Policy Study

Should States Sell Their Toll Roads?

Executive Summary

The 99-year lease of the Chicago Skyway for $1.83 billion has put privatization of existing toll roads and turnpikes onto the public policy agenda. Was that transaction a special case, or would something similar make sense for other tolled bridges, tunnels, expressways, and long-distance toll roads?

This study provides context for the debate on toll roads privatization. It reviews the private sector’s emerging role in developing new U.S. toll roads and summarizes the recent global experience with the sale of longterm concessions to operate and manage existing toll roads.

Next, the study explores the fiscal implications of toll road privatization. Whether such transactions make financial sense for the city or state involved depends critically on how the proceeds are used. Governments should follow the Chicago precedent and use the proceeds to strengthen their balance sheets (e.g., paying off debt, creating reserve funds, investing in one-time infrastructure projects) rather than to address short-term budget deficits.

Of at least equal importance is the question of whether privatizing a toll road would result in better outcomes for motorists. The study reviews the constraints and incentives faced by government toll authorities, and finds that it is difficult for them to provide the kind of customer service that we expect from market-driven businesses. It also contrasts project investment decision-making and financing alternatives in state toll agencies with companies operating under long-term concession agreements. The study also addresses a number of concerns that arise with privatization, and assesses several possible alternatives (such as making the toll agency operate more like a business or going the nonprofit corporation, public-private partnership route).

Finally, it provides a detailed set of guidelines for policymakers who conclude that privatizing an existing toll facility or agency is the preferred course of action. This includes procedural issues such as the typical steps involved, the need for outside professional assistance, and various lessons from Chicago’s privatization process. The report also discusses a number of issues that must be addressed in the long-term concession agreement, such as toll rate controls, length of the concession term, employee transitions, and the need to provide for revisions and modifications during the life of the agreement.

This paper concludes that privatizing existing toll facilities and agencies is a viable option that can benefit governments and also toll road customers. But as with many other complex undertakings, the devil is in the details. This study is intended to provide the kinds of details needed to get the process done correctly.