The Chicago Sun-Times and other local media outlets reported on March 2 that the city-owned Chicago Skyway toll road may be sold to a private operator.
“Two years after raising the possibility of unloading the white elephant-turned-cash cow, Mayor Daley took the first concrete step toward privatizing it,” noted the Sun-Times‘ city hall reporter, Fran Spielman.
Spielman reported city officials have issued a “request-for-qualifications” to private toll operators to gauge interest in the 7.8-mile roadway connecting Chicago and Northwest Indiana. Several dozen bids are expected.
“If those vying for the prize pledge enough cash, responsibility for operating and maintaining the Skyway could be turned over to a private operator by year’s end,” wrote Spielman. Annual operating and maintenance expenses for the Skyway currently run $12 million, and $400 million in debt remains.
The Chicago Tribune‘s transportation expert, Gary Washburn, noted “Privately owned toll highways now operate in several countries, including Canada, Spain, and New Zealand.” In 1999, a toll road serving metropolitan Toronto was sold for $2.1 billion.
And that’s not the only case, notes Robert Poole, director of transportation studies at the Reason Public Policy Institute. “Italy sold its major state-owned tollway agency in 1999 for $6.7 billion; Portugal did likewise that same year; and Spain sold its one remaining state tollway last year for $1.8 billion.”
According to privatization expert Peter Samuel, editor and publisher of Toll Roads Newsletter, “Growing empirical evidence suggests that moving to private management and/or ownership is a superior arrangement. Such … privatization can tap the expertise and other resources of private firms while at the same time avoiding the bureaucracy and perverse incentive structures that characterize the government sector.”
In a 1996 report for The Heartland Institute, Samuel documented several toll road privatization successes in the U.S. and worldwide:
“In Virginia, the Dulles Greenway is a totally investor-built and -operated toll road. So are the 91-Express Lanes in the Los Angeles area. Smaller investor-built toll facilities have been built in Alabama and are under construction in Utah, Florida, and Texas, and others are being designed in Florida and California.
“Tollways in Orlando, southern California, and Colorado are still formally state or local government entities, but the overwhelming bulk of their operations is contracted out, so only a small number are on government payroll. Few people probably know it, but the Detroit-Windsor tunnel is privately owned, as is the Ambassador bridge between Michigan and Canada.
“A similar trend toward privatization is taking place internationally. Toronto’s 407-ETR, the world’s most advanced automated toll road, is fully privatized, as is the world’s second automated highway, Melbourne CityLink in Australia. The formerly government-owned Autostrade SPA, which operates most of Italy’s motorways, is in the process of privatization. France’s Cofiroute SA, which generates more revenue than any U.S. toll agency, is investor-owned.”
Why consider privatizing the Skyway? Chicago’s recently appointed budget director, John Harris, explained simply, “The city gets to cash in the equity value in the Skyway and use it to pay off existing debt and finance core city services.”
The Skyway’s $2 toll was last increased in 1993, and Harris told Spielman a new increase would be likely under a private contractor. “Over time,” Harris noted, “tolls would have to meet the cost of operating and maintaining the facility as well as provide a reasonable return on the private operator’s investment. But rates would need to remain fair and reasonable in order to continue to attract users,” he pointed out.
The agreement, Harris added, would be for a term of no less than 50 years, “to give the buyer adequate title to claim depreciation” under federal tax rules. The private contractor would be expected to “bring to bear experience and expertise in operating toll-ways around the world in a very cost effective and efficient manner.”
Correct Road to Travel?
“There is everything to gain and little to lose by calling for competitive proposals from investors … on how they would operate and improve these facilities for the public, and on what terms,” noted Peter Samuel. “With a set of real proposals on the table, open to full public scrutiny, there will be a chance for a more businesslike system to evolve, to the benefit of everyone who uses (or relies on others who use) the region’s highways.”
According to Spielman, “With less ‘skimming’ and reduced labor costs, transportation experts said a private operator could provide improvements like better snow removal. But they warned that City Hall had better be prepared to spell out expectations in ‘excruciating detail’ and make certain those standards are met.”
“If they’re not prepared to do that, there’s going to be a problem. You can look at Hired Trucks [scandal] as a classic example of what happens when there isn’t adequate follow-through,” said Dave Schulz, the former city budget director who now runs Northwestern University’s Infrastructure Technology Institute.
Reason’s Poole agrees: “Obviously this needs to be done carefully. But with ample precedents to draw from, Chicago should be able to pull this off successfully, to the great benefit of Chicago taxpayers.”
John Skorburg is managing editor of Budget & Tax News. His email address is [email protected].
For more information …
Peter Samuel’s December 1999 Heartland Policy Study, “The Illinois Tollway: An Opportunity for Reform,” is available on The Heartland Institute’s Web site at http://www.heartland.org/Article.cfm?artId=9436.
For a wealth of information on tollway privatization and more, visit the Web site of the Reason Public Policy Institute at http://www.rppi.org.