Setting the Record Straight on Toll Roads and Public-Private Partnerships in Texas

Separating facts and myths in the moratorium debate

Los Angeles (May 11, 2007) – A moratorium on toll roads would "seriously undermine the goal of reducing congestion and improving mobility for all Texans" according to a new Reason Foundation report by Robert Poole, who has advised the last four presidential administrations.

The new Reason Foundation paper examines the arguments against public private partnerships (Comprehensive Development Agreements in Texas) and disproves claims that existing government toll agencies like the Harris County Toll Road Authority or the North Texas Tollway Authority could produce equal or greater value and revenue than the private sector.

Toll road opponents, and some who support a two-year moratorium, continually rely upon beliefs that are debunked in Poole's paper.

Claim: Texans will face sky-high toll rates.
Reality: We are in the midst of a monumental shift in the way we fund our roads and highways. Toll roads, unlike gas taxes, are an equitable way to share costs because only the user pays. A commuter in Austin doesn't pay for a road in El Paso. When toll road opponents claim toll rates will be $1.60 or $2 per mile in the year 2050, they fail to tell you that your own salary will be comparably higher by that year.

"When it comes to making sure we have the roads we need to get to school and work and to make sure businesses have the mobility to keep our economy moving there are no free lunches. We are going to pay in time, taxes or tolls," concludes Poole, who The New York Times says is "the chief theorist for private solutions to gridlock. His ideas are now embraced by officials from Sacramento to Washington."

Claim: We shouldn't give control of our roads to foreign companies.
Reality: We drive foreign cars filled with imported gasoline. We wear foreign-made clothes. And we use foreign computers and televisions. These toll road companies are building and operating immovable infrastructure in Texas. They can’t take the roads back to Spain or Australia. They are spending money in Texas and creating jobs in Texas.

Claim: Texas shouldn't sign partnership agreements that "give away" or lease critical infrastructure for 50 or more years.
Reality: The government owns the toll roads. Period. The lease agreements can be as long, or short, as the state and taxpayers want. In Australia, many toll agreements last 35 years. The tradeoff for shorter agreements is less money upfront for the state. For example, in an analysis of a possible long-term lease of the Illinois Tollway System, Credit Suisse ran identical scenarios, changing only the length of the lease. A 25-year lease was worth $1.6 to $2.2 billion. A 75-year lease was worth significantly more, ranging from $5.8 to $8.4 billion.

Claim: These private companies are getting guaranteed profits that should go to the government. Reality: No toll road agreements guarantee any return on the private investment. The private company is assuming all of the financial risk if the toll road does not meet traffic expectations. If the lure of potential future profits is a major concern for citizens, governments can negotiate to share any future profits in exchange for smaller upfront payments.

Claim: Texas won't be able to build needed roads anywhere near the toll roads.
Reality: Competition clauses do not prevent any new roads from being built. The agreements allow all roads in existing long-range plans to proceed, including frontage roads along the new toll roads. If a major highway or road not in those long-range plans is needed at a later date, it can be built. The private company operating the toll road must prove that a new government-built road is causing a direct loss of revenue in order to seek financial compensation.

The Reason study also exposes the errors in reports used to claim public-sector toll agencies could build new toll roads at lower costs and generate even more revenue than private companies.

"Long-term toll road concessions, like Texas' CDAs, aren't just a private-sector version of public toll agencies," Poole states. "These deals have a proven track record in Europe and Australia. They’ve shown they can mobilize more capital and shift significant financial risks away from taxpayers on onto private investors."

In an oft-cited report, consultant Dennis Enright dubiously claims the government could produce nearly twice as much value as Cintra's deal for the SH-121 in the Dallas area. Cintra's agreement would pay the state a $2.1 billion upfront, make annual lease payments (currently valued at $700 million), and share revenues if traffic levels and profits hit specified benchmarks.

Poole shows Enright uses unrealistic and aggressive traffic and revenue forecasts, as well as improbable projected toll increases to justify his forecast. The investment-grade forecast for SH-121, for example, was $20 billion in revenues over a 50-year period. Enright, however, chooses an aggressive projection of $34.7 billion in toll revenues.

"A higher-risk projection might be acceptable for a private company willing to privately finance SH-121," Poole says. "But credit rating agencies and bond-buying consumers aren't going to look kindly on NTTA taking on massive amounts of debt that would require very aggressive traffic numbers in order to avoid default. Moody’s has already warned that NTTA's bond rating will likely be downgraded if it takes on this debt."

Poole also casts doubts on claims that the government can run toll roads as cheaply as NTTA and Enright suggest. In NTTA’s recent proposal for the SH 121 contract, the government agency puts the present value of its operating and maintenance costs at just $560 million, a third of Cintra’s estimated costs.

"The private sector is leaner and more efficient than the government," Poole states. "In this case, NTTA is hiding its costs or severely underestimating them. Either way, under the NTTA plan, taxpayers will take the hit when the true costs reveal themselves."

Full Study Online

The full study, Tolling and Public-Private Partnerships in Texas: Separating Myth from Fact, is available online at www.reason.org/TX_toll_roads_working_paper.pdf. Reason's extensive archive of toll roads research and commentary is here: www.reason.org/transportation/index.shtml.

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. For more information, please visit www.reason.org.

Contacts

Robert Poole, Director of Transportation, Reason Foundation, (310) 292-2386
Chris Mitchell, Director of Communications, Reason Foundation, (310) 367-6109




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