Sorry, Virginians, Roads Aren’t Free

The folks in Hampton Roads are brimming mad because the state is starting construction on a major highway project, the Midtown Tunnel that will connect Norfolk with Portsmouth. The problem, apparently, is two fold: 1) users will have to pay tolls to pay for it, and 2) a private company is going to run it. The Virginian-Pilot editorialized against the project (December 7, 2011), writing:

“Elizabeth River Crossings [the private operator] is predicting an annual return of 10 to 12 percent to its investors, the kind of profit that other companies dream about in days like these.

Richmond will pony up more than $350 million. As if that’s not punishment enough, the company also has the right to petition for more taxpayer dollars if the state builds a highway project that reduces traffic at the tunnels.

This is a lousy deal for Hampton Roads in all the obvious ways: It enriches a private company at public expense; it cedes too much control of public infrastructure; it balkanizes a community that struggles mightily for unity.

And none of that matters at all.

This is a good deal for Richmond, which is desperate to build something – anything – to argue that decades of inaction are over.

It’s a good deal for anti-tax politicians, who seem to believe that public infrastructure is no longer the commonwealth’s responsibility.

It’s a good deal for the rest of the state, which enjoys the economic benefits of Hampton Roads without being asked to pay a fair share. It’s also good for Elizabeth River Crossings, which is staking its investment on roads to which there are no practical alternatives.”

The editorial represents a simply untenable old school position: Roads are public goods that should be supported by general taxes, managed by a state bureaucracy, and paid for by non-users (especially those outside the region). The reality is the Midtown Tunnel simply wouldn’t get done without using the state’s creative public-private partnership law to use the private sector to get the project going and implemented cost-effectively. While I haven’t read the P3 agreement, the editorial talks a lot about “what ifs” and conveniently ignores the inherent hazards of planning and managing long-term infrastructure projects. Predicting annual profits of 10 percent is a lot different from earning them. Simply ask Macquarie Capital which took a bath during the bankruptcy of the Southbay Expressway in San Diego.

The Virginian-Pilot should be singing the praises of the P3 arrangement. The risk of project delivery, operations and maintenance is being born by the private company, not the taxpayer (as in the case of the South Bay Expressway). While Elizabeth River Crossings can renegotiate with the state if the government builds a free road to compete with the tolled one, this is hardly a give away to the private company. Indeed, the editorial even implies that that government should be ponying up more money for roads and major projects; the risk is real and they simply are covering themselves in case the government makes a game changing move.

But, more to the point, the idea that any new project should not be tolled is short-sighted. Simply building more lanes and bridges isn’t sufficient in highly congested areas to ease traffic problems. The traffic has to be managed more effectively, and the new infrastructure has to be put in the right place at the right time. Tolling, variable rate pricing in particular, is essential to making that happen.

Rather than take the substance of the transportation challenges of the Hampton Roads seriously, the Virginian-Pilot seems to be retreating into simplistic populism that simply ignores the realities of identifying, funding, building, and managing major infrastructure projects in the modern age.