Blue ribbon transportation committee report

              ARIZONA STATE SENATE
RESEARCH STAFF
TO: MEMBERS OF THE BLUE RIBBON RYAN DEMENNA
TRANSPORTATION COMMITTEE LEGISLATIVE RESEARCH ANALYST
TRANSPORTATION COMMITTEE
Telephone: ( 602) 926- 3 17 1
DATE: February 14,2008 Facsimile: ( 602) 926- 3833
SUBJECT: Blue Ribbon Transportation Committee Report
Attached is the final report of the Blue Ribbon Transportation Committee ( Committee). This
report has been distributed to the following individuals:
Governor of the State of Arizona
The Honorable Janet Napolitano
President of the Senate
Senator Timothy Bee
Speaker of the House of Representatives
Representative James Weiers
Members of the Blue Ribbon Transportation Committee
Senator Ron Gould, Cochair Representative Andy Biggs, Cochair
Senator Robert Blendu Representative Marian McClure
Senator Pamela Gorman Representative John Nelson
Senator Rebecca Rios Representative Tom Prezelski
President Timothy Bee Speaker James Weiers
The Honorable Jan Brewer, Secretary of State
Director of the Arizona State Library, Archives and Public Records
Senate Majority Staff
Senate Minority Staff
Senate Research Staff
Senate Resource Center
House Majority Staff
House Minority Staff
House Research Staff
Chief Clerk
RD/ j as
Attachments
Pursuant to Laws 2007, Chapter 296, the purpose of the Committee is to: ( 1) review all reports it
receives relating to the transportation framework in this state; ( 2) make recommendations on which
legislative issues relating to transportation should be addressed in the next legislative session; ( 3)
submit a report regarding the Committee's activities and recommendations for legislative action on or
before November 30,2007, to the Governor, the President of the Senate and the Speaker of the House of
Representatives and provide a copy of this report to the Secretary of State and the Director of the
Arizona State Library, Archives and Public Records.
The Committee met a total of three times over the course of the interim on Tuesday, October 2,
2007; Thursday, October 25, 2007; and Tuesday, December 4, 2007. Members of the Committee
include the following:
Senator Ron Could, Cochair
Senator Robert Blendu
Senator Pamela Gorman
Senator Rebecca Rios
President Timothy Bee
Representative Andy Biggs, Cochair
Representative Marian McClure
Representative John Nelson
Representative Tom Prezelski
Speaker James Weiers
During the three meetings held, the Committee heard from the following individuals and
agencies:
The Arizona Department of Transportation ( ADOT)
The Reason Foundation
The Arizona Trucking Association ( ATA)
Valley Metro Rail
The Maricopa Association of Governments ( MAG)
The British Government's Export Advisory Group
The Arizona Councils of Governments/ Metropolitan Planning Organizations ( ACGsMPOs)
1. Meeting Notice, Minutes and Handouts - Tuesday, October 2,2007
2. Meeting Notice, Minutes and Handouts - Thursday, October 25,2007
3. Meeting Notice, Minutes and Handouts - Tuesday, December 4,2007
4. Recommendations
Intcrim agcndas can bc obtained via the Internet at http: llwww. azlcg. statc. az. usllnterimCommittees. asp
v
I
ARIZONA STATE LEGISLATURE
INTERIM MEETING NOTICE
OPEN TO THE PUBLIC
BLUE RIBBON TRANSPORTATION COMMITTEE
Date: Tuesday, October 2,2007
Time: 8: 30 A. M.
Place: HHR 4
AGENDA
1. Call to Order and Introduction of Members
2. Election of Cochairmen
3. Staff Review of the Blue Ribbon Transportation Committee's Charge
4. ADOT: Arizona's Transportation Needs and Outlook; HURF and the Federal Highway
1- rust Fund
5. House Rules Attorney: Discussion of Existing To11 Road Stat~~ teasnd Potential Issues
Related to PublicIPrivate Partnerships
6. Reason Foundation: Presentation of PublicIPrivate Partnerships
7. Arizona Trucking Association: Focus on PublicIPrivate Partnerships
8. Committee Discussion
Members:
Senator Tim Bee
Senator Robert Blendu
Senator Pamela Gorman
Senator Ron Gould
Senator Rebecca Rios
Representative Andy Biggs
Representative Marian McClure
Representative John Nelsorl
Representative Tom Prezelski
Representat~ veJ im Weiers
People with disabilities may request reasonable accommodations such as interpreters,
alternative formats, or assistance with physical accessibility. If you require accommodations,
please coritact the Chief Clerk's Office at ( 602) 926- 3032, TDD ( 602) 926- 3241.
Page 1 of 1
MINUTES RECEIVED
CHIEF CLERK'S OFFICE
ARIZONA HOUSE OF REPRESENTATIVES ( 0- IS- C7
Forty- eighth Legislature - First Regular Session
BLUE RIBBON TRANSPORTATION COMMITTEE
Minutes of Meeting
Tuesday, October 2,2007
House Hearing Room 4 -- 8: 30 a. m.
Representative Biggs called the meeting to order at 8: 37 am and attendance was noted by the
secretary.
Members Present
Senator Tim Bee Representative John Nclson
Senator Robert Blendu Representative Tom Prezelski
Senator Pamela Gom~ an Representative Jim Weiers
Senator Rebecca Rios Co- Chair Representative Andy Biggs
Co- Chair Senator Ron Gould
Members Absent
Representative Marian McClure
STAFF REVIEW OF THE BLUE RIBBON TRANSPORTATION COMMITTEE'S
CI- IARGE
. John Malikowski, Maioritv Research Analyst, Mouse Transportation Committee, explained that
SB 1640 established the Blue Ribbon Transportation Committee, which consists of five I- louse
membcrs and five Senate members. The charge of the Committee is:
to review all rcports received relating to the transportation framework in this state;
to make recommendations on which legislative issues relating to transportation should be
addressed in the next legislative session;
To submit a report, regarding Committee activities and recolnmendations for legislative
action on or before November 3, 2007, to the Governor, President of the Senate and
Speaker of the House of Rcpresentatives.
The Blue Ribbon Transportation Committee will sunset on September 30,2008.
BLUE RIBBON TRANSPORTATION COMMITTEE
October 2,2007
I'RESENTATION BY THE ARIZONA DEPARTMENT OF TRANSPORTATION
/ AI) OT): AIIIZONA'S TRANSI'ORTATION NEEDS AND OUTLOOK; HURF AND
THE FEDERAL HIGI- IWAY TRUST FUND
Victor Mendez. Director, ADOT, introduced members of ADOT who were present as follows:
Sam Elters, State Engineer, Jim Dickey, Public Transportation Division Director, Dale Buskirk,
Transportation Planning Director, and John McGee, Chief Financial Officer.
Mr. Mendez and Mr. McGee alternated the narration of the presentation of An Overview of
Arizona's Transportation System and Future Needs ( Attachment 1).
Mr. Biggs moved that, without objection, he and Senator Gould would Co- Chair the Blue
Ribbon Transportation Committee. The motion carried.
Jim Drake, House Rules Attorney, summarized existing toll road statutes ( Attachments 2 and 3).
I3e answered questions posed by Committee members as follows:
He explained the process of eminent domain as it relates to a private entity and ADOT
If a toll road exists, an alternate route must also be available.
In response to query from Mr. Nelson, Co- Chair Biggs explained the Committee would be
having a series of meetings to assist in understanding transportation needs at a macro level. He
said he does not believe the Committee should determine micromanagement, but rather should
develop policies.
Mr. Drake explained existing statute relates only to highways, and he does not believe the statute
would allow a private entity to take over operation of certain roadways.
IiEASON FOUNIIATION: PRESENTATION OF PUBLICII'ItIVATE I'AIITNERSI- 111' s
Leonard Gilroy, Director of Government Reform. Reason Foundation, narrated a presentation,
The Emerging Transportation Funding Paradigm ( Attachment 4). Mr. Gilroy distributed the
following material: The Role of Tolls in Financing 21 Century Highways ( Attachment 5), I- lot
Lanes: Frequently Asked Questions ( Attachment 6), and Building New Roads Through Public-
Private Partnerships: Frequently Asked Questions ( Attachment 7).
Several Committee members commented on the ramifications of private contracts that last for 75
years to 90 years.
Mr. Gilroy explained that in the Orange County 91 Express Lanes project, non- compete clauses
in private sector contracts included a ban on new capacity which ultimately prevented the state
from expanding adjacent lanes. This situation caused much controversy and dissatisfaction with
non- compete clauses. Currently, contracts do not include bans on competing facilities.
BLUE RIBBON TRANSPORTATION COMMITTEE
2 October 2,2007
ARIZONA TRUCKING ASSOCIATION: FOCUS ON PUBLICn'RIVATE
I'ARTNERSNIPS
Karen Rasmussen, President and CEO, Arizona Trucking Association ( ATA), said the ATA has
been in existence since 1937, and represents the 335 trucking and bus industry companies in
Arizona. Ms. Rasmussen stated that 91 percent of all manufactured freight in Arizona is moved
by truck, and that nearly all agricultural commodjties and retail goods are moved by truck, and
85 percent of Arizona communities have no rail freight service and depend totally on trucking
for goods delivery. In 2005, trucks represented 13- 112 percent of vehicle miles traveled in
Arizona and paid 36 percent of federal and state taxes and user fees, which amounted to a total of
$ 775,600,000.
Ms. Rasmussen said the ATA does not generally support the concept of toll roads or of
privatizing the construction or operation of highway infrastructure as outlined in the ATA
Highway Financing Principles ( Attachment 8). She provided the Committee with a table of
Arizona State and Federal Freight Motor Carrier Taxes and Fees Paid 2001- 2005
( Attachment 9.) Ms. Rasmussen stressed the safety ramifications of high occupancy toll lanes.
Ms. Rasmussen responded to questions posed by Committee members as follows:
Ms. Rasmussen said she has 30 years experience in dealing with toll roads in several
other states.
She said the ATA has determined that a fifteen cent per gallon increase in fuel tax would
not be unreasonable.
She said that all other conditions being equal, the ATA would be more supportive of toll
lanes if new facilities were built.
Without objection, the meeting adjourned at 11 : 37 a. m.
( Original minutes, attachments and audio on file in the Office of the Chief Clerk; video archives
available at http:// www. azleg.~ ov/)
BLUE RIBBON TRANSPORTATION COMMITTEE
October 2,2007
Arizona at a Glance: 2007
6.3 million residents
Over 7000 miles of highways
Just under $ 1 billion worth of projects
under construction
o Congestion increasing
o Largely dependent on roads - but
growing mass transit ridership
o Over $ 2 million in public transit planning
funds, over $ 9 million in rural transit
assistance
o First or second fastest growing state in
the nation
o Great diversity of needs and preferences
STATE TRANSPORTATION BOARD
o The Board shall:
Develop and adopt a long- range statewide
transportation plan.
Adopt transportation system performance
measures.
Adopt a system of state highway routes and
determine which highways remain part of the
state system.
Establish policies to guide the development of
the five- year construction plan.
Award all construction projects under the five-year
plan and monitor the status of those
projects.
imports
existing needs
Projected Annual
Average Daily Traffic
2030 Annual Average Daily Traffic
fiYp0 r , - 25,000
25,000 - 50,000
q*.. pq% fi 4.;. I\ 50,000 - 100,000
/ V 100,000 - 150,000
150,000 and Above
No Data
Potential Lane
Increases
to Existing Highways
Lanes
- 10
8
6
- 4
Unchanged
tatewide
cenar
Existing Mass Transit
Ridership: 80 Million
Future Mass Transit
Ridership, including Rail:
297 Million
Additional Highway
Lanes: 216
Additional Vehicles
Accommodated: 4.5
Million
HIGHWAY USER REVENUE FUND
BACKGROUND
HURF established in 1974
Monies ( except VLT) are dedicated to
highway purposes under the provisions of
Article IX, Section 14, of the Arizona
Constitution
Nationally, dedicated user revenues
provide the bulk of income for highways
Distribution formulas set by statute
ADOT
$ 584.5
42.3%
VEHICLE LICENSE TAX DISTRIBUTI
FY 2007
Vehicle License Tax
1111111111, $ 875.7 Million 11 0.0%
$ 0 Million
Highway Purposes
5.83%
State Highway Fund
0.0%
$ 0.1 Million
County Gen. Fund
24.59%
$ 214.9 Million
Cities/ Towns Fund
24.59%
$ 214.9 Million
( School Aid)
0.0%
$ 0.7 Million
State Highway Fund
0.0%
$ 0.3 Million
NOTES:
1. The distribution percentage for each recipient based on statutory distribution. The State General Fund and State Highway Fund receive a share of the VLT only from alternative fuel
vehicles, rental vehicles and privately owned vehicles used as a school bus, ambulance or fire fighting service. The other VLT recipients also receive a small amount of VLT from these
vehicles.
2. Laws 2005, Chapter 306 ( SB 1119) distributes 1.51% of the State Highway Fund share of HURF VLT to the DPS Parity Compensation Fund totaling $ 3.0 million in FY 2007.
3. $ 15.3 million from the State Highway Fund and the $ 0.3 million from the State Highway Fund share of VLT was paid to the MVD Third Parties per HB 2026 and HI 2055 from the 1998
and 2001 legislative sessions, respectively in FY 2007. The reimbursements were previously paid solely from the State Highway Fund share of VLT until it was severely reduced from the
VLT rate reductions.
HIGHWAY USER REVENUE FUND
2007 REVENUES AND DISTRIBUTIONS
( Dollars in Millions)
-"- - r.
Gas Fuel Reg. MC Lic. VLT Other
497.7 210.3 177.8
HURF
Collections
NOTES:
11. Appropriation of 607,300 to MVD for
vehicle registration enforcement program and 5
FTE positions for 3rd Party program.
12. The 12.6% ( statutory) and 2.6% ( non-statutory)
allocations from the State Highway
Fund share of HURF distributions.
13. With the elimination of the VLT distribution
to the state highway find, a distribution is made
from the state highway find to MVD Third
Parties for the collection of VLT.
14. Per Laws 2005, Chapter 306 ( SB 11 19), 1.5 1
percent of the state highway fund share of
HURF VLT is distributed to the DPS Parity
Compensation Fund.
