Strapped States Try New Route, Lease Toll Roads to Foreign Firms
Wednesday, June 14, 2006
ELKHART, Ind. -- Its official state motto is "the crossroads of America." Yet Indiana is about to turn over its entire toll road for the next 75 years to two foreign companies, making it more expensive to drive.
The decision to hand the Indiana Toll Road to an Australian and Spanish team for $3.8 billion at the end of this month has blown up into one of the biggest brawls here in a generation. It has unsettled the state's politics in the months before the November elections, pitting a governor who was President Bush's first budget director against the people of northern Indiana, which the highway passes through.
The decision also places Indiana at the leading edge of a nascent trend in which states and local governments are exploring the idea of privatizing parts of the United States' prized interstate highway system. The idea goes beyond projects, such as Northern Virginia's Dulles Greenway, in which states have turned to private companies to build or widen toll roads. Now, they are considering selling or leasing some of the best-known and most-traveled routes across America.
The trend started 1 1/2 years ago, when Chicago Mayor Richard M. Daley (D) pushed through a 99-year lease of the Chicago Skyway, nearly eight miles of elevated highway across the South Side, for $1.8 billion.
Since then, a New Jersey lawmaker has proposed selling a 49 percent interest in the New Jersey Turnpike and the Garden State Parkway. New York Gov. George E. Pataki (R) is trying to persuade the legislature to let investors rebuild or replace the Hudson River's Tappan Zee Bridge. In Houston, Harris County officials are studying leasing 57 miles of toll roads.
Locally, Virginia transportation officials announced last month that they would lease a debt-ridden toll road outside Richmond, the Pocahontas Parkway, to a private firm for $522 million.
Half a century after President Dwight D. Eisenhower persuaded the nation to build the interstate highway system, the allure of privatization is a rethinking of the relationship between the government and its roads. It reverses the view of highways as a public responsibility, ingrained since the first half of the 19th century, when states took over roads, bridges and canals that had gone bankrupt in private hands.
The Bush administration advocates the new view. "We are like a poker game," Transportation Secretary Norman Y. Mineta said in an interview. "We are inviting more people to the table and saying, 'Bring money when you come.' " Such eagerness for private investment stems from the financial strains on an overburdened highway system at a time when the White House and the Republican-controlled Congress want to curb domestic spending. The interstate system is decaying, and traffic congestion has worsened. Inflation in the price of building and improving roads is rampant.
Most significantly, money from federal and state gasoline taxes that pay for roads are falling further behind the need, with no political appetite in an era of record gas prices to increase the rates. According to U.S. projections, the part of the federal Highway Trust Fund devoted to roads is to run out of money for the first time in its history in 2009.
In response, the administration persuaded Congress last summer to take steps to make it easier for the private sector to finance new roads -- and take over existing ones. Lawmakers removed several legal barriers to charging tolls on interstates and gave private investors new access to tax-free bonds for transportation projects.
Mineta has been urging U.S. financial institutions to get involved. "This type of dialogue really didn't exist two years ago," said Mark Florian, a managing director at Goldman Sachs Group Inc., which was paid $19 million to negotiate the Indiana deal and has discussed similar possibilities with officials in more than 35 states.
Still, skepticism abounds: Will companies take good care of highways? Will toll roads become too expensive to drive? Will investors pluck profitable routes, leaving others to crumble? What will happen to public toll-road workers -- including 600 in Indiana who have been promised interviews by the new operators, but not the same job?