PIRG’s Misleading Report on Public-Private Toll Roads

The always anti-privatization Public Interest Research Group has just released its second report criticizing the growing trend of state governments turning to long-term public-private partnership (PPP) deals to attract private investment into their ailing highway systems. The report seems intended to confuse. The usually well-informed New York Times transportation writer Michael Cooper, in his April 1 blog post “States Consider Privatizing Roads” at The Lede, writes,”The numbers in the report are eye opening.” That’s because the numbers are misleading and wrong.

The worst distortion of what’s going on is the way the PIRG report blurs the distinction between leases of existing toll roads and similar long-term deals that create brand new (and much-needed) toll roads via private capital investment. The report’s executive summary says, “Between 1994 and 2006, $21 billion was paid for 43 highway facilities in the United States, using various ‘public-private partnership’ models.” Since nearly all the rest of the summary talks about long-term leases of existing toll roads, with huge up-front payments, the casual reader gets the impression that this is the case for all 43 highways. In fact, there have been just four such leases of existing toll roads: the Chicago Skyway, the Indiana Toll Road, the Pocahontas Parkway (in Virginia), and the Northwest Parkway (in Colorado). Only the first two involved huge up-front payments. In the latter two cases, private investors rescued and refinanced struggling public-sector toll roads, and will eventually make annual revenue-sharing payments to the states in question. The other 39 PPP toll projects involved much-needed new highway capacity.

Unfortunately, you don’t learn this either from the executive summary or the body of the report. Instead, you have to go to the trouble of downloading a separate Appendix document from the PIRG website. The NY Times repeats the misleading formulation. And when you go through the appendix of completed projects, you don’t find 43 projects worth $21 billion. It includes only 15 projects worth $8.9 billion. Somebody seems a bit math-challenged here.

Much of the PIRG report’s alarms about how the public might be short-changed by PPP toll roads is worded as if 75-99-year leases were standard (most new toll roads are being developed on 35 to 50 year terms) and as if large up-front payments were the rule, rather than the exception. In fact, of the 15 completed projects in the appendix, only two involved up-front payments of any kind (Chicago Skyway and Indiana Toll Road). And PIRG’s other concerns—mostly about alleged “loss of control”—are being addressed via extremely detailed long-term concession agreements, including performance standards and penalties. These deals generally provide greater accountability for results than is typical for state-run highways.

Finally, PIRG’s proposed public-interest protections seem designed to make PPP deals unattractive to the private sector. A strict maximum term of 30 years would be too short for many higher-risk PPPs (such as large-scale toll tunnels, or refinancing a going-broke toll road like the Northwest Parkway). And a requirement that the legislature must approve the terms of any concession is a guarantee of no deals; states which have included such mandates (at one point California and Florida—both since repealed) have received exactly zero proposals. Why? Because going through the competitive process for a billion-dollar toll project and then negotiating the deal can take a year and millions of dollars. The risk of a last-minute veto by the legislature after all that time and cost is simply too high for companies and investors to take. The wise alternative is a good PPP enabling law setting forth the public-interest protections a deal must include. That kind of measure has worked well in Florida, Texas, and Virginia, where private capital is being invested and much-needed projects are being built and operated.

Readers seeking a far more objective discussion of how states should take care in doing PPP highway deals should check out the new report from the Pew Center for the States(.pdf).

Reason’s Sam Staley on the PIRG Report

Reason Foundation’s Toll Road, Public-Private Partnership Research and Commentary