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A private highway is a highway owned and operated for profit by private industry. Private highways have been constructed all over Europe; in addition, a few have been built in the United States on an experimental basis. Typically, the U.S. private highways are built by companies that charge tolls for a period of time while the debt is retired; then the highway is turned over to government control. By this means, cash-strapped governments can fulfill immediate transportation needs without privatizing the roads in the long term.

An obstacle to private highways is that government regulation can stifle price flexibility and introduce negotiation and paperwork requirements that increase operational expenses. In addition, private highways lack some advantages that governments have, such as sovereign immunity against liability for accidents and the ability to issue tax-exempt securities.

Recent trends

It has been proposed by the National Center for Policy Analysis and the Cato Institute that the Demsetz auctions commonly used to award franchises be replaced with Present Value of Revenues auctions in order to reduce risk and thus required rates of return by private highway owners. Under this system, contractors would bid an amount equal to the present value of cash flows from user fees they are willing to accept for the project. The lowest bid would win.

Boarnet and DiMento believe that private highways will become more important as the rise of gasoline-efficient hybrids causes a decline in gas tax revenues.

Arguments for and against private highways

Arguments for private highways

Privatization will encourage infrastructure construction and reduce congestion

Since traffic congestion is caused by there being more traffic than the highway can handle, one way to look at congestion is simply a shortage of roads, lanes, exits, or other infrastructure. Libertarian economists frequently cite the free market's pricing mechanism as a superior means of avoiding shortages than government planning. Peter Samuel's Highway Aggravation: The Case For Privatizing The Highways makes a provocative comparison between American traffic jams and Soviet grocery store lines:

In Russia communism's failure was epitomized by constant shortages in stores. Empty shelves in supermarkets and department stores and customers in line, wasting hours each week, became the face of the system's failure, as well as a source of huge personal frustration, even rage. Communism failed because prices were not flexible to match supply and demand; because stores were bureaucracies, not businesses; and because revenues went into a central treasury and did not fuel increased capacity and improved service. We in supposedly capitalistic America suffer communism--an unpriced service provided by an unresponsive monopolistic bureaucracy--on most of our highways. Our manifestation of shortage, our equivalent of Russian lines at stores, is daily highway backups. There is no price on rush-hour travel to clear the market. There is no revenue stream directly from road users to road managers to provide incentives either to manage existing capacity to maximum consumer advantage or to adjust capacity to demand.

Ronald F. Kirby, transportation director for the Metropolitan Washington Council of Governments, opined that private companies have more of an incentive to invest in infrastructure early, before a public outcry prompts construction. He noted, "Too often in the public sector, the easiest thing to do is let things sit unresolved. The private sector is motivated by self-interest to resolve things quickly".

A company that owns a private road will typically want to at least recoup its earlier investment to construct the road. Furthermore, when construction is complete, the company wants to keep investing in the road to keep up its initial value, because roads deteriorate over time. Road maintenance needs to be quick and of high quality, to keep the road from becoming idle again in the future resulting in a capital loss for the company; road traffic needs to be maximized, because that will result in the most revenues to the company. A government does not seek to maximize traffic or reduce road maintenance, because it has no incentive to do so, claim supporters of private roads. These supporters also claim that road safety is increased by companies that own private roads. Those companies do not want to see people getting injured on their roads, as it will tarnish a company's reputation. The companies will seek active removal of unfit, drunk and other reckless drivers, if allowed to discriminate so by the state, and will want to see increased mechanical standards of vehicles, because a stalled vehicle means an idle road. The company itself needs to pay for its removal, or passes this cost on to the owner of the stalled vehicle, inciting the owner to upkeep the quality of one's property.

Voters prefer tolls to taxes

Voters frequently support tolls over taxes:

• Washington, DC (60% / 30%): A randomized telephone survey conducted by TNS of Horsham, Pennsylvania of 1,003 adults for the Washington Post conducted in the last days of January, 2005 had Washingtonians saying tolls are a "better way to pay for highway expansion or new highways" locally than taxes by a 60/30 split. 9% said neither and 1% no opinion.
• Minnesota (69% / 23%): An opinion survey for the STAR TRIBUNE between January 15-20, 2004, showed 69% of people there favored tolled express lanes against 23% who wanted the gas tax raised to pay for extra free highway capacity.

