Surface Transportation News #138

Surface Transportation Innovations Newsletter

Surface Transportation News #138

"Bankrupt" toll road worth $5.7 billion; Managed lanes' growing pains

In this issue:

“Bankrupt” Indiana Toll Road Worth $5.7 Billion

Critics of long-term toll concessions portrayed the 2014 bankruptcy filing of the Indiana Toll Road Concession Company as demonstrating that such concessions are either financially unsound or are some kind of conspiracy to milk the asset and then walk away from the debt[!]. But last month they were disabused of those notions. Australia’s IFM Global Infrastructure Fund submitted the winning bid for the remaining 66 years of the concession: $5.725 billion (compared with the $3.8 billion that the Cintra/Macquarie team bid back in 2006). The deal will provide the existing bondholders with about 95 cents on the dollar, though the equity providers have lost their entire investment.

How can IFM’s investment be a wise move, after the previous bankruptcy? As I explained to a puzzled reporter the day the bid was announced, the main problem with the previous deal was not the price; rather, the problem was that it was financed with 85% debt and only 15% equity. And that debt included interest rate swaps that amounted to a balloon payment of $2.15 billion, which became impossible to pay last year, due to the (temporarily) reduced traffic and revenue stemming from the Great Recession. By contrast, IFM has structured its deal very conservatively with 57% equity and only 43% debt. As Public Works Financing reported last month, “The big equity investment made the ITR deal bankable” for IFM. And, as befits a conservative investor, IFM is targeting only a 10% return on its equity.

IFM is owned by 30 nonprofit Australian pension funds, for which a long-lived toll road business is a very good fit. Among the fund’s $40 billion in infrastructure holdings are 25% of toll road operator OHL Mexico, a stake in privatized U.K. utility Anglian Water, and stakes in both Manchester (U.K.) and Vienna (Austria) Airports. In an interview with the Sydney Morning Herald, IFM CEO Brett Himbury said the Indiana Toll Road is “a fantastic investment” for its portfolio. “It’s a really good quality asset in a great country . . . a very resilient asset.”

U.S. pension funds are also investors with IFM in the Tollway lease, and for most this is their first major investment in privatized U.S. transportation infrastructure. They include the California State Teachers’ Retirement System, the New York City Employees’ Retirement System, the State Board of Administration of Florida, the Arizona State Retirement System, and the Illinois State Board of Investment.

This is not yet a completely done deal. According to the terms of the bankruptcy agreement, the deal needs to reach financial close by Sept. 1st. To get there, it needs three regulatory approvals, in particular that of the Indiana Finance Authority, which administers the concession. No challenges to the deal are expected from the other two private-sector bidders: Cintra/Hastings Fund/Canadian Pension Plan Investment Board, and Abertis/Borealis. But there might be trouble from Lake and LaPorte Counties, which put together a $5.2 billion all-debt offer. Some observers expect them to protest “foreign ownership” of the IFM deal. Public Works Financing quoted an attorney supporting the counties’ bid as saying that the Indiana Finance Authority “stuck a knife in the backs of all Hoosiers when it supported profits going offshore rather than being reinvested in northwestern Indiana.” He should tell that to all the U.S. public employee pension funds eagerly investing in the deal.

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As Managed Lanes Increase, Growing Pains Arise

According to an article by Susan Buse in the annual Tolling Review produced by Thinking Highways, as of the end of 2014 there were 28 tolled managed lane projects in operation in 10 states plus Puerto Rico, with another 18 either under construction or nearing construction. The projects already in operation include 350 miles, with another 500 miles of express lanes in the pipeline. So rather than trying to provide an overview, my focus this time is on emerging growing pains.

One problem is that most elected officials-and even many transportation professionals-don’t yet understand that an express lane priced to maintain uncongested traffic flow at LOS C is the virtual equivalent of an exclusive bus lane. That lack of understanding is evident right now in the Washington, DC metro area, where both the Maryland and Virginia DOTs are considering adding managed lanes to congested urban Interstates. In Maryland the debate is over whether to add bus-only lanes or express toll lanes to I-270. And in Virginia, VDOT’s plan for adding express toll lanes to 25 miles of I-66 outside the Beltway also calls for expanded express bus service in the median! This is a waste of pavement. Repeat after me: a priced managed lane is a virtual exclusive busway. It’s not either/or; it’s both/and.