26.2 12.6% & 2.6%
MAG MVD 3rd
Parties
REVENUE PERFORMANCE
HIGHWAY USER REVENUE FUND
Annual Rates of Growth
Forecast
Variance 1.0% 0.0% - 0.3% - 1.7% - 2.6% 1.4% 1.0% 3.5% 5.0% 3.3% - 4.1% 4.6% - 0.3% - 1.1% 1.0% 0.3% 2.6% 1.4% 1.9% - 1.2%
NOTE: Includes tax rate changes.
FEDERAL HIGHWAY PROGRAM
Trust Fund concept
Funds authorized by Congress
Monies apportioned among states by
program category on a formula basis
Obligation limits may be imposed
Matching requirements vary
Upcoming reauthorization ( 2009)
Federal revenues divided for use among
highways ( 86%) and transit ( 14%)
2006 XI07 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Transit Pccount
Oblim 6.9 7.3 7.9 8.4 8.5 8.7 8.8 9 9.2 9.4 9.6 9.8
Est Flexing - Transfer of Oblirn I. 4 1 1 1 1 1 1 1 1 1 1 1
BOY Balance 2 6.3 7.9 8.4 8.5 8.7 8.8 9 9.2 9.4 9.6 9.8
Est Flexing - Transfer of Cash 1.4 0.3 0.7 0.9 0.9 1 I 1 1 1 1 1
Receipts 4.9 5 5 5.1 5.2 5.3 5.4 5.4 5.5 5.6 5.6 5.7
Outlays 2 3.6 5.6 6.9 8.1 9 9.4 9.7 9.9 10 10.2 10.4
EOY BalanceH 8.3 7.9 8.1 7.1 5.1 - 2.4 - 0.7 a3.9 - 7.3 , - 10.7 - 14.3 - 18
Under current law, the Highway Trust Fund cannot incur negative balances. A negative balance, as shown, represents obligations and the
ability of the Trust Fund to pay those obligations. Spending on program financed by the Highway Trust Fund would continue, although the
rate of outlays would likely slow.
Source : CBO
ERAL HIG
PACT
H WAY
I F CONG
PROGRAM 0
RESS TAKES NO
BLIGAT
ACTION
IONS
( Dollars in Billions)
SAFETEA- LU Extended to 2010 Highway Program Reduction
* Obligation level proposed in the President's 2008 budget request, which includes a suspension of $ 63 1 million in RABA funding.
Source : AASHTO, April 2007
CONSTRUCTION COSTS
PERCENTAGE INCREASE FOR 1993- 2015
* 1993 was last year in which federal fuel taxes were last adjusted. Projected change from 2007 to 2015
based on the Consumer Price Index. Data for 2004 to 2006 based on the Producer Price Index for
highway construction.
Source : AASHTO, April 2007
creat~ vere sponses
federal dollars
stretch sta
Significant State Highway System Improvements, 1997- 2007
: 0 I O M M I O W ".&' L I I I I j
1 MR.,
Acceleration of Programmed
Projects by Local Governments
Local Governments paid interest on
total construction costs to advance
projects :
Total Construction Costs
o 1- 10 Phoenix/ Pecos $ 60 Million
o SR 51 PhoenixIBell - LlOl $ 50 Million
o L101 ChandlerIWarner - Frye $ 45 Million
o L l O l Phoenix/ Scottsdale - Pima $ 25 Million
o L202 Mesa/ Country Club - Gilbert $ 60 Million
Funding Options for the Future
o No Silver Bullet!
o Policy makers have choices about
the mix of tools in- the tool kit, but
there must be more than one
o Public acceptance is critical
Easily understandable
Fair
Provides choices
ARIZONA HOUSE OF
REPRESENTATIVES
R ULES OFFICE
TO: Members of the Blue Ribbon Transportation
Committee
DATE: October 2,2007
SUBJECT: Summary of existing toll road statutes
JIM DRAKE
TIM FLEMING
RULES ATTORNEYS
Telephone: ( 602) 926- 4615
General
Arizona has had statutes that provide for publiclprivate projects in the transportation
realm for more than 16 years. Chapter 22 was added by House bill 2224 in 1991.
The chapter is divided into two separate articles. One article is dedicated to
transportation facilities, the other is for roadway projects. Contracts or agreements for
transportation facilities must be based on requests by the department [ 28- 7701 ( A)], while
roadway project agreements or contracts may be let from unsolicited applications [ 28-
7742( E)].
Currently, the law only provides for limited application. The Board cannot approve more
than two proposals under either article. [ 28- 7701 ( D), 28- 28- 7747( K)].
Facilities ( not defined)
Ownership of the facility lies with the state and at the end of the lease the
facilities must transfer to the state without additional cost. [ 28- 7701 ( C)( l), 28-
770 1 ( C)( 3)].
Toll may be charged for the use of transportation facilities. The private entity sets
the toll, subject to some limited statutory restrictions. [ 28- 7701 ( C)( 5), 28-
770 1 ( C)( 6)].
The lease or license of property or any right- of- way and toll revenues are not
subject to any excise tax. [ 28- 7705( B)].
If you use the transportation facility and have paid fuel taxes, you may be entitled
to a refund or credit - the department rules will govern these procedures. [ 28-
7705( C), [ 28- 7705( D)].
Process outlined for default. [ 28- 77031.
Any absolute or qualified immunity possessed by the state remains the same. [ 28-
77061.
ATTACHMENT
The term of the lease or license is for period mutually agreed upon by parties. 28-
7701 ( C)( 2)].
Roadways
Not abundantly clear whether current law applies to assumption of existing
roadways. Statutes generally speak to new construction or enlargement of
existing roads. " Operation7' definition is broad, but seems to be geared more
toward new construction. [ 28- 774 I].
Applications can be unsolicited. [ 28- 7742( E)].
Application [ 28- 7742( B)] must include:
a. geographic area, approximate route ( reasonable alternative must exist)
b. list of property owners ( pass through or abut)
c. method of securing rights- of- way
d. plan for harmony with local government not to impede comprehensive
plan
e. financing
f. operations plan
g. list of necessary permits
h. overall description - showing connections to other types of roads
i. utility facilities - crossings or relocations
j . construction must adhere to state standards
k. performance/ completion bond proposals
private entity must be incorporated in Arizona and does not have the power of
eminent domain ( though department's use of eminent domain is reimbursable by
private entity). [ 28- 7744, 28- 7746( B)].
Board supervises private entity and has inspection authority. [ 28- 77471.
Local authorities ( county, city or town) have ability to participate before Board
approval and to influence local connections. [ 28- 77461.
Board cannot approve or revise toll rates. Toll rates are for reimbursement of the
costs and to provide a reasonable rate of return. [ 28- 7748, 28- 7750( B)].
If you use the roadway and have paid fuel taxes, you may be entitled to a refund
or credit - the department rules will govern these procedures. 128- 7749].
Process outlined for default. [ 28- 77521.
Private entity shall secure and maintain a policy of public liability or self
insurance in an amount satisfactory to the Board. [ 28- 775 I].
Excess toll revenues, if any, are to be deposited in HURF or the regional area road
fund. [ 28- 77531.
Roadway to be policed by Department of Public Safety. [ 28- 77551.
The lease or license of property or any right- of- way and toll revenues are not
subject to any excise tax. [ 28- 77491.
Full faith and credit of the state are not pledged for financing. [ 28- 77561.
Traffic and motor vehicle laws of state also apply to roadway. [ 28- 77573.
At end of lease or license period, roadway is dedicated to state. [ 28- 77581.
TITLE 28, CHAPTER 22
TRANSPORTATION PROJECT PFUVATIZATION
( Laws 1991. Chapter 304)
ARTICLE 1. TRANSPORTATION FACILITY PILOT PROJECTS
28- 7701. Asreements w i t h o r i v a t e e n t i t i e s : l i m i t a t i o n s
A. The department may request competing proposals from p r i v a t e
e n t i t i e s by a d v e r t i s i n g as prescribed i n s e c t i o n 28- 6923 and may enter
i n t o w r i t t e n agreements w i t h p r i v a t e e n t i t i e s r e l a t i n g t o both o f t h e
f o l l owing:
1. The c o n s t r u c t i o n o f t r a n s p o r t a t i o n f a c i l i t i e s by p r i v a t e
e n t i t i e s .
2. The l e a s e o f t r a n s p o r t a t i o n f a c i l i t i e s constructed pursuant t o
t h i s a r t i c l e by t h e department t o p r i v a t e e n t i t i e s .
0. To f a c i l i t a t e t h e development o f t r a n s p o r t a t i o n f a c i l i t i e s , the
agreements w i t h p r i v a t e e n t i t i e s p r e s c r i b e d i n subsection A o f t h i s
s e c t i o n may p r o v i d e f o r any o f the f o l l o w i n g :
1. The lease o f s t a t e highway r i g h t s - o f - w a y .
2. The lease o f airspace over and under s t a t e highways.
3. The g r a n t i n g o f easements o f n e c e s s i t y .
4. The issuance o f permits or o t h e r a u t h o r i z a t i o n f o r t h e p r i v a t e
e n t i t i e s t o c o n s t r u c t t r a n s p o r t a t i o n f a c i 1 i t i e s supplemental t o e x i s t i n g
s t a t e t r a n s p o r t a t i o n f a c i l i t i e s .
C. An agreement w i t h a p r i v a t e e n t i t y entered i n t o pursuant t o t h i s
s e c t i o n s h a l l p r o v i d e f o r a l l o f t h e f o l l o w i n g :
1. S t a t e ownership o f the t r a n s p o r t a t i o n f a c i l i t y constructed by a
p r i v a t e e n t i t y .
2 . Lease o f t h e t r a n s p o r t a t i o n f a c i l i t y t o the p r i v a t e e n t i t y f o r a
p e r i o d mutual1 y agreeable t o the department and the p r i v a t e e n t i t y .
3. N o t w i t h s t a n d i n g s e c t i o n 28- 7094, r e v e r s i o n t o t h i s s t a t e o f the
t r a n s p o r t a t i o n f a c i l i t y c o n s t r u c t e d by t h e p r i v a t e e n t i t y a f t e r t h e
e x p i r a t i o n o f t h e l e a s e a t no expense t o t h i s s t a t e , as c o n s i d e r a t i o n f o r
the lease g r a n t e d b y t h i s s t a t e .
4. Reimbursement by the p r i v a t e e n t i t y t o t h e department or any
o t h e r s t a t e agency f o r costs i n c u r r e d a f t e r the w r i t t e n agreement i s
f i n a l i z e d , i n c l uding t h e costs o f p l a n n i n g . e n v i ronmental impact
assessment, design, maintenance, p o l i c e s e r v i c e s and any other s e r v i c e
rendered.
5. A u t h o r i z a t i o n f o r the p r i v a t e e n t i t y t o impose and c o l l e c t t o l l s
f o r the use o f a t r a n s p o r t a t i o n f a c i l i t y c o n s t r u c t e d by t h e p r i v a t e
e n t i t y .
6. During t h e term o f the lease, t h e p r i v a t e e n t i t y s h a l l apply
t o l l revenues t o :
( a ) C a p i t a l o u t l a y costs f o r t h e t r a n s p o r t a t i o n f a c i l i t y p l u s
i n t e r e s t and p r i n c i p a l repayment f o r any debt i n c u r r e d .
( b ) Costs a s s o c i a t e d w i t h o p e r a t i o n s , t o l l c o l l e c t i o n and
a d m i n i s t r a t i o n o f t h e f a c i l i t y .
( c ) Payment t o t h i s s t a t e f o r reimbursement o f t h e c o s t s o f
maintenance, p o l i c e and o t h e r s e r v i c e s if these s e r v i c e s are performed by
t h i s s t a t e pursuant t o t h e w r i t t e n agreement w i t h t h e p r i v a t e e n t i t y .
( d l A r e a s o n a b l e r e t u r n on i n v e s t m e n t t o t h e p r i v a t e e n t i t y .
D. The board s h a l l not approve more t h a n two p r o p o s a l s under t h i s
a r t i c l e .
E. On n e g o t i a t i o n o f an agreement pursuant t o t h i s s e c t i o n , t h e
department s h a l l make a copy of t h e agreement a v a i l a b l e a t a p u b l i c
h e a r i n g a t a l o c a t i o n convenient t o t h e p r i v a t e e n t i t y ' s p r o j e c t and f o r
a t l e a s t f i f t e e n days b e f o r e t h e p u b l i c h e a r i n g . The n o t i c e of t h e p u b l i c
h e a r i n g s h a l l be p u b l i s h e d i n a newspaper t h a t has a c i r c u l a t i o n of a t
l e a s t f i f t y thousand copies and t h a t i s r e g u l a r l y d i s t r i b u t e d i n t h e
county o r c o u n t i e s i n which t h e p r i v a t e e n t i t y ' s p r o j e c t i s l o c a t e d . The
n o t i c e o f t h e p u b l i c h e a r i n g s h a l l announce t h e a v a i l a b i l i t y of t h e
agreement and where a copy o f t h e agreement may be o b t a i n e d o r reviewed
and s h a l l s t a t e t h a t comments may be s u b m i t t e d i n w r i t i n g t o t h e
department w i t h i n t h i r t y days of the a v a i l a b i l i t y o f t h e agreement. The
department may r e v i s e o r r e n e g o t i a t e t h e agreement based on t h e p u b l i c
comments i t r e c e i v e s .
F. A f t e r compliance w i t h s u b s e c t i o n E o f t h i s s e c t i o n . t h e board
may g i v e f i n a l approval t o the p r o j e c t . p r o j e c t d e s i g n , connections o f t h e
roadway and agreement p r e s c r i b e d i n t h i s s e c t i o n and may a u t h o r i z e t h e
d i r e c t o r t o execute t h e agreement. The department s h a l l make t h e
agreement s u b m i t t e d f o r t h e b o a r d ' s f i n a l approval a v a i l a b l e t o t h e p u b l i c
and s h a l l g i v e p u b l i c n o t i c e of t h e a v a i l a b i l i t y o f t h e agreement a t l e a s t
f i f t e e n days b e f o r e t h e meeting of t h e board a t which t h e approval w i l l be
considered. The p u b l i c n o t i c e s h a l l be p u b l i s h e d i n a newspaper t h a t has
a c i r c u l a t i o n o f a t l e a s t f i f t y thousand copies and t h a t i s r e g u l a r l y
d i s t r i b u t e d i n t h e county o r c o u n t i e s i n which t h e p r i v a t e e n t i t y ' s
p r o j e c t i s l o c a t e d and s h a l l s p e c i f y where a copy o f t h e agreement may be
o b t a i n e d o r reviewed.