Private highways facilitate internalisation of external costs

A private company can more easily be held accountable for negative effects of the highway than that if it is publicly owned. For example, residents living next to urban highways will benefit from noise reduction walls. However, campaigning for the city council to erect the walls is often ineffective and the process can take years, since the council needs to divert funding from other more pressing projects. A private highway will try to avoid court action and feel more obliged to cater for residents. The cost of erecting the walls will be passed on directly to the drivers (who are causing the noise), rather than the general public.

Arguments against private highways

Highway owners will overcharge users

A common argument against privatization of public highways is that the companies will charge exorbitant tolls. According to the Growth Management Institute, Mexican highway privatization was a costly failure:

Over the last decade, the government licensed companies and banks to construct and manage 43 highways and 9 toll bridges. On several of these facilities, the tolls are the highest in the world, the prime example being a 13 mile (21 km) stretch outside Mexico City that costs $6 to use, twice the daily minimum wage in Mexico.

However "overcharging" may lead to several results: if price-elasticity is high it will lead to less traffic and loss of revenue. If demand is rigid and other private roads can be created as needed it will increase profits, spurring competition and signalling to the business to reinvest in more road construction.

The total investment of $12 billion is at risk, causing the government to propose a $7.5 billion bailout to renationalize 23 highways and 2 bridges, most of which carry little traffic and require expensive maintenance. Many of the facilities, it seems, were built in areas needing little additional capacity and priced at a level that dissuaded potential users. Some road-building companies, however, recouped part of their investments through lucrative fees paid during construction, and at least one road was built mainly to benefit a developer's ocean-front property. According to the Times, one prominent political scientist called it "a dumb idea that didn't work."

Private industry cannot plan road locations as well as governments

Another argument against privatized roads is the companies' construction plans will not be in the public interest. For instance, in May 1996, the Growth Management Institute criticized the Greenway builders for building a road to nowhere:

Despite optimistic predictions by all involved, the road failed to attract anything close to the 33,000 vehicles a day required for the company to make loan payments, let alone the 68,000 vehicles a day needed to turn a profit. In early 1996, the road was averaging 10,500 vehicles daily.

Of course if the company lost money out of a bad investment its stock price would reflect it, such a huge blunder would result in the company going under or at the very least the management being replaced, whereas a government building useless roads is usually rewarded for its pork barrel spending.

Highways are natural monopolies

In many parts of the world land use patterns mean that building two or more highways in parallel isn't practicable. When there is only one highway connecting A to B, the main advantage of privatization, competition, disappears. In absence of regulation a private highway operator is likely to charge an exorbitant monopoly price, resulting in huge profit margins and few benefits for drivers. The initial franchise fee and/or savings public capital costs can offset the resulting monopoly profits in terms of societal costs, however there are distribution issues in that the income is spread over an entire region while the burden falls on a small subset of that region's population who actually need to use the road. Also, it is difficult to predict the long term present value of a road, for example for 407 ETR was leased for 3 billion CDN and was subsequently valued at nearly 10 billion CDN. While alternate local roads and other forms of transportation may provde some competition, it is often impractical, especially for goods.

Private highways around the world

Canada

407 ETR

The 108km Highway 407 ETR through the Greater Toronto Area is a privately owned freeway with the unique characteristic of all tolls being handled through electronic toll collection. Users who do not have a toll tag (called a transponder) in their vehicle are tracked by automatic number plate recognition, with the toll bill being mailed to the address of the plate on file.

Italy

3,120 kilometers of Italy's highways (comprising 56% of the country's toll roads) are controlled by Autostrade Concessioni e Costruzioni Autostrade. According to Forbes, "Autostrade was an early Electronic Age entry, computerizing to its highway system in 1988".

United Kingdom

The M6 Toll was the first private toll motorway in the United Kingdom. The project was described by urbantransport-technology.com as a "27 mile dual three lane (plus hard shoulder), £485.5 million motorway" with six toll stations. A similar scheme to bypass Newport in the M4 is under consideration

India

Although the national highway system is largely government owned, India's expressways are generally built and operated by private companies such as GVK Group.