Another problem is shared between federal and state/local officials: reluctance to increase the occupancy requirement for free HOV passage from two to three. In Los Angeles, the converted HOT lanes on the Harbor Freeway (I-110) are so successful that first-year toll revenue was nearly double the projection-but because two-thirds of the vehicles during peak periods are two-person freebies, even with tolls at the maximum rate allowed, the lanes are getting congested during peak-of-the-peak times. So LA Metro’s remedy is to close the lanes to paying customers, to preserve mobility for the HOV-2s and the (very successful) new express buses.

HOV lanes all over the Los Angeles and San Francisco Bay Area are in blatant violation of the federal standard of 45 mph or better 90% of the time-but there is no federal requirement that in those cases occupancy be increased from two to three. If Congress made that mandatory, local officials would escape blame, and the revenue potential of converted HOV lanes would soar, generating funds needed to expand the system into the express lanes networks that both metro areas claim they will build. That will remain a pipe-dream as long as they are giving away most of their capacity to two-person carpools (a great many of which are fam-pools).

Florida DOT bit the bullet on going from two to three-person occupancy when it did the award-winning conversion of the failing HOV lanes on I-95 in Miami into the wildly successful I-95 Express Lanes. So did Georgia DOT on its I-85 managed lanes project. Washington State DOT is seriously considering doing likewise before it opens 17 miles of new and converted HOV lanes on I-405 between Bellevue and Lynwood this fall. I hope they persevere and do it.

Another problem is deciding what kind of access to provide between general purpose traffic lanes and managed lanes. Many HOV lanes around the country are continuous access-cars can enter and exit wherever they wish, and the separation between GP and MLs is simply a painted line or lines. Most managed lanes, by contrast, have only limited access, with entry and exit points miles apart (which led FDOT to refer to express lanes and “local lanes” to emphasize the difference). In California, HOV lanes in the Bay Area were developed with continuous access, while those in southern California have always had designated entry and exit points, designated by signs and openings in the pavement striping.

With both regions planning managed lane networks, it looks as if politics is leading the Bay Area to plan its network not only with continued HOV-2s-go-free but also with continuous access. If they do that, my prediction is failure, for two reasons. First, the performance of the tolled lanes will be degraded by the “friction” effect, well-documented by researchers at UC Berkeley and UC Riverside. When the GP lanes slow to a crawl, traffic in the adjacent HOV lane does the same thing. Why? Because drivers in the HOV lane anticipate that any time the HOV lane goes slightly faster, frustrated drivers from the GP lanes will dart in front of them. This phenomenon does not happen on HOV lanes in southern California. You can’t sell people faster, reliable trips on lanes that often go as slowly as the free lanes. Moreover, the Bay Area network cannot be created simply by converting all existing HOV lanes to priced lanes, because there would be numerous missing links on freeway segments that have no HOV lanes. So the revenue needed to build all that new capacity cannot be generated if the converted HOV lanes give away most of their capacity to two-person carpools.

One more problem that’s starting to appear is congestion at the point where a managed lane ends and traffic on it has to merge into the GP lanes. The new I-95 Express lanes in northern Virginia are experiencing this at their southern terminus on Friday afternoons and at some times on weekends, where five lanes of traffic must merge into three, and there is a similar problem at the northern end of the Beltway (I-495) Express lanes. The best remedy is clearly to add capacity by extending the managed lanes through the bottleneck to the point where traffic demand is significantly lower. That’s what FDOT is doing with the 14-mile extension of the Miami I-95 Express lanes to Ft. Lauderdale, with further northward extensions planned thereafter.

These problems are partly growing pains, partly misunderstandings of how managed lanes work, and partly conflicts of ideas (e.g., that more lane capacity is bad, unless it is used only for buses). My hope is that the example set by managed lane projects that are allowed to run like businesses-offering faster and more reliable trips for a market price-will demonstrate the better way forward.

