding adding a lane on I-205), but we may leapfrog from talking about tolls to pay for new capacity to talking about tolling the whole freeway system.
Privatizing roads is a bad idea.
Well, perhaps the existing infrastructure. I don’t see anything wrong
with new roads financed by private companies that want to charge for
the use of their facilities.
…we may leapfrog from talking about tolls to pay for new
capacity to talking about tolling the whole freeway system.
Absolutely! The gas tax is NOT going to be raised in the foreseeable
future and revenue from the existing gas tax is going to decline as
fuel mileage improves (by government mandate, no less). It’s time to
start exploring ways to finance the maintenance of our existing
facilities: bridges and (at least) the controlled-access highways.
Only after our expenses are under control because some of our
facilities begin to pay for their own maintenance, we can begin to
discuss and prioritize improvements to the system using the existing
revenue stream and any excess revenue from tolls on the aforementioned
facilities.
I think they need to quadruple the gas taxes, the train fares, everything and build a world class system here in Oregon – more highways, a high speed train from Eugene that runs more than 2x a day and more freeways! Our population is exploding and we’re dragging our feet on stupid things like slow streetcars and MAX trains that only serve a tiny fraction of the state.
Our population is exploding and we’re dragging our feet on stupid things like slow streetcars and MAX trains that only serve a tiny fraction of the state.
Well then, Oregon and the other counties can pay for improving the state highways and the high-speed rail infrastructure and I’ll gladly use my local tax dollars to fund local projects that improve my local area. I’m certainly not going to fund a highway project in K-Falls any sooner than a farmer in K-Falls is going to commit his tax dollars to a MAX line in SE Portland. We’ve seen that proven in statewide ballot measures.
There are different levels of government for a reason. It’s not Portland’s job to accommodate the rest of the state. It’s not the rest of the state’s job to accommodate Portland. We’re not going to put all of our local projects on hold to accommodate projects that only or primarily benefit the rest of the state.
The state can feel free to toll the Interstate system to fund it’s improvements, but the legislature doesn’t have the backbone to do that.
I’ll continue being happy without owning a car and I’ll pay my taxes to improve the transit system that I use. What good do your trains and freeways do for me and why should I be expected to pay for them? At least the MAX and streetcars make it so people like me don’t have to use cars to drive everywhere – keeping traffic levels on those streets tolerable so people like you can drive all over Portland as much as you want.
Joseph,
I think much of what you say makes sense. However, wouldn’t it be great if you would pay the actual cost of your transit trips via the fare box instead of your taxes? I don’t know you or have any idea of your income but at the approx. $10-20 cost per trip you take I bet if you add up the trips you take in a year it is less than the taxes you pay.
btw…tolls are like a fare box for the roads, I would gladly pay the toll to have the service.
Using the utility example, think if utilities were free like road capacity and supply was constrained so that the system failed during peak periods. Your shower would drip out cold water in the morning and there would not be enough power to cook your dinner. It would be free though so you could leave your windows open with your furnace cranked up. I live near an apartment building where heat is free (included in the rent) and windows are open all winter long.
I don’t know you or have any idea of your income but at the approx. $10-20 cost per trip you take I bet if you add up the trips you take in a year it is less than the taxes you pay.
TriMet’s subsidy per boarding ride in FY2006 was $1.92 for bus and $0.72 for rail, with a system average subsidy of $1.51. Not $10-$20. The fare recovery ratio is 24.9% system-wide.
The closer in, higher-ridership bus lines tend to perform much better than the system average, so depending on where Joseph lives, he is very likely paying more than his fair share of transit expenses.
– Bob R.