United States

18th- and 19th-Century turnpikes

The Lancaster Turnpike, begun in 1792 between Philadelphia, Pennsylvania and Lancaster, Pennsylvania was the first major American turnpike. According to Gerald Gunderson's Privatization and the 19th-Century Turnpike, "In the first three decades of the 19th century Americans built more than 10,000 miles of turnpikes, mostly in New England and the Middle Atlantic states. Relative to the economy at that time, this effort exceeded the post-World War II interstate highway system that present-day Americans assume had to be primarily planned and financed by the federal government". Since electronics did not exist in that era, all tolls had to be collected by human cashiers at toll booths, creating high fixed costs that could only be covered by a large volume of traffic. As railroads and steamboats began to compete with the turnpikes, the companies started to shut down their less profitable routes or turn them over to governments.

Indiana Toll Road

In what may serve as a "test case" for the privatization of other major highways in the United States, on June 29th, 2006 Indiana received $3.8 billion from a foreign consortium made up of the Spanish construction firm Cintra and the Macquarie Infrastructure Group (MIG) of Australia, and in exchange the state ceded operation of the 157-mile Indiana Toll Road for the next 75 years to these outside corporations. The consortium would collect all the tolls.

Exit points are based on the mile-post system, with exits starting at 0 at the Illinois state line, and increasing to exit 153 at the Eastpoint toll barrier near the Ohio state line (technically, not an exit, as the only access from there is to the Ohio Turnpike, but toll tickets issued at the barrier are marked "Entry 153"). The Toll Road opened in 1956 with sequential exit numbering, which was converted to the current mileage-based scheme in 1981. The original number sequence was amended slightly in 1964 with the opening of the then-Burns Harbor, now Lake Station exit.

Reedy Creek Improvement District

The Reedy Creek Improvement District, established in 1967, operates six-lane freeways in the Walt Disney World area near Orlando, Florida. Technically, the RCID is a public corporation administered by a five-member Board of Supervisors elected by area landowners. However, through a carefully-constructed legal framework, Disney operates the roads and utilities as wholly owned subsidiaries, rather than as a public-private partnership.

Specifically, Disney is the primary landowner and controls the remaining land through contractual arrangements. In this way, Disney is able to hand-pick the landowning electorate. An Associated Press article notes, "Board members are non-Disney business people from central Florida and must own at least an acre in the district" . A Florida Office of Program Policy Analysis and Government Accountability report explains the contractual arrangement as follows: "Historically, each board member has been deeded approximately five acres of land by an affiliate of the Walt Disney World Co. . . . According to RCID officials, a Walt Disney World Co. affiliate has the exclusive option to purchase land back from board members at any time". Landowners also have a right to recall Board members before the completion of their four-year terms.

Financial arrangements are also circular. According to the RCID Finance Department, Walt Disney Co. is RCID's largest taxpayer, paying about 86% of the District's taxes in 2004. The remaining taxpayers are Board members and lessees of property owned by Disney affiliates (e.g. House of Blues, Travelodge, and Hilton) paying ad valorem taxes. An American Prospect article notes, "Disney pays taxes to Reedy Creek, which gives the money straight back to Disney, and the circle is closed".

Dalton Highway

The Dalton Highway in Alaska was built in 1974 to allow construction of the Trans-Alaska Pipeline System. It runs 400 miles from near Fairbanks to Prudhoe Bay on the Arctic Ocean. Rather than relieving congestion, the highway was built to allow access to the Prudhoe Bay oilfields, which before were inaccessible. Permits were required to drive it until 1995, but it is currently owned by the State of Alaska and open to the public.

Dulles Greenway

The Dulles Greenway, Virginia's first private toll road since 1816, is a 14 mile (23 km) highway connecting Washington Dulles International Airport with Leesburg, Virginia. In 1988, the Virginia General Assembly authorized private development of toll roads. To take advantage of this opportunity, the Bryant/Crane family of Middleburg, Virginia, AIE, L.L.C., and Kellogg, Brown and Root of Houston, Texas joined together to form Toll Road Investors Partnership II (TRIP II). Brown & Root constructed the road with private funds, opening it for traffic on September 29, 1995. Autostrade International, a company with over 30 years of experience in the development, construction, maintenance, and operation of Italian toll road networks, formed an American subsidiary to take over operation of the Greenway.

The Greenway has several methods of expediting traffic flow. Six traffic lanes, a uniform 65 mph (105 km/h) speed limit, and a complete absence of traffic lights keep traffic moving at a steady pace. In addition, electronic toll collection, using the Virginia Department of Transportation's Smart Tag system, enables Smart Tag lanes to "process five times as many vehicles per hour as conventional cash payment lanes".