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RRIF: An Open-Ended Spending Threat

Several months ago I summarized a Reason Foundation recommendation to Congress that it add taxpayer protection provisions to a little-known federal transportation loan program called RRIF. The Railroad Rehabilitation and Improvement Financing program was included as part of the 1998 surface transportation reauthorization bill, TEA-21. Aimed primarily at helping short-line railroads make needed capital investments, it has loaned out only a small amount of its authorized $35 billion in the 17 years since then. And since Congress did not explicitly restrict the loans to just short-line railroads, several passenger rail loan requests have been made, and Amtrak itself has won a few loans.

What grabbed my attention on March 10th was a one-paragraph story in Politico. At a conference of the American Public Transportation Association, FRA Administrator Sarah Feinberg told attendees that DOT Secretary Anthony Foxx had set a goal of spending down the nearly $35 billion RRIF balance to zero by the end of his term of office-which is less than two years away. In addition, a provision in the Amtrak bill passed by the House last month would dedicate 40% of RRIF loans to projects in the Northeast Corridor, where Amtrak is the primary passenger rail operator.

You may recall that the point of my Reason policy recommendation is that RRIF lacks any of the taxpayer protections that are included in the well-regarded TIFIA program. Under RRIF, loans can cover up to 100% of a project’s cost (compared with nominally up to 49% for TIFIA, but in practice a maximum of 33%). A TIFIA loan is intended as subordinate debt, and the primary project debt must have an investment-grade rating. And a project getting a TIFIA loan must have a dedicated revenue source to pay off the loan. No such protections exist in RRIF today.

Fortunately, the provision in the Amtrak/passenger rail bill dealing with the Northeast Corridor RRIF loans does include two taxpayer safeguards. The first would require “collateral equal to the amount requested” in any such loan. And the second requires an investment-grade rating by a nationally recognized rating agency on the financing of the project. But for RRIF loans going to Amtrak, there is still a built-in problem. Since Amtrak operates at a huge loss, covered by annual taxpayer subsidies, what would it use to pay back the RRIF loans? In practice, the debt service payments would be added to its annual budget that Congress is then politically obligated to support. Basically, the loans would become de-facto grants.

Neither the FRA’s plan to loan out the bulk of its $35 billion over the next 20 months nor the 40% earmark of RRIF loans to the Northeast Corridor are cast in concrete. While the House failed to add enough taxpayer safeguards to RRIF, the forthcoming Senate bill offers an opportunity to fix this. If the Senate fails to do this, it will be open season on hapless American taxpayers. (Note: my brief on adding taxpayer protections to RRIF is online at:

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Rethinking Transit Fares

Something very interesting is going on in Seattle. As the New York Times reported in a detailed Feb. 28th story, King County Metro Transit, which operates buses, rail lines, and passenger ferries, has begun charging low-income riders just $1.50 per trip, which is more than 50% off peak fares. The idea of two-tier transit fares-often referred to as transit vouchers for low-income riders-has been around for decades. But the apparent difficulty of deciding which riders qualify, and limiting the discounts to them, has been a stumbling block.

King County has introduced smart-card technology and an aggressive outreach effort called ORCA Lift. Lower-income people can sign up at public health clinics, food banks, community colleges, and other locations. People who can verify their income receive an ORCA Lift smart card that works like a regular transit pass, but is coded to charge only $1.50 rather than the regular fare. The goal is to sign up large numbers of eligible people, making transit more affordable for them.

Times reporter Kirk Johnson did some digging and found out that the Muni system in San Francisco 10 years ago began a similar discount-fare program called Muni Lifeline, but it has only 20,000 participants, out of 330,000 daily riders. And Greene County, Ohio, near Dayton, has recently begun a transit voucher program, working with social service agencies to distribute them to their clients. But the Seattle program aims for much larger participation than either of these.

