A private company is once again pitching a plan to pay billions for a long-term lease of the E-470 toll road in the Denver area. While the E-470 is a well-managed highway, the region should seriously consider crafting a partnership agreement that would give local governments billions of dollars to invest in other needed infrastructure projects, lock the private company into contractual commitments on road improvements and maintenance, and set limits on toll rate increases.
The proposed deal from ROADIS, a company wholly-owned by one of Canada’s largest public-employee pensions funds, would give $4.2 billion upfront, spread across eight local governments—the cities of Aurora, Brighton, Commerce City, Parker, and Thornton, along with the counties of Adams, Arapahoe, and Douglas.
ROADIS says it would also pay off the toll road’s $1.9 billion debt, spend nearly $2 billion on capital improvements to the highway, and implement a program to lower toll rates for E-470’s most frequent users.
Leasing a toll road for 50 years sounds like a strange idea to many. But, in recent years, five U.S. toll roads have been converted to private management, including Denver’s Northwest Parkway. Long-term toll road partnerships like this are far more common in Europe, Australia, and Asia, where governments select world-class toll road companies to operate, manage, and improve their existing toll roads and use the money from the leases on other public purposes, typically other transportation projects.
My recent Reason Foundation study reviewed the results from those roads and analyzed nine large U.S. toll road systems as potential candidates for these types of leases. The total estimated market value of the nine US toll roads was $127 billion. The net value, after paying off debt, was $77 billion—putting the average value at $8.5 billion per toll road. Thus, ROADIS setting the net value it would pay for an E-470 lease at $7.1 billion seems quite plausible.
Some critics, however, say the proposal seems too good to be true and that local governments would be falling for snake oil salesmen. But there are some key points to consider.
First, the proposal would not sell the E-470 toll road. It would be a long-term, 50-year lease. Taxpayers would still own the highway.
Second, as with investor-owned utilities, like Public Service Co. of Colorado, both the toll road’s performance and toll rates would be regulated. That would be the job of the E-470 Authority, which would remain in place and take on an oversight role holding the private provider accountable for meeting the terms of the contract.
Such agreements typically include numerous performance metrics that the company must meet, with fines and penalties for non-compliance. At any time during the lease, the E-470 Authority would have the right to terminate the contract for convenience or for cause (typically, for continued violation of the terms of the agreement). In the latter case, the company would lose its equity investment.
A major concern that drivers have with these types of deals concerns the potential for toll rate increases. But ROADIS has already said it would contractually agree to limit annual toll rate increases to an inflation index–something not provided for today.
The proposed E-470 deal is at least worth considering. If it seems too good to be true, opening up the process to other bidders would be a good way to test the market. If the ROADIS offer turns out to be an extreme outlier, no harm is done. But there are about a dozen world-class toll road companies and, by investigating its options, the region might find that this offer is legitimate—or that an even more financially attractive offer exists.
Amidst the coronavirus pandemic and recession, local governments are going to be experiencing severe budget problems, perhaps for years to come. A public-private partnership that sets strict standards for road conditions and toll rates, and gives local governments billions of dollars for transportation projects that probably can’t be completed or paid for otherwise, is worth looking into.
A version of this column first appeared in the Denver Post.