28- 7702. T r a n s p o r t a t i o n f a c i l i t y reauirernents
A. The plans and s p e c i f i c a t i o n s f o r a t r a n s p o r t a t i o n f a c i l i t y
c o n s t r u c t e d pursuant t o t h i s a r t i c l e s h a l l comply w i t h t h e department's
standards f o r s t a t e p r o j e c t s . D u r i n g t h e term o f the l e a s e . a
t r a n s p o r t a t i o n f a c i l i t y c o n s t r u c t e d by and 1 eased t o a p r i v a t e e n t i t y i s
deemed t o be a p a r t o f t h e s t a t e highway system.
B. The board shall approve a transportation f a c i l i t y constructed or
operated pursuant t o t h i s a r t i c l e only i f a reasonable a1 t e r n a t i ve route
e x i s t s .
C. A transportation f a c i l i t y constructed or operated pursuant to
t h i s a r t i c l e s h a l l :
1. Accommodate the same type of motor vehicles as the existing
a l t e r n a t i v e f a c i l i t y .
2. Provide a route t h a t i s a t l e a s t as d i r e c t as the existing
a l t e r n a t i v e f a c i l i t y .
28- 7703. Default
A . I f t h e r e i s a material and continuing default in the performance
of the private e n t i t y ' s construction d u t i e s o r contractual obligations or
i f construction has not begun within two years of t h e d a t e of the
agreement authorized by t h i s a r t i c l e or a f t e r f i n a l clearance of a l l
necessary government approvals and authorizations, whichever i s l a t e r , the
board, a f t e r a hearing in which t h e p r i v a t e e n t i t y has notice and an
opportunity to p a r t i c i p a t e , may take the following actions t h a t the
department may p a r t i c i p a t e in or i n i t i a t e :
1. Revoke the agreement.
2. Declare a default i n the construction or lease of the
transportation f a c i l i t y .
3. Make or cause to be made the appropriate claims under any
completion or performance bond.
4. Take other action determined appropriate by the board under the
ci rcumstances.
B. If the agreement i s revoked pursuant to subsection A:
1. The private e n t i t y does not have authority to construct or
operate the t r a n s p o r t a t i o n f a c i l i t y .
2. The department may construct and operate the transportation
f a c i l i t y .
3. The department may t a k e s t e p s t h a t are i n the public i n t e r e s t ,
including completion of the construction of or additions to the
transportation f a c i l i t y . c l o s i n g t h e t r a n s p o r t a t i o n f a c i l i t y or an
intermediate s t e p .
4. The private e n t i t y shall grant t o the department a l l of i t s
r i g h t s , t i t l e and i n t e r e s t i n t h e transportation f a c i l i t y .
28- 7704. De~ artment powers
A. The department may:
1. Continue to charge t o l l s for the use of a transportation
faci 1 i t y constructed by a p r i v a t e e n t i t y pursuant t o section 28- 7701 a f t e r
the lease of the f a c i l i t y t o the private e n t i t y expires.
2. Exercise any power granted t o i t pursuant to t h i s t i t l e to
f a c i l i t a t e the development and construction of transportation f a c i l i t i e s
pursuant t o t h i s a r t i c l e .
B. In administering and enforcing t h i s a r t i c l e , the d i r e c t o r may
conduct i n v e s t i g a t i o n s and audits as the d i r e c t o r deems necessary.
28- 7705. Lease or license s t a t u s : tax exemptions: c r e d i t and
refund
A. A lease or license t o a private e n t i t y by the department of any
right- of- way o r o t h e r property of the department i s deemed a governmental
a c t i v i t y .
B. A lease or license to a private e n t i t y by the department of any
right- of- way or other property of the department pursuant to t h i s a r t i c l e
and any t o l l revenues collected pursuant t o t h i s a r t i c l e are not subject
to transaction p r i v i l e g e t a x , s a l e s tax. use tax or any s i m i l a r e x c i s e tax
imposed by t h i s s t a t e .
C . A person who pays a t o l l t o operate a motor vehicle on a
t r a n s p o r t a t i o n f a c i l i t y constructed or operated pursuant t o t h i s a r t i c l e
i s e n t i t l e d to and may apply for a refund o r c r e d i t from t h i s s t a t e for
motor vehicle fuel license taxes, use fuel taxes or motor c a r r i e r fees
paid while operating the motor vehicle on t h a t transportation f a c i l i t y .
D. The d i r e c t o r shall adopt rules p r e s c r i b i n g t h e procedures for
granting the refunds o r c r e d i t s .
28- 7706. Immunity
This a r t i c l e i s not a waiver of the absolute or qualified immunity
or a f f i r m a t i v e defenses of t h i s s t a t e , a public e n t i t y or a public
employee as provided by law concerning p a r t i c i p a t i o n or approval of a l l or
any part of the transportation f a c i l i t y agreement, construction.
maintenance or operation, including interconnection of the transportation
f a c i l i t y with other t r a n s p o r t a t i o n f a c i l i t i e s in t h i s s t a t e .
ARTICLE 2. ROADWAY CONSTRUCTION PILOT PROJECTS
28- 7741. Definitions
In t h i s a r t i c l e , unless the context otherwise requires:
1. " Operation" means the functions and pursuits of the operator of
a roadway under t h i s a r t i c l e t h a t a r e r e l a t e d to a c q u i s i t i o n , approval.
construction, en1 argement, maintenance, patrol 1 ing, t o l l c o l l e c t i o n s or
connections of the roadway with any other s t r e e t or highway, including
management and a d m i n i s t r a t i v e f u n c t i o n s re1 ated t o actual p h y s i c a l
o p e r a t i o n o f the roadway and management o f the a f f a i r s o f the operator.
2. " Operator" means t h e c o r p o r a t i o n t h a t a p p l i e s t o the board f o r
o r r e c e i v e s from t h e board a u t h o r i t y t o c o n s t r u c t , operate o r enlarge a
roadway pursuant t o t h i s a r t i c l e .
3. " Roadway" means t h a t p o r t i o n o f a highway t h a t i s improved.
designed o r o r d i n a r i l y used f o r v e h i c u l a r t r a v e l , i n c l u d i n g a l l p r o p e r t y
w i t h i n t h e r i g h t - o f - w a y .
4. " T o l l " means the f e e charged by the o p e r a t o r f o r a s i n g l e use o f
a l l o r a p o r t i o n o f the roadway.
28- 7742. Roadwav a u t h o r i t v : a ~ p l i c a t i o n
A. A person s h a l l n o t c o n s t r u c t , operate o r e n l a r g e a roadway i n
t h i s s t a t e w i t h o u t w r i t t e n a u t h o r i t y granted by t h e board pursuant t o t h i s
a r t i c l e or except as o t h e r w i s e a u t h o r i z e d by t h i s t i t l e .
B. An a p p l i c a t i o n f o r the a u t h o r i t y t o c o n s t r u c t , operate or
e n l a r g e a roadway p r o j e c t s h a l l c o n t a i n t h e f o l l o w i n g m a t e r i a l and
i n f o r m a t i o n :
1. The geographic area t o be served by t h e roadway and a survey
i n d i c a t i n g the approximate r o u t e o f t h e roadway.
2. A l i s t o f t h e p r o p e r t y owners through whose p r o p e r t y the roadway
may pass o r whose p r o p e r t y may abut t h e roadway.
3. The methods by which the o p e r a t o r o r t h e department may secure
a l l r i g h t s - o f - w a y r e q u i r e d f o r the roadway, i n c l u d i n g a d e s c r i p t i o n o f the
n a t u r e o f the i n t e r e s t i n t h e lands t o be acquired and a p r o v i s i o n f o r a t
a minimum permanent d e d i c a t i o n as l o n g as t h e lands are used f o r
t r a n s p o r t a t i o n purposes.
4. The comprehensive p l a n or plans f o r a l l c o u n t i e s , c i t i e s and
towns through which t h e roadway w i l l pass and an a n a l y s i s showing t h a t the
roadway does not impede the comprehensive plan o r plans.
5. The o p e r a t o r ' s p l a n f o r f i n a n c i n g t h e proposed c o n s t r u c t i o n .
enlargement or o p e r a t i o n o f t h e roadway, i n c l u d i n g proposed t o l l s t o be
charged f o r use o f t h e roadway. p r o j e c t e d amounts t o be c o l l e c t e d from the
t o l l s . a n t i c i p a t e d t r a f f i c volume, d e t a i l e d plans f o r the d i s t r i b u t i o n of
monies and the p r i o r i t y i n which necessary expenditures w i l l be made.
6. The o p e r a t o r ' s p l a n f o r o p e r a t i o n o f t h e proposed roadway.
7. A l i s t o f a l l p e r m i t s and approvals a n t i c i p a t e d f o r c o n s t r u c t i o n
o f t h e roadway from l o c a l , s t a t e o r f e d e r a l agencies, i n c l u d i n g
i d e n t i f i c a t i o n o f environmental impact issues and a schedule f o r securing
the approvals.
8. An o v e r a l l d e s c r i p t i o n o f t h e p r o j e c t , the p r o j e c t design and
a1 1 proposed i n t e r c o n n e c t i o n s w i t h t h e s t a t e highway system, i n c l u d i n g any
i n t e r s t a t e highway. any secondary system o f highways o r t h e s t r e e t s o f any
l o c a l j u r i s d i c t i o n t h a t are not w i t h i n t h e s t a t e highway system,
accompanied by a copy o f the c o n d i t i o n a l approval o f the p r o j e c t from t h e
l o c a l j u r i s d i c t i o n s u b j e c t t o compliance w i t h s e c t i o n 28- 7746.
9. A d e s c r i p t i o n o f p u b l i c u t i l i t y f a c i l i t i e s a n t i c i p a t e d t o be
crossed and plans f o r crossings o r r e l o c a t i o n s o f these f a c i l i t i e s .
10. A c e r t i f i c a t e o f the o p e r a t o r p r o v i d i n g t h a t :
( a ) The roadway w i l l be designed and c o n s t r u c t e d t o meet department
standards.
( b ) The roadway w i l l be designed and c o n s t r u c t e d s u b s t a n t i a l l y i n
accordance w i t h a proposed t i m e t a b l e t h a t i s agreeable t o the department.
( c ) The o p e r a t o r w i l l execute a design, review and i n s p e c t i o n
agreement w i t h t h e department p r o v i d i n g t h a t t h e department s h a l l both:
( i 1 A u t h o r i z e c o n s t r u c t i o n on review and approval of the plans and
s p e c i f i c a t i o n s f o r t h e roadway and i t s i n t e r c o n n e c t i o n w i t h o t h e r s t r e e t s
o r highways.
( i i ) I n s p e c t p e r i o d i c a l l y t h e progress o f the c o n s t r u c t i o n work t o
ensure i t s compliance w i t h department standards.
11. A d e s c r i p t i o n o f completion and performance bonds proposed t o be
f u r n i s h e d t o t h e department.
C. The board s h a l l determine t h e amount o f t h e completion and
performance bond f o r each o p e r a t i o n r e q u i r e d by subsection B a f t e r
c o n s u l t a t i o n w i t h t h e department.
D. To t h e e x t e n t the roadway does n o t impede t h e comprehensive plan
o r plans r e q u i r e d i n subsection B, t h e f a c t t h a t t h e o p e r a t o r i s a
c o r p o r a t i o n , as opposed t o t h i s s t a t e , does not a f f e c t t h e c o n s t r u c t i o n
and o p e r a t i o n of t h e roadway.
E. On r e c e i p t o f an u n s o l i c i t e d a p p l i c a t i o n f o r a u t h o r i t y t o
c o n s t r u c t , operate o r enlarge a roadway i n t h i s s t a t e , the department
s h a l l c a l l f o r competing a p p l i c a t i o n s by a d v e r t i s i n g i n a newspaper o f
general c i r c u l a t i o n pub1 i shed i n t h i s s t a t e f o r two consecutive i n s e r t i o n s
i f it i s a weekly newspaper or f o r two i n s e r t i o n s t h a t are a t l e a s t s i x
b u t n o t more than t e n days a p a r t i f i t i s a d a i l y newspaper. The
a d v e r t i sernent s h a l l :
1. I d e n t i f y t h e o p e r a t o r s u b m i t t i n g t h e u n s o l i c i t e d a p p l i c a t i o n .
2. I d e n t i f y t h e roadway and m i l e a g e c o n t a i n e d i n t h e a p p l i c a t i o n .
3. S t a t e t h a t t h e department i s a c c e p t i n g competing a p p l i c a t i o n s
f o r a p e r i o d o f s i x t y days.
4. S t a t e where a person may submit a competing a p p l i c a t i o n .
F. On r e c e i p t o f competing a p p l i c a t i o n s , t h e department s h a l l
evaluate them and may recommend a p r o s p e c t i v e o p e r a t o r t o the board f o r
c o n d i t i o n a l approval .
28- 7743. U t i l i t y c r o s s i n s s : d e f i n i t i o n
A. The o p e r a t o r s h a l l i n c l u d e i n t h e a p p l i c a t i o n a d e s c r i p t i o n o f
p u b l i c u t i l i t y f a c i l i t i e s and r i g h t s - o f - w a y a n t i c i p a t e d t o be crossed and
plans f o r c r o s s i n g s o r r e l o c a t i o n s o f t h e f a c i l i t i e s . Both t h e o p e r a t o r
and each p u b l i c u t i l i t y whose works are t o be crossed o r a f f e c t e d s h a l l
cooperate f u l l y w i t h each o t h e r i n p l a n n i n g and a r r a n g i n g the manner o f
the c r o s s i n g o r r e l o c a t i o n o f t h e f a c i l i t i e s .
B. A p u b l i c u t i l i t y possessing t h e powers o f eminent domain may
e x e r c i s e these powers i n c o n n e c t i o n w i t h t h e moving o r r e l o c a t i o n o f
f a c i l i t i e s t o be crossed by the roadway o r t o be r e l o c a t e d t o t h e e x t e n t
t h a t moving o r r e l o c a t i o n i s made necessary by c o n s t r u c t i o n o f t h e
roadway, i n c l u d i n g c o n s t r u c t i o n o f temporary f a c i l i t i e s f o r the ' purpose o f
p r o v i d i n g s e r v i c e d u r i n g t h e p e r i o d o f c o n s t r u c t i o n .
