Now that the Courser-Gamrat scandal has been put to bed, albeit in the signature Jr. High fashion expected out of Michigan’s 98th Legislature, they can forthwith move on to the larger issue of roads. Columnists across the Great Lakes State are spending their days silently writing two different lines of commentary on a possible legislative deal — one scenario for passage of a plan, and the other for failure. However, for the latter, they can probably just resurrect the funeral dirges composed over Prop 1.
Here Be Dragons
Yet, there’s a monster lurking over the horizon that few seem to be talking about. Toll roads — the privatization of Michigan’s highways remains a very real possibility if the state fails to put a viable long-term fix in place. The high priests at the Mackinac Center for Privatization, er…Public Policy, will certainly preach their private sector gospel as a perfectly fungible alternative, but that’s not entirely accurate of what other states have found with their toll road experiences.
The Michigan Department of Transportation’s official stance on toll roads has been:
Still, there’s been renewed toll road talk this year, with the notion dating back much further than legislation introduced as recently as the 2013 push to put a fix on the state’s infrastructure funding conundrum. The proposed bill, stalled in committee and now dead, clearly set-out to deceive — borrowing the thinly veiled language of cell phone companies, with terms like “user fees” and “ancillary charges” as substitute for the word “toll.”
The proposal was sponsored by a Democrat — an outlier perhaps? Not necessarily. Lest we forget, the Clinton administration championed privatization of public assets and services as part of their “National Partnership for Reinventing Government” campaign. While progressives have since soured on the concept, many Republicans (but not all) have taken-up the mantle, and there seems to be no end in sight to their zeal to part-out the commons like an old Buick. Not for nothing, the National Council for Public-Private Partnerships (NCPPP) proudly asserts that “desperate government is our best customer.”
Rich Lane, Poor Lane, aka — “New Capacity” Projects
Currently, MDOT enjoys the legal prerogative to enter into Public-Private Partnerships which include an array of basic contracting authorities, yet they lack license to engage in Public-Private Agreements — the legal vehicle necessary to create private toll roads. Even if granted this higher-level of authority, MDOT would be prohibited from converting existing roads to a toll status. Still, there remains the very real potential for so-called “new capacity” roads to be privately tolled. “New capacity” is a catch-all term that includes newly constructed lanes on existing crumbling highways. In essence, instead of the state embarking upon a full-scale upgrade of its standing transportation infrastructure, it could create a two-tiered system — one with a piecemeal publicly-maintained patchwork of lagging upkeep, adjacent to a premium set of privatized lanes.
Michigan does not now have any toll roads, but about 30 states currently do, including Indiana, whose experiment with this form of privatization became a rolling public policy nightmare — the Hoosier State’s Aramark.
It’s not just the rust belt economy driving the problem in the Midwest — the U.S. Highway Trust Fund is bust, contributing to a 15 percent increase in toll roads across the nation over the past decade. There are currently more than 5,000 miles of pay-to-drive highways and byways, with those numbers expected to continue to grow.
The U.S. PIRG Education Fund report, Private Roads, Public Costs, explains the pressures and pitfalls of privatization. Strangled budgets, combined with the opportunity to score political points, are key drivers of the toll road movement. The short-term political and budgetary windfalls of privatization are particularly alluring to term-limited politicians — they won’t be around to answer for the long-term harm to the public good.
Some of the pitfalls PIRG sites are:
- Loss of public control, including over-burdensome non-compete and compensation clauses preventing the state from upgrading its publicly-held infrastructure, and demanding steep financial compensation for contract violations.
- Profit-driven transportation planning, including safety-related contract provisions such as allowing higher speed limits on toll roads.
- Dangerous and costly traffic diversions: Again, it becomes an issue of rich lane vs. poor lane when private owners raise tolls beyond the capacity of many drivers to pay, forcing them on to roads not meant to handle the traffic, particularly that of trucks.
- No guarantees of state-of-the-art safety and maintenance.
- Private investors have higher capital costs which are passed-on through higher tolls.
- Shareholder profits drive the decision-making process.
- Private companies often engage in risky financial schemes.
- States become locked-in to excessively long contracts.
- Lack of transparency and inadequate oversight.
CASE STUDY: Highway to Hell in Indiana
Nearly a decade ago, Indiana entered into a 75 year, $3.8 billion cash-and-carry contract with the Indiana Toll Road Concession Company (a consortium owned by two entities from Australia and Spain) to privatize toll services on I-80 — a deal that earned broker Goldman Sachs $20 million. The scheme was the brainchild of newly elected Republican Gov. Mitch Daniels as part of his 10-year roads plan. An important trucking route, the 157-mile east-west stretch of highway links the Ohio Turnpike to the Chicago Skyway.
Over the years though the tolls have doubled, with the privateer contractually permitted to continue to raise tolls under a number of formulas: a flat 2 percent, or an amount indexed to the gross domestic product or the consumer price index — whichever is greatest. The investors had anticipated having low debt service costs upfront, and as they grew, refinancing was the game plan.
Enter the Great Recession.
As the economy collapsed and commercial trucking dwindled, their scheme crumbled, forcing the consortium to eventually file for bankruptcy. None of the above mentioned toll equations were able to spare their capital venture, although they certainly did nick drivers in the meantime. However, the driving public is at least somewhat shielded from the ill-conceived business plan, yet the state remains trapped in the contract for decades — or as FOX News spins it with faux optimism: “Failed Toll Road Privatization Leaves Indiana in Driver’s Seat.”
Motor City State Not (Yet) in the Driver’s Seat
A 2014 In the Public Interest report titled Shift: How Taxpayers Began Reclaiming Control of their Public Services describes how states are steering away from negligent privatization. At the time of the study, 19 states had legislation pending to “reign in reckless outsourcing and promote responsible contracting.” Michigan was not yet prepared to join that movement.
But by June of 2015, a bipartisan group of Michigan lawmakers introduced a six bill package designed to provide oversight and create more transparency in the privatization of state services and assets. The Great Lakes State saw some rare across-the-aisle cooperation inspired by the spectacular failure of the Aramark prison food contract, which was terminated the following month. All six bills are currently in the House Committee on Government Operations. (See HB 4700 – 4705)
Even with state leaders across the nation, along with the NCPPP, insisting they are adhering to best practices, hasty and costly privatization schemers continue to feed at the public trough. Earlier this summer, a U.S. District Court judge ruled invalid the Federal Highway Administration’s approval of the Illiana Expressway — a $1.3 billion public-private tollway venture between Indiana and Illinois. The court found that the science and math on which the project was based was deeply flawed. Proponents of the highway produced wildly inflated traffic projections and failed to consider the most basic of environmental impacts. Not mincing his words, Judge Jorge Alonso characterized the FHWA’s record of decision as “arbitrary and capricious.” The two states and the FHWA have filed an appeal.
In a Diane Rehm Show interview late last year, Donald Cohen, executive director of In the Public Interest, expressed concern over the less tangible aspects of toll roads on our nation. He believes that the “partitioning-off of the roads” will have negative consequences for our national integrated transportation system, not to mention create a cooling effect on public transit as a whole.
Time to put the brakes on the excesses of transportation privatization.