Taking a toll
In July, Georgia Commissioner of Transportation Harold Linnenkohl announced to the State Transportation Board a tentative plan to add an east-west highway to ease congestion north of Atlanta. The connector, which could be a state road or an interstate, would pass through a burgeoning area near Lake Lanier. If approved, the northern east-west connection would be the latest in what some local and state officials call the future of road building: toll roads that are initially funded by public-private partnerships (PPP).
Although acquiring the right of ways for the project will be challenging, finding the money to build it could be a potential deal-breaker. “Here in Georgia, we are facing a $7.7 billion transportation funding shortfall over the next six years,” Georgia Department of Transportation (GDOT) spokeswoman Carrie Hamblin says. “Certainly finding a way to pay for a project of this magnitude is first and foremost on our minds.”
Using a PPP, the state can solicit a company to pay the initial cost of the project and then use the toll money to pay back that investment. “We’re just looking at a way to provide the infrastructure that we need,” Hamblin says. “Georgia is a growing state [with] growing needs.”
Toll roads on the rise
Georgia is not the only state turning to PPPs and toll roads to handle increased traffic. According to the Federal Highway Administration (FHA), 21 states allow the use of PPPs to fund transportation projects. Also, since the passage of the Intermodal Surface Transportation Efficiency Act (ISTEA) in 1991, 27 states and one territory have implemented major toll road operations, according to the August 2006 FHA study “Current Toll Road Activity in the U.S.: A Survey and Analysis.”
States are using PPPs and tolls to raise revenue and handle the increasing cost of building and maintaining new infrastructure, says Jack Basso, chief operating officer for the Washington-based American Association of State Highway and Transportation Officials. “Especially if it’s ‘green field’ projects, meaning new construction, it’s a way of generating the necessary revenue to get those facilities built a lot faster than you can do them in the traditional way, where you have to build up a lot of capital over a lot of years and you’re being chased [by inflation] the whole time you’re building that capital,” he says.
The “Current Toll Road Activity in the U.S.” study shows that 168 toll projects planned or implemented since ISTEA could provide up to 14,565 lane miles of capacity to the nation’s highway system. Also, the study projects that toll road development will increase from 50 to 75 miles per year between 1991 and 2001 to 150 miles per year for the next 10 years. Finally, the study’s authors reach the conclusion that “we may be on the verge of transitioning to a robust mix of highway funding options in which tolls play a significant role.”
Facing the consequences
While most toll roads are state-owned, local officials may experience “unintended consequences” when the roads pass through their areas, says Tony Giancola, executive director of the Washington-based National Association of County Engineers (NACE). “One of the unintended consequences is the fact that there may be parallel local roads or other state roads which are not interstate or big freeway-type roads, which could, in fact, witness … an influx of truck traffic to avoid the tolls,” Giancola says. “These roads could be overwhelmed, not only with congestion but also because they are designed to a different level [and] may not be able to handle the repeated truck traffic that’s going over them.” That already happens in some states with toll roads, Giancola says, and drivers of smaller vehicles may do the same, adding to congestion.
In August, the Arlington, Va.-based American Trucking Associations (ATA) filed a comment with GDOT opposing part of the state’s Northwest Corridor project because it would include tolled truck-only lanes on parts of Interstates 75 and 575. Along with concerns that the truck-only tolls are unfair to truckers, ATA says it will drive more truckers to use local roads instead of interstates. “We did a study that found that a substantial number of trucks would likely shift to parallel U.S. [Highway] 41 to avoid paying the toll,” says Clayton Boyce, ATA’s president of public affairs.
ATA is very concerned that the growing number of toll roads will increase that phenomenon, and it is especially opposed to turning over existing roads to private, profit-driven companies as part of PPPs because that will increase the number of toll roads as private companies seek to recoup their investment, Boyce says.
Indiana makes ‘Major Moves’
In 2006, Statewide Mobility Partners, a joint venture between Spain-based Cintra Concesiones de Infraestructuras de Transporte and Australia-based Macquarie Infrastructure Groupe, took over management of the Indiana Toll Road (ITR) with an up-front payment of $3.8 billion on a 75-year lease. Cintra and Macquarie formed the Indiana Toll Road Concession Co. (ITRCC), which operates and manages the 157-mile roadway.
The Indiana project, along with Chicago’s 2005 sale of the concession on its Skyway Toll Bridge to the same two companies, are mentioned in a letter to state officials from the House Committee on Transportation and Infrastructure urging states to be cautious about entering PPPs that may not serve the long-term public interest. “These deals make good business sense to the companies that are investing in the projects, but we have serious concerns about whether these transactions offer a net balance of benefits for the American people,” the letter states.