C. I f t h e o p e r a t o r and t h e p u b l i c u t i l i t y whose f a c i l i t i e s are t o
be crossed o r r e l o c a t e d f a i l t o agree t o a p l a n f o r a c r o s s i n g o r any
necessary r e l o c a t i o n , e i t h e r p a r t y may request t h e board t o i n q u i r e i n t o
the need f o r t h e c r o s s i n g o r r e l o c a t i o n and t o decide whether the c r o s s i n g
o r r e l o c a t i o n should be compelled and, if so, the manner i n which t h e
c r o s s i n g o r r e l o c a t i o n i s t o be accomplished. The board may employ
department engineers t o examine t h e l o c a t i o n and plans f o r t h e c r o s s i n g o r
r e l o c a t i o n , hear any o b j e c t i o n s , c o n s i d e r m o d i f i c a t i o n s and make a
recommendation t o the board.
D. For t h e purposes o f t h i s s e c t i o n . " p u b l i c u t i l i t y " i n c l u d e s
r a i 1 roads, p i pel i nes and e l e c t r i c. sewer, water, gas and
telecommunications 1 i nes.
28- 7744. I n c o r p o r a t i o n r e o u i rernent: emi nent dornai n
r e s t r i c t i o n
A. An o p e r a t o r s h a l l be i n c o r p o r a t e d under the laws o f t h i s s t a t e .
0 . An o p e r a t o r i s n o t e n t i t l e d t o e x e r c i s e t h e power o f eminent
domain t o a c q u i r e l a n d s , e s t a t e s o r i n t e r e s t s i n lands o r e s t a t e s o r any
o t h e r p r o p e r t y used by t h e o p e r a t o r f o r t h e c o n s t r u c t i o n o r enlargement o f
a roadway pursuant t o t h i s a r t i c l e .
28- 7745. Board powers
A. The board s h a l l :
1. Review and approve o r deny t h e a p p l i c a t i o n s u b m i t t e d p u r s u a n t t o
s e c t i o n 28- 7742.
2. Supervise and c o n t r o l t h e o p e r a t o r i n t h e performance o f i t s
d u t i e s under any agreement n e g o t i a t e d w i t h t h e department.
3. C o r r e c t any abuse i n t h e performance o f t h e o p e r a t o r ' s p u b l i c
d u t i e s .
B. The board may r e q u i r e from t h e o p e r a t o r a r e p o r t d e s c r i b i n g t h e
n a t u r e o f i t s c o n t r a c t u a l and o t h e r r e l a t i o n s h i p s w i t h i n d i v i d u a l s o r
e n t i t i e s c o n t r a c t i n g w i t h t h e o p e r a t o r f o r t h e p r o v i s i o n o f s i g n i f i c a n t
fi nanci a1 , c o n s t r u c t i o n o r mai ntenance s e r v i c e s . The board s h a l l review
the report and other materials as i t deems necessary to determine improper
or excessive c o s t s .
C. The board may grant approval of a roadway project to be
constructed or operated pursuant t o t h i s a r t i c l e only i f a reasonable
a l t e r n a t i v e route e x i s t s . A roadway project constructed or operated
pursuant t o t h i s a r t i c l e s h a l l :
1. Accommodate the same type of motor vehicles as t h e e x i s t i n g
a1 t e r n a t i ve route.
2. Provide a route t h a t i s a t l e a s t as d i r e c t a s t h e existing
a1 t e r n a t i v e route.
28- 7746. Local a ~ ~ r o v a l
A. Before the board grants authority and when the application
materials are f i l e d with the board, the operator shall provide the local
governing body of each j u r i s d i c t i o n through which any part of the roadway
passes with the application informati on and materi a1 s requi red by section
28- 7742 and an o v e r a l l d e s c r i p t i o n of the project and i t s benefits. The
local governing body may p a r t i c i p a t e in procedures conducted by the board
concerning t h e a p p l i c a t i o n .
B . If the operator wishes to occupy lands owned by a county, c i t y
or town, including the s t r e e t s of a county, c i t y or town, i t shall f i r s t
obtain the necessary property i n t e r e s t s by grant or other lawful
conveyance to the operator or by the department's exercise of i t s powers
of eminent domain.
C. I f t h e operator wishes t o interconnect w i t h the s t r e e t s of a
county, c i t y or town and the j u r i . s d i c t i o n i s willing to allow the
interconnection, the operator shall submit appropriate plans f o r t h e
connection to the local governing body. The local governing body shall
approve the connection only i f i t determines t h a t the connection meets a l l
appropriate engineering requi rements.
D. The operator and the county. c i t y or town may agree on
supplemental or related matters in addition to the matters specified i n
t h i s a r t i c l e according t o terms and conditions t h a t are reasonable.
appropriate and in the public i n t e r e s t .
28- 7747. Board a p ~ r o v a l : inspection aqreement
A. An operator who applies f o r authority t o c o n s t r u c t , operate or
enlarge a roadway pursuant to t h i s a r t i c l e shall f i r s t obtain conditional
approval of the board f o r t h e p r o j e c t , the project construction costs. the
location a n d design of the roadway and the roadway's connection with any
road under the j u r i s d i c t i o n of the board a t proper and convenient places
in order t o provide f o r t h e convenience of the public. The board may
conditionally approve the project and i t s interconnections with other
roads if i t s i n t e r c o n n e c t i o n s a r e compati b l e w i t h the e x i s t i n g road
network.
B. The board's approval i s conditioned on the federal government's
approval of any i n t e r c o n n e c t i o n , i f i n t e r c o n n e c t i o n s w i t h any i n t e r s t a t e
highway o r o t h e r federal f a c i l i t y are contemplated and i f federal approval
i s required and has not been obtained a t the t i m e t h e board acts.
C. I f the board c o n d i t i o n a l l y approves t h e p r o j e c t , p r o j e c t design
and connections o f t h e roadway, the department s h a l l n e g o t i a t e an
agreement w i t h the operator p r o v i d i n g t h a t , on a reimbursable basis, the
department s h a l l . except as provided i n subsection D o f t h i s section:
1. Review plans and s p e c i f i c a t i o n s f o r t h e roadway and approve them
i f they conform t o s t a t e p r a c t i c e s .
2. Inspect and approve c o n s t r u c t i o n o f t h e roadway i f i t conforms
t o the plans and s p e c i f i c a t i o n s and t o s t a t e c o n s t r u c t i o n and engineering
standards.
3. Throughout t h e l i f e o f the roadway p r o j e c t , monitor the
maintenance p r a c t i c e s o f the operator and take a c t i o n as appropriate t o
ensure the performance o f maintenance o b l i g a t i o n s .
4. Perform o t h e r necessary services t h a t t h e p r i v a t e e n t i t y i s
unable t o perform. i n c l u d i n g p r o j e c t development and environmental impact
statements.
D. The agreement prescribed i n subsection C o f t h i s section may
also provide f o r any one or a combination o f the f o l l o w i n g , excluding
f u n c t i o n a l roadway segments owned, acquired or being constructed by the
department:
1. Pursuant t o section 28- 7094. l e a s i n g t o the operator
r i g h t s - o f - w a y and o t h e r property t h a t are owned, acquired o r constructed
by the department and t h a t are necessary f o r t h e o p e r a t o r ' s p r o j e c t .
2. On a reimbursable basis, e x e r c i s i n g t h e power o f eminent domain
t o acquire r i g h t s - o f - w a y or o t h e r property necessary f o r use by the
operator i n connection w i t h t h e p r o j e c t .
3. N o t w i t h s t a n d i n g s e c t i o n s 28- 7048 and 28- 7094. l i c e n s i n g the
operator t o use r i g h t s - o f - w a y and other property t h a t are owned, acquired
or constructed by the department and t h a t are necessary f o r the o p e r a t o r ' s
p r o j e c t i n c o n s i d e r a t i o n o f the o p e r a t o r ' s agreement t o t r a n s f e r and
dedicate t o t h e department on a c q u i s i t i o n any r i g h t s - o f - w a y acquired by
the operator f o r t h e p r o j e c t and t o t r a n s f e r and dedicate t o the
department the completed p r o j e c t a t the t e r m i n a t i o n o f the c e r t i f i c a t e o f
a u t h o r i t y as provided i n s e c t i o n 28- 7758 i n a d d i t i o n t o any other
c o n s i d e r a t i o n t h a t may be required by t h e department.
E. The agreement prescribed i n subsection C o f t h i s section may
also provide f o r t h e department's expenditure o f monies t o c o n s t r u c t .
modify or maintain t r a f f i c interchanges, overpasses. bridges, tunnels and
other s i m i l a r f a c i l i t i e s t h a t complement the o p e r a t o r ' s p r o j e c t i f t o l l s
or other charges are n o t imposed by or payable t o t h e operator f o r use o f
those f a c i l i t i e s except any f a c i l i t i e s leased to or licensed by the
operator pursuant to subsection D of t h i s section.
F. The agreement prescribed in subsection C of t h i s section shall
require the operator to establish and fund accounts to ensure t h a t monies
are available to meet the obligations of the operator, including
reasonable reserves for contingencies and maintenance rep1 acement
a c t i v i t i e s .
G. The approval of plans, specifications and construction may be
undertaken in phases, b u t construction shall not begin until the approval
of plans including t h a t phase of construction.
H. Costs incurred by the department before the written agreement
with the operator i s f i n a l i z e d a r e not reimbursable.
I . On negotiation of an agreement pursuant to subsection C of this
section. the department shall make a copy of the agreement available a t a
public hearing a t a location convenient to the operator's project and for
a t least f i f t e e n days before the public hearing. The notice of the public
hearing shall be published in a newspaper t h a t has a circulation of a t
l e a s t f i f t y thousand copies and t h a t i s regularly distributed i n the
county or counties in which the operator's project i s located. The notice
of the public hearing shall announce the a v a i l a b i l i t y of the agreement and
where a copy of the agreement may be obtained or reviewed and shall s t a t e
that comments may be submitted i n writing to the department within t h i r t y
days of the a v a i l a b i l i t y of the agreement. The department may revise or
renegotiate the agreement based on the public comments i t receives.
J. After compliance with subsection I of t h i s s e c t i o n , t h e board
may give final approval to the project, project design. connections of the
roadway and agreement prescribed in subsection C of t h i s section and may
authorize the director t o execute the agreement. The department shall
make the agreement submitted for the board's final approval available to
the public and shall give public notice of the a v a i l a b i l i t y of the
agreement a t l e a s t f i f t e e n days before the meeting of the board a t which
the approval will be considered. The public notice s h a l l be published in
a newspaper t h a t has a c i r c u l a t i o n of a t l e a s t f i f t y thousand copies and
t h a t i s regularly distributed in the county or counties in which the
operator's project i s located and shall specify where a copy of the
agreement may be obtained or reviewed.
K . The board shall not approve more t h a n two applicants under t h i s
a r t i c l e .
L. Nothing in t h i s a r t i c l e shall be construed to grant any person
any exemption from or immuni ty under anti t r u s t 1 aws.
28- 7748. Toll rates
A . The board shall not approve or revise the t o l l rates charged by
the operator.
B. The o p e r a t o r s h a l l :
1. F i l e and m a i n t a i n a t a l l t i m e s w i t h t h e board an accurate
schedule o f r a t e s charged t o t h e p u b l i c f o r use o f a l l o r any p o r t i o n o f
t h e roadway and a statement t h a t the o p e r a t o r s h a l l apply t h e r a t e s
u n i f o r m l y t o a l l users w i t h i n any reasonable c l a s s i f i c a t i o n t h e o p e r a t o r
e l e c t s t o implement.
2. Not a p p l y o r c o l l e c t r a t e s i n a d i s c r i m i n a t o r y f a s h i o n .
3. Permit v e h i c u l a r passage t o a person who pays a t o l l .
28- 7749. Tax r e f u n d o r c r e d i t
A person who pays a t o l l t o operate a motor v e h i c l e on a roadway
p r o j e c t t h a t i s c o n s t r u c t e d o r o p e r a t e d p u r s u a n t t o t h i s a r t i c l e i s
e n t i t l e d t o and may apply f o r a refund o r c r e d i t f r o m t h e s t a t e f o r motor
v e h i c l e f u e l l i c e n s e t a x e s , use f u e l t a x e s o r motor c a r r i e r fees p a i d
w h i l e o p e r a t i n g t h e motor v e h i c l e on t h e roadway p r o j e c t . The d i r e c t o r
s h a l l e s t a b l i s h by r u l e t h e procedures f o r g r a n t i n g refunds o r c r e d i t s .
28- 7750. Operator powers and d u t i e s
A. The o p e r a t o r may:
1. Operate t h e roadway and charge t o l l s f o r t h e use o f t h e roadway
t o r e c e i v e reimbursement o f c o s t s and a reasonable r e t u r n on investment.
2. Subject t o a p p l i c a b l e p e r m i t r e q u i rements, cross any
r i g h t - o f - w a y i f t h e c r o s s i n g does n o t unreasonably i n t e r f e r e w i t h the use
of the r i g h t - o f - w a y .
3. C l a s s i f y t r a f f i c on t h e roadway a c c o r d i n g t o reasonable
c a t e g o r i e s f o r t h e assessment o f t o l l s .
4 . With t h e consent o f t h e department:
( a ) P r e s c r i b e maximum and minimum speeds t h a t conform t o department
and s t a t e p r a c t i c e s .
( b ) Exclude v e h i c l e s . cargoes o r m a t e r i a l s from the use o f t h e
roadway i f e x c l u s i o n o f t h e s e v e h i c l e s , cargoes o r m a t e r i a l s by t h i s s t a t e
o r a l o c a l a u t h o r i t y i s a u t h o r i z e d by t h e laws o f t h i s s t a t e .
( c ) E s t a b l i s h h i g h occupancy v e h i c l e lanes f o r use d u r i n g a l l o r
any p a r t o f a day and l i m i t t h e use o f these lanes t o c e r t a i n t r a f f i c .
( d l R e s t r i c t o r p r o h i b i t n o n v e h i c u l a r o r nonmotorized use o f t h e
roadway.
