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GAO gives highway privatization mixed review

Feb. 29, 2008
A recent study by the Government Accountability Office (GAO) of the U.S. Congress details both the benefits and the drawbacks of using private money to fund the nation’s highway infrastructure

A recent study by the Government Accountability Office (GAO) of the U.S. Congress details both the benefits and the drawbacks of using private money to fund the nation’s highway infrastructure.

“Highway public-private partnerships have resulted in advantages for state and local governments, such as obtaining new facilities and value from existing facilities without using public funding,” the GAO report states. “The public can potentially obtain other benefits, such as sharing risks with the private sector, more efficient operations and management of facilities, and, through the use of tolling, increased mobility and more cost effective investment decisions.”

However, the study also concludes that there is a danger in privatization. “There is no "free" money in public-private partnerships and it is likely that tolls on a privately operated highway will increase to a greater extent than they would on a publicly operated toll road,” the report states.

“There is also the risk of tolls being set that exceed the costs of the facility, including a reasonable rate of return, should a private concessionaire gain market power because of the lack of viable travel alternatives,” it continues. “Highway public-private partnerships are also potentially more costly to the public than traditional procurement methods and the public sector gives up a measure of control, such as the ability to influence toll rates.”

The “Infrastructure—A Path to Prosperity” forum, sponsored by Terex and held last week at Iona College in New Rochelle, NY, discussed whether public-private partnerships were a good idea, with most of the panelists saying that private money for roads is, to some extent, necessary, as federal resources have been stretched thin.

Former U.S. Representative (D-MO) and Majority Leader Dick Gephardt, now president & CEO of The Gephardt Group, echoed the sentiments of most of the panel when he said “We have a continuing—and irrelevant—debate about whether these problems should be solved by public or private means. It needs to be both.”

The American Trucking Assns. (ATA), which opposes public-private partnerships, supported the report’s findings. The trucking lobby claims it “opposes the lease or sale of existing toll roads, bridges or tunnels to private entities and has called on government to abandon these financing techniques. The trucking industry supports a toll-free national highway system where funds to finance highway improvement primarily come from fuel taxes. ATA believes privatization permits operators to increase tolls to prohibitive levels. Under such lease agreements, the public loses a degree of control over the road, and there are no guarantees that service and safety levels will be maintained.”

ATA president & CEO Gov. Bill Graves stated that: “Schemes such as the privatization and tolling of existing highway infrastructure will result in Americans paying a significantly higher price to access our highway system while receiving less in the form of safe, efficient, and reliable roadways. It’s an important development to have the GAO acknowledge that such funding mechanisms are not in the best interest of the American taxpayers.”

The Owner-Operator Independent Drivers Association (OOIDA) has also been vocal in its opposition to privatization. "Rest assured the companies lining up to buy our roads aren't doing it out of the goodness of their hearts,” said OOIDA executive vp Todd Spencer. “They see long-term cash flows and guaranteed, healthy profits at the public's expense. We recognize elected officials are confronted with difficult funding decisions, but these deals are akin to a pawn-shop mentality of hocking your assets for cash now, but paying much more down the road."

The Bush Administration has been a proponent of public-private partnerships. U.S. Dept. of Transportation Secretary Mary Peters was one of three members of the National Surface Transportation Policy and Review Study Commission that dissented from the majority opinion that the federal fuel tax should be raised from 25 to 40 cents per gallon before being replaced by a vehicle mileage tax in 2005.

However, one of the less-scrutinized sections of that report called for a limited use of tolling and privatization to pay for infrastructure needs.

“It’s clear that we’re just limping across the finish line when it comes to funding,” Peters said. “It is shortsighted, in my opinion, to continue to rely on a fuel tax as the primary method of funding surface transportation.”

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