Bacon's Rebellion

Democracy Thrives in Sunlight

The Privatization Push Gains Momentum

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James A. Bacon
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When rolling out his legislative package for transportation reform, House Speaker William J. Howell criticized the Virginia Department of Transportation’s performance in negotiating new public-private partnerships. As the Speaker said in his prepared statement:

We will never effectively and affordably address this challenge without incorporating the lessons of the private sector, harnessing the power and creativity of the free enterprise system, and enlisting [it] in this process. Our plan, therefore, includes requiring that the VDOT Commissioner provide a detailed plan to increase the role of the private sector in meeting our Commonwealth’s transportation needs.

Despite Virginia’s pioneering Public-Private Transportation Act of 1995 having been in effect for more than a decade, the Commonwealth lags behind other states in utilizing these cost- and time-saving opportunities.

I’m not sure what Howell is basing his criticism on. In his press release, he said, “VDOT has taken too passive of a role in expanding private-sector involvement in public infrastructure, simply waiting for proposals to be submitted to them instead of soliciting private sector expertise to solve identified and prioritized transportation problems.” (My italics.)

I don’t speak with any authority whatsoever, but it was my impression that Secretary of Transportation Pierce Homer, during his less-than-two-year tenure in the Warner and Kaine administrations, had acted more aggressively than any of his predecessors to solicit deals from the private sector. He has solicited private-sector bids to upgrade Interstate 95, the Washington Beltway and, most recently, U.S. 460. That’s over and above proposals for Interstate 81 and the Rail-to-Dulles project, which originated before he took the helm.

Perhaps that’s just not aggressive enough for the Speaker. Perhaps Virginia needs to move even faster. Fair enough. I’m all in favor of public-private partnerships as long as they are structured so that those who pay for the transportation improvements are the ones who benefit from them…. and as long as they support functional land use patterns.

I don’t like the structure of the Rail-to-Dulles project, which would transfer billions of dollars of wealth from toll-paying commuters on the Dulles Toll Road to landowners who own property near planned METRO stops. I do like plans for the Interstate 95 HOT lanes, which would be paid for by tolls from those who used the HOT lanes.

Action plan. Speaker Howell wants to create “a detailed Action Plan to increase the role of the private sector in the development of transportation projects in Virginia as well as the use of public-private partnerships.” As he explains, “This reform will require VDOT to become more pro-active in identifying opportunities for private sector involvement.”

Privatization has many advantages. The private sector is far more likely than even a reformed VDOT to complete road construction on budget and on time. Private sector involvement increases the odds that only economically viable projects are built — at least when investors put their own capital at risk. The private sector also is more likely to introduce technological, financial and managerial innovations.

Caveats. But simply privatizing a project doesn’t necessarily make it a good project. For instance, in the case of the U.S. 460 corridor (“The U.S. 460 Project Ain’t Peanuts“):

  • Would a toll road accelerate the pace of dysfunctional human settlement patterns (scattered, disconnected, low density) out of Hampton Roads? What strains would such development place on the local secondary road network?
  • What would a toll road do to the mobility of the people who live in the tiny towns — Wakefield, Zuni, Windsor, etc.) who rely upon U.S. 460 as their major thoroughfare?
  • Has anyone examined a public-private partnership that would increase freight rail capacity out of Portsmouth?

Privatization is a big part of transportation reform. But only a part. More roads, even privatized roads, won’t do much good if they aren’t analyzed in the context of the transportation system as a whole and the human settlement patterns they are designed to serve.

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9 responses to “The Privatization Push Gains Momentum”

  1. Ray Hyde Avatar
    Ray Hyde

    Where are the proposals to privatize transit and make it self paying? Transit is a small propoertion of transportation, but it is so costly the potential gains are huge.

  2. Toomanytaxes Avatar
    Toomanytaxes

    I’d settle for the Tysons Corner landowners to build the Silver Line under the Public-Private Partnership Act. The fact that none of this group has even discussed the subject speaks volumes about what a dog the Silver Line, as proposed, will be. But then, even its sponsors have admitted that this project is about development and not about transportation.