Two-tier transit fares are a breakthrough idea. Ever since city and county governments took over the operation of transit systems in the 1960s, their services have been priced largely to be affordable to low-income riders, which is why transit farebox revenue in most systems now covers less than one-third of operating costs (and none of the capital costs). Yet the demographics of systems like BART in San Francisco, Metro Rail in Washington, DC, and much of the New York subway system are hardly those of low-income people. Large fractions of their riders are middle-class and middle-income (or more), and could clearly afford to pay several times the rates currently charged. Compared with just the out-of-pocket costs of driving and parking, a three-times-higher transit fare would still be a great deal.

I reported last August on a provocative Citylab piece by Columbia University’s Rohit Aggarwala, titled “Why Higher Fares Would Be Good for Public Transit.” He illustrated the point with some very large numbers about how much the New York subway and bus system could invest in capital improvements if its farebox covered 100% of operating and maintenance costs. Along similar lines was another 2014 Citylab piece by David Levinson of the University of Minnesota, “How to Make Transit Financially Sustainable Once and For All.” He offered seven points for a complete revamp of transit finance, including charging fares that would cover 100% of operating costs and using land value capture to cover part of capital costs.

A critically important part of both prescriptions is to end welfare-pricing of transit service. Standard fares should be substantially increased over time, as service levels are improved, while transit vouchers like Seattle’s new ORCA Lift keep transit affordable to those with low incomes. Seattle has now taken the first step; now let’s hope political leaders in King County have the courage to increase “regular” transit fares closer to a cost-recovery level.

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“Job Sprawl” Still Under Fire

Back in the 1990s, urban transportation planners were very concerned about “jobs-housing balance.” In Los Angeles, where I lived then, there was considerable hand-wringing about continued suburbanization, which was creating “bedroom communities” with few jobs east of Los Angeles in what is now known as the Inland Empire. Some of us pointed to the history of Orange County (south of L.A.), which had begun as bedroom communities but by the 1990s hosted numerous major employment centers of its own. Jobs follow housing, we said-and sure enough, that was what transpired in the Inland Empire, also.

But to advocates of turning back the clock to the monocentric urban form of the pre-auto era, jobs-housing balance turns out to be a bad thing. When a 2012 Brookings Institution study found that in the 100 largest metro areas, only 27% of jobs could be reached via transit within 90 minutes (more than three times the average U.S. commuting time), “smart-growth” advocates coined the term “job sprawl” to criticize the jobs-housing balance that we used to be seeking. And the next year, Brookings itself adopted the term in an April 2013 report, “Job Sprawl Stalls,” reporting data showing that the Great Recession seemed to have halted the continued shift of jobs to suburbs.

But that was then. The same Brookings author, Elizabeth Kneebone, has returned (with co-author Natalie Holmes) with a March 2015 study, “The Growing Distance Between People and Jobs in Metropolitan America.” In a prodigious feat of number-crunching, they analyze “job proximity” in every census tract in the 96 largest metro areas. This is defined as the number of jobs (of any kind) that exist within the “typical commute distance” from the center of each census tract. That distance is calculated for each metro area and then applied as a radius from the center of each census tract to see how many generic jobs fall within that circle. The finding of the study is that between 2000 and 2012, on average the number of jobs within typical commute distance fell by 7%, even though the total number of jobs in those metro areas was 2% higher than in 2000.

Those overall numbers are pretty meaningless, though, since the 96 metro areas fell into three distinct groups. In 29 of them, job proximity as defined here actually increased. In another 30, total jobs declined, and so did those within typical commute distance. And in the remaining 37, overall employment increased, but nearby jobs decreased.

Few of the media stories about this report explain how artificial its data constructs are. It uses a single average distance for all commutes within each metro area, when we know that actual commutes have a huge variance in both distance and time. And its “proximity to jobs” measure is not to jobs that the people in a given census tract might be qualified for or want-they are just generic jobs. (As one transportation economist I know commented, “The most proximate job to where I live is in a filling station or a Starbucks.”) The authors acknowledge this serious shortcoming, and in their Next Steps agenda, say they next need explore, “How do proximity patterns relate to where workers [actually] commute within regions, and to commute times and modes of transportation?”

