Golden opportunity or fool’s gold?

| July 05, 2007

Love them or hate them, public-private partnerships are attracting the attention of politicians nationwide. Overdrive takes a look at both sides of the issue and how such projects will affect you.

When owner-operator Randy Nace heard Indiana Gov. Mitch Daniels’ proposal to lease the Indiana Toll Road to private investors, “I didn’t think anybody was dumb enough to do it,” he recalls. But upon learning the project was on a fast track for approval, the Indiana native contacted the nonprofit advocacy group Citizens Action Coalition. Together, CAC, Nace and six other Indianans sued in April 2006 to stop the deal, calling it unconstitutional. The judge ruled against the group, which had raised more than $100,000 for the fight with help from the Owner-Operator Independent Drivers Association, individual truckers and Indiana residents.

Two months later, Indiana leased the toll road to Cintra-Maquarie, an Australian-Spanish consortium, for 75 years and $3.85 billion.

The Indiana Toll Road lease is the most controversial example of state and local governments contracting with private companies to manage existing toll roads or design, finance and build roads – in exchange for toll revenue. Proponents of these public-private partnerships, also called P3s, say they generate badly needed funds to build new roads, fix old ones and ease congestion more quickly and efficiently than possible if left to the public sector. Opponents charge that such partnerships merely hock the roads for ready cash today without considering the potential financial effect on motorists today and in the future.

Given state and federal governments’ reluctance to raise fuel taxes, a solution to the nation’s need for transportation improvements is “not going to come about in any timely fashion without some form of new funding mechanism,” says Robert Poole, director of transportation studies at the Reason Foundation.

In many cases, that means P3s. Proponents say revenue from P3s can fund capacity that would make roads more efficient for truckers and other motorists. As part of Gov. Daniels’ Major Moves program, for example, the $3.85 billion Indiana received for the lease of its toll road will fund more than 200 transportation projects around the state. In Pennsylvania, Gov. Ed Rendell has proposed leasing the Turnpike to fund mass transit systems, roads and bridges.

But critics, especially those in trucking, charge that such improvements come at too high a price. In comments made at a May hearing before the U.S. House Subcommittee on Highways and Transit, Bill Graves, president and CEO of the American Trucking Associations, said that under the Indiana Toll Road lease, rates for a 5-axle truck traversing the entire stretch could increase 172 percent by 2010 – from $14.55 to $39.64. That could grow to $580.58 or even higher throughout the term of the lease, according to an analysis of maximum possible increases by Dennis Enright, a principal at NW Financial Group.

Another criticism: Roads have been leased too cheaply. One study estimates that Indiana Toll Road investors may see a return on their investment in a mere 15 years – with 59 years of profit to go, amounting to a potential $21 billion.

Truckers view the tolls that yield such profits as double taxation – or worse – because they already pay 24.4 cents per gallon in federal diesel fuel tax, a 12 percent excise tax on new tractors and trailers, an annual vehicle use tax of up to $550 and a tire tax. “Motorists as well as truckers have paid for these roads with fuel taxes,” says Clayton Boyce, public affairs vice president for the American Trucking Associations.

“It is nothing more than a taxpayer-funded shell game when existing public highways are converted to toll roads after money to pay for their construction and maintenance has already been collected,” says company driver Jeff Kleb of Midlothian, Va.

Administrative costs make toll collection an inefficient way to fund roads, Boyce argues. “It costs about a third of every dollar collected to collect tolls, whereas using fuel taxes it’s 2 to 3 percent in costs.”

Critics also worry that investors don’t have the public’s best interest in mind. “The companies lining up to buy our roads aren’t doing it out of the goodness of their hearts,” says Todd Spencer, OOIDA executive vice president. “They see long-term cash flows and guaranteed, healthy profits at the public’s expense.”

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