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Reason Foundation

Public Works Financing

Rescuing California From Gridlock

How the state can add capacity

Robert Poole
February 15, 2005

There's good news and bad news from California this month.

The bad news could not be more bleak. To help close an $8 billion budget gap, Gov. Arnold Schwarzenegger has proposed a further raid on dedicated transportation funds. Specifically he would have the state borrow, for the third year in a row, the proceeds of the sales tax on gasoline, which voters in 2002 earmarked for transportation via a constitutional amendment (Prop.42). Assuming the legislature goes along, the three-year total would be $3 billion not invested in the transportation system of the state whose two largest metro areas waste $14 billion of time and fuel stuck in traffic each year.

The good news is that this dire funding crisis may finally prompt action on tolling and public-private partnerships. Both were called for in last year's California Performance Review, a top-to-bottom assessment of how to make the state government cost less and work better. And in his budget summary, Gov. Schwarzenegger announced a forthcoming GOCalifornia program, which would provide legislation authorizing design-build, tolling, and public-private partnerships for highways.

To illustrate what kind of impact such measures could have, the Reason Foundation released a policy study called "Building for the Future" on January 20th. After setting the stage by reviewing the inadequacy of the 25-year transportation plans of the metropolitan planning organizations for the Los Angeles, San Francisco, and San Diego areas, the report shows how large urban areas overseas (Toronto, Paris, Sydney, Melbourne, among others) are using toll finance and long-term concessions to develop multi-billion-dollar roadway projects such as Toronto's 407ETR, the dazzling $2 billion A86West tunnels near Paris, and the Melbourne CityLink.

To make the possible benefits even more tangible, the report then offers four case studies of potential toll-funded mega-projects in California's three major metro areas. One is a $2.3 billion tunnel providing a short-cut route from the LA Basin to Palmdale and its fledgling international airport. Long a white elephant because it's 61 miles from downtown, the Palmdale site is now the only remaining place where LA can possibly meet its need for continued airport capacity growth. The tunnel would cut the distance to 40 miles, and the time to get there nearly in half (thanks to value pricing). If built in two phases, like the A86 tunnels, the project looks like it could pay for itself out of toll revenues.

For San Diego, the report builds on the region's pioneering I-15 HOT lanes by proposing an $8 billion network of managed lanes, an estimated two-thirds of whose costs could be covered by toll revenue bond funding. Currently, San Diego's long-range plan calls for a much smaller set of managed lanes ($2 billion worth) funded by gas-tax and sales-tax monies, so that the modest toll revenues can be available to subsidize bus service.

The other two case studies are large-scale ($9-10 billion) toll truckways, based on the high-productivity concept of allowing double- and triple-trailer rigs to operate on barrier-separated tollways built above or adjacent to existing freeway corridors. In the Los Angeles area, the plan is similar to a proposal included in the Southern California Association of Governments� 2030 plan, extending from the ports of L.A. and Long Beach to the Inland Empire and beyond. Reason�s version would cost $10 billion rather than $16 billion, because part of it (from San Bernardino to the Nevada border) would be smaller in scope and hence less costly to build. It appears to be fully self-supporting from toll revenues, given the combined effects of saving truckers time in LA�s horribly congested traffic and allowing them to haul 50 to 100% more payload per driver.

A similar toll truckway in the Bay Area would have two branches, one from the Port of Oakland southward along I-880 and the other from Milpitas in Silicon Valley northward along I-880. Both would then follow I-580 eastward to I-5 in the Central Valley. This $9 billion project looks to be a break-even proposition for toll revenue financing.

After whetting policy-makers� appetites with these much needed projects, the report then reviews the state-of-the-art tolling and public-private partnership enabling laws of Texas and Virginia, highlighting the best features of each. And it then offers specific guidelines for new California legislation aimed at tapping global capital and expertise for California highways. Such legislation is needed because the state which pioneered private tollroads in 1989 with AB 680 (leading to the 91 Express Lanes and SR 125 South) currently has no legal mechanism for either tolling or public-private partnerships. AB 680 was repealed at the end of 2002 in the same bill that authorized the buy-out of the 91 Express Lanes by the Orange County Transportation Authority. And state law has always required an act of the legislature even to raise Bay Areas bridge tolls, let alone to use tolls anywhere else.

Will anybody take these proposals seriously? There are several positive straws in the wind. First, the governor is following through on previous statements on tolls and public-private partnerships. Caltrans is already drafting legislation to succeed AB 680. Second, in a legislature with large Democratic majorities in both houses, leading Democrats are making positive comments. Assembly Speaker Fabian Nuez (D, Los Angeles) was quoted in December saying "We ought to consider public-private partnerships in the area of transportation," including toll roads "in some cases." Senate President Don Perata (D, Oakland) said that the political stars appear to be lining up for ideas such as privatized toll roads. Added Nuez, "We ought to look very carefully at what other countries are doing and some other states, as well—which is bringing in the private sector to bring new investment and new money." And Perata added: "The governor has talked about the golden dream and renewing it. The Speaker and I will be there stride for stride on that."

Thus, despite having taken a time out from tolling and public private partnerships during the Gray Davis years, the Golden State may be on the verge of re-entering the game. Keep a close eye on Sacramento in coming months.

Robert W. Poole Jr. is director of transportation studies and founder of the Reason Foundation.


Robert Poole is Searle Freedom Trust Transportation Fellow and Director of Transportation Policy


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