One interesting overall finding was how extensive the suburbanization of people really is. As the authors report, “In 2012, 63% of Asians, 60% of Hispanics, 55% of the poor, and 52% of blacks living in the 96 largest metro areas lived in suburbs.” It looks to me that suburbanization of both jobs and housing is here to stay.

I suspect the reason smart-growthers disparage the emerging jobs-housing balance as “job sprawl” is that it torpedoes their model of downtown as the major employment center, reachable by rail transit. As previous Brookings research has shown, most metro area jobs are not reachable by existing transit systems within a realistic amount of commuting time (90 minutes to reach only 27% of them!)-and there is no conceivably affordable rail transit system that could solve that problem. The best hope for improved transit access is a redesigned grid-type bus system. For the money now being spent on very expensive light rail lines in large metro areas, major improvements could be made, instead, on bus systems that would improve access to jobs and other destinations for those who need it most.

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Bicycle Trails on the Move

The last time I wrote about long-distance bicycle trails, more than a year ago, I heard from the head of advocacy group Adventure Cycling and the bike coordinator for a state DOT. They assured me that my concerns over highway user tax money being used for these projects was misplaced; what FHWA, AASHTO, and state DOTs are doing is simply designating routes that have received a critical mass of support, providing maps and signage, etc. Lighten up, Bob, was the implicit message.

Here in Florida where I live, I’ve gotten several rude awakenings since then.

  • Last year the Florida legislature passed, and conservative Gov. Rick Scott signed, a bill to spend $15.9 million of state highway money on filling in missing links in the 275-mile Coast-to-Coast Connector bike trail from St. Petersburg to the Cape Canaveral coast.
  • Last fall, Rails to Trails began pushing the All Aboard Florida passenger rail project to “mitigate” its “traffic congestion, mobility, and environmental impacts” by giving up part of its right of way for a parallel bike trail. The implied message is pay up or we will litigate.
  • This year bicycle groups are lobbying for a 76-mile paved bicycle trail across the Everglades for adventure tourism, at an estimated cost (from somewhere) of $38 to $76 million. It is being loudly opposed by Miccosukee and Seminole tribes who live in the Everglades.

In Connecticut, where I had my first post-college job, bike groups are lobbying for construction of a 37.5-mile bike trail alongside my old commuting route, the Merritt Parkway, from Greenwich to Stratford, estimated to cost $250 million. The Connecticut DOT got a $1.06 million federal (highway) grant to study the trail’s feasibility. It is being opposed by the Merritt Parkway Conservancy, which objects to both the use of asphalt paving and the possible loss of thousands of trees along the heavily wooded route.

Meanwhile AASHTO proudly continues its partnership with Adventure Cycling Association, and in December announced the addition of five more U.S. bicycle route designations (1,253 miles worth), bringing the official, numbered-route total to 8,042 miles in 16 states plus DC. Adventure Cycling’s goal is a network reaching “every corner of America, from urban to rural areas,” ending up as “the largest official bicycle route network on the planet.”

On a personal note, let me hasten to add that I have nothing against bicycling. When I lived in Santa Barbara many years ago, and was less than a mile from my workplace, I occasionally rode my bike to work in that nice Mediterranean climate. Now that I live in South Florida, where most of the year is hot and humid, or pouring rain, I no longer bike. But both my sisters and their husbands, who also live in Florida, are bicyclists (though not for commuting).

My complaint is about who pays for bicycle trails, not their degree of virtue. Adventure Cycling does an annual fund-raising campaign during National Bike Month, and last year raised a whopping $160,000. Let’s see, that would pay for about one-third of a mile of the trail across the Everglades, at the lowest per-mile cost estimate of $500,000/mile. For the much more costly Merritt Parkway trail, that $160,000 would cover about 127 feet.

