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Now is Not the Time to Experiment with Privatization

November 03, 2008 By Conrad deFiebre, Transportation Fellow
About the only way you can get a conservative to join a serious discussion of Minnesota's transportation infrastructure needs these days is in a context of privatization. This comes in two main thrusts:

Ideological - the notion that private enterprise can do practically anything better, cheaper and more honestly than government. (It ain't necessarily so: See Tom Petters' crumbling house of cards and Alan Greenspan's recanting on financial deregulation.)

Fiscally pragmatic - because the costs are so great - a nationwide total of $1.6 trillion, according to the American Society of Civil Engineers -- only private capital has the resources to bear them. (This argument tends toward the circular, advanced by the same people who do all they can to block the chief alternative, higher transportation taxes.)

Still, privatization of roads, bridges and other transportation assets remains a key point in our national infrastructure debate. Provisions for profit-making private operation of fast intercity trains are embedded in the newly enacted federal passenger rail funding law. Private interests have acquired long-term rights to operate the Chicago Skyway and the Indiana Toll Road, and new congestion-priced freeway lanes in southern California were built with private investment.

A 75-year lease on the Indiana Toll Road cost a Spanish-Australian consortium $3.8 billion, which the state is spending on other roads. Was this a bargain for the public? I'd like to ask that of the drivers who now pay nearly doubled tolls, and who face the prospect of another doubling within 10 years. And the new operators were criticized last year for doing a poor job of snow removal, although they did spend $40 million on improved toll booths.

Before the consortium came in, tolls hadn't been raised since 1985 (Sound familiar? Think Minnesota's 20 years of stagnant gasoline tax) and the Toll Road operated on a mostly break-even budget. Proponents of the lease said that with continued public operation the state could never have generated the billions the investors put up because legislators wouldn't raise tolls. Now, it's said, that political problem has been outsourced to the private sector.

Meanwhile, highway privatization has sparked contentious debate in other states, suffering setbacks in Texas and Georgia. But Florida is going ahead with a $1.8 billion freeway expansion in Broward County that guarantees its private partner, a Spanish construction conglomerate, 30 annual payments of $64 million whether or not toll revenues cover them.

If all this sounds like an unduly complicated way to finance needed transportation improvements, you may have an inkling of why Minnesotans have never shown much interest in toll roads and bridges. We do have part-time, congestion-priced express lanes on Interstate Hwy. 394 and will be getting them soon on I-35W south of downtown Minneapolis. These are publicly operated systems designed to smooth traffic flows, and it's worked very well on I-394 even though no one has turned a profit on it. More on that a little later.

There are no significant roads or bridges in Minnesota that exact traditional tolls. A century-old tolled private swing bridge over the Mississippi River at St. Paul Park closed years ago and is now slated for demolition at public expense. With so many subsidized alternatives, it's tough to make money in the transportation business. For example, Twin Cities streetcar barons prospered for a while before World War II, only to be driven into bankruptcy by private cars on public streets and roads.

From time to time, toll highway privatization schemes have arisen in these parts. In the early 1990s, Jeff Spartz, former Hennepin County commissioner and administrator, briefly worked with a group seeking approval to build a second ring road 10 miles beyond the I-494-694 Twin Cities beltway. "It never really got a lot of traction," he said.

But Spartz, now administrator of Lane County in Oregon, said he learned an important political rule then: "Make sure the motorist has an alternative to the toll road."

That, of course, would make a project less attractive to private capital in search of maximized profits. But it's also the genius of the I-394 and 35W congestion projects, which allow drivers to avoid tolls by car-pooling in the express lanes or staying in the main lanes while going solo. The high occupancy toll (HOT) lanes on 394 and their MnPass electronic toll-collection system won an excellence award from the Federal Highway Administration.

When the reconfigured I-394 opened in 2005, there were some complaints about "Lexus lanes" for the wealthy. But the project has reduced congestion in both the tolled and free lanes, cut accidents, raised enough in tolls to pay its operating costs and drawn support from people of all income levels, according to researchers from the University of Minnesota and the Minnesota Department of Transportation. All this was achieved by government, not the private sector.

Traditional toll roads and bridges, especially privatized ones, are not a solution for Minnesota. But the success of the I-394 HOT lanes shows that government can employ smart strategies to instill some market discipline in public transportation facilities that too often are overwhelmed by overuse.

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