Policy Study

Rebuilding the Marquette Interchange Via a Public-private Partnership

Executive Summary

The Marquette Interchange is arguably the most important single component of Wisconsin’s surface transportation infrastructure. Unfortunately, it is worn out and in urgent need of rebuilding. And because of the state’s current budget-deficit situation, the total cost of rebuilding the Marquette – nearly $1.5 billion, using realistic numbers – is beyond the state’s means. Further, there is very little prospect of obtaining significant “extra” federal aid for this very large project. And any significant reallocation of existing federal dollars from other Wisconsin projects toward the Marquette would meet certain opposition.

This report proposes an alternative way of rebuilding the Marquette. Instead of scraping together the necessary tax funds by starving other needed transportation projects of funding, or stretching out the project over a decade or more (during which downtown Milwaukee would suffer greatly), we propose tapping private capital via a public/private partnership (PPP). The Marquette is a large and complex bridge. Major bridges are usually funded via long-term revenue bonds, to be repaid from tolls charged to users. This is a typical application of the PPP approach in transportation.

Public/private partnerships for large, complex infrastructure projects have been used for decades in Europe, and more recently in Australia and Latin America. During the 1990s they began to be used in the United States and Canada as well. PPP toll projects are in operation in California, Texas, and Virginia, as well as several Canadian provinces. Large urban toll projects in excess of $1 billion are in operation or under construction in Melbourne, Paris, and Toronto. These projects, in particular, make use of fully automated tolling systems to generate revenue to pay for the facilities. These automated tolling systems are designed from the outset without any toll booths. All tolls are collected electronically, at normal highway speeds, either via a dashboard-mounted transponder (for regular users) or via license-plate imaging (for occasional users). All the inconvenience, traffic congestion, safety, and environmental concerns of traditional tolling would not occur on the Marquette.

For the Marquette, we have estimated the cost of a state-of-the-art automated tolling system (similar to that on Toronto’s Highway 407) at $28 million. That is less than two percent of the total cost of this nearly $1.5 billion project. Also, the operating and maintenance costs of such a system are estimated to be a small fraction of the cost of operating conventional toll collection with toll booths. Further, this type of tolling system gives everyone access to the facility, whether they open an account and obtain a transponder or not.

Our preliminary analysis suggests that the entire reconstruction project could be funded via a toll revenue bond issue. A baseline toll revenue stream of $165 million per year will support bonds in excess of the $1.5 billion project cost. This revenue number is based on rush-hour bridge tolls of $2 for cars and $10 for trucks, comparable to tolls on major bridges nationwide. Off-peak rates on weekdays and all day on weekends and holidays were assumed to be 30 percent less.

Wisconsinites are reported to contribute more than 40 percent of Illinois’out-of-state toll revenues. Our proposal attempts to turn the tables by collecting $17 to $21 million each year from out-of-state users of the Marquette.

Ample legal authority exists at the federal level to carry out this project in the manner we have proposed. Federal surface transportation law provides for public/private partnerships, for using tolls to rebuild Interstate facilities, and for charging peak and off-peak toll rates. Indeed, the Federal Highway Administration encourages all three of these techniques. Wisconsin enacted a PPP law for transportation projects several years ago, but some fine-tuning would be needed to clarify the legal status of charging and enforcing electronic tolls and of using the design-build procurement method for such projects.

We recognize and empathize with the concerns expressed by highway user groups (auto clubs and trucking associations) about “double taxation” – i.e., paying both tolls and fuel taxes for the same highway facility. Our proposal therefore includes rebates of fuel tax liability incurred for the miles driven on the rebuilt Marquette. The proposed automated tolling system enables this to be done on an individual user basis in a reliable and cost-effective manner.

A public/private partnership is a viable approach for rebuilding and modernizing this vital component of Wisconsin’s transportation infrastructure. It would permit the entire project to be completed in a four-year period, minimizing the period of disruption in downtown Milwaukee. And most important, it would free up close to $1.5 billion in federal and state transportation funds for other vitally needed transportation projects in the state, including the modernization of the Milwaukee-area freeway system.

We hope Wisconsin’s business and government leaders will embrace this new approach to meeting an urgent public need.