SAN FRANCISCO (Reuters) - The next road you travel -- and pay a toll to use
-- could be privately owned.
Looking for ways to finance highway projects without hitting the public trough,
the U.S. Congress appears set to pass a proposal to encourage private ownership
of new toll roads.
The provision, part of the highway spending bill now being hammered out by
a Senate and House conference committee, would allow private companies to raise
up to $15 billion for highway projects with bonds that are exempt from federal
While the proposal has broad support in Washington and the business community,
the idea of private highways has incited grassroots opposition in some states,
with some saying the government -- not a profit-seeking company -- is the proper
owner of the public's roads.
Toll road owners such as Spain's Cintra (CCIT.MC) and Australia's Macquarie
Infrastructure Group (MIG.AX) stand to benefit from the move to private infrastructure
bonds, since their tax-exempt status would keep interest rates and funding costs
The move would also bring lucrative fees to Wall Street banks and others for
underwriting and trading tax-exempt debt.
"The time has come for this," Sen. Jim Talent (news, bio, voting
record), a Missouri Republican who co-sponsored the proposal, said in a telephone
interview. "I think we have an excellent chance of the $15 billion bond
issue coming out of conference."
While highway spending has traditionally been the government's responsibility,
many states faced with tight budgets have given corporations the right to build,
operate and maintain roads.
States have the right to regulate toll rates or limit profits, but generally
give operators wide latitude to run the roads as they see fit, which concerns
Texas, California and Virginia are among the states at the forefront of the
movement, one of the most significant changes to the interstate highway network
since its inception in the 1950s.
Companies already own projects such as the Chicago Skyway Bridge and the 407
Express that rings Toronto, and interest in privatizing more of the U.S. highway
infrastructure is increasing. One bottleneck, however, has been financing.
Jose Lopez De Fuentes, director of Cintra's U.S. and Latin American operation,
said private road builders currently face complex regulations governing the
issuance of tax-exempt bonds.
The provision expected to emerge from Congress would help Cintra raise funds
to finance such projects as a proposed $7 billion investment in the Texas highway
system, he said.
Cintra's proposal, which includes a new link on the congested Dallas-San Antonio
route, has triggered some opposition, but the state transportation department
"That's a pretty good deal any way you slice it," said Gaby Garcia,
a spokeswoman with the Texas department. "They'll cover the table with
$7 billion and say, 'We'll raise that money on our own without any help from
TAPPING THE TAX ROLLS
But Ellen Danning, a law professor at Wayne State University in Detroit who
has written on privatization, said private companies are not necessarily more
efficient at running roads, and their tolls amount to a regressive tax on highway
A better solution to public underfunding of the road system may be to roll
back tax cuts that are squeezing the federal budget, Danning said.
"One of the things to ask yourself is, why doesn't the government have
the money to spend on the infrastructure that we need?" she said.
And while the private-activity bonds will not require any outlay of public
funds, the government would pay for the plan in the form of reduced tax rolls,
estimated at $500 million over six years.
In a highway bill that would cost $275 billion or more in that time, $500 million
is a small price to pay for a novel financing mechanism that could pay for dozens
of projects, said Katherine Hedlund, an Arlington, Virginia-based partner at
Nossaman, Guthner, Knox & Elliott LLP, which advises state governments on
"Federal funding through gas taxes and state and local taxes are no longer
sufficient to maintain our highway assets and to build the additional assets
we need to get ourselves out of congestion," Hedlund said.
Private road builders and public-private partnerships can pay out less interest
on tax-exempt bonds, reducing the financing costs of projects by 20 percent,
Ed Mortimer, director of transportation infrastructure at the U.S. Chamber
of Commerce, said an additional $15 billion in financing could fund 20 or 30
The proposal could provide a special boost to projects to expand connections
between ports or industrial sites and the highways. Such roads are less popular
-- but no less important -- than routes used by commuters.
"Sometimes," Mortimer said, "those projects are the hardest
ones to get funded."