Are Toll Roads The Solution?

"For states and cities looking to upgrade or replace aging infrastructure, partnering with private players is the biggest idea to come along since the interstate highway system started ribboning the country with asphalt in the 1950s. The appeal: governments can stop worrying about roads, bridges and tunnels, and companies get lucrative leases that allow them to collect money from drivers for generations. The craze is being driven by investors who crave the steady cash flow of decades' worth of tolls. There are 71 projects worth $104 billion being considered for private development by state and local governments, according to the publication Public Works Financing. The proposals are feeding a new pack of investment funds from the likes of Goldman Sachs, Morgan Stanley and the Carlyle Group--as well as controversy over how roads should be paid for."

"So what's not to love? The most common gripe is populist. Tolls often skyrocket under private owners, though with the blessing of elected officials, who avoid the political costs of raising tolls or taxes themselves. That's how privatized roads deliver double-digit returns for investors and often lead to upgrades like electronic tolling. But there are other devils lurking in the details, like noncompete clauses that may prevent transportation agencies from building new roads, or the inability to use roads for economic development by, say, adding a new exit to attract businesses. Some officials get queasy about locking themselves into long leases; Colorado officials already regret offering a 99-year lease for the Northwest Parkway. Others are turned off by the hard sell from investment bankers who advise states on some deals and bid on others. 'This should be the last option,' says Texas state senator John Carona, 'not the first.'"

"At the core of the debate is a fundamental issue: Is building roads one of those things, like trade policy, that only the Federal Government should steer, or is there a better way?"