B. The o p e r a t o r s h a l l :
1. Pledge any revenue n e t o f o p e r a t i o n a l expenses r e a l i z e d from
t o l l s charged f o r t h e use o f t h e roadway i n o r d e r t o secure repayment o f
any o b l i g a t i o n s i n c u r r e d f o r t h e c o n s t r u c t i o n . enlargement o r o p e r a t i o n o f
t h e roadway.
2. L i m i t t h e debts or o b l i g a t i o n s o f the operator t o an amount t h a t
does not exceed the cost o f development and c o n s t r u c t i o n p l u s a reasonable
amount f o r f i n a n c i n g expenses and reserve funds.
3. Construct and maintain the roadway f o r a n t i c i p a t e d use according
t o a p p r o p r i a t e standards of the department f o r publ i c h i ghways operated
and maintained by t h e department.
4. Enlarge o r expand the roadway when u n s a t i s f i e d demand f o r use of
the roadway makes it economically f e a s i b l e .
5. Contract w i t h the department f o r the i n s p e c t i o n of c o n s t r u c t i o n
work by the department a t a p p r o p r i a t e times d u r i n g any c o n s t r u c t i o n or
en1 argement.
6. Cooperate f u l l y w i t h t h e department i n e s t a b l i s h i n g any
i n t e r c o n n e c t i o n w i t h the roadway t h a t t h e department may make.
C. The department of p u b l i c s a f e t y and appropriate l o c a l
a u t h o r i t i e s may c o n t r a c t w i t h the operator f o r enforcement of the t r a f f i c
and p u b l i c s a f e t y laws on the roadway.
28- 7751. Insurance: immunitv
A. An operator who c o n s t r u c t s , operates o r enlarges a roadway
pursuant t o t h i s chapter s h a l l secure and m a i n t a i n a p o l i c y o f p u b l i c
1 i a b i l i ty insurance o r s e l f - i n s u r a n c e i n the form and amount s a t i s f a c t o r y
t o the board and s u f f i c i e n t t o i n s u r e coverage o f t o r t l i a b i l i t y t o the
p u b l i c and employees and t o enable the continued o p e r a t i o n o f the
roadway. The operator s h a l l f i l e proofs o f coverage and copies of
p o l i c i e s w i t h the board.
B. This a r t i c l e i s n o t a waiver o f the absolute or q u a l i f i e d
immunity o r a f f i r m a t i v e defenses o f t h i s s t a t e , any p u b l i c e n t i t y or any
publ i c employee as provided by 1 aw concerning p a r t i c i p a t i o n o r approval of
a l l or any p a r t o f the roadway a p p l i c a t i o n , c o n s t r u c t i o n . maintenance or
operation, i n c l u d i n g i n t e r c o n n e c t i o n o f the roadway w i t h o t h e r highways i n
t h i s s t a t e .
28- 7752. D e f a u l t
A. If t h e r e i s a m a t e r i a l and c o n t i n u i n g d e f a u l t i n the performance
of t h e o p e r a t o r ' s c o n s t r u c t i o n o r o p e r a t i o n d u t i e s o r i f the operator
f a i l s t o comply w i t h the terms o f i t s agreement w i t h t h e department. the
board, a f t e r a cure period and a h e a r i n g i n which the operator and any
r e p r e s e n t a t i v e or r e p r e s e n t a t i v e s o f t h e c r e d i t o r s o f t h e operator have
n o t i c e and an o p p o r t u n i t y t o p a r t i c i p a t e , may take or d i r e c t any o f the
f o l l o w i n g actions t h a t the department may p a r t i c i p a t e i n o r i n i t i a t e :
1. Revoke t h e o p e r a t o r ' s a u t h o r i t y f o r the roadway.
2. Declare a d e f a u l t i n t h e c o n s t r u c t i o n or o p e r a t i o n o f the
roadway.
3. Make or cause t o be made the appropriate claims under any
completion or performance bond.
4. Take other action determined appropriate by the board under the
ci rcums tances.
0 . If an operator's authority i s revoked pursuant to subsection A:
1. The operator does not have authority t o construct or operate the
roadway.
2. The department may do any one or a combination of the following:
( a ) Construct the roadway.
( b ) Improve the roadway.
( c ) Operate the roadway.
3. The department may take steps t h a t are in the public i n t e r e s t .
including completion of the construction of or additions to the roadway.
closing the roadway or an intermediate s t e p .
4. The operator shall grant to the department a l l of i t s r i g h t s .
t i t l e and i n t e r e s t in the assets of the corporation.
5. Neither the board nor the department i s l i a b l e to pay any
compensation t o the operator as a r e s u l t of the revocation of the
o p e r a t o r ' s authority for the roadway or the termination of i t s agreement
pursuant to subsection A.
28- 7753. Excess t o l l revenues; disposition
On a t l e a s t an annual b a s i s , the d i r e c t o r s h a l l deposit, pursuant to
sections 35- 146 and 35- 147. a l l t o l l revenues authorized by section
28- 7750 in excess of a reasonable r a t e of return on investment as
prescribed in the written agreement pursuant t o t h i s a r t i c l e in the
highway user revenue fund established by chapter 18, a r t i c l e 2 of t h i s
t i t l e or the regional area road fund established by section 28- 6302. as
appropriate.
28- 7754. Governmental a c t i v i t y : t a x exem~ tions
A. A lease or license to an operator of any right- of- way or other
property of the department pursuant to t h i s a r t i c l e i s deemed a
governmental a c t i v i t y .
B. A lease or l i c e n s e by the department of any right- of- way or
other property of the department to an operator pursuant to t h i s a r t i c l e
and any t o l l revenues collected pursuant t o t h i s a r t i c l e are not subject
to transaction p r i v i l e g e t a x , sales t a x , use tax or any s i m i l a r e x c i s e t a x
imposed by t h i s s t a t e .
28- 7755. Pol ice Powers
A. The roadways c o n s t r u c t e d , improved or operated under t h i s
a r t i c l e may be p o l i c e d i n whole o r i n p a r t by o f f i c e r s o f t h e department
o f p u b l i c s a f e t y , even though a l l o r some p o r t i o n o f t h e p r o j e c t i s
l o c a t e d i n t h e c o r p o r a t e l i m i t s o f any c i t y , town or other p o l i t i c a l
s u b d i v i s i o n . The o p e r a t o r and the department o f p u b l i c s a f e t y s h a l l agree
on reasonable terms and c o n d i t i o n s pursuant t o which the a c t i v i t i e s
provided i n t h i s s e c t i o n may take place.
8. The o f f i c e r s are under the e x c l u s i v e c o n t r o l and d i r e c t i o n of
the d i r e c t o r o f t h e department o f p u b l i c s a f e t y . A l l other p o l i c e
o f f i c e r s of t h i s s t a t e and o f each county, c i t y , town o r other p o l i t i c a l
s u b d i v i s i o n o f t h i s s t a t e through which a roadway extends have the same
powers and j u r i s d i c t i o n w i t h i n the l i m i t s o f the roadways as they have
beyond those l i m i t s and have access t o t h e roadway a t any time f o r the
purpose of e x e r c i s i n g t h e i r powers and j u r i sdi c t i o n . Thei r a u t h o r i t y does
not extend t o t h e p r i v a t e o f f i c e s , b u i l d i n g s , garages and o t h e r
improvements of t h e o p e r a t o r t o any g r e a t e r degree than t h e p o l i c e power
extends t o any o t h e r p r i v a t e b u i l d i n g s and improvements.
28- 7756. S t a t e l i a b i l i t y
The f u l l f a i t h and c r e d i t o f t h i s s t a t e a r e n o t pledged f o r any
f i n a n c i n g of t h e o p e r a t o r . Assumption o f t h e o p e r a t i o n o f t h e p r o j e c t by
t h i s s t a t e does n o t o b l i g a t e t h i s s t a t e t o pay any o b l i g a t i o n o f the
o p e r a t o r whether o r not secured from sources o t h e r than t o l l revenue.
28- 7757. T r a f f i c and motor v e h i c l e 1 aws
The t r a f f i c and motor v e h i c l e laws o f t h i s t i t l e apply t o persons
and motor v e h i c l e s on a roadway c o n s t r u c t e d , improved or operated under
t h i s a r t i c l e , and t h e law enforcement o f f i c e r s have the same powers o f
a r r e s t f o r conduct on t h e roadway as f o r conduct on the s t a t e highway
system. Punishment f o r offenses committed on the roadway s h a l l be as
p r e s c r i b e d by law f o r conduct o c c u r r i n g on t h e s t a t e highway system.
28- 7758. T e r m i n a t i o n o f c e r t i f i c a t e : asset d e d i c a t i o n
A. W i t h i n n i n e t y days a f t e r t h e completion and c l o s i n g o f the
o r i g i n a l permanent f i n a n c i n g . t h e o p e r a t o r s h a l l p r o v i d e f u l l d e t a i 1 s o f
t h e f i n a n c i n g , i n c l u d i n g the terms of a l l bonds, t o the board and s h a l l
c e r t i f y the date on which a l l debt w i l l be r e t i r e d . The board may r e q u i r e
the o p e r a t o r t o p r o v i d e copies o f any r e l e v a n t documents and s h a l l review
the f i n a n c i n g and determine t h e date on which a l l bonds o r o t h e r debt
c o n s t i t u t i n g t h e o r i g i n a l permanent f i n a n c i n g w i l l be r e t i red. A f t e r
e s t a b l i s h i n g t h i s date, the board s h a l l e n t e r an o r d e r t e r m i n a t i n g the
o p e r a t o r ' s a u t h o r i t y on a date p r e s c r i b e d i n t h e w r i t t e n agreement w i t h
the operator.
B. A t the request o f the operator or the department or on the
board's own i n i t i a t i v e , the board may r e v i s e i t s order t o modify the date
f o r t e r m i n a t i o n o f the c e r t i f i c a t e o f a u t h o r i t y t o account f o r any
r e f i n a n c i n g o f the o r i g i n a l permanent f i n a n c i n g i f the r e f i n a n c i n g or
m o d i f i c a t i o n i s i n the p u b l i c i n t e r e s t o r any r e f i n a n c i n g f o r the purpose
of expansion o r e a r l y retirement o f the debt.
C. When t h e a u t h o r i t y terminates, t h e a u t h o r i t y and duties o f the
operator under t h i s a r t i c l e cease, and the roadway assets and improvements
of the operator s h a l l be dedicated t o the department f o r highway purposes.
Average
Traditional Long- Term PPP
Funding Source Highway trust funds Toll revenue bonds, equity
Procurement Process Design- Bid- Build Design- Finance- Build- Operate
Cost Overruns? Taxpayers Investors
Schedule Slips? Drivers Investors
Traffic Risk? Taxpayers Investors
Maintenance Funds Annual appropriations Toll revenues
Maintenance Incentive Public complaints Asset value
INTRODUCTION
C ongestion in America is bad and
getting worse. The lack of ade-quate
investments in road capacity has
resulted in traffic congestion that costs
Americans at least $ 168 billion each
year. Vital centers of American life,
including our cities, are increasingly
clogged by traffic, making them unsus-tainable
as centers of culture and eco-nomic
activity.
America's congestion problem
largely stems from the inadequacy of
traditional financing mechanisms.
Federal and state highway budgets
are determined by government grants
and funded by taxes on gasoline. The
gas tax- and- grant system, a product of
the period between 1920 and 1950, is
running on fumes. First, as cars have
become more fuel efficient, the revenue
generated by gas taxes has fallen relative
to the need for more roadways. Second,
since the completion of the Interstate
Highway System in the 1980s, the
federal gas tax has been used by politi-cians
less to build needed roadways, and
increasingly as a source of money for
pork projects. Finally, while a sensible
transportation financing policy would
link revenue with road use, providing
critical information about where new
road construction is most critically
needed, gas taxes are paid at the pump
and, therefore, provide no information
about where transportation construction
is warranted.
AN OVERVIEW OF TOLL
CONCESSIONS
Policymakers, however, have
another tool to provide critical transpor-tation
infrastructure to their citizens at
their disposal that reduces congestion,
improves travel time, and conserves
This is a summary
of The Role of Tolls
in Financing 21st
Century Highways,
by Peter Samuel and
Robert W. Poole, Jr.
May 2007, reason.
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public resources.
Toll concessions, sometimes referred to as fran-chises,
leases, or public- private partnerships, grant a
private company the right to operate a toll business
under specified conditions for a specified long- term
period. Analogous in many ways to the long- term fran-chises
granted to investor- owned utilities, such as elec-tric
utilities, today's toll concessions are a refinement
of 19th century road and bridge charters that permit-ted
private firms to build and operate infrastructure
along public rights- of- way under terms outlined in the
charter.
Toll concessions operated by businesses offer
customers a specific service- the use of the road- in
return for a fee ( the toll). Toll facilities are businesses
that thrive only if they provide a valuable service to
customers, manage costs, and provide competitive
rates of return to potential investors who provide the
necessary capital for the construction of infrastructure.
Toll facilities' single- minded devotion to these factors
means that over the long run they can provide trans-portation
infrastructure more efficiently than govern-ment,
which is often subject to many competing special
and political interests.
The successes of tolls are so striking that they should rapidly
become an important part of our transportation system.
THE ADVANTAGES OF TOLL
CONCESSIONS
Toll concessions offer policymakers several advan-tages
over traditional methods of highway and road
financing:
1. Toll Concessions Offer Greater Access to Capital
Traditional public financing of the kind used
by public toll authorities is limited by the historical
growth of revenues because investors in public toll
bonds do not share in any profits earned by the toll
authority. Consequently, such investments in public
toll bonds tend to be extremely conservative, generat-ing
far less upfront financing than could be secured by
using toll concessions.
Private concessionaires, by contrast, can raise far
greater amounts in upfront financing through the use
of equity money. For example, toll road concessions in
Australia have carried out large initial public offerings
( IPOs) of stock to help finance construction. Since pri-vate
concessionaires are able to offer investors a share
of profits earned by the business through tolls, inves-tors
are far more willing to provide the initial capital
necessary to build the infrastructure with the hope that
they will benefit from future returns.
Texas's Central Texas Turnpike ( SH 130) was
initially constructed as a conventional toll- financed
road by the Texas Turnpike Authority, a division of
the Texas Department of Transportation. Texas DOT
estimated that a 40- mile southward extension to
San Antonio could raise, at best, $ 600 million of the
project's $ 1.3 billion cost through traditional public toll
financing. When the project was offered as along-term
concession, however, Cintra Zachry offered to
finance the entire $ 1.3 billion project, pay a $ 25 million
upfront concession fee, and offer the state a share in
profits over the 50- year term of the deal.
