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Reason Foundation

Should States Sell Toll Roads?

Reason Foundation guide shows policymakers how to evaluate pros and cons and avoid risky pitfalls

June 2, 2005

Los Angeles (June 2, 2005) – The recent $1.83 billion lease of the Chicago Skyway has government officials across the country examining the potential benefits of selling or leasing their own toll roads and bridges. While the privatization of existing toll facilities is a viable option that can often yield large financial profits, a new Reason Foundation study warns the “devil is the details” and offers a comprehensive guide to help policymakers determine if privatization is in fact the right step and to ensure that the long-term lease agreement is advantageous to motorists.

"Many toll roads in the U.S. would be better owned and managed by competitive business under toll franchises," said Peter Samuel, lead author of the Reason study. "With few incentives to contain costs, or develop value for customers, many toll roads are locked in financial folly, earning meager returns on capital for taxpayers - often much less than the interest rate they pay to bondholders. Privatization could be a win-win proposition, relieving taxpayers of state debt while allowing entrepreneurial management to deliver a better service to motorists. But the devil is in the details of privatization and how the proceeds are deployed."

According to the study, the full, long-term benefits of toll road privatization can be realized if cities and states use the billions of dollars in revenue to build transportation infrastructure, pay off debt, and create reserve funds. If the funds are diverted to cover short-term budget deficits or on other quick-fixes that do not have a lasting, positive impact on transportation policy, taxpayers and history will likely judge the deals harshly.

"Privatization can be done well – or badly," said Robert Poole, director of transportation at Reason Foundation and the study's project director. "Selling or leasing an asset worth half a billion dollars or more is not a process to be taken lightly. It is critical that governments utilize legal and financial firms that possess specialized knowledge of long-term toll road concessions at every step along the way."

The Reason study explains how controversial issues such as toll rate controls, the length of privatization contracts, and employee transitions should be handled. It also reviews the private sector's growing involvement in developing new U.S. toll roads and analyzes toll road projects around the world, where many countries, including Japan France, Italy, Portugal, and Spain are privatizing state toll roads.

Full Study Online

The full study is available online at http://www.reason.org/ps334.pdf.

About the Author and Project Director

Peter Samuel is senior fellow at Reason Foundation and the publisher and editor of TOLLROADSnews.com. He has authored numerous transportation and toll roads studies. A former economics professor, Samuel now writes for World Highways, Intelligent Transportation Systems International and other journals. He published Toll Roads Newsletter from 1995 to 2002 before moving the publication to the Web.

The study's project director, Robert Poole, is director of transportation at the Reason Foundation. He has advised the last four presidential administrations on transportation issues and testified before the House and Senate on several occasions. Poole served on the Bush-Cheney transition team in 2000-01.

About Reason

Reason Foundation is a nonprofit think tank dedicated to advancing free minds and free markets. Reason produces respected public policy research on a variety of issues and publishes the critically acclaimed monthly magazine, Reason.

Contacts

Robert Poole, Director of Transportation, Reason Foundation, (310) 292-2386
Peter Samuel, Senior Fellow, Reason Foundation, (301) 631-1148
Chris Mitchell, Director of Communications, Reason Foundation, (310) 367-6109



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