Indiana officials maintain that the state is benefiting from the arrangement. “[The ITR] was an under-performing state asset that had not made money in five years,” says Andy Dietrick, communications director for the Indiana Department of Transportation (IDOT). Indiana Gov. Mitch Daniels looked at Chicago’s deal as a model and proposed the lease, Dietrick says.
The state used the $3.8 billion from the lease agreement to fund new road infrastructure as part of IDOT’s 10-year construction plan. “When Gov. Daniels came on board as governor there was a transportation funding gap that was identified by a series of meetings around the state [with] local officials,” Dietrick says. As a result, projects were identified and assessed according to their feasibility, connectivity and economic development impact.
The list was narrowed to more than 400 projects in three main areas: new construction, major preservation and resurfacing. “The problem was that construction program, which was dubbed ‘Major Moves,’ had a price tag of $2.8 billion, which the state of Indiana did not have,” Dietrick says.
Rather than raising taxes or turning to traditional sources of funding, Daniels began looking for alternatives. Daniels and state officials chose to lease the ITR to Statewide Mobility Partners.
Along with covering the $2.8 billion cost of Major Moves, the $3.8 billion lease provided $500 million that was placed into the “next generation” fund that builds revenue for future projects. “There were disbursements to all 92 counties [in the state] to help them with their local infrastructure,” Dietrick says.
While the ITRCC may raise the cost of tolls, the state would have done that, too, to cover the toll road cost, Dietrick says. Having money in the bank from the ITR lease gives the state more flexibility to build new infrastructure and keeps costs down by allowing IDOT to avoid paying more for material as prices increase over time, Dietrick says. Also, ITRCC must meet strict requirements, including making improvements, such as adding lanes and implementing electronic tolling, or forfeit its claim to the toll road.
While the state will not see any revenue from the ITR for the next 65 years, Dietrick says the immediate investment will provide huge benefits to the transportation system and any industry that requires transportation infrastructure. “We would not have been able to do what we’re doing without the infusion of cash from the lease of the toll road,” Dietrick says.
Texas says no to PPPs
In May, Texas issued a moratorium on comprehensive development agreements (CDA), which are a type of contract used in PPPs. The same legislation also gives the Harris County, Texas, Toll Road Authority (HCTRA), the first option to build local toll roads in the heavily populated county, which includes Houston. Both actions are connected to the controversy about the state’s proposed Trans-Texas Corridor, says Harris County Judge Ed Emmett.
Emmett says the problems began when the state sold its first toll facility, TTC-35, to Cintra and San Antonio-based H.P. Zachary. “The local farmers and ranchers and a lot of people in Texas just went ballistic over the concept of the Trans-Texas Corridor because it was taking up far too much land, and the fact that the very first project was a 50-year lease to Cintra,” Emmett says.
At the same time, Harris County was considering selling its toll roads, which have been in existence for about 20 years, but decided against it. “We thought maintaining control of our toll roads was a better thing,” Emmett says. “So, we went to the legislature this past session and had bills signed to say [only HCTRA] has the right to develop toll roads in Harris County, period.”
Meanwhile, when the chairman of the Texas House Transportation Committee would not hold a hearing on the CDA moratorium, the bill’s sponsors decided to attach it to the Harris County bill as an amendment. They were able to do so, Emmett says, because of the 150 members of the Texas House, 110 were co-sponsors of the moratorium. The bill later passed 139 to 1. Emmett says that, while some PPPs are still being considered, the state legislature “has made it real clear that they are not real enamored with [CDAs].”
Keeping control over the HCTRA allows the county to use revenue from the toll road to develop others, such as connector roads and free lanes. “It allows us to control the timing and the order in which these get built, and, in the long run, it allows us to control the price, as opposed to having a private interest that has a profit motive [as a partner],” Emmett says.
With or without PPPs, Emmett says, toll roads will continue to grow in popularity, at least in Texas. The increasing number of fuel-efficient vehicles has led to a decrease in revenue from the state’s flat fuel tax because less gasoline is being sold. As a result, the Texas Department of Transportation has announced that all of its revenue will now be used for maintenance only. “[Toll roads are] the only way major highways are being built now, simply because there are no funds,” Emmett says. “Nobody’s in the mood to go in and massively increase taxes, so as long as that’s what’s coming out of Austin, we’ll be doing toll roads.”