Many policymakers look with skeptical eyes on
such apparent generosity by private toll concession-aires
such as Cintra Zachry. If a private concessionaire
is able to offer such a favorable deal to a public trans-portation
authority, how much more must the private
concessionaire be profiting off the concession? But
there are important institutional differences that allow
the private toll concessionaire to make such invest-ments.
First, private concessionaires tend to be less
conservative in projecting future traffic use of their
concessions, allowing the concessionaires to raise
greater amounts of initial financing. Second, since .
toll concessions generally have longer terms- so- year
concessions versus the traditional 30- year tax- exempt
financing for traditional tolls- toll facilities are able
to take into account longer- term development, new
interchanges, and traffic growth in their initial proj-ects,
which creates greater incentives for investors to
contribute the initial capital.
The Role of Tolls in Highway Financing Reason Foundation w. reason. org
Third, toll facilities are willing to set tolls at levels
- that keep pace with economic growth over the life of
the 50- year period. Publicly operated toll roads could
in theory adjust tolls accordingly on public toll roads,
but public toll authorities are generally constrained by
political considerations from setting the appropriate
toll. Many public toll authorities have kept toll rates
the same for periods longer than 15 years, in the face of
rising maintenance costs and inflation.
Given the amazing array of financial instruments
available in private equity markets, it's no surprise
that the financial industry, including toll concession-aires,
has the wherewithal to raise considerably larger
amounts in initial capital for transportation projects.
Congestion is clogging the arteries of our cities, and if we don't
solve the problem our cities will begin to die as centers of eco-nomic
productivity.
2. Toll Concessions Encourage Much- Needed Toll
Flexibility
Private concessionaires can adjust toll rates accord-ing
to traffic patterns and usage. The development of
electronic toll technology over the past two decades
offers toll concessionaires the ability to adjust toll
rates in real time. Traditional public toll authorities
are, in theory, capable of using the same technology
and adjusting toll rates accordingly. Indeed, the initial
tolls established by public toll authorities often match
market rates. However, traditional public toll authori-ties
are often subject to political pressures that keep
tolls below their market rates.
While many policymakers are understandably
concerned that private toll concessionaires will set
toll rates at the expense of commuters, toll flexibility
is a vital tool in building, maintaining, and expanding
America's transportation infrastructure.
First, toll concessionaires' ability to adjust- both
raise and lower- tolls as conditions change enables
them to manage traffic flow and avoid congestion in
the short term and, with newer technologies, even in
real time.
Public toll pricing faces both problems because it
has none of the flexibility common to pricing in other
areas of our lives. More often than not, tolls set too
low encourage more drivers onto a given road than the
road can handle, creating congestion and long traffic
delays.
Toll concessionaires, by contrast, can use pric-ing
mechanisms to manage traffic flow, providing a
superior product- faster commute times and minimal
congestion- to drivers. Those tolls are capped in the
concession agreements between toll concessionaires
and public transportation authorities to prevent toll
concessionaires from raising toll rates too rapidly or
beyond certain levels.
Second, traditional toll pricing offers very little
information to toll authorities or departments of
transportation about emerging traffic patterns and
future transportation needs. Toll concessionaires, who
can deploy newer technologies to adjust tolls on their
roads, are able gather data that enable them to judge
which parts of their highways are in high demand.
Correspondingly, toll concessionaires have both the
data and the ability to raise new investment capital for
needed expansions.
Over half of urban Interstates remain congested and one- fourth
of bridges are rated deficient.
3. Toll Concessionaires Achieve Greater Cost Savings
At the Massachusetts Turnpike the base pay rate
for toll collectors is $ 52,239 a year or about $ 26
an hour. On top of that are generous public- sector
benefits including health and pension entitlements,
overtime opportunities, automatic pay increases by
seniority, and job security. Privately operated park-ing
garages can recruit attendants to collect parking
fees- a similar job- for about half the cost.
While state and local toll authorities in some states
tend to be locked in with labor contracts that rigidly .
demarcate work between different trades and depart-ments,
private concessionaires enjoy a more flex-ible
labor market that allows them to adjust staffing
resources as needed.
Reason Foundation www. reason. org The Role of Tolls in Highway Financing
-
CAN THE PUBLIC SECTOR MATCH PRIVATE
CONCESSIONS?
Critics have emerged in the wake of the long-term
leases of the Chicago Skyway and Indiana
Toll Road claiming that the public sector could
have refinanced those roadways and raised just
as much money as was obtained via the long- term
leases.
What really drives the value difference
between private and public toll road operators
is the private toll road operator's ability to oper-ate
more efficiently to keep costs down and to
increase tolls on a commercial basis, in a way that
cannot subsequently be second- guessed politi-cally.
The financial markets value this significantly
greater certainty of steady toll revenue increases
over time.
Private toll road operators have the ability to:
Adopt new technologies. Electronic tolling
technologies change about every seven years as
new innovations occur. Private firms unhesitat-ingly
upgrade if the new technology will pay for
itself with better service. Public authorities, by
contrast, tend be tied to out- dated technology in
part because of bureaucratic inertia and in part
because public financing doesn't provide the
same incentives to innovate that's provided by
private financing.
Adapt to Changing Circumstances. Public
authorities tend to be overstaffed and under-trained,
while private firms are able to be more
flexible in their staffing needs.
Maintain Roads Effectively. Where toll
revenues may be diverted from one public
agency to another through the political and
bureaucratic process, private concessions
have requirements that do not allow deferred
maintenance.
Minimize Congestion. While public authorities
are reluctant to adjust tolls, private firms set the
toll at levels that prevent congestion and that
balance maximum throughput with demand.
4. Toll Concessionaires Are Able to Spread Risk and
Achieve Synergies
Concession toll road operators also have greater
ability to spread risk and to pool expertise. Most public
toll authorities are constrained geographically in their
operations. Thus the Pennsylvania Turnpike only oper-ates
within the state of Pennsylvania. By contrast the
Cintra- Macquarie partners in the Chicago Skyway and
Indiana Toll Road plan to operate across the Indiana-
Illinois state line with integrated management, and
they plan to take advantage of the synergy of two toll
roads that feed one another. Indeed, the broad geo-graphical
horizons under which many private conces-sionaires
operate allow private concessionaires to
apply best management practices from one geographi-cal
region to another and to move talented managers
from one state or region to another to implement those
best practices.
UNDERSTANDING THE CONCES-SION
AGREEMENT
While the details of concessions are contained in
long- term contracts called " concession agreements"
that run into the hundreds of pages, policymakers
ought not be daunted by the length and detail of such
agreements.
Successful concession agreements that benefit the
public should include several key considerations:
1) Concession Agreements Do Not Relinquish Ulti-mate
Control
Concession agreements show plainly that the
public entity retains possession of the road. Conces-sion
agreements cover every detail from maintenance ,
requirements to the amount of time in which snow or
road kill must be removed from the road, in order to
make the concessionaire accountable to the public's
standards. As such, these contracts are not the blanket
handover of control to investor interests that critics
sometimes suggest.
The Role of Tolls in Highway Financing Reason Foundation w. reason. org
sumed benefit of those restrictions to the public, but
the cost of compliance to concessionaries. In certain
cases, restrictions on concessionaires may make it dif-
2) Concession Agreements Must Be Competitively
Awarded
Modern toll concessions are awarded as part of a
competitive process. This starts with hiring consultant
expertise in this subject and spelling out a selection
process. The next step is to assemble comprehensive
information including the history of the corridor and
data relevant to the prospects of the project. Simulta-neously
with this, a request for qualifications should
be issued. There needs to be a winnowing process that
drops from competition those judged less capable of
fulfilling the contract due to more limited expertise or
resources. This leads to an invitation to the best- quali-fied
parties ( the " short list") to submit detailed propos-als.
From here there are various paths. If one proposal
is clearly the best, it can be accepted. More likely, more
than one will have valuable ideas. The government may
take the best features from each ( by purchasing intel-lectual
property rights) to synthesize a revised proposal
and ask the contenders for their best and final offers on
that common synthesized project.
3) Restrictions on Concessionaires Have Costs.. . and
Benefits
Limitations placed on concessionaires may be
deemed by the public transportation authority or
legislature as vital to the public interest. But controls
and limitations placed on the concessionaire usually
reduce the value of the concession. Such controls are
not necessarily wrong, but policymakers and public
authorities need to carefully consider not only the pre-ficult
for the concessionaire to offer generous upfront
concession fees or profit- sharing agreements with the
public authority.
Facilities tend to be shaped with scant attention on how well the
project actually moves people and goods or relieves congestion.
4) Approaches to Concession Bidding Vary According
to Locality and Needs
Bidding in U. S. concessions for existing toll facili-ties
has usually been based on who offers the maxi-mum
upfront concession fee. A second approach is to
get bids in terms of the lowest toll rates over the term
of the concession. Another approach is for the gov-ernment
agency to garner a share in annual revenues,
which is usually specified as a percentage of profits
beyond a baseline rate. For new toll roads, the compe-tition
may be to see which investors will fund the most
improvements ( or for some projects, with the smallest
state contribution). Yet another variation is to link the
term of the concession to a defined payback plus an
agreed rate of return.
CONSIDERING CONCESSION
PROVISIONS
Concession agreements spell out the obligations
of the concessionaire and the owner ( the government
agency granting the concession). Important provisions
include:
1 ) Arbitration and Monitoring Provisions
The contract spells out monitoring and compli-ance
mechanisms and defines the concessionaire's
responsibility to grant access and to make regular
reports. There is usually an arbitration mechanism
for disagreements about whether the provisions of
the concession agreement are being met, a process for
remedying deficiencies, provisions handling default by
either party, and finally hand- back requirements that
Reason Foundation w. reason. org The Role of Tolls in Highway Financing
come into play if the concession is terminated prema-turely
or at the end of the concession term.
2) Maintenance Standard Provisions
Among the standards to be met may be mainte-nance
standards, response times to accidents and other
problems, and levels of service on the traffic engineers'
scale of A through F, measuring the degree of conges-tion.
Many concession agreements require the conces-sionaire
to add capacity or make other improvements
to avert a deterioration of service through congestion.
Fuel taxes are unfair to the poor. Under fuel tax funding, the poor
may pay more per vehicle- mile than the rich.
- - -
3) Toll Rate Provisions
Toll rates to be charged under the concession may
be controlled by " caps" on tolls for specified periods
and a formula- often related to a price index or GNP
per capita- for increases. There are cases where paral-lel
facilities are considered to provide sufficient compe-tition
to the concession and where no toll rate controls
are needed. In other concessions an independent
adjudicator or adjudicating agency hears applications
for toll increases. In others there are no direct controls
over toll rates as such but limits on the rate of return
and increasing pass- back of profits to the government
owner beyond a specified rate of return.
4) Non- Compete Provisions
In many cases, new toll roads ( or even old ones
being modernized via new financing) are given some
degree of protection from unlimited competition
provided by new non- tolled, taxpayer- provided road-ways
serving the same market. Such " non- compete"
provisions arose as a way of reassuring toll revenue
bond- buyers that the state would not take actions that
might divert so much traffic away from the toll road as
to make it incapable of servicing its debt. Such pro-visions
can be politically difficult, so when they are
considered necessary in order to make a new toll road
financeable, they should be drawn up as narrowly as
possible, to avoid giving monopolistic power to the toll
road provider. The recent tendency has been to have
the toll road developer stipulate that it takes the risk
of any traffic diversion resulting from the completion
of any project included in the region's official 25- year
long- range transportation plan, but that it is entitled
to compensation for lost toll revenue, based on a pre-defined
formula, for other projects within a narrowly
designed competition zone on either side of the toll
road. A procedure would need to be established for an
independent estimate of the extent to which the non-tolled
roadway actually diverted traffic from the toll
road.
5) Maintaining Flexibility in the Concession Agree-ment
Perhaps the most important thing is to recognize
that these are long- term arrangements, and not all pos-sible
issues can be anticipated. Good long- term part-nerships
have mechanisms for working out changes
and dealing with new issues that arise in ways agree-able
to both parties. Likewise, they lay out conditions
for ending the agreement if both sides agree it is no
longer working.
MAINTAINING CONFIDENTIAL-ITY,
ENSURING TRANSPARENCY
Critics are rightfully concerned that concession
agreements are the result of secretive meetings. Cer-tainly,
when public rights- of- away are at stake, trans-parency
is essential to ensure that concessionaires and
The Role of Tolls in Highway Financing Reason Foundation w. reason. org
the public authorities negotiate honestly and fairly. -.
Nonetheless, it's important to understand that a
certain level of confidentiality must be maintained in
order to encourage competitive bidding. First, each
bidding concessionaire brings with it ideas, innova-tions,
and recommendations to the bidding process
that might instantly be stolen by other concessionaires
if negotiations were made fully public.
In addition, the public benefits from a confidential
bidding process in which each concessionaire does not
know the offers being made by other concessionaires.
In such circumstances, the evidence suggests that pri-vate
concessionaires are more eager to make increas-ingly
generous bids for the concession.
Policymakers must keep in mind that respect for
the selection process will revolve heavily around the
personalities and reputation of the people doing the
selection. Is the selection team balanced? Is it suf-ficiently
expert? Is it reasonably impartial? Is it insu-lated
from political pressures? Can it explain its scor-ing?
Finally, once the selection has been made, there
should be full disclosure of the factors that led to that
decision. And the entire concession agreement should
be made public, as was done in the Chicago Skyway
and Indiana Toll Road cases.
LONG- TERM CONCESSIONS
HELP CAPTURE THE BENEFITS
Concession terms have ranged between 35 years
and 99 years. The California toll concessions under
the AB 680 law of June 1991 provided for 35- year
concession terms. The Toronto 407- ETR, the Chicago
Skyway, and the Pocahontas Parkway in Richmond, VA
were all concessioned for 99 years, while the Indiana
Toll Road concession runs for 75 years.
Long- term concessions- those beyond 35 or 40
years- enable the project to capture revenue potential
beyond the typical term of long- term bonds of 25 to 30
years. A public toll authority financing, since it pro-vides
no equity beyond the term of the bond, assumes
( de- facto) that the roadway is worthless on repayment
of all the debt. By contrast a concessionaire looking at a
gg- year concession sees approximately three times the
nominal income- though of course the distant years'
income must be discounted heavily to present value.
