1. Why Free-Marketers Should Support Tolling and P3s by Robert W. Poole, Jr. Director of Transportation Policy Reason Foundation http://reason.org/transportation bob.poole@reason.org

2. Why tolling? Need to replace per-gallon fuel taxes with a long-term highway funding source Opportunity to create a true (highways-only) user fee: per-mile toll Bonus: powerful congesion-reducing power (e.g., HOT lanes) Ability to finance projects, as in other infrastructure.

3. What is a long-term toll concession (P3)? Contractual agreement between private entity and state DOT. Design, finance, (re)build, operate, and maintain a major highway, bridge, or tunnel. Financed (up-front) by debt and equity. May involve some state funding, if cost is so high that toll revenues won’t fully cover cost. Selected via competitive bidding.

4. Why use toll concessions? Build needed projects decades sooner, thanks to toll financing Weed out projects with low B/C ratio Shift major risks from taxpayers to investors Reserve toll revenues for capital and operating cost of the highway Build it more durably to minimize life-cycle costs Ensure proper ongoing maintenance De-politicize key decisions

5. Who opposes toll concessions? Right-wing grass-roots populists (e.g., TURF) Left-wing progressives (e.g.,Nader’s PIRGs) Nationalists like Jerome Corsi & Lou Dobbs Environmentalist/transit/smart-growth folks Public employee unions (e.g., PECG) Trucking industry

6. Populist argument #1: It’s mostly government money Typical project is 20% equity, 20% state, 60% debt (PABs and TIFIA loan). Claim: only the equity (20%) is “private.” Fact: company at risk for all of debt and equity (80%), based on toll revenues. State contribution usually due to cost- increasing state requirements. State often receives share of revenues if project does better than forecast.

7. Populist argument #2: Guaranteed profits Utilities have a regulated rate of return; toll concessions do not. Company is entirely at risk for cost overruns, late completion (delayed toll revenue), low traffic, high O&M costs Some US and Australian toll concessions have gone bankrupt—but NO taxpayer bailouts.

8. Populist argument #3: Government-sanctioned monopoly Alternative routes nearly always exist. Who would buy toll bonds if government could build a “free” expressway alongside? Non-compete clauses no longer used. Today, compensation provisions apply if company can show that a new highway NOT in the govt’s long-range plan diverts traffic off the toll road.

9. Populist argument #4: Tolls = taxes “Toll-tax”: sounds like “Poll tax.” Toll is a fee for service; you only pay it if you use the service. Only those who pay the toll get the service. The tolls are to pay for the specific project, not to provide government revenue. Virginia Supreme Court upheld tolls on these grounds in 2013 (in a P3 case)

10. Populist argument #5: Tolling “existing” highways Repeatedly alleged, but not happening. Illegal in Texas, unless voters approve specific project. Seattle voters agreed to pay tolls on existing 520 bridge to help pay for its replacement. Some projects replace an ordinary highway with a tolled expressway, but provide same number of free lanes as frontage roads. Converting carpool lanes to express toll lanes produces large benefits.

11. Populist argument #6: Double taxation This is claimed if any state DOT money is part of the project. But very few new toll roads can be financed on toll revenue alone (govt regulations greatly increase costs). Limited highway budget goes much farther if state can get a new expressway for 20% of its cost, with toll-payers covering the rest.

12. Populist argument #7: Foreigners buying up our highways No highways are being sold, only leased, under very detailed concession contracts. U.S. has no toll road companies, since all we have are state-owned enterprises (toll agencies) Expertise in commercial toll roads is all from overseas: Australia, Brazil, France, Spain, etc. We welcome Toyota, etc. building plants here; why not welcome other investment?

13. Who supports toll concessions? AASHTO NCSL Transportation Research Board/NAS American Enterprise Institute Brookings Institution Cato Institute Competitive Enterprise Institute Heritage Foundation Reason Foundation

14. Conclusions US highways are a socialist industry: 100% state- owned, non-priced, politicized, poorly run (congestion, pot holes, etc.) US electricity, railroads, telephone, pipelines, etc. are mostly investor-owned and perform much better than highways. Tolls are user fees and can also serve as market prices. P3 concessions are the first steps toward an investor- owned highway industry. Limited-government, free-marketers should welcome these trends.

15. Questions? Contact information: http://reason.org/transportation Bob.poole@reason.org