The Toll Road to Serfdom

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By Ellen Dannin. Ms Dannin is the Fannie Weiss distinguished faculty scholar and professor of law at Penn State Dickinson School of Law and author of "Crumbling Infrastructure, Crumbling Democracy: Infrastructure Privatization Contracts and Their Effects on State and Local Governance."

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If you want to experience a real disconnect, find out how highway privatization actually works and then read the glowing raves by infrastructure privatization boosters.

They claim that privatization transfers risk to the private contractor, while providing high quality infrastructure that a cash-strapped public cannot otherwise afford. They say that the public will have easy drives with new roads and new lanes, all assisted by the installation of the latest tolling and messaging technology.

But when you look into the history and details of infrastructure privatization, reality differs. Take the VirginiaBusiness.com story, "Public project, private risk: Virginia looks to partnerships to tackle major jobs" that praises the 1995 California State Route 91 private toll lanes built in the median of a public road. Those private lanes have a troubled history that is still relevant to today's privatized infrastructure. The SR 91 deal forbade the state from doing repairs and maintenance on the public lanes in order to herd drivers to the private toll lanes. As the public lanes were left to deteriorate, potholes led to car damage and dangerous road and, eventually, public anger that toppled politicians.

Today's deals still include similar terms intended to make the toll road drivers' only alternative. Commonly found "noncompete" terms forbid building or improving "competing" road or mass transit systems. They may also require what is called "traffic calming" but which means by narrowing lanes or making other changes to make alternative routes unpleasant or less useful. Other contract terms require that the government "partner" compensate private contractors for "adverse actions," such as promoting car pooling to lower air pollution and urban congestion that could affect revenues. For the next 40 years, the HOT lanes contract with Transurban of Australia and Fluor Corporation of Texas requires Virginia to reimburse the private companies whenever Capital Beltway carpools exceed 24 percent of the traffic on the carpool lanes - or until the builders make $100 million in profits.

Infrastructure privatization proponents often tout their high-tech innovations, such as embedded sensors to monitor road conditions, communication cables, wireless networks, and flashing electronic signs to warn drivers about traffic volume and accidents, and the use of transponders to debit accounts. They also tout using variable tolls that rise during rush hour as promoting choice.

However, because the contracts last generations and forbid competition, defined broadly, they will severely limit transportation innovation and public choice in the US.

The VirginiaBusiness.com article also says: "The private companies are assuming heavy financial risk upfront." But the reality is that the public bears the greatest financial risk. For the 50, 75, or 99 year life of the contract, we the people must be concerned that our state and local governments take any actions that could be claimed to compete with a private road or be an adverse action affecting the private contractors' revenues - no matter how much they would benefit the public. Just as concerning is that the prospect of facing decades of worry about violating the contracts and fighting claims means that governments will try to buy out the private contractors. We have no idea how that process would unfold and what that price might be.

Freedom of Information Acts require governments - but not private entities - to provide information the public requests. However, increasingly, infrastructure privatization contracts are not made public. When I requested a copy of the now bankrupt San Diego South Bay Expressway (SR 125), I was told it was not available to the public.

According to the VirginiaBusiness.com story, "The [toll road] companies plan to pay down the debt through tolls collected on the Beltway." However, tolls are not the only source of financing used to fund private infrastructure. The story not only overlooks revenue from adverse action and noncompeting claims, it omits the important role of tax breaks to the private contractors. Those tax breaks include highly accelerated amortization of the investment for deals that last longer than the useful life of the infrastructure. If you were ever puzzled why the contracts last so long, now you know that the answer can be found in the tax code.

Those tax breaks impose two major costs on the public. Government budgets receive less tax revenue. And when the multi-generation contracts required to qualify for the tax breaks expire in the 22nd century, we will still be locked into early 21st century technology and will have traded freedom of choice for antique transponders.

The ultimate argument made by infrastructure privatization proponents is that cash-strapped states have no other choice. But that is also untrue. Alternatives exist or can be made to exist by governments letting bonds to investors and through taxes. State and federal fuel taxes have not been raised in many years. And, particularly those who benefit from improved infrastructure should pay their fair share. Rather than imposing taxes - and tolls are essentially a tax - just on those who actually drive on the toll road, taxing those who benefit from transportation more broadly would spread and share the burden in a fairer way.

If we continue down the infrastructure privatization road, we will learn that the real price is lost democracy and true freedom of choice. The real cost - and it is a heavy one - is the creation of 21st century serfdom and the loss of democratic control that lets us chart our future as a people.

[image via dlofink]