When the term of the concession ends, control of
the road reverts to the owner ( the state) which can
choose to re- concession the roadway or operate it
itself.
When tax- and- grant has no tests of efficacy or public utility to pass
and is seen as purely political pork, then public trust is lost.
CONCLUSION: PRIVATE CON-CESSIONS
OFFER A POWERFUL
TRANSPORTATION TOOL
In the 20th century, America showed the world
that investor- owned electric, gas, and telecom utilities
worked better than the state- owned utilities carrying
out these functions nearly everywhere else. Nearly
every developed country has since privatized those
utilities. This report has sought to explain why major
roadways also make sense as investor- owned utili-ties,
as pioneered in Australia, France, Italy, Portugal,
Spain, and elsewhere. The global capital markets have
recently discovered the U. S. highway market as an
untapped business opportunity- just as consensus was
developing that we have a major shortfall of highway
investment.
Within just the past two decades the development
of low- cost electronic tolling and other automatic
vehicle identification technologies has made it far less
costly to use tolling to finance roads, and less nuisance
to motorists. Stopping to pay tolls has been made obso-lete
by technologies that allow tolls to be collected at
full highway speeds. The harnessing of these new toll
technologies to impose flexible market pricing in the
form of toll rates which vary according to road space
available has made possible management of roads to
flow smoothly and fast even under peak- hour condi-tions.
Dynamic pricing allows road service providers to
Reason Foundation www. reason. org The Role of Tolls in Highway Financing
offer a valuable new service to motorists- something
they will pay previously unheard of tolls rates to take
advantage of.
Now that the equity- based, long- term concession
model has been introduced into the United States, we
have an opportunity to re- invent the 19th- century pri-vate
turnpike in aist century form. The challenge for
legislators and transportation agencies is to remove the
obstacles to private investment and devise the regula-tory
guidelines that will make it possible to take full
advantage of this opportunity.
When freight and service travel are mired in congestion, higher
costs are passed on to consumers in higher prices, and that is
reflected in lower real incomes.
ABOUT THE AUTHORS
Peter Samuel is a senior fellow in transporta-tion
studies at Reason Foundation and author of many
research reports on transportation policy, especially
toll financing, and edits and publishes TOLLROAD-Snews
at www. tollroadsnews. info, He received his
B- Comm. ( Honors) majoring in economics from the
University of Melbourne, Australia, where he also stud-ied
city planning. He taught economics at Monash Uni-versity,
then moved into journalism with the Canberra
Times and later the newsweekly, The Bulletin.
Robert W. Poole, Jr. is Director of Transpor-tation
Studies and founder of Reason Foundation in
Los Angeles. He has advised the U. S., California, and
Florida departments of transportation, and has also
advised the last four White Houses on various trans-portation
policy issues.
EASON FOUNDATION'S F L n ission is to advance a free
society by developing, applying,
and promoting libertarian princi-ples,
including individual liberty,
free markets, and the rule of law.
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The Role of Tolls in Highway Financing Reason Foundation www. reason. org
What are HOT lanes? Denver, Salt Lake City, and Minneapolis. More are
H igh- Occupancy Toll ( HOT) lanes are limited- access planned in Miami, the Capital Beltway ( Washington
lanes reserved for buses and other high occupancy D. C. and Northern Virginia), Seattle, Maryland ( on I-vehicles
but open to single occupant vehicles upon payment 951, Austin, Dallas, Atlanta, the Sari Francisco Bay Area,
of a toll. The number of cars using the reserved lanes can be Raleigh- Durham, and portland, OR.
controlled through variable pricing ( via electronic toll collec-tion)
so as to maintain free- flowing traffic at all times, even Why are SO many governments turning to HOT lanes?
during the height of rush hours. The occupancy rate for free There is increasing dissatisfaction with HOV lanes.
or discounted passage varies by project- some allow High- Although intended to reduce traffic by getting drivers to
Occupancy Vehicle ( H0V)- 2 or HOV- 3 to ride free, while
share rides, more than half of all " car pools7' in many cities
others are free only to super- high occupancy vehicles like
are actually " fam- pools," made up of family members who.
vanpools and buses. The term and concept of HOT lanes was
first set forth in a 1993 policy study by Reason Foundation1 would travel together anyway. Violation rates are high in
and subsequentlv endorsed bv the Federal Hi- gh wav- Admin- many cases. Lots of HOV lanes are poorly used, leading to
istration under its Value Pricing Pilot Program. resentment by drivers whose taxes paid for their creation
but who cannot use them, since their trips aren't condu-
Where are HOT lanes being used? cive to car pooling. And in highly congested cities, HOV
There are currently HOT lanes in operation in lanes are filling up and losing their original tirne- saving
Orange County, California, San Diego, Houston, advantage. Value pricing is the only known way to main-
R e a s o n F o u n d a t i o n W W W . r e a s o n . o r g
tain uncongested traffic flow over the long term, thereby
preserving the time- saving benefits of special lanes.
Hence, many transportation experts have concluded that
HOT lanes are a more useful and more sustainable form
of special lane than HOV lanes.
How do HOT lanes work?
HOT lanes make use of variable pricing collected
through electronic tolling. The price to use the lanes
changes to keep traffic moving at the maximum speed
limit, even during rush hours. As demand increases,
the tolls rise to ensure the ideal number of cars are
moving through the lanes. At off- peak times, the tolls
drop.
What are the benefits to carpoolers, commuters and
solo- drivers?
Free- flowing lanes give every motorist " congestion
insurance7'- an alternative to gridlocked freeways for
those times when you really need it- to pick the kids
up at daycare, make it to their soccer game, or catch a
flight. Unlike traditional freeway lanes and many HOV
lanes, HOT lanes will not become congested over time.
Variable pricing allows roadway managers to change
the price to ensure sustainable congestion- free travel
over the long term.
By using a price to discourage some people from
traveling in peak hours, HOT lanes actually provide
more mobility. A free- flowing freeway lane has much
higher throughput per hour than a congested freeway
lane- about 50% more. Orange County's HOT Lanes
represent just one- third of the highway's lanes but
carry half of all traffic during rush hour
What are the benefits to emergency vehicles?
HOT lanes offer congestion- free routes for emer-sources
do not even cover the costs of ongoing main-tenance
of roads, let alone raise enough money for
needed expansions and new roads. As a result, a sub-stantial
percentage of the cost of building and main-taining
roads comes from sources such as property and
sales taxes, where payments are completely unrelated
to how much one actually drives. Money raised by con-gestion
tolls could be used to replace these non- trans-portation
taxes.
What are the benefits for mass transit?
Because HOT lanes operate uncongested at high
speeds, even during the busiest rush hours, they can
provide a reliable, high- speed path for express bus ser-vice
( sometimes known as Bus Rapid Transit). Tran-sit
agencies would ideally like to operate Bus Rapid
Transit on exclusive busway lanes, but few can afford
the cost of building new lanes just for buses. Value
pricing keeps HOT lanes uncongested and free- flow-ing,
making them the virtual equivalent of exclusive
busways, from the transit agency's perspective. Both
Houston and San Diego are planning expanded express
bus service on HOT lanes.
gencyvehicles to reach the scene of incidents and then '' Tax roads are depreciating liabilities. They are like an old car. It
the emergency room in significantly less time. costs more and more to maintain it and it is eventually worlhless
and in need of costly replacement. Toll roads are the appreciating
What are the benefits to taxpayers? asset of a business. It pays for itself and becomes more valuable
over time. Like any profitable, revenue- generating business, it pro- While the vast majority of transportation projects
vides its owners ( the public) with wealth and options for growth."
around the country continue to be funded from tradi- - Texas Representative Mike Krusee
tional sources- gas and vehicle taxes- these revenue
HOT Lanes: Frequently Asked Questions Reason Foundation w. reason. org
What is a HOT Network?
A HOT Network is an interconnected network of
HOT lanes on the freeway system of an urban area,
allowing congestion- free travel throughout the region.
There are currently no HOT networks in operation, but
a number of metro areas ( including San Diego and the
San Francisco Bay area) include them in their long-term
transportation plans.
Are HOT Lanes just " Lexus lanes"? Do they only
benefit the wealthy?
In 2005, there were over 12 million trips on
Orange County's HOT Lanes. Over a decade of data is
available from the 91 Express Lanes in Orange County
and the HOT lanes on 1- 15 in San Diego. It indi-cates
that the vast majority of drivers- high and low
income- use the HOT lanes only on occasion, instead
of every day.
While studies of the 91 Express Lanes indicate that
use increases slightly with income group, 19% of the
users have an annual household income of less than
$ 40,000, and another 23% have household incomes
between $ 40,000 and $ 60,0oo.*
A 2001 telephone survey of San Diego 1- 15 Express
Lane users revealed that 80% of the lowest income
motorists (<$~ o, oooan nual household income) in the
corridor agreed that " People who drive alone should
be able to use the 1- 15 Express Lanes for a fee." In fact,
they were more likely to agree with that statement
than the highest income users. 3
Aren't tolls just another tax?
No. With HOT lanes, no one pays twice for some-thing
they've already bought. It's similar to the dif-ference
between free television and cable: HOT lanes
provide a premium service that would not be there oth-erwise.
Unlike taxation, no one is forced to pay; motor-ists
would simply have a choice to pay to get premium
service- an uncongested lane.
When an HOV lane is converted to a HOT lane, no
one is required to pay a toll to use any lane that he is
now using for free:
Drivers in regular freeway lanes will still use those
lanes at no charge.
Carpoolers in what are now HOV lanes will still use
them at no charge when they become HOT lanes.
Solo drivers will have a new choice of staying in the
regular lanes ( no charge) or getting to use what are
now HOT lanes ( which they cannot use today) if
they're willing to pay a toll.
Where brand- new HOT lanes are added to a freeway,
the only ones who will pay tolls are those who choose to
use the new HOT lanes.
How do you collect the tolls?
Tolling in HOT lanes is always all- electronic. Most
tolls are charged using dashboard- mounted transpon-ders
to debit pre- paid toll accounts. Another option
uses license plate recognition to identify users, and
bills are paid through credit cards or other means. Old-fashioned
toll booths or toll plazas are never used for
HOT lanes.
How do you enforce toll collection on HOT lanes?
Enforcement is done through a combination of
technology and visual checks for occupancy ( as with
HOV lanes). Electronic toll systems include video
enforcement equipment, in which the license plate of
a vehicle without a valid transponder is imaged so that
follow- up action can be taken due to non- payment.
Police can also use a handheld reader to ensure that
the transponder on the vehicle is operating. Minne-
Reason Foundation w. reason. org HOT Lanes: Frequently Asked Questions
apolis has found a reduction in violations from the
traditional HOV lanes, because frustrated solo drivers
tempted to cheat and use the faster lane now are able
to pay to do so, and the toll is cheaper than risking a
ticket.
The HOV lanes in my city are already congested.
Wouldn't converting them to HOT lanes just make
congestion worse?
Most cities7 HOV systems operate as HOV- 2 sys-tems,
granting access to vehicles with as little as two
occupants. As HOV- 2 lanes become congested, they
lose their value as a means to combat gridlock and
increase vehicle occupancy, producing an unsustain-able
situation that will have to be addressed. This will
most likely require upgrading them to HOV- 3 lanes
( open to vehicles with three or more occupants), as in
Houston and Northern Virginia today. An HOV- 2 to
HOV- 3 upgrade would open up excess capacity that
can then be " sold" to single and double- occupancy
vehicles and priced through variable rate tolling.
Will the public accept HOT lanes?
There were 12 million trips on Orange County's
HOT lanes in 2005. In the Washington, DC area, where
HOT lanes have recently been approved for construc-tion,
an ABC News / Washington Post survey found
that 58% of residents approved of the lanes. 4
In a 2001 survey of San Diego's 1- 15 Express Lanes
users, 89% of customers surveyed supported extension
of the HOT lanes, and 66% of non- users supported the
HOT lanes. 5
Surveys in several states including Washington,
Minnesota, and Florida show that a majority of drivers
in areas with high levels of congestion would be will-ing
to pay to avoid it. 6
Is there political support for HOT lanes?
Variable pricing has become widely accepted as
sustainable congestion relief technology, and is sup-ported
by the political left and the right, from environ-mental
groups like Environmental Defense, to local
business associations.
Implementing variable pricing is a top priority
of the U. S. Department of Transportation's National
Congestion Initiative, and has been highlighted by
the President in his annual budget blueprint unveiled
on February 5,2007. The U. S. DOT will be offering
financial support to urban areas that implement new
pricing projects.
ABOUT THE AUTHORS
Leonard C. Gilroy, AICP is a senior policy analyst at
Reason Foundation, a nonprofit think tank advancing
free minds and free markets. Gilroy, a certified urban
planner ( AICP), researches housing, urban growth,
privatization, and government reform issues. He is the
managing editor of the world's most respected newslet-ter
on privatization, Privatization Watch, and is the
editor of the widely- read Annual Privatization Report,
which examines trends and chronicles the experiences
of local, state, and federal governments in bringing
competition to public services.
Amy Pelletier is the Outreach Director at Reason
Foundation, a Los Angeles- based think tank that pro-motes
individual liberty, government accountability,
and market- based reform. She works with research-ers,
policy experts, and public officials to alleviate the
effects of congestion on U. S. cities.
HOT Lanes: Frequently Asked Questions Reason Foundation w. reason. org
Highway Administration) pp 30. http:// www. itsdocs.
fhwa. dot. gov/ JPODOCS/ REPTS- TE/ i3668_ files/
imagesIl3668. pdf W
ENDNOTES
Gordon J. Fielding and Daniel B. Klein, High
Occupancy/ Toll Lanes: Phasing in Congestion Pricing
a Lane at a Time, Policy Study No. 170 ( Los Angeles:
Reason Foundation, November 1993).
' Edward Sullivan, Continuation Study to Evaluate
the Impacts of the SR gl Value- Priced Express Lanes
( Final Report). Cal Poly State University, December
2000, p. 84. http:// ceenve. calpoly. edu/ sullivan/ SRg1/
final- rpt/ FinalRep2ooo. pdf
3 Judith Norman, " San Diego Association of Gov-ernments
1- 15 Managed Lanes Value Pricing Proj-ect
Planning Study, Community Outreach Program,
Executive Summary," Public Outreach ( San Diego: San
Diego Association of Governments, February 2002),
vol. 2, pp 25. http:// www. sandag. org/ services/ fastrak/
pdfs/ 2oo2~ fastrak_ public~ outreach. pdf
4 Steven Ginsburg, " New Tactics for Dealing with
Traffic," Washington Post, February 21,2005.
