Three Lessons in Highway Privatization

Published March 1, 2005

1. At the very time state Departments of Transportation (DOTs) are desperately short of funds for highway investment, global capital markets are awash with capital for economically sound highway projects. Wise governments will take advantage of this.

2. Long terms (50- to 99-year leases) make it feasible for the private sector to pay significantly more for a highway project, because of the potential of large long-term gains. This applies not only to existing assets such as the $1.8 billion Chicago Skyway deal, but also to new projects.

In December 2004, the Texas DOT selected the winning bidder to develop the first Trans-Texas Corridor. CINTRA–an international group of engineering, construction, and financial firms–has committed $7.2 billion for this project, of which $6 billion will be used to construct the 316-mile, four-lane toll road. The other $1.2 billion is a franchise fee, to be paid to the Texas DOT over the decade or more of construction, in exchange for the right to charge tolls for 50 years.

3. Although the idea of investor-owned highways strikes people as odd, because it’s unfamiliar, it is no more radical than investor-owned electric utilities or investor-owned telecommunication firms. All are vital elements of infrastructure that we use every day. The long U.S. history of success with investor-owned utilities (contrasted with state-owned utilities in most other countries for most of the twentieth century) should give us confidence that the market can handle highways, too.

Robert Poole ([email protected]) is director of transportation studies and founder of Reason Foundation.