Delaware rest stop deal a boon for HMSHost, but it raises questions about federal law

By Danielle Douglas
Monday, June 28, 2010

Travelers may not know the name, but they have likely experienced the services of HMSHost. The Bethesda-based company provides dining and retail offerings at 110 airports internationally and 86 highway rest stops throughout the United States, including some in the Washington region.

A trip along Interstate 95 passes several HMSHost travel plazas, including the company's newest, the renovated Delaware Welcome Center Travel Plaza slated to formally open Monday (June 28). . An expansive glass and steel structure, the 42,000-square-foot plaza is the latest example of a move by governments to turn over such pit stops to concessionaires -- despite concerns from small-business owners who complain that it can be hard to compete against big corporations handed prime locations.

The Delaware center, located near Wilmington along I-95, underwent 10 months of redevelopment by HMSHost. The company, which has managed the site since it opened in 1964, won the bid to construct the new $35 million facility, partly financed by the firm's fuel partner, Sunoco.

Travelers can expect some of the usual rest stop fare, such as Burger King and Cinnabon, along with a French bakery, Brioche Doree, and Mexican cuisine at Baja Fresh.

The Delaware Department of Transportation will retain ownership of the land, while leasing the plaza to HMSHost for the next 35 years. The company will pay the agency 3 cents to 8 cents for every gallon of gas it sells and 5 percent to 8 percent of its gross sales of most other items. During construction, the state received $170,000 per month in rent from the operator.

"The nature of a lot of these agreements isn't entirely new," said Elie W. Maalouf, president and chief executive of HMSHost. "We have been building, operating and paying states a share of the revenue on projects like this for quite some time."

Indeed, HMSHost has been partnering with states on rest stop deals since the 1940s. As the operator of these sites, HMSHost secures franchise licensing agreements with brands such as Starbucks, paying a set fee. HMSHost employees then run the stores.

The renewed interest in these public-private partnerships stems from the current stress on transportation funds as well as municipal finances.

"This is one less expense that we have to manage," said Michael Williams, a spokesman for the Delaware Department of Transportation. "We wanted to renovate the site once the lease was up, and we did so without having to spend a dime."

A growing number of states, including Vermont, Louisiana and New Hampshire, have closed or announced plans to close rest areas to save money in the past two years. Last August, Virginia, to shed $9 million in annual expenses, shuttered 19 of its 42 rest stops, though all have since been reopened.

For these states, privatization simply wasn't an option. A 1958 federal law, aimed at protecting businesses located off highway exits, banned rest areas from offering commercial services along the interstate. Toll roads and privately run stops that existed before 1960, however, were exempted to the benefit of a handful of states, including Delaware and Maryland.

"It's a silly law," said Ronald D. Utt, a senior research fellow at the Heritage Foundation in D.C. "It's counterproductive and largely protective of national companies at the expense of the state, highways and motorists."

The McDonald's and Burger Kings of the world have replaced the mom-and-pop businesses Congress set out to protect, Utt argued. As evidence, he pointed to the lobbying efforts of the fast-food industry to defeat a bill introduced by Rep. Frank R. Wolf (R-Va.) last year to repeal the prohibition.

"You were not seeing the National Federation of Independent Business up there, you were seeing McDonald's," Utt said. The legislation, a stopgap measure to save Virginia's rest stops, was voted down. But similar efforts have sprung up in Arizona and Oregon.

The National Association of Truck Stop Operators has fought to keep the current rules in place. It maintains that commercial plazas squeeze out small, locally owned businesses. The Alexandria-based organization conducted a 2003 study with the University of Maryland that found 50 percent fewer businesses along roads with commercial rest stops.

"Is this really what we want states to be doing? Competing with the private sector?" questioned Lisa J. Mullings, president and chief executive of NATSO.

Mullings noted that many of her members are bracing themselves for the potential impact from the reopening of the Delaware center. "They said the new facility is going to attract far more visitors than the old one, about 4.5 million annually. That's about 10 times what one of our members would see," she said.

While the center was closed for construction, some of NATSO's members on I-95 had an increase in sales, in some cases by as much as 32 percent.

But Williams argues that there are no rest stops for at least 25 miles in either direction of the center -- likely a function of the plaza's dominance. "Travelers need somewhere convenient to stop, somewhere they are familiar with," he said. "This is a benefit to travelers as well as the state."

Williams noted that his agency is guaranteed to receive at least $1.6 million from the plaza annually, a boon for Delaware's transportation fund. Prior to the closure of the center, the fund took in $2.4 million in revenue from the service plaza in 2008.

The windfall for states with commercial plazas perhaps presents the strongest argument for the repeal of the federal law, say proponents. Utt pointed to Pennsylvania, where fuel sales alone from travel plazas earned the state some $60 million in 2008.

HMSHost is in the process of renovating a number of stops along the Pennsylvania Turnpike. The company has also submitted a bid for the renovation of Maryland House and the Chesapeake House Welcome Center, sites it currently manages.

"Millions of people have been stopping at these sites for generations," Maalouf said. "It's already a part of people's planned journey; we are just making it better."

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