Yet when anyone seriously suggests that bicyclists-rather than motorists or general taxpayers-should be paying for at least part of the cost of this infrastructure, they are met with outrage and ridicule. That happened to Rep. Ed Orcutt in Washington State in 2013 when he proposed a $25 sales tax on bikes, which went nowhere. Similar venom is being directed at Oregon Sen. Brian Boquist in response to his 2015 bill to impose a $10 bicycle registration fee (while also prohibiting the use of state highway fund money for bicycle projects).

At a time when state DOTs are begging for increased funding, you’d think they (along with AASHTO and members of Congress) would be figuring out which transportation problems are serious, high-priority matters-such as deficient bridges, Interstate highways that are reaching the end of their 50-year design lives, and urban freeway congestion costing drivers $120 billion a year. It’s long past time, for Congress, in particular, to prioritize the federal program so as to refocus it on truly national problems.

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Upcoming Transportation Conferences

Transportation Finance and Road User Charging, April 26-28, 2015, Nines Hotel, Portland, OR (Adrian Moore speaking). Details at:

Construction Industry Round Table Spring Meeting, April 27-29, 2015, Park Hyatt, Washington, DC (Robert Poole speaking). Details at:

Florida Transportation Commission Meeting, May 6, 2015, Lakewood Ranch Town Hall, Sarasota, FL (Adrian Moore speaking). Details at

TEAMFL Quarterly Meeting, May 8, 2015, Jacksonville, FL (Adrian Moore speaking). Details at:

International Conference on Public-Private Partnerships 2015, May 26-29, 2015, University of Texas, Austin, TX. (Robert Poole speaking). Details at:

27th Annual ARTBA PPPs in Transportation Conference, July 15-17, 2015, Hyatt Regency Washington, Washington, DC. Details at:

2015 Transportation Summit, Floridians for Better Transportation, July 22-24, 2015, Casa Monica Hotel, St. Augustine, FL. (Robert Poole speaking). Details at:

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News Notes

Interstate 11 Under Way in Nevada. A high-priority transportation project in Nevada is developing the section of new I-11 between Las Vegas and the Arizona state line. To facilitate the project, legislation has been introduced in the State Assembly authorizing toll road concessions for I-11. AB 450 was introduced March 23rd, to create the Interstate 11 Toll Road Project. The new highway would initially connect Las Vegas and Phoenix, the nation’s two largest metro areas not linked by an Interstate route. Some envision it eventually running from the Mexican border to the Canadian border, providing an alternative north-south route to the existing I-5.

Brent Spence Bridge Setback. The Kentucky Senate failed to take action on the P3 bill passed by the House that included authorization for toll financing of the $2.6 billion project to replace the obsolete Brent Spence Bridge across the Ohio River connecting Covington, KY with Cincinnati. Kentucky Gov. Steve Beshear proclaimed the project dead for this year, but hopes legislators will enact such legislation next year.

High Price for Eurostar Company. The British government is selling its 40% stake in the company providing high-speed passenger train service between London and continental Europe via the Channel Tunnel. The winning bid, announced last month, was for $900 million, submitted by a consortium of CDPQ and Hermes. The other 60% of Eurostar is held by France’s state-owned railway company SNCF and Belgium’s state-owned SNCB.

Adaptive Cruise Control in Over 60 U.S. Vehicle Models. The Detroit News reported last month that adaptive cruise control (ACC), which automatically maintains a pre-set spacing between a vehicle and the one ahead of it, is moving into the mainstream. As of the 2015 model year, ACC is standard or optional on more than 60 vehicles from the five largest automakers in the United States, including more than 30 from General Motors, Ford, and Fiat Chrysler.

Oklahoma House Rejects Video Tolling. A bill to allow the Oklahoma Turnpike Authority to experiment with video tolling at a single location, as well as sharing vehicle information with toll agencies in Texas and Kansas for enforcement purposes, was turned down in the Oklahoma House of Representatives. Objections included privacy concerns, loss of toll collector jobs, and possible confusion of toll road customers. The bill got 47 votes but needed 51 to pass.

