How much money can tolls and private capital provide - ARTBA disinformatzia

July 12, 2007
By Peter Samuel

Peter Ruane of the DC road builder lobby ARTBA had a letter in the Wall Street Journal (July 9) belittling the potential contribution of tolls and private capital, and he claimed USDOT endorsement. He chided the Journal editorial writers saying private capital for roads "is not the panacea you proclaim," continuing: "An August 2006 U.S. Department of Transportation study concluded that if fully utilized, private capital would provide less than 10% of the investment the federal government says is necessary to reduce current congestion levels."

This is disinformation worthy of the Kremlin back in the old days. It's baloney built on baloney.

There is no such US DOT study. And the study being cited, done FOR, not by USDOT doesn't say anything about 10% being a limit on private investment's contribution.

USDOT spokesman Brian Turmail told us by email in response to an inquiry about the AASHTO claim in the Wall Street Journal letter: "The Department has not prepared a report projecting the amount of private sector capital that could be deployed into US transportation infrastructure. The report ARTBA cites is simply an analysis of how much tolling is going on right now nationwide. It is not an assessment of the potential extent of tolling revenue that could be generated through public private partnerships."

When we tackled them ARTBA told us they were referring to a study done by Benjamin Perez and Steve Lockwood of pbConsult for USDOT called "Current Toll Road Activity in the U.S.: A Survey and Analysis." It's a valuable study with a lot of new and important data, but ARTBA's letter over Peter Duane's name grossly misrepresents what it says.

Perez and Lockwood (download pbConsult report here) say that based on current policies in the next five to ten years toll financing of new capacity will be between $4b and $6b/year out of total spending in the region of $13b to $17b (p12). That's about 30% to 35% of investment in new road capacity nationwide. Looking at private involvement in past and potential toll road projects (Table 6 p10) pbConsult identify $35b with definite or possible private capital out of $80b total. That is 44% private of total toll financed new capacity. On top of 30 to 35% of investment in new highway capacity presently based on tolls that translates to private sector provision of 13% to 15% of total new capacity (toll and non-toll).

But even that is not presented by Perez and Lockwood as any kind of projection of what's possible. They don't say it is an upper limit, the way the ARTBA letter suggests.

Under the heading "What the Future May Hold" (p13 and 14) Perez and Lockwood suggest the contribution of private capital will be determined by various policy decisions such as state policies toward toll financing, federal aid obstacles to tolling, innovations in road pricing, environmental streamlining, and attitudes toward the use of concessions. Nowhere do they say the private sector's role will be "under 10%."

They don't give any number but they say the US "may be on the verge of transitioning to a robust mix of highway funding options in which tolls play a significant role."

In response to followup emails ARTBA also cite the state DOTs' lobby AASHTO as a basis for the WSJ letter claim of "less than 10%" of needs being supportable by private investors. They cite the AASHTO report "Revenue Sources to Fund Transportation Needs" of April 2007 (http://www.transportation1.org/tif4report/TIF4-1.pdf). Here on p43 unnamed "analysts who have specialized in the potential of tolling" are cited as saying that tolling's share of total funding could be increased from 5% to 7% over the next 15 years if it receives strong policy support. That is thin stuff.

This 5% is highly misleading.

The AASHTO report cites $7.75b of toll revenues in 2005 as representing 5% of "total highway revenues" which multiplies up to $155b. This is misleading too. This global number of $155b includes $17b in proceeds of bond issues, a large proportion of which are floated by toll authorities, and $8b interest on investments also accruing largely to toll authorities.

If you want to use the global denominator of $155b as AASHTO and ARTBA do, then in order to gain a measure of the importance of tolling you should include perhaps two thirds of borrowings proceeds and, say, two thirds of investment income in the numerator for tolls in which case you get something like $24b/$155b or 15.5% of highway finance being via tolls, not 5%.

The $155b also includes $8b in property taxes representing support for the upkeep of local roads, and $22b general fund appropriations which are not highway user revenues either.

FHWA's data on which AASHTO rely has highway user taxes as $82.6b and tolls $7.75b, making total highway user revenues in 2005 $90.3b, not the $155b reported by AASHTO. Toll revenues of $7.75b are therefore currently 8.6% of highway user revenues, a lot more than 5%.

