Editor's note: This is the second of two articles about the future of congestion pricing on metropolitan Puget Sound freeways. Here's the first article. Washington state House Speaker Frank Chopp, a Democrat, was first in line to pay his toll when the new Tacoma Narrows Bridge opened earlier this week. It should be remembered that it was Chopp who went to battle in 2001 to keep the bridge a public project rather than a private one. Chopp might face more such challenges in the future, like other lawmakers across the country. Tolling is the new trend in infrastructure funding, but it also is proving to be a huge temptation to privatizers and Wall Street investors who are attracted by the chance to tap the public purse for private gain. At the same time, governments and public agencies are tempted to take a smaller share of the proceeds and duck the tough policy decisions that go along with operating toll roads and building and maintaining highways. While tolling and privatization aren't necessarily linked, one creates opportunity for the other. Right now, they're twin multibillion-dollar juggernauts feeding off each other. This is something that shouldn't be ignored in any discussion of the long-term implications of tolling in the Northwest, or anywhere else, for that matter. The move toward increased tolling is driven by a number of factors: less federal money for new highway construction, aging infrastructure, tax resistance on the part of the public, and strategies like congestion pricing that are seen as good for the environment and mobility. Another key is technology: Electronic tolling makes toll booths obsolete, and new surveillance gear allows almost any street to be turned into a pay-to-drive roadway. We toll because we can. Those circumstances have created an enormous opportunity for the private sector, and the Bush administration is focused on taking advantage. It is both practical – the federal government isn't funding transportation like it used to – and philosophical. Transportation Secretary Mary Peters recently said, "Public-private partnerships are vital to fixing this nation's mounting mobility crisis because private investment is based on demand, not political influence." That's a far cry from the old days. When President Dwight Eisenhower signed the legislation creating the Interstate Highway System in 1956, he authorized the federal government to cover 90 percent of the cost. The Republican president saw a national need and used his political influence to meet it. In an article titled, "Coming soon to a toll booth near you," on the progressive Web site Tompaine.com, Sam Pizzigati writes about the change in priorities. "The wealthy no longer pay hefty taxes. Local, state, and federal governments no longer invest in infrastructure. Yesterday's United States built bridges. Today's builds fortunes." While there are many arguments in favor of private toll roads and privatization in general, the current path was blazed in the 1980s when President Ronald Reagan declared that the New Deal era was over. Government was recast as the problem, not the solution. Now we have not so much the perfect storm as the perfect "scam" – to use a word voiced by Oregon Rep. Peter DeFazio, ranking Democrat on the House subcommittee on Highways, Transit, and Pipelines. First you starve the government beast of resources, then you ride to the rescue with "free-market" solutions. The funding, congestion, and infrastructure crisis is pushing local and state governments and public entities across the country to look at outsourcing services and selling or leasing assets to the private sector on an unprecedented scale. Large investors see a bonanza. Business Week has a sweeping overview of the trend in an article titled, "Roads to Riches": In the past year, banks and private investment firms have fallen in love with public infrastructure. They're smitten by the rich cash flows that roads, bridges, airports, parking garages, and shipping ports generate–and the monopolistic advantages that keep those cash flows as steady as a beating heart. Firms are so enamored, in fact, that they're beginning to consider infrastructure a brand new asset class in itself. ... All told, some $100 billion worth of public property could change hands in the next two years, up from less than $7 billion over the past two years ... The appeal to investors is that public infrastructure offers high returns and less risk – a perfect formula. According to Business Week: Infrastructure is ultra-low-risk because competition is limited by a host of forces that make it difficult to build, say, a rival toll road. With captive customers, the cash flows are virtually guaranteed. That realization has triggered an investor stampede: ... [W]ith the explosion of money flowing into private investments recently, fund managers have been exploring the fringes of the investing world in search of fresh opportunities. Now a slew of Wall Street firms – Goldman [Sachs], Morgan Stanley, the Carlyle Group, Citigroup, and many others – is piling into infrastructure, following the lead of pioneers like Australia's Macquarie Group. Rob Collins, head of infrastructure mergers and acquisitions at Morgan Stanley, estimates that 30 funds are being raised around the world that could wield as much as $500 billion in buying power for U.S. assets. ... Investors can't get in fast enough. They recently deluged Goldman Sachs with $6.5 billion for its new infrastructure fund, more than twice the $3 billion it was seeking. One of the biggest areas for privatizers is roads. According to World Trade magazine, "In the U.S. in 2005, approximately 80 percent of highway projects budgeted at more than $500 million involved toll roads. About 60 percent of those involved privatization." Toll roads are at the top of the list because of the big revenue streams and "monopolistic advantages" they represent. Congestion pricing also offers the chance to spread this model to urban surface streets. In a report on the state of privatization for 2006, the libertarian Reason Foundation, a privatization booster, enthusiastically outlined the trend [296K PDF]: Recently tolling has gained in popularity as governments find their roadways in desperate need of repair and expansion and their pockets all but empty. Tolling represents the privatization of highway finance, in which government agencies and private parties alike turn to private capital markets to raise funds up front, repaying the investors over time out of the toll revenues collected. Increasingly, new toll road and toll lane projects are being developed and operated by the private sector, under some form of public-private partnership (PPP) agreement. Both tolling and PPPs may have reached a critical mass of importance for the future of U.S. highways in the 21st century. In an