Are private toll roads a losing idea?
President Obama and others have called to create a “national infrastructure bank” that would leverage the credit backing of the U.S. to fund more privatization of public assets – also known as public-private partnerships. In other words, a federal bank to fund the selling off public assets with loans or guarantees provided at low interest rates. But is control of public assets a successful business model for the investors? Actually, it seems to be a disaster. Let’s look back at private toll roads over the years.
An academic paper “Is there ‘value for money’ in transportation PPP’s?” looked at the efforts of the Australia infrastructure firm, Macquarie, in building private toll roads in the United States. The paper, published in 2007, included this table of Macquarie’s U.S. projects. The record for these projects is abysmal.
Two of the projects declared bankruptcy. The assets of one, Pocahontas, were written down to zero by its new owner, and two were bought by the government jurisdictions where they were located. Another is in negotiations to be bought by the state of Virginia. None of these projects fulfilled their initial plans to operate successfully as profitable, private companies. Macquarie’s most substantial U.S. project, the Indiana Toll Road project, is near insolvency and attempting to restructure its loans.
Here is a summary of the status of each project:
Dulles Greenway, Virginia: State negotiating to buy road from private operators – Washington Examiner, January 13, 2013:
State leaders are now negotiating to buy the privately owned Greenway, a toll road west of Washington Dulles International Airport. And the General Assembly is considering legislation that would allow the state to borrow money through a bond issue to pay for the road’s purchase and upkeep.
Orange County’s State Route 91 freeway: County repurchased road from private operators – City Watch LA, January 8, 2013:
In 1995, California Private Transportation Company won a contract to complete a $130-million project using mostly private money to build express toll lanes along Orange County’s State Route 91 freeway. To recoup expenses, politicians gave the company a 35-year claim to operate the toll route, promising Californians that privatization would lead to greater safety, efficiency and savings.
The agreement did not alleviate what local traffic reporters called the “Corona Crawl,” and when state and local officials announced plans to make their own improvements, CPTC filed a lawsuit, claiming additions to the road could reduce the company’s profits. In 2003, the Orange County Transportation Authority purchased the SR-91 toll lanes for $208 million and put an end to the disaster.
State Route 125 – California: Bought by the San Diego County Association of Governments –Bloomberg – January 1, 2013:
In 2010, the private operator of a 10-mile segment of State Route 125 in San Diego County filed for Chapter 11 bankruptcy, citing traffic that was about half of projections on a road that runs parallel to free alternatives.
Pocahontas Parkway, Virginia: The private owner wrote down value of asset to zero on underperformance – Herald Sun January 12, 2013:
In May 2006, the Pocahontas Parkway was acquired by Transurban, an Australian corporation that runs toll roads…
… the Pocahontas Parkway, failed to meet traffic targets in the economically troubled US, forcing the company to write down the asset to zero last year.
Southern Connector, South Carolina: Toll operator declared bankruptcy, Toll Road News, June 25, 2010:
Connector 2000 Association developer and operator of the Greenville Southern Connector tollroad filed for bankruptcy today in U.S. Bankruptcy Court in nearby Spartanburg, South Carolina. The filing done under chapter 9 of the US Bankruptcy code that handles broke government entities has been expected for some time.
The Association defaulted on debt service in January. Moves in the state legislature to bail out the lenders went nowhere. Revenues from the Southern Connector are not sufficient to service the debt, the Connector 2000 Association toller says in its U.S. Court filing because actual traffic and revenues are “substantially less than projected.”
Las Vegas Monorail, Nevada: Private operator declared bankruptcy and recently exited Chapter 11 after imposing substantial bond losses – Las Vegas Review Journal, May 9, 2012:
The Las Vegas Monorail Corp. on Wednesday received a green light to exit Chapter 11 proceedings as U.S. Bankruptcy Court Judge Bruce Markell found that its reorganization plan had a good chance of working.
The largest Macquarie infrastructure investment in the U.S., its Indiana Toll Road lease, has turned out to be near insolvent – Bloomberg June 27, 2011:
The Indiana Toll Road might have broken even last year with 10.9 million trucks traveling on it. The actual count was less than half of that.
So operators of the 157-mile highway across northern Indiana reported a $209 million loss, excluding some items. It was the fifth straight annual deficit since they paid Indiana $3.8 billion in the largest U.S. public-private road lease deal to date. The venture is meeting its debt obligations only by borrowing more money, and may default before loans mature in 2015, according to disclosures for a 2010 public offering of Macquarie Atlas Roads Group (MQA), one of the investors.
Some public officials in Virginia, which has been a leader in road privatization, are having second thoughts after seeing the performance of these projects. From Land Line Mag:
OOIDA Director of Legislative Affairs Ryan Bowley said the fact that there are efforts underway in Virginia to take control of these roads shows that public-private partnerships aren’t the risk-free endeavors for states that proponents build them up to be.
“These projects show that not to be the case. The allure of free money should be treated like the snake oil that it is,” Bowley said.
The call for a national infrastructure bank must be balanced with an accounting of the successes and failures of this model of public asset control. America desperately needs infrastructure funding, but passing assets into private hands has produced many failures. That must be taken into account.
Muniland: Why the Federal Reserve should buy national infrastructure bonds
Muniland: The Infrastructure Privatization Bank