Commentary

Canceling I-77 Project Would Harm State Business Climate, Private Infrastructure Investment

Opposition to tolling likely to fade after express lanes open

The I-77 HOT Lanes, which reached financial close more than a year ago, are under construction north of Charlotte, North Carolina. The lanes—which are currently being built under a $647 million public-private partnership (P3)—promise to provide travelers with a congestion-free travel alternative when they need to get somewhere on time.

Unfortunately, critics of the I-77 project continue trying to stop the project despite the harm it would do to the state’s reputation as a place to do business. Last week, the North Carolina House voted 81-27 on House Bill 954–Terminate Agreement for Tolling of I-77–to cancel the contract with the private sector partners financing and building the project. While potential Senate action is uncertain and the Governor promises to veto any bill that cancels the project, the House vote starts a dangerous precedent.

If North Carolina were to kill the project at this stage, it would be a move befitting a banana republic in which contracts already signed can be thwarted by legislative fiat. This would be sending a strong signal to the private sector that its infrastructure investments—and the associated jobs and resulting projects—would best be made in other states with less political risk and where legislators embrace private enterprise, not selectively undermine it.

Worse, to cancel the project, the state would have to pay up to $300 million of money it does not have to the private concessionaire. To find that money, NCDOT would have to cancel local transportation projects across the state, including the widening of US 21, SR 73, SR 115, and improvements to Hambright Rd and Lakewood Rd in the Lake Norman area. And North Carolina taxpayers would be left with a congested I-77 and no funds for widening.

The project started in 2007 when the state identified the corridors that would work best for express lanes. In 2010 the Charlotte Regional Transportation Planning Organization, the federally designated metropolitan planning organization (MPO) recommended express lanes on I-77, I-485 and US 74. In 2011 the state decided to pursue the I-77 express lanes project as a P3. In 2013, four potential bidders were shortlisted, and in 2014 a winning concessionaire was chosen. The project reached financial close in 2015 and construction began earlier this year.

Throughout the process, a number of taxpayer-friendly provisions have been added. Several bidders wanted a higher level of state contribution than the $88 million NCDOT provided. Those bidders were denied. Other bidders wanted to extend or expand the scope of the project. They, too, were denied. Each of the proposals was rated on more than 200 criteria to determine whether bidders were qualified to build, maintain and operate the road; only the top bids were shortlisted.

In reality, the project’s opponents have had plenty of time to make changes to the project. But instead of focusing on constructive changes, most project opponents have been angling to kill this project from the start.

According to the bill’s author the problem isn’t with tolling but rather with the 50-year contract. Other critics have complained about the tolling aspect, as well as the project design issues. Most of the complaints of these Monday morning quarterbacks don’t have much merit:

