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Making bumpy budgetary roads smoother

By Joel Peyton

Like traffic reduced to one lane, politicians appear to have a single solution for meeting Kentucky’s transportation demands. “If we just had more revenue, we could get these bridges built and roads fixed,” they clamor.

What they mean, of course, is that they need more of taxpayers’ hard-earned money to replace aging bridges critical to commerce and repair whiplash-causing potholes on Kentucky’s roads. However, enough of these dollars never seem to exist to adequately address the state’s transportation needs without raising taxes or diminishing the amount of funding available for other important programs.

Few will argue that a substantial amount of money is needed to provide safer bridges and smoother roads for Kentuckians. But an increasing number of states are proving that important transportation projects can move ahead in spite of lean tax revenues and tight budgets through public-private partnerships (PPP).

States that use PPPs have hit the jackpot without playing the transportation-funding lottery with taxpayers’ dollars. These alliances bring together government entities and private companies to ensure that bridges and highways are built and maintained at lower costs to taxpayers in a manner that benefits all concerned.

For example, neighboring Indiana has jumped on the PPP bandwagon. Hoosier Gov. Mitch Daniels convinced legislators to approve his plan for leasing the maintenance and management of the Indiana Toll Road, which has drained millions of dollars from taxpayers in recent years.

Macquarie-Cintra, a private Australian-Spanish firm that manages highways around the globe, will pay Indiana $3.8 billion up front to maintain, improve and add lanes to this road. Indiana will use the fresh capital to build new highways and make improvements to existing roads.

In turn, the company will collect tolls and potentially earn profits over the next 75 years, yielding a mutually advantageous partnership.

Actually, the public sector will reap impressive benefits much quicker than this private concern, which must collect tons of quarters before earning even a modest return on the billions it is investing in this plan. For instance, some of the money paid by Macquarie-Cintra will help construct a planned 142-mile extension of I-69 between Indianapolis and Evansville.

Several successful collaborations have occurred in Virginia, which enacted the Public Private Transportation Act (PPTA) in 1995. Considered to be one of the most innovative PPPs in the nation, the PPTA allows businesses to submit unsolicited proposals to the Virginia Department of Transportation (VDOT) to work with the state on financing, building and operating surface-transportation projects¹.

Only five days after the PPTA was enacted, a private Virginia company offered a plan to maintain 1,250 interstate miles across the state. As a result, these roads were kept in better condition than the ones under the purview of Virginia’s already stretched state road workers.

The arrangement yielded the VDOT an estimated $16 to $23 million worth of savings². The plan worked so well that the public-private arrangement has been extended.

Another contract approved in the early days of Virginia’s PPTA involved a $324 million project to build a 9-mile toll road in Richmond. Teaming up with the private sector yielded the Old Dominion State $47 million worth of savings in construction costs alone on the road³.

Since the commonwealth adopted this approach to meet its transportation needs, companies have invested a total of $14 billion in the form of new roads, bridges and light-rail projects across the state⁴.

In fact, Virginia’s program has proven so successful that other states around the country – including Texas, Georgia and Florida – have followed the Mother of States’ lead.

The success of PPPs in several states reveals a tried-and-true principle of sound public policy, especially as it relates to challenging demands faced by state governments with growing transportation needs: What belongs to you, you tend to take care of; what belongs to no one – or everyone – tends to fall into disrepair.

The news out of Frankfort indicates that state lawmakers think new bridges and roads can be built and maintained only by raising taxes. That’s hogwash.

Instead of exploring PPP opportunities, policymakers are gushing about the prospect of making permanent the state’s fluctuating gasoline tax charged to wholesalers, and passing along that increase to retail customers at the pump. This new tax increase would allow the state to spend $69 million for current road projects and finance them on the backs of consumers during the next generation⁵.

With this in mind, Kentucky’s politicians should open up new financing avenues and invite future partners to join them. Together, they can construct high-quality, low-cost thoroughfares that will enhance the commonwealth’s economic competitiveness and endow its future prosperity.

– Joel Peyton is a research analyst for the Bluegrass Institute, Kentucky’s free-market think tank.

Endnotes:

1. “21st Century Highways” edited by Wendell Cox, Alan Pisarski and Ronald D. Utt, Heritage Foundation, 2005, pps. 101-126.
2. Ibid.
3. Ibid.
4. Ibid.
5."Some budget issues settled” by Tom Loftus and Elisabeth J. Beardsley, The Courier-Journal, March 26, 2006.

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