5 Norman, San Diego Association of Governments.
Benjamin Perez and Gian- Claudia Sciara, A Guide
for HOT Lane Development, ( Washington DC: Federal
" Virtually every major financial institution on Wall Street has
created- or is in the process of creating- an infrastructure
fund with transportation as a major component. They correctly
recognize the enormous potential in American infrastructure.
And it is imperative that future transportation decision- makers
continue to foster this interest, not take steps to discourage it.
History may well reflect back on this as one of the defining
public policy debates of our time- as consequential as the one
that gave birth to the Interstate Highway System some 50 years
ago. And the business community must be active participants.
Finding a way to tackle congestion more meaningfully and
successfully is not a problem for some future generation. It is an
urgent challenge for today's leaders." - Former U. S. Secretary of
Transportation Norman Mineta, Farewell Remarks, U. S. Chamber
of Commerce, July 6, 2006
RELATED REASON STUDIES
Building Roads to Reduce Traffic Congestion in
America's Cities: How Much and at What Cost? By
David T. Hartgen, Ph. D., P. E., and M. Gregory Fields,
August 2006.
Why Mobility Matters, by Ted Balaker, August
2006.
Adding FAST Lanes to Milwaukee's Freeways: Con-gestion
Relief, Improved Transit, and Help with Fund-ing
Reconstruction, by Robert W. Poole, Jr. and Kevin
Soucie, February 2006.
Virtual Exclusive Busways, by Robert W. Poole, Jr.
and Ted Balaker, September 2005.
Should States Sell Their Toll Roads? By Peter ,
Samuel, June 2005.
The Orange County Toll Roads: Largely Successful,
by Robert W. Poole, Jr., March 2005.
Orange County's 91 Express Lanes: A Transporta-tion
and Financial Success, Despite Political Problems,
by Robert W. Poole, Jr., March 2005.
Reason Foundation www. reason. org HOT Lanes: Frequently Asked Questions
UPCOMING STUDIES
Mobilizing for Mobility
A book laying out a policy framework for addressing
congestion in urban areas.
Congestion Reduction and Policy Change in Texas
Lessons from transportation planning innovations in
Texas.
The Demographics of Cities & Travel
The impacts of family size, occupation, and other
demographic trends on travel behavior.
Does Building New Roads Pollute the Air?
Analysis of air quality impacts of travel.
Highway Ti iiance
A guide for policymakers on toll- based financing for
major highway investments.
Why Mobility Matters in Personal Life
The importance of mobility in love, family, and recre-ation.
Land Use Impacts on Traffic Congestion
Does land use influence travel behavior?
City Case Studies: Denver & McAllen, TX, & Ft.
Meyers, FL
Comprehensive mobility plans for individual cities.
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HOT Lanes: Frequently Asked Questions Reason Foundation - www. reason. org
What is a Public- Private Partnership?
P ublic- Private Partnerships ( PPPs or P3s) are collabo-rations
between governments and private companies
that aim to improve public services and infrastructure in a
manner which captures the benefits of private sector involve-ment
( such as cost- and time- savings) while maintaining
public accountability.
While PPPs can take a variety of forms, in transportation,
long- term PPPs are increasingly being used for new road
construction and modernizing existing roadways. These PPPs
involve a private company investing risk capital to design,
finance, construct, operate, and maintain a roadway for a
specific term during which it collects toll revenues from the
users. The public agency oversees all aspects of the agree-ment,
from maintenance to setting toll rates. In some cases
the private toll company pays the public agency an upfront
fee for the contract, and in others the public and private
partners share in the revenue generated by the road. When
the contract expires, the government can negotiate a new
arrangement or take over the facility at no cost.
What are the benefits to state governments?
PPPs are an effective way of financing, managing and
operating roads while minimizing taxpayer costs and risks.
Governments across the country and around the world are
seeking ways to finance much- needed infrastructure projects
and trying to deliver better services to taxpayers. Public- pri-vate
partnerships maximize the strengths of both the public
and private sectors, offering taxpayers more efficiency,
accountability, and cost- and time- savings. PPPs can be used
to build roads and highway projects that may have been
delayed or shelved altogether due to fiscal constraints.
In fact, the major highway funding shortfall is a key
reason governments are increasingly turning to long- term
PPPs to deliver new transportation projects. A recent Federal
Highway Administration report estimated that the annual
capita1 investment in our highways totals $ 68 billion, which
is $ 6 billion less than what's needed simply to properly
maintain the condition of our highways and bridges. More-over,
an additional $ 51 billion per year would be needed to
improve and expand the highway network just to keep up
R e a s o n F o u n d a t i o n W W W . r e a s o n . o r g
with the increasing demand for auto and truck travel.
The existing state and federal fuel tax and highway
trust fund system is unable to meet these investment needs.
Neither Congress nor most state legislatures have increased
fuel taxes to levels that would even offset increases in fuel
efficiency and inflation, let alone funding needed road
maintenance and increased travel demand. So increasingly,
states are turning to toll finance and PPPs to begin to fill the
funding gap.
How common are public- private partnerships in the
transportation world?
PPPs for complex, multi- billion dollar transportation
projects have been used for decades in Europe, and more
recently in Australia and Latin America. During the 1990s
they began to be used in the United States and Canada as
well. PPP toll projects are in operation in California, Texas,
and Virginia, as well as several Canadian provinces. Large
transportation PPPs in excess of $ I billion are in operation
or under construction in Melbourne, Sydney, Paris, Israel,
Santiago, and Toronto.
What is a long- term concession?
Concessions are essentially leases, and the term long-term
concession is generally used to describe PPPs where
the private toll road company designs, finances, constructs
and operates a toll facility for anywhere from 30 to 99 years.
How does a long- term concession PPP work?
In exchange for a long- term lease arrangement, an
investor- owned company will finance, design, build, oper-ate,
modernize, and maintain a highway project, financ-ing
its expenditures from the toll revenues it is allowed to
charge. However, the state or local government still owns
the roadway and protects the public interest through nego-tiating
and enforcing the terms of the concession contract.
Essentially this model extends the investor- owned
utility concept from network industries like electricity and
telecommunications to highways. Just as those industries
are vital to the public interest, so too are highways.
Are there other ways of involving private enterprise
in toll roads without large upfront payments to gov-ernments
and nothing for taxpayers beyond that?
The state ( or county or city) has flexibility in how it
negotiates the lease payments. Texas and Virginia have both
negotiated long- term leases which provide for a smaller
upfront payment but a 50150 profit share beyond a set rate
of return. In Europe, concession agreements have been
crafted which provide annual payments with no upfront fee.
In Australia, the bidding on one particular project was not
based on the size of the concession fee but on the lowest toll
rates.
For a state entering into a concession deal, there are
two key trade- offs between upfront payment versus ongo-ing
lease revenues over the life of the agreement: ( 1) cur-rent
capital needs versus long- term needs, and ( 2) a " sure
thing" ( upfront payment) versus some risk as to what future
revenues may be. There is no right answer; each state must
weigh the trade- offs involved with each individual project.
Regardless of how the state is paid for the concession,
when it involves the construction of a new roadway, the tax-payers
gain a state- owned asset that can continue to provide
mobility and generate revenue long after the lease term.
" Now, much of [ our] vital infrastructure is showing its age [... I And
at the very same time, our growing economy is placing increasing
demands on every one of our systems, even while the funding
sources we have relied on are less and less able to keep pace.
If we are going to escape the forces of the perfect storm that
are gathering before us, we must find fresh angles and creative
ways to improve the performance of our transportation systems."
- U. S. Secreta~ yo f Transporlation Mary Peters, Swearing- in Cer-emony,
Oct. 17, 2006
Building New Roads through Public- Private Partnerships Reason Foundation w. reason. org
What are the advantages of PPP toll roads?
1. Delivery of needed transportation infrastructure:
PPPs offer governments and taxpayers a way to fund roads
that otherwise would not be built. Many states are facing
a " perfect stormn in transportation: growing transporta-tion
needs are outstripping available funding; the need for
maintenance and renovation of existing systems is using up
available resources; and congestion is getting worse by the
day. In short, there's just not enough funding to adequately
maintain the roads we already have, much less build all of
the new roads needed to relieve traffic congestion.
With long- term PPPs, not only does the private sector
take on much or all of the responsibility of financing new
roads, but governments can use the funds generated
through upfront concession fees or revenue sharing agree-ments
to invest in the rest of their transportation infrastruc-ture.
For example, Indiana will be using the $ 3.8 billion
payment it received for the Indiana Toll Road concession to
cover a multi- billion dollar funding shortfall in the state's
io- year transportation plan; planned transportation invest-ments
statewide that were previously unfunded are now
able to be undertaken.
Further, taxpayers and drivers enjoy a double benefit
through PPPs: not only do they benefit from new roads that
reduce congestion, but the willingness of the private sector
to finance highway projects offers policymakers an attractive
alternative to tax hikes as a means of funding new roads.
2. Ability to raise large, new sources of capital for toll
projects: Rebuilding and modernizing our freeways and
Interstates will be far more costly than most people real-ize.
The long- term concession model can raise significant
investment capital for new transportation infrastructure
because it is attractive to many different types of inves-tors,
including equity investors and lenders. For example,
highway infrastructure is increasingly appealing to institu-tional
investors like pension funds that seek stable, low- risk
investment opportunities.
There is also growing evidence that the long- term
concession model can generate significantly more fund-ing
for a given toll project than the traditional government
financing models. For a new toll road in Texas, for example,
a toll traffic and revenue study estimated the state's ability
to finance $ 600 million, less than half of the project's total
$ 1.3 billion cost. Texas DOT turned to a long- term conces-sion
approach, in which the private sector will finance the
entire $ 1.3 billion project, in exchange for a 50- year conces-sion.
Four factors seem to drive these differences:
1. The concession agreement adds certainty to future toll
rates that are less predictable under public toll agencies.
2. The private sector is more aggressive in both attracting
motorists and in reducing costs ( e. g., by making full use
of electronic toll collection).
3. The private sector can take depreciation as a tax write-off,
like any other business, but toll agencies can't, since
they pay no income taxes.
4. Infrastructure has become a fashionable asset class for
a host of investors that do not normally invest in tax-exempt
toll- agency bonds. Michael Wilkins of Standard
& Poor's recently estimated that $ 100- 150 billion in
private capital was raised in 2006 alone to invest in
infrastructure.
3. Shifting risk from taxpayers to investors: PPPs
involve parceling out duties and risks to the party best able
to handle them. The state is the party best able to handle
rights- of- way and environmental permitting, so those roles
remain with the state. The private sector in these deals
nearly always takes the risks of construction cost overruns
and possible traffic and revenue shortfalls. Given the dif-ficulty
of completing transportation mega- projects on time
and within budget, being able to shift construction and traf-fic/
revenue risk to investors is a major advantage.
4. More businesslike approach: Compared with gov-ernment-
run toll agencies, private toll road companies are
less susceptible to pressure from narrow political interests
Reason Foundation www. reason. org Building New Roads through Public- Private Partnerships
and are more customer service oriented, since it directly
affects their economic viability. They are quick to adopt
cost- saving and customer- service oriented technology and
specialized products and services to meet customer needs.
5. Major innovations: One of the most important
advantages of investor- owned toll road companies is their
motivation to innovate in order to solve difficult problems
or improve their service to customers. Today, we know that
variable pricing ( also known as value pricing) works very
well to eliminate traffic congestion during peak periods,
actually maximizing throughput while maintaining high
speeds. It was a private toll company in California that took
the initiative to introduce and perfect value pricing; no state
toll agency was willing to take the risk of doing so.
Toll road companies are also good at value engineer-ing-
thinking outside the box to dramatically reduce the
costs of new capacity. A case in point is the forthcoming
High- Occupancy Toll ( HOT) lanes project on the Capital
Beltway in northern Virginia. The Virginia DOT'S plans to
add two HOV lanes in each direction on that section of the
Beltway would have cost taxpayers $ 3 billion- money that
Virginia did not have. The private sector team's unsolicited
proposal called for adding two HOT lanes in each direc-tion-
the same amount of physical capacity- for under
$ 1 billion. The savings came from value engineering that
reduced or eliminated many expensive bells and whistles
held little real benefit.
Private toll road companies are motivated to think out-side
the box, to solve difficult design problems. In France,
an unsolicited proposal from a private toll firm resolved a
30- year impasse over how to complete the missing link of
that the private company has to clear dead animals from the
road within eight hours and fill potholes within 24 hours.
The public interest is protected by incorporating enforce-able,
detailed provisions and requirements into the contract
to cover such things as:
Who pays for future expansions and rebuildings;
How decisions on the scope and timing of those projects
will be reached;
What performance will be required of the toll road and
the private toll company ( i. e., safety, maintenance,
plowing, and many other requirements);
How the contract can be amended without unfairness to
either party;
How to deal with failures to comply with the agreement;
Provisions for early termination of the agreement;
the A86 Paris ring road, which would need to pass through What protections ( if any) will be provided to the com-historic
Versailles. The company is building a deep- bore pany from state- funded competing routes; and
tunnel underneath- instead of through- Versailles, and is
What limits on toll rates or rate of return there will be.
financing the $ 2 billion project with value- priced tolls.
How is the public interest protected in a PPP? Won't
the state be losing control of the public highways?
Roads built using public- private partnerships belong
to the state. When drafting the contract with the private
sector, the government can- and should- completely pro-tect
taxpayers by demanding accountability.
Concession agreements are typically several hundred
pages long and may incorporate other documents ( e. g.,
detailed performance standards) by reference. No detail is
too small; for instance, the Indiana Toll Road lease specifies
Isn't 50+ years far too long to lease valuable roads?
State governlnents are committing future generations
when they cannot predict what the needs will be. .
It is entirely possible that changing circumstances will
require revisions to the lease. That is why all concession
agreements have detailed provisions to permit changes
during their term. Concession agreements have detailed
provisions for negotiating and arbitrating disputes, and
employing independent parties to make fair financial esti-mates.
The only limit to chan