overview of public road privatization titled "The Highwaymen," in Mother Jones, authors Daniel Schulman and James Ridgeway summed it up this way: Roads, in particular, are ripe for the picking. Congestion is increasing, and the Federal Highway Administration estimates that it will cost $50 billion a year above current levels of federal, state, and local highway funding to rehab existing bridges and roads over the next 16 years. Where to get that money, without raising taxes? Privatization promises a quick fix – and a way to outsource difficult decisions, like raising tolls, to entities that don't have to worry about getting re-elected. So taxpayers, tired of paying the government, will now be funneling cash to a private middleman, while government ducks responsibility and stockholders make out like bandits. The downside is drivers – which is most of us – get soaked. The upside is that your stock portfolio or pension fund might be making some of that money back. Mitch Daniels, a former Bush administration official who is now the governor of Indiana and who last year privatized the Indiana Toll Road for the next 75 years, has remarked that "an asset like a highway can be worth vastly more under different management." He has also referred to privatizing tollways as the "freeing of trapped value from an under-perfoming asset, to be redeployed into better use with higher returns." Mark Florian, COO of Goldman Sachs' public finance division, has also said "there's a lot of of value trapped in these assets." Many would argue that value is there for public benefit. Stuff like freedom of movement, low tolls, public accountability. But the fact is the private sector believes it can manage tollways more efficiently (unloading public sector jobs filled with union workers, reducing maintenance, etc.) and ramp up the revenues – "freeing the trapped assets" – because the captive customer has little option for complaint or recourse during the period of a 75- or 99-year lease. As Business Week phrased it, "To pay for upkeep, private firms can raise rates at the toll booth without fear of being penalized at the voting booth." Tollways are being privatized across the country. The Mother Jones story offers a good look at the major players in the Wall Streeting of our streets and examines some of the major deals, including the Indiana lease and the Chicago Skyway freeway, both of which have been outsourced to overseas companies – a controversial trend that has raised eyebrows in a country where much was made over outsourcing ports to overseas operators. In return for long-term leases and tax breaks, governments receive lump sum payments that represent a fraction of the value of the asset. Nevertheless, cash-strapped governments can use the money now and not just for transportation but for paying down debt or other expenses. Rep. DeFazio has likened this to selling your house to pay living expenses. "You can't sell your assets very long to put food on the table – before long you're out of assets," he told Mother Jones. Old-time Seattle area residents might remember that tolls collected on the original Lake Washington floating bridge of Interstate 90 and the Evergreen Point Bridge of Highway 520 were removed when the bridges were paid for. Not likely now. Proposed new tolls will probably be forever and pay for a variety of services. While policy makers are looking at more tolls on Washington roads and bridges, what is the state of privatization in the Northwest? Washington passed a law in the early 1993 that permits public-private partnerships (PPPs) in transportation. Changes and amendments over the years have put in place oversight mechanisms (advisory groups, legislative review, etc.) to add in layers of scrutiny, though some at the Washington State Department of Transportation would like the process "streamlined." Projects fall under WSDOT's Transportation Innovative Partnerships Program (TIPP). Not all possible PPPs involve selling or leasing assets. An ad-hoc group, including Bruce Agnew of the Discovery Institute's Cascadia Center and economist Glenn Pascall, are talking about a tolled bypass tunnel under downtown that would obviate the need for replacing the earthquake-vulnerable Alaskan Way Viaduct. It would be a smaller dig than Greg Nickels' earlier proposed waterfront tunnel and would be partly funded with private investment, possibly building trades money. Goldman Sachs consultant Dick Gephardt, the former Missouri congressman and onetime Democratic presidential candidate, has been to Seattle to talk about how it might work. Cascadia's blog reports that PPPs are doing just fine in British Columbia. In Oregon, over the last couple of years the state has talked with the Macquarie Infrastructure Group, an Australian company that is involved in both the controversial Chicago and Indiana tollway lease deals, about possible toll roads in the Portland area. While investor, libertarian, state and local government, and Bush administration enthusiasm for private toll roads is reaching "critical mass," there are some roadblocks. Recent efforts to turn the Pennsylvania Turnpike over to a private firm failed, defeated in part by the Teamsters Union. Trucking interests are also unhappy. They are backing House Democrats who are are considering "withholding highway funds whose leases with companies fail to meet proposed federal standards." Industry analysts say that even the hint of congressional oversight could have a "chilling effect" on deals. Maybe in the short term. But laws of the land have already been changed to make privatization and road investment easier. Mother Jones reports that "the 2005 highway bill changed the tax code to allow private firms to raise tax exempt financing for road projects, something that only governments were able to do up to now." They go on to point out that this was the same legislation that included Alaska Republican Rep. Don Young's infamous "bridge to nowhere." Which brings to mind Bill Clinton's re-election campaign slogan about "building a bridge to the 21st century." Did anyone think it would be a private toll bridge run by a foreign company? And do we want to go where it takes us?
They want to build a private toll bridge to the 21st century
Tolling is proving a huge temptation to privatizers, Wall Street investors, and cash-strapped local governments who are attracted to the revenue stream. Policy makers like the notion of outsourcing responsibility for lightening taxpayer wallets. Second of two parts.
An early toll booth on the Pennsylvania Turnpike.
Tolling is proving a huge temptation to privatizers, Wall Street investors, and cash-strapped local governments who are attracted to the revenue stream. Policy makers like the notion of outsourcing responsibility for lightening taxpayer wallets. Second of two parts.