(see http://www.fhwa.dot.gov/policy/ohim/hs05/pdf/hf10.pdf)

In any case the AASHTO numbers are about tolling (public and private) not about what private capital can contribute. Rather than look to what some unnamed "experts" say about the likely role of private capital in a not particularly friendly policy and political environment, the sensible thing to do is to ask why new highway capacity can't be financed entirely by user fees - tolls or other direct road pricing.

We don't need tax-based government grants to support electricity generation, or telecommunications, or air travel, or automobiles. Freight railroads pay for the construction and up-keep of their right of way out of user fees. Roads obviously can too, and arguably would be healthier if they had a more direct connection with their customers via direct charges for use (tolls) than being dependent on government handouts.  Direct charges also offer the huge advantage of allowing use of variable toll rates to manage the roads in peak hours and prevent inefficient breakdown in flow from overload - the stop-&-go, creep-&-crawl phenom so pervasive on  unmanaged free roads.


Motive to lobby not to serve roadbuilders


It's interesting to consider what motivates the roadbuilders lobby to dissemble and distort as ARTBA does here in order to belittle the potential role of private capital and tolling. From the viewpoint of roadbuilders wanting roadwork it shouldn't matter how it's financed. A contract with a private concessionaire or a DOT or a toll authority is all roadwork.

The answer has to be that roadbuilders' lobbies like ARTBA have more interest in lobbying than in roadbuilding. There's power and money in the handout system for lobbyists and politicians alike. They both lose their leverage in a more customer-oriented market-based system.

Here's a piece we wrote for Reason Foundation on highway finances: http://www.reason.org/ps359.pdf

Below is the excellent WSJ editorial to which ARTBA objected:

Road Blockhead -WSJ June 26, 2007; Page A14 FULL TEXT

"In a testy letter to no fewer than all 50 states, House Transportation Chairman James Oberstar recently warned officials against entering public-private partnerships for local road projects and said he may even "undo" existing agreements. Sounds like the Minnesota Democrat feels threatened.

"Public-private partnerships, or PPPs, are collaborations between a public agency and a private entity to fund highways and other infrastructure projects. They can cover the operation and maintenance of existing roads, or the construction of entirely new ones. Two of the country's most prominent PPPs are the Chicago Skyway and Indiana Toll Road. These deals have proliferated in recent years, and today more than 20 states allow private enterprises to operate toll lanes and toll roads. Tired of waiting on federal funds, states from Texas to Georgia to Virginia have used PPPs to modernize roadways and alleviate congestion.

"In a follow-up to his ungentle missive, Mr. Oberstar released a "position paper" this month that fleshes out his "serious concern" that these arrangements "do not adequately protect the public interest." In reality, Mr. Oberstar's main concern is protecting the political interests of himself and fellow Transportation Committee Members. All 75 of them -- about one-sixth of the entire House.

"His committee is by far Congress's most bloated, and its main order of business is shepherding through the lard-ridden highway bill every six years. Road financing got federalized back in the 1950s for the purposes of building the Interstate Highway System. Today that system is nearly complete, and Transportation has become little more than a public works committee, with the highway bill serving as a vehicle for Members to hand out checks to favored constituents.

"The last highway bill cost $295 billion, a third larger than its predecessor, and included 6,400 "special projects" -- bike paths, museums, snowmobile trails, parking lots -- that totaled $23 billion. These days, when the money does go toward actual road construction, it is often of the "Bridge to Nowhere" variety. Which is why states are finding public-private funding more and more attractive.

"The biggest problem with the Interstate Highway System today is not connecting one city to the next; it's accommodating suburbanites forced to commute to a downtown area in bumper-to-bumper traffic. But that situation might not be a priority for the person who's got the pull to get money from the feds. Hence, PPPs have become an attractive alternative for financing new capacity projects, and that's what worries Mr. Oberstar. If this continues, he knows PPPs will make his committee less relevant in the transportation debate.

"Notwithstanding the Congressman's self-interest, however, the more public-private partnerships, the merrier. Revenues from gas taxes, which support the highway fund, aren't enough to maintain the system, let alone finance expansions. Making all Americans pay for local road projects is unfair in any case. PPPs offer taxpayers more efficiency and accountability. And if local policy makers can involve the private sector in paying for highway projects, there's less incentive to raise taxes to fund new roads. No wonder Mr. Oberstar is against them.

end WSJ editorial

TOLLROADSnews 2007-07-12


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