How Public-Private Partnerships Can Help Truckers and Highways


How Public-Private Partnerships Can Help Truckers and Highways

Long-term toll concessions, like one proposed in Denver, are the trucking industry’s best hope for achieving its goal of a rebuilt and modernized Interstate highway system.

The first potential long-term public-private partnership toll road lease since the Indiana Toll Road is being considered in Denver for the 47-mile E-470 urban ring road.

ROADIS, a Spanish toll road company wholly owned by one of Canada’s largest public employee pension funds, last year submitted an unsolicited proposal for a 50-year public-private partnership (P3) lease that would yield a net payment of over $7 billion to the eight local jurisdictions that own the toll road.

Although the E-470 Public Highway Authority rejected the proposal, some of those jurisdictions have organized a citizens’ committee urging consideration of the ROADIS offer and the company has local staff in Denver continuing to press their case.

Last month, the Colorado Motor Carriers Association (CMCA) sent the authority a three-page letter seeking to discredit the idea of long-term P3 leases (often referred to as infrastructure asset recycling), despite this concept’s success in Europe, Latin America, and Australia, and five current U.S. examples (including the Indiana Toll Road, Chicago Skyway, and PR-22 and PR-5 in San Juan).

Some of CMCA’s points are purely rhetorical, such as the claim that a “foreign institutional investor” would focus on its own money-making objectives rather than on the well-being of the toll road’s customers. Aside from the animus against “foreigners” (which is strangely absent when companies like Toyota or Taiwan Semiconductor want to invest in American facilities), this claim ignores standard provisions of long-term public-private partnership agreements, such as inflation-based caps on toll rate increases and numerous quantitative performance measures with penalties for non-attainment. It also ignores the obvious self-interest of the toll company to offer value for the toll payers’ money so they will choose to use the toll road instead of the alternative “free” roads.

Other points are clearly at odds with the facts.

One is a claim that when P3 toll roads suffered large traffic and revenue shortfalls during the Great Recession, they significantly increased toll rates, leading to a lot of traffic diverting to non-tolled alternatives. This likely refers to the bankruptcies of SH 130 in Texas and the Indiana Toll Road (ITR), since those were the two states mentioned. SH 130 was intended as a reliever for congested I-35 between Austin and San Antonio. Since the successor SH 130 concession company acquired SH 130 out of bankruptcy at a knock-down price, it did not need to increase its toll rates and remained bound by the original concession agreement’s CPI-based toll caps. A similar situation prevailed with ITR, except that the new concession company did negotiate a rate increase just for heavy trucks, which brought them closer to the rates on other parts of the I-80/I-90 corridor. It’s unlikely that this increase led to much truck diversion.

Another factual error is the allegation that both the European Union and the Federal Highway Administration (FHWA) call for long-term toll concessions not to exceed 30-to-35 years. The European claim originated in a study tour of European P3 toll concessions, where those numbers were discussed, but there is no actual EU policy. Otherwise, there would not be 70-year toll concessions in France for major facilities such as the A-86 tunnel on the Paris ring road and the Millau Viaduct cable-stayed bridge.

As for U.S. policy, FHWA’s revenue-risk P3 concession model reflects the reality that the length of a concession term must be tailored to the specifics of each project, which is why we see 50-year concessions in Texas and 70-year concessions in Virginia for revenue-risk projects.

Another CMCA concern is that the P3 toll industry, “like the mortgage industry…often relies on heavily leveraged debt and the trading of long-term risk.” Their letter refers to anti-P3 comments more than a decade ago from the late Rep. Jim Oberstar and current Rep. Peter DeFazio (D, OR).

There might have been some validity to such concerns in the years leading up to the financial markets crash and the Great Recession. Toll concessions financed in those years relied on overly-optimistic traffic and revenue studies, and rating agencies did not do serious-recession stress testing. The situation today is vastly different, with toll companies, state departments of transportation, and rating agencies doing far more conservative assessments and projections.

Yet another misunderstanding is CMCA’s assertion that the profit that accrues to shareholders in a P3 “will represent a net loss to the public.” If that were true, then all utilities, railroads, seaports, etc., should be government-owned and operated. In fact, the potential profit (return on equity investment) would be compensation for the operational and revenue risks taken on by those investors, which would otherwise be on the shoulders of taxpayers. This is a misunderstanding (or deliberate distortion) that I see being raised over and over by P3 opponents.

Finally, another assertion in the letter concerns the high costs of the necessary due diligence involved in vetting traffic and revenue projections and negotiating the 50-year agreement. CMCA cites Goldman Sachs having been paid $20 million for its work on the ITR concession, and to an average citizen, that sounds like a lot. But as a fraction of the original deal value of $3.85 billion it is a bit over half of one percent—a rounding error.

I raise these points not to bash the Colorado Motor Carriers Association. They have legitimate concerns about increased toll rates and the future of highways. But, as I wrote in Reason’s recent policy study on asset recycling of existing toll roads, one of the key benefits for toll road customers is protection from sudden toll rate increases, such as the 36 percent increase that just went into effect on the New Jersey Turnpike. An enforceable Consumer Price Index-linked toll cap often found in public-private partnerships, like the Denver proposal, offers long-term protection from such unpredictable increases.

Another benefit is greater resiliency during economic downturns and recessions, thanks to the financing not being all debt (which must be paid every year, regardless of recessions), but a mix of debt and equity, with the equity providers in second place behind the bondholders.

I envision long-term toll concessions as the trucking industry’s best hope for achieving their long-sought goal of a rebuilt and modernized 21st-century Interstate highway system. I explained that case last year at four separate trucking conferences and got a respectful hearing. So the public-private partnership community should not be bashing trucking organizations like CMCA for immediate objections to P3 concessions. Instead, we should work with them to identify how and why P3s are their best (or least-bad) option for a robust highway future.

A version of this column first appeared in Public Works Financing.