Governor Pataki’s proposal to lease bridges, highways, and subway lines to private companies and allow the operators to collect the tolls or fares has created quite a stir. As the government struggles to fund transportation projects, naysayers should consider the potential revenue and significant improvements that would come from leasing some of the Metropolitan Transportation Authority’s productive, income-earning assets.
The seven toll bridges and two toll tunnels owned and operated by MTA subsidiary the Triborough Bridge and Tunnel Authority currently gross $1.1 billion a year in toll revenues. These are highly lucrative undertakings even under government operation and the state is wise to consider making the most of them by inviting private sector bids – but they aren’t the first to do this.
The city of Chicago recently did the same thing on its much smaller Chicago Skyway toll road. The winning bidder is paying Chicago $1.83 billion in return for a 99-year lease and operating rights (referred to as a toll concession agreement).That is 41.6 times the annual toll revenues of $44 million of the Chicago toll road. Applying that same ratio to New York MTA’s toll bridges and tunnels suggests they could be worth $46 billion. The breakdown would be as follows:
- Verrazano Narrows Bridge $10.8 billion
- Triborough Bridge $10.3 billion
- Bronx Whitestone Bridge $8 billion
- Throgs Neck Bridge $7.8 billion
- Queens Midtown Tunnel $4.4 billion
- Brooklyn Battery Tunnel $2.4 billion
- Henry Hudson Bridge $1.7 billion
- Marine Parkway Gil Hodges Bridge $446 million
- Cross Bay Bridge and Parkway $396 million.
In announcing sale of the Skyway, Chicago Mayor Richard Daley said running a toll road “is not a core function of city government.” It isn’t a core function of state government either. Such business operations are better done by business, as is generally the case for other large infrastructure such as electric power, gas, and telecommunications. These network utilities are usually investor-owned, operating under long-term franchises to protect the public from monopoly abuses. In the case of the Chicago Skyway, the contract puts clear limits on the amount and timing of toll increases the private company can impose.
Why lease? The Triborough Bridge and Tunnel Authority has debts of $6.7 billion and the MTA’s other divisions have debts of $14.8 billion. Consequently, a long-term lease of the bridges and tunnels would eliminate the debt and produce a significant surplus – probably $25 billion to $35 billion after debt retirement. These funds could be used for major improvements to New York’s transportation infrastructure that the state would never be able to afford otherwise.
The actual amount that could be raised by capitalizing on the TBTA’s toll crossings would depend on the details of the toll concession agreements. The longer the lease term and the more freedom given to set toll rates, the higher the amount MTA could get. Thirty-year terms tend to yield about half the price of 99-year terms. The British government gave investors a 53-year term and complete freedom to set their toll rates on the M6 Toll road near Birmingham. By contrast, a shorter, 35-year term with heavy restrictions on toll increases reduced the value of Italy’s Autostrade concession on 2,118 miles of toll motorways. Chicago seems to have drawn a middle line, granting a 99-year term and allowing the private companies some flexibility to vary tolls by class and time of day, but limiting overall increases to the rate of inflation.
The world is increasingly embracing these public-private partnerships. Japan, France, Italy, Portugal, and Spain are privatizing their state toll roads. And a Bush administration review of investor toll projects finds that they can save between 6% and 40% in costs, according to Secretary of Transportation Norman Mineta. In a recent speech, Mr. Mineta said the survey showed that bringing in investors produces “quantifiable cost and time savings (and) that quality and innovation increase by involving the private sector.”
“Our goal is to encourage states to experiment and innovate, to become the laboratories of democracy and show us and each other how to work with the private sector to build roads that open faster, require less repair work later, and give us safer, smoother rides at less cost,” Mr. Mineta stated.
If New York can retire MTA debts and garner some tens of billions of dollars for infrastructure investment, while transferring these business operations to entrepreneurs, then everyone could win. Discussion of this is long overdue.
Robert W. Poole Jr., founder and director of transportation studies at Reason Foundation, has advised the last four presidential administrations on transportation issues. Peter Samuel is publisher and editor of Toll Roads Newsletter.