    We need a Plan C for the Dulles Corridor. We should scrap both the El and the tunnel and figure out what type(s) of mass transit could be built at a reasonable cost; reduce traffic congestion; and avoid huge taxpayer operating subsidies.

  3. Jim Bacon Avatar
    Jim Bacon

    TTM,

    The fact that the Tysons landowners haven’t come forward with a plan to finance the Silver line themselves could mean one of two things:

    (a) it’s a dog, as you suggest, or

    (b) they went to bat for the current plan because they could get someone else to pay for the darn thing.

    I agree with you, though, that if if the landowners aren’t willing to pony up a significant amount of the funds themselves through long-term bonds and tax increment financing, maybe the putative value of the project really doesn’t exist, and maybe Fairfax County should consider mass transit alternatives like Bus Rapid Transit.

    That’s the beauty of the marketplace: You get a real measure — profitability — of the economic viability of a project. If you leave it up to politics, profits don’t matter, economic efficiency doesn’t matter. All that matters is how much power you have to stick someone else with the bill.

  4. Ray Hyde Avatar
    Ray Hyde

    If you get the Silver lining, then huge operating subsidies come with it, guaranteed.

    My plan C is to build the thing the cheapest way, direct to Dulles, wher it belongs. Then let the land owners service Tysons with spurs. This would keep the Dulles traffic from having to endure the extra four stops. Or let the spurs be BRT.

  5. Larry Gross Avatar
    Larry Gross

    re: “I’m not sure what Howell is basing his criticism on. In his press release, he said, “VDOT has taken too passive of a role in expanding private-sector involvement in public infrastructure, simply waiting for proposals to be submitted to them instead of soliciting private sector expertise to solve identified and prioritized transportation problems.”

    My take: Howell thinks just letting private entities making proposals is not the same as VDOT identifying an prioritizing high prority projects AND then SOLICITING private companies to build these roads – as TOLL roads I presume cuz I can’t see any other way that private entities would recoup their investment. (If someone else knows a way for them to recoup… besides TOLLS.. chime in!

    embedded in this philosophy… is a requirement that VDOT actually come up with a ranked list of high-priority projects – something that both JLARC and VAPA both recommended.. and apparently VDOT blew off… or to be more polite – never responded with anything substantive beyond dithering.

  6. Jim Bacon Avatar
    Jim Bacon

    Larry, I think you have an accurate understanding of what Speaker Howell meant, but based on my limited understanding, that may not be a fair characterization of what’s happening. Take the U.S. 460 project, for example. I think that’s a case where the Warner/Kaine administrations identified a need, described a rough scope for the project and then solicited bids. They ended up with three substantive proposals.

    As for funding mechanisms for new transportation projects (roads or rail), there are two: The first and most obvious is tolls. The second is real estate development. The new road/rail improvement increases the value of real estate along the route. That’s how the 19th century railroads made much of their money, and there’s no reason the same principle can’t be applied in the 21st century.

  7. Toomanytaxes Avatar
    Toomanytaxes

    Re Real Estate & Transportation (both roads and mass transit) — Government captures some revenues from additional real estate taxes and, presumably, more income and sales taxes when land is developed. But, does it capture all that it could considering that, in many case, but for the public investment in roads/rail, the land’s development value would be much less?

    In other words, the owners of land near the proposed “Western Bypass” could develop it (probably excepting Fauquier County) today. But what they could develop would be much less than if the State constructed the highway nearby. Ditto for the Silver Line, a new restricted access intersection, and the like.

    How much is it worth to these landwowners for the State to construct the infrastructure that enables the development/land to be worth much, much more? One might argue that the value to the landowner is the difference between what it the land/development is worth today without the road/rail and what it woudl be worth with the infrastructure. There are, of course, incremental costs for building the added homes, offices, condos, or whatever. But, there is likely a signficant gross profit that cannot be obtained by the landowner/developer/builder unless and until the State (taxpayers) constructs the infrastructure.

