by James A. Bacon
Private investors have pumped about $27 billion into toll-road deals in the United States since 2003, estimates the Wall Street Journal in an article today. Many of them have gone bust. The root problem: Not enough drivers. During the go-go years of the 2000s when traffic counts were soaring and real estate development in resorts and on metropolitan peripheries portended ever-increasing traffic, private investors made a lot of bad bets.
After peaking at three trillion miles in 2007, Vehicle Miles Traveled in the United States embarked upon their steepest and most prolonged decline since World War II. Many of the hoped-for real estate projects stalled or went belly up and the anticipated traffic never materialized. The WSJ points to the example of the Foley Beach Express toll bridge in Alabama. American Roads LLC banked on 10 million drivers in 2012. The actual number: 2.3 million. American Roads filed for bankruptcy protection in June. The article also mentions the Pocahontas Parkway outside Richmond, for which Transurban Ltd. paid the Commonwealth $600 million only to write off its investment several years later.
Some commentators may cite these numbers as evidence that public private transportation partnerships are a bad idea. I draw the opposite conclusion. The system is working exactly the way it should.
State governments and regional authorities have no business bankrolling mega-transportation projects based on highly speculative demand. Taking big risks — rolling the dice — is something that is best left to the private sector. If bets go bad, which many have done, I’d much rather have private investors take the hit than taxpayers.
Nothing against private investors. I wish them well. Profits make the world go round. But multinational infrastructure companies are big boys, and their business models are geared to evaluating and spreading risks. In most cases, they can afford the losses.
Here in Virginia, the McDonnell administration has made a habit of heavily subsidizing speculative projects that the private sector is unwilling or unable to undertake on their own. Thus, the state is putting roughly $1 billion of public dollars into the U.S. 460 “Commonwealth Connector” between Petersburg and Suffolk, which is being built on the hope that massive freight traffic will emanate from the ports of Virginia following the widening of the Panama Canal. Private interests provided a reality check: No one was willing to take the risk that the project would pay its own way. When the state put it its money, it did so with eyes wide open.
While I have serious reservations about that project, which the administration is pushing forward despite significant unresolved environmental issues, at least it is using tolls to recoup a portion of the construction costs, and a tolling authority, the U.S. 460 Funding Corporation, will provide a measure of transparency and accountability by reporting annual ridership figures and financial results. Further, if the numbers fall short of expectations, bond holders will take a hit before taxpayers do. And Virginians will be able to draw the appropriate conclusions about the value of the speculative commitment of capital. McDonnell may be long gone but at least historians will be able to hold his legacy accountable.
Contrast that to the Rt. 288 partial beltway around the southwestern edge of the Richmond region, which also had been billed as an economic development project. The decision was made not to toll the project, therefore there was no occasion to set up an ongoing authority to track ridership and finances. The numbers are all submerged in opaque VDOT statistics and budgets. No one is obligated to break out the numbers for the public; citizens have no way of knowing whether the project lived up to expectations or not. Ten years after it was built, is Rt. 288 a winner or a loser? Nobody knows. Will anyone learn anything from the experience to guide future investments? No, there will be no knowledge gained whatsoever. Virginia faces a similar lack of accountability with the Bi-County Parkway in Northern Virginia, an economic development-driven project designed to serve a hoped-for surge in air-cargo freight from Washington Dulles International Airport as well as population growth over the next 20 years. The Commonwealth Transportation Board has decided not to toll the road, which means that, if the project is built, there will be no tolling authority, no transparency and no accountability.
Public tolling authorities provide some transparency and accountability but not as much as public-private partnerships do. In P3 agreements, the state negotiates performance contracts for levels of service and roadway maintenance. The private-sector concessionaire must hew to those standards or risk significant penalties.
There are still unresolved tensions between transparency and confidentiality during the P3 approval process here in Virginia. Transparency goes dark when the Commonwealth is negotiating terms and conditions with a single vendor. Once a final contract emerges, there is little inclination to re-negotiate even if the public is not happy with it. Still, viewed from a long-range perspective, transparency and accountability are enhanced by tolled P3s. If we’re going to do more mega-projects, we need more private sector involvement, not less. If private investors aren’t willing to put skin in the game, that should tell you something.
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