  • One of the top complaints concerning the I-77 contract is the so-called “non-compete” clause which purportedly prevents NCDOT from adding new lanes to any roads in the area. But in reality, the contract does not prevent the construction of anything. The State can build any road it desires including projects that are not in the transportation improvement plan or long-term transportation plan. If the concessionaire believes that an unplanned state-funded project is significantly decreasing express lane revenue, it can petition the state for compensation for the decreased revenues; the concessionaire must then support its case with sophisticated modeling and a compelling rationale. Conversely, if NCDOT were to make unplanned highway improvements leading to an increase of traffic in the HOT lanes—presumably increasing revenues to the concessionaire—the state could request additional revenues from the concessionaire for that additional traffic. Hence, it’s a two-way street. If both parties fail to come to agreement in either case, the contract specifies a dispute resolution procedure. Finally, there is no guarantee for additional revenue transfers either way, and there are no outright restrictions on what the state can or cannot build.
  • Another popular complaint is that the bankruptcy of the Indiana Toll Road and pending bankruptcy of State Highway 130 in Texas—both long-term public-private concession agreements similar to I-77—displayed some sort of failure in the P3 model. Actually, the reverse is true. Both bankruptcies prove how P3s protect taxpayers. In bankruptcy, the private concessionaire will try to work out a deal with its creditors. Sometimes it will keep control of the road; other times the road will revert to state control where it can then be operated under state control or leased anew. What matters in bankruptcies is the effect on road users and taxpayers. And what happens, is business as usual. There is no interruption of service; no increase in toll rates; no change in performance requirement. Even better, states have infrastructure that could not have been built without the private sector contribution.
  • Others complain about the length of the 50-year contract. Contract lengths are typically intended to cover the useful life of the asset, which for a well-constructed roadway is about 50 years. NCDOT could have entered into a shorter contract, but in that scenario the state would have had to use substantially more taxpayer funding to build the roadway. Moreover, the 50-year term means the concessionaire, at its own expense, is responsible for maintaining the new lanes in top condition for that entire time period.
  • Some folks complain that the lanes will operate like “Lexus lanes” where only the wealthy use the lanes. Yet, this hasn’t happened in any areas where express lanes are in operation. In Atlanta, the top 5 vehicle types in express lanes are the Ford F-150, Honda Accord, Toyota Camry, Toyota Corolla and Honda Civic. None of these are luxury vehicles. Research from Georgia and Texas indicates that low-income households place the greatest value on managed lanes.. Arriving on time to pick a child up from daycare is a priority regardless of income groups. Most travelers use HOT lanes once or twice a week at most.
  • Others are worried about placement of the entrance and exit ramps. In addition to the southern and northern points of the express lanes, there are six other entrances and exits to the express lanes strategically placed to balance both safety and access. Most of these access points are at least five miles away from each other, since express lanes are intended for longer trips. All general purpose lane exits and entrances will remain open, so the new express lanes entrance and exit ramps should help reduce congestion.
  • Critics suggest that NCDOT should add a third general purpose lane on I-77 as DOT has done for other expressways in the Charlotte area. The problem is it would take 20 more years for DOT to have the gas tax revenue to add that lane. Commuters need additional capacity today. There is, however, limited appetite for a gas tax increase that would fund the project more quickly.. Entering into this public-private partnership provides $567 million in new funds to build the project.
  • There is another problem with building new unpriced capacity—induced demand. Already widened roadways such as I-77, I-85 and I-485 become congested 2-5 years after they have been widened. This occurs because travelers will make additional trips or move trips taken during middays or evenings to rush hours. These extra trips have economic benefits, but they undermine congestion relief.
  • The I-77 HOT lanes will feature variably-priced tolling where rates rise or fall based on demand. Demand-based pricing will help keep the new lanes congestion-free with a travel time of 45 miles per hour or higher 90% of the time or more. Similar projects are successfully operating on Interstates in Virginia, Florida and Texas now, providing congestion relief for both those using the priced lanes and those using the nearby general purpose lanes (who benefit from others deciding to pay for a faster ride on the express lanes).
  • The concessionaire’s goal is to maximize traffic throughput, not revenue. As a result the tolls will rise and fall based on demand. Charging too high a toll will cause the contractor to lose money as fewer travelers will choose to use the express lane. The price of managed lanes is similar to the price of Jean’s. If Levi’s charges $80 for a pair of jeans, it makes more money per pair but sells substantially fewer pairs. If it charges $40, it will earn less money per pair but sell many more jeans overall, maximizing the number it sells and its profit.

As this is North Carolina’s first P3, public concern and skepticism are warranted. Before construction, a similar express lanes project in Texas was viewed favorably by 46% of people and unfavorably by 48%. However, after construction the favorability rating increased to 70% and the unfavorability rating decreased to 25%. To cancel an ongoing construction project that would help relieve congestion on I-77, because of misinformation and political gamesmanship would be a truly foolish decision. Moreover, it would damage the state’s ability to attract private investment in future infrastructure projects.

Baruch Feigenbaum is Assistant Director of Transportation Policy at Reason Foundation a non-profit think tank advancing free minds and free markets. Feigenbaum has a diverse background researching and implementing transportation issues including public-private partnerships, highways, transit, high-speed rail, ports, intelligent transportation systems, land use, and local policymaking. 

Feigenbaum is involved with various transportation organizations. He is a member of the National Academy of Sciences Transportation Research Board Bus Transit Systems and Intelligent Transportation Systems Committees. He is Vice President of Programming for the Transportation and Research Forum Washington DC Chapter. Feigenbaum is also a reviewer for the Journal of the American Planning Association (JAPA). He has appeared on NBC Nightly News and CNBC. His work has been featured in the Washington Post and Wall Street Journal and USA Today. 

Prior to joining Reason, Feigenbaum handled transportation issues on Capitol Hill for Representative Lynn Westmoreland. He earned his Master’s degree in Transportation Planning with a concentration in Engineering from the Georgia Institute of Technology.