Report raises red flags with toll road privatization

| 4/6/2009

Look no further than the Indiana Toll Road for an example of how the public gets the short end of the stick when toll roads go private, says the author of a report on public-private partnerships.

Authors of a report for the Public Interest Research Group are urging states to exercise caution when considering similar ways to leverage public infrastructure for cash.

“They’re really dictating for generations how these major thoroughfares are going to be governed,” author Phineas Baxandall, a senior analyst for tax and budget policy for PIRG,” told Land Line following the release of the report titled “Private Roads, Public Costs.”

The report stresses the need for the public interest to be protected as states consider privatization deals as a way to generate transportation dollars.

Baxandall said Indiana Gov. Mitch Daniels was one of the first governors to follow through with leasing a toll road to the private sector. The $3.85 billion paid by investors for the Indiana Toll Road remains the largest private transportation deal to date.

Mistakes were made that leave the public holding the bag, Baxandall said.

“To further the Mitch Daniels example, he is funding a 10-year transportation plan with a 75-year lease,” Baxandall said.

“Starting in year 11, he’s not getting revenue from the tolls, but the public is paying higher tolls. It’s not until year 11 that it will kick in, so for the first 10 years, it seems like a really sweet deal.”

Mike Joyce, director of legislative affairs for the Owner-Operator Independent Drivers Association, said the report nails the issue of privatization on the head.

“This report really encapsulates the points and the red flags that we’ve raised over the years about private toll roads as they relate to the highway user,” Joyce told Land Line.

“The system that is in place today takes advantage of states that are not well-prepared to negotiate with firms that have already done the calculus. This is a wonderful report to highlight the areas where the U.S. and states need to become stronger at negotiating these deals.”

Baxandall and the other two authors of the report say that long-term toll-road leases should not last more than 30 or 35 years. The Indiana deal was signed to last 75 years until 2081.

“They’re really dictating for generations how these major thoroughfares are going to be governed,” Baxandall said.

Baxandall has some suggestions, including the reform of state laws to protect the public by going beyond “enabling legislation” for public-private partnerships.

“There has to be a vote of the full legislature on a final deal,” Baxandall told Land Line. “It’s not enough for the legislature to vote on some enabling legislation … and never have to take responsibility for any deal that is signed.”

To read the PIRG report, click here.

– By David Tanner, staff writer