The Dulles Greenway charges a fixed amount for use of the road, regardless of whether the driver exits before driving the complete length of the Greenway. The behavior of the Greenway's operators appears to confirm theories about private road operation; they seem to increase tolls and invest in infrastructure as needed to maximize profits. In 2004, the operators won approval from the State Corporation Commission to increase tolls from $2.00 to $3.00 per car. In 2005, Tom Sines of TRIP II announced plans for widening the highway, adding two new exits, expanding the main toll plaza, building a ramp to the airport, and reconfiguring an exit as a cloverleaf interchange.

Washington State highway privatization

As of 1993, the Washington State Department of Transportation had approved phased privatization of the entire 135 miles (217 km) of freeways in the greater Seattle metropolitan area.

Toll roads to serve development

In addition to many private toll roads built to serve ordinary travel needs, some have been built to serve new housing developments. Those include the following:

• Adams Avenue Turnpike, Ogden, Utah
• Alabama River Parkway, Montgomery, Alabama
• Burnside Expressway, Halifax, Nova Scotia (proposed in Canada)
• Emerald Mountain Expressway, Montgomery, Alabama
• Foley Beach Expressway, Orange Beach, Alabama
• Poinciana Parkway, central Florida (proposed)
• Western Bypass, Tuscaloosa, Alabama

See also

• Road pricing
• Toll road
• Shunpiking

External links

• IBTTA, International Bridge, Tunnel and Turnpike Association.
• Privatized Highways: A Toll Too Far?, The Growth Management Institute, May, 1996.
• A state-by-state tally of highway privatization projects in the United States, Mother Jones magazine, Jan 2007

References

1. Hakin, Simon & Blackstone, Edwin (August 1, 1999). Making inroads in private highway construction. American City & County. Retrieved on January 10, 2008.
2. National Center for Policy Analysis (January 17, 2003. New Auctions Could Improve Private Highway Franchises. Retrieved on January 10, 2008.
3. Stanek, Steve (February 1, 2005). California Law Provides Lessons for Private Transportation. Budget & Tax News.
4. Samuel, Peter: Highway Aggravation: The Case For Privatizing The Highways, Cato Policy Analysis No. 231, June 27, 1995.
5. Fehr, Stephen C.: Highway Links Loudoun to Region's Growing Pains, The Washington Post, Sep. 24, 1995.
6. Samuel, Peter: Landslide victory! Tolls 60% Taxes 30% in Washington DC metro area poll, Toll Roads News, Feb. 16, 2005.
7. Porter, Douglas R.: Newsletter of The Growth Management Institute, Vol. 4 No. 1, (Fall) 1997.
8. Heller, Richard: The Fast Lane, Forbes, April 15, 2002.
9. Judge Orders Discovery of Secret BNRR Deal, Alliance Against the Birmingham Northern Relief Road.
10. Birmingham Northern Relief Road (BNRR), United Kingdom, urbantransport-technology.com.
11. Gunderson, Gerald: Privatization and the 19th-Century Turnpike, Cato Journal, Vol. 9, No. 1, Spring/Summer 1989.
12. Schulman, Daniel (2007-01-01). "The Highwaymen". Mother Jones. Retrieved 2007-04-30. {{cite news}}: Check date values in: |date= (help); Italic or bold markup not allowed in: |publisher= (help)
13. About RCID, Reedy Creek Improvement District.
14. Schneider, Mike: Disney Rescue Workers in Labor Dispute, The Associated Press, Jan. 18, 2004.
15. Central Florida's Reedy Creek Improvement District Has Wide-Ranging Authority, Office of Program Policy Analysis and Government Accountability, Report No. 04-81, Dec. 2004.
16. Wolf, Joshua: Hidden Kingdom: Disney's Political Blueprint, The American Prospect, Inc., Volume 6, Issue 21, Mar. 21, 1995.
17. Dulles Greenway home page.
18. Dulles Greenway Expanding, ABCNews, Mar. 4, 2005.

• Samuel, Peter: Virginia bureaucrats finally OK toll hike for Dulles Greenway Virginia, Toll Roads News, July 8, 2004.

• Road transport