Privatization needs a roadblock

February 4, 2007

Daniel Schulman, The Roanoke Times

If you've ever traveled cross-country on Interstate 90, you've driven the Indiana Toll Road, a major trucking artery that stretches 157 miles across the length of northern Indiana. What you may not know is that last June, the "Main Street of the Midwest," as it's locally known, was turned over to a foreign consortium -- made up of the Spanish construction firm Cintra and Macquarie Infrastructure Group (MIG) of Australia -- in exchange for $3.8 billion.

The privatization of the nation's highways, a trend touched off in 2005 when Chicago sold a 99-year-lease on the Chicago Skyway to the same consortium, has so far received little attention. It is, however, big news in the investment banking world and major firms such as Goldman Sachs and the Carlyle Group have already set up infrastructure funds to invest in what they expect to be a very lucrative market.

Goldman, the primary dealmaker in the toll road market thus far, is pushing privatization aggressively around the country, advising Indiana and other states considering privatization even as it has created a fund whose sole purpose is to maximize returns by picking up infrastructures for the best price possible.

The idea seems to be catching on. States including New York, Pennsylvania and New Jersey have recently raised the possibility of leasing major turnpikes, while other states, from Florida to Alaska, are considering inviting the private sector to build and operate highways and bridges. In all, more than 20 states have passed legislation allowing so-called public-private partnerships to lease and operate toll roads.

The Indiana deal inked by Gov. Mitch Daniels will yield hundreds of millions of dollars in tax breaks for the consortium, which also receives immunity from most local and state taxes. Under the deal, the consortium collects all the tolls, which it's allowed to raise to levels far beyond what Hoosiers have been used to.

In fact, one analysis found that if the toll regime in place in Indiana and Chicago had been applied to New York's Holland Tunnel for the past 70 years, the toll could stand at $185 rather than the current $6. Another analysis found that the value of the road over the 75-year term could be as much as $11.38 billion -- a nice return on MIG-Cintra's investment, but a potential net loss of more than $7 billion to Indiana taxpayers.

For companies seeking to buy up American infrastructure, the financial stakes in privatizing the nation's transportation arteries are potentially huge. In 1956, a Republican president, Dwight Eisenhower, convinced Congress that an integrated, public highway system was vital to economic development, commerce and even national security. Today, Ike's legacy is at a crossroads.

The federal highway trust fund, financed by the proceeds of the federal gas tax, is running out of money, in part because lawmakers have not dared to raise the tax since the mid-'90s. At this rate, the fund will be in the red by 2009. Meanwhile, states and cities desperate for repairs to decaying roads and bridges, not to mention new highways, are struggling to find ways to pay for transportation projects.

Enter privatization, which promises a quick fix -- and a means to outsource difficult political decisions, like raising tolls or taxes, to entities that don't have to worry about getting re-elected. The notion has the enthusiastic backing of the Bush administration, but some politicians are worried that, as Rep. Peter DeFazio, D-Ore., put it during a congressional hearing on highway privatization last May, we are "outsourcing political will to a private entity."

"It's a scam, basically," DeFazio, the incoming chair of the House Subcommittee on Highways, Transit and Pipelines, later said in an interview. "It just does not make sense for an integrated national transportation system."

With the highway trust fund headed toward running on empty, it's clear that new transportation funding options are needed. But before the nation heads further down the privatization road, there needs to be a national dialogue -- and not just among the nation's investment bankers.

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Schulman is Mother Jones' Washington, D.C.-based Lannan Investigative Fellow. This op-ed was adapted from a longer version in the magazine. American Forum.