Infrastructure Investor‘s P3 Deals of the Year. Each year Infrastructure Investor gives awards for notable P3 achievements worldwide. The Global Deal of the Year for 2014 was the sale of Queensland Motorways for $6.6 billion, purchased by a consortium of Transurban, a major pension fund, and an investment fund. The North American Deal of the Year was the Pennsylvania Rapid Bridge Replacement Project, being done by Plenary Group and Walsh Group. Global Institutional Investor of the Year was Canada Pension Plan Investment Board, and Global Fund Manager of the Year was Macquarie Infrastructure and Real Assets.

Tolling Bill Approved by Connecticut Transportation Committee. The General Assembly approved by a vote of 18 to 13 a bill that would permit electronic tolls on Connecticut highways. A Quinnipiac University poll found that 58% of Republicans and 62% of Democrats in the state would support tolling if the revenues are used solely for transportation purposes; without that restriction, 61% of voters opposed tolls. Gov. Dannel Malloy has stressed the need for major reinvestment in the state’s transportation system (such as widening all of I-95) and the potential role of tolling and P3s in bringing this about.

Retirees and Home Ownership. A detailed study by Merrill Lynch and Age Wave found that half of retirees don’t downsize when they change homes, and 30% moved to a larger home. Those who upsize want to have space for extended family members to stay when they visit. Overwhelmingly, retirees prefer to age in place by continuing to live independently in their existing homes. Only 7% have moved into age-restricted retirement communities. The study also found no evidence of significant numbers of retirees moving to apartments or condos downtown. The study is “Home in Retirement: More Freedom, New Choices.”

Major Toll Concession Financed in Australia. The NorthConnex tollway project, in Sydney’s northern suburbs, has reached financial close. The $2.2 billion project includes 9 km twin tunnels under the Pennant Hills. The winning consortium is composed of Transurban (50%), QIC (25%), and Canada Pension Plan Investment Board (25%). The toll concession covers 29 years of operation following completion of construction.

Will Fossil Fuels Save the World? Noted scholar Matt Ridley wrote the lead article in the Wall Street Journal‘s June 14th Review section, reminding readers that, historically, fossil fuels reversed deforestation, saved whales, and let us grow more food on less land. And thanks to the shale revolution, the world faces an energy-rich future that should lift billions more people out of poverty. To address CO2-fueled global warming, he argues for shifting from coal to gas and nuclear for electricity generation, as well as geoengineering approaches to carbon capture and sequestration. “Fossil Fuels Will Save the World (Really)” is definitely worth reading.

New Report on Issues Raised by P3 Procurement. The Strategic Highway Research Program 2 has released a useful new report on the many implications for highway procurement of the emerging P3 revolution. SHRP 2 Report S2-C12-RW-1, Effect of Public-Private Partnerships and Nontraditional Procurement Processes on Highway Planning, Environmental Review, and Collaborative Decision Making, was produced by Parsons Brinckerhoff, Nossaman LLP, and HS Public Affairs.

Croatia Shifts Gears on Highway Privatization. After months of protests by public-sector unions, the government of Croatia has dropped its plan for a long-term lease concession of the country’s motorway system, which had been expected to raise about $4 billion once final bids were submitted by three prequalified bidders. Instead, the government announced plans for an initial public offering of shares in the motorway maintenance and toll company. The sale of 51% of the government’s shares is expected to raise $1.3 billion.

New Report on Value Capture in Transportation. The National Cooperative Highway Research Program has released a new synthesis report. Its subject is a review of methods used by transportation agencies to capture and use a portion of the economic value created by public-sector investment in transportation infrastructure. “Using the Economic Value Created by Transportation to Fund Transportation” is NCHRP Synthesis 459 and is available from the Transportation Research Board.

Should Bay Area Toll Bridges Convert to All Electronic Tolling? As if the answer were not obvious, based on the success of all-electronic tolling on the Golden Gate Bridge (and on a growing number of urban tollway systems), San Francisco’s Bay Area Toll Authority plans to spend $450,000 to look into whether it would make sense to do likewise on the seven toll bridges in the region operated by Caltrans. Can you say “Duh”?