    (Tysons Corner is a great example. But for the extension of rail, the landowners cannot obtain the rezoning that would enable them to redevelop the area and, presumably, make significant profits. How much is Metrorail worth to them?)

    How much of this gross profit does the State capture today? How much could it capture with correct statutory framework?

    In Southwest Virginia, where growth and jobs are sorely needed, I’d argue that the State might not want to capture a large portion of the gross margin. But in NoVA and probably Tidewater, where there is a strong and growing sentiment among many existing residents against more development, the State might want to caputure the majority of this gross margin.

    I’m not sure that I fully agree with this argument, but if we trying to move to economically sound policies, shouldn’t we (the State) be trying to capture more of the value delivered from infrastructure? If not, why not?

  8. Ray Hyde Avatar
    Ray Hyde

    One of the arguments made in the VTPI report Jim posted above is that because of the higher costs involved, new infrastructure (roads in particular) in urban areas does not have as high a payback or benefit. Maybe this is obvious to people and that is why Ffaxians are opposed to more growth.

    If the government is going to charge people for making their property more valuable, shouldn’t they also pay people when they make it less valuable?

    If you make someones property more valuable and they choose not to make the additional investment to complete the process, then how do you charge them for conserving the existing space? What method will you use to decide who gets state largesse for free and who has to pay for it?

    Whew, what a mess.

  9. Larry Gross Avatar
    Larry Gross

    I think the concept of extending infrastructure as part and parcel of land-development e.g. like the rails did when they expanded is “on target” with one proviso and then a comment on Ray’s concern about land valuation.

    The proviso is that what TMT touched on – the size/scope of the infrastructure with respect to whether the state builds it or the developers build it. (I think this was TMTs point…. ).

    “Traffic Generation” is a well-known transportation engineering term. It basically shows how much traffic will be generated by a particular land-use. There is an exhaustive list from a shopping center, to a hospital to homes. Homes are the best known – 10 car trips per day.

    If folks think of this in terms of undeveloped lands’s traffic-generation POTENTIAL – say .. take 100 acres designated for 4 homes per acre – then you have 400 homes x 10 = 4000 auto trips per day.

    Expand this out to the immediate environs of a roads path – and you have some idea of the POTENTIAL traffic that would be ultimately generated at “build-out”

    To date.. as far as I know .. VDOT does not look at the longer-term impacts of a new road with respect to enabling new development and traffic. Their philosophy has always been that new roads don’t cause development – that the development would occur anyhow… with or without the road – over time.

    VDOT was never concerned with the impacts of land-use. They “only” built roads and it didn’t really matter to them because the funding for those roads was completely independent of land-use issues.

    Be that as it may – the potential CAN be fairly easily determined by looking at the current intended land-use designations in the Comp Plan.

    Then localities along the new road would enact/require CDAs as a condition of any development approvals – then the road could be built initially and then expanded over time as development occured and new CDAs formed that would generate the new money needed.

    The localities would then have a direct interest in the road AND the land development and it would benefit them to examine the KINDs of development especially with regard to mixed use.

    For Ray’s comment – I think localities made serious mistakes in the past when they grossly underestimated the traffic-generating potential of undeveloped land.

    Once they started realizing the ultimate build-out potential of land – they knew that there was no way it could all be developed at the original densities unless they were going to tremendously raise taxes on everyone to pay for the infrastructure that would be needed. They took the path of least resistance – it’s much safer to affect undeveloped land – owners that it is most of the taxpayers in the county. Something had to give and they chose the path that would be less likely to get them thrown out of office.

    Is it fair? I dunno. Was it fair to taxpayers to upzone property and lay the cost of the needed infrastructure on the taxpaying public rather than on the developer of the property? I think I know Ray’s point of view but I bet if you ask taxpayers, they’re going to have the opposite view.

    Development requires infrastructure – who should pay? To date – there has been no effective planning approach by anyone – landowners, localities nor VDOT.

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