The Hidden Corn Ethanol Tax. The Manhattan Institute has issued a report that is highly critical of the federal Renewable Fuel Standard, which requires ethanol to be added to gasoline. Since 2007, senior fellow Robert Brice found, the RFS has cost American motorists $10 billion a year in fuel costs above what they would have paid without ethanol in the fuel. “The Hidden Corn Ethanol Tax: How Much Does the Renewable Fuel Standard Cost Motorists?” is available on the think tank’s website:

Hamsters Overcome in France. A long-stalled tolled motorway, the A355 Western Strasbourg Bypass, has been cleared to move forward. The original P3 procurement for a 55-year toll concession had been cancelled shortly after the 2012 elections, due to opposition by the new Socialist government-and concerns raised over the presence of hamsters in the project area: le Grand Hamster d’Alsace. The need for the tollway finally overcame these objections, and the procurement was re-started last year for a somewhat down-sized project (about $500 million rather than the original $950 million). Four teams are expected to submit bids by a late June deadline.

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Quotable Quotes

“The gas tax has unfortunately been diluted by decision makers in Washington. Funds from the gas tax are allocated all over the map beyond what taxpayers expect-they expect a dedicated funding source to fix and build roads, bridges, tunnels, for example. The first step is to stop the wasteful spending of the gas tax on non-transportation projects and dedicate gas tax revenues to real projects that begin to solve the national infrastructure crisis. . . . Governors-not bureaucrats or politicians in Washington-know best how to responsibly and effectively allocate precious transportation dollars, and governors are the innovators. Governors are the ones doing PPPs, in part to cut reliance on Washington, but mostly to leverage state funds and federal loans with private equity to get big, critical projects done. This moves projects faster and does more to spur commerce, economic development, and job creation than Washington can do.”
-Karl Reichelt, Executive Vice President, Skanska Infrastructure Development, “Raising Federal Taxes Isn’t the Answer,” Public Works Financing, February 2015

“Paradoxically, perhaps the city’s biggest strength is its sprawl. Unlike most other big cities in America, Houston has no zoning code, so it is quick to respond to demand for housing and office space. Last year authorities in the Houston metropolitan area, with a population of 6.2 million, issued permits to build 64,000 homes. The entire state of California, with a population of 39 million, issued just 83,000. Houston’s reliance on the car and air-conditioning is environmentally destructive and unattractive to well-off singletons. But for families on moderate incomes, it is a place to live well cheaply.”
-“Life in the Sprawl,” The Economist, March 14, 2015

“With the DBFOM [design, build, finance, operate, maintain] P3 model, life-cycle cost decisions on long-term maintenance and repair are made at the beginning of the development process, as part of an expanded basis of design. DBFOM bidders compete based on the lowest NPV price for meeting the government’s performance standards over the life of a concession agreement. That drives innovation into all aspects of the project. Conversely, the accounting and budgeting constructs that govern traditional public contracting focus on the lowest first cost, not the long-term costs of ownership. In many ways, today’s funding shortages for public infrastructure are the result of these accounting constructs, which allow public assets to decay and the backlog of deferred maintenance to grow.”
-Robert Prieto, Senior Vice President, Fluor Corp., “Time Is Money, A Lot of It,” Public Works Financing, February 2015

” ‘I can’t understand, on any rational basis at least, this fascination with light rail,’ said the Harvard economist John Kain at a Southern California conference in the early 1980s, just when electric railway enthusiasts were celebrating the funding bonanza promised by a local half-cent tax on retail sales. Today Kain’s attitude is widely shared among transportation economists. But there were those who waved a red flag years ago, notably George Hilton, who chaired President Johnson’s Task Force on Transportation Policy in the mid-1960s. Hilton was coauthor of the definitive history of interurban electric railways in America. That may sound ironic, but Hilton’s historical passion just did not translate into an imperative to re-create the past at public expense. Hilton regarded the demise of [LA’s] Red Cars as simply the result of a shift in public preference, a shift that had never shown any indication of reversing.”
-Robert C. Post, “The Myth Behind the Streetcar Revival,” American Heritage, May/June 1998 (

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