Paving the Way for Profits

Governments have also been turning to public-private partnership to build new roads. The 91 Express Lanes, a four-lane, 10-mile toll road built in the median of California's State Route 91 in Orange County, was the first privately backed American toll road built in modern times. It was constructed by a private company, which transferred ownership to the state upon completion and then leased it back for 35 years. In April 2002, the Orange County Transportation Authority bought the road back for $207.5 million. The same year California's SR-91 went operational, the Dulles Greenway, a privately owned, six-lane 14-mile toll road in suburban Virginia, opened for business.

And Macquarie of Australia is currently working on the South Bay Expressway, a 10-mile toll road running north from the U.S.-Mexico border. The $650 million road is financed by cash from Macquarie, and debt provided by banks and by the U.S. government ($154 million). In another border state, Texas, Gov. Rick Perry is hoping that the ambitious Trans-Texas Corridor project, a multiphase project that will see fast new highways criss-cross the state, will attract private investment.

What's not to like? In each case, the state and city governments set their terms in highly detailed operating agreements that force the owner (or leaser) to provide certain levels of service and maintenance, and to keep tolls and other costs under control. For the most part, the concept of enlisting private support for public works projects has drawn support from across the political spectrum. These deals also help place large capital projects off the states' balance sheets.

Last March, a consortium led by San Antonio-based Zachry Group and Spain's Cintra signed a contract with the state of Texas to build a 43-mile segment of SH-130, a toll road in Texas running from north of Austin to Seguine. Texas state highway projects have historically been funded on a pay-as-you-go basis. "We're able to go and sell bonds or some other debt instrument to raise the capital necessary to finance the construction," said Vicky Waddy, director of public affairs at Zachry Group. Once the $1.3 billion project is completed, the consortium will share toll revenues with the state.

Critics note, however, that there are several potential problems. The companies do have leeway to boost tolls, and frequently do so. And Fortune magazine's Bethany MacLean, the first reporter to sniff a rat at Enron, has raised questions about the sustainability of Macquarie's business model. Selling leases on public property are also classic one-shots: short-term, unrepeatable moves that serve to camouflage true structural deficits. And in this case, the push for public-private partnerships highlights the congenital unwillingness of elected officials at all level of government to align revenues (read: taxes) with the spending necessary to fulfill basic public responsibilities.

"We've got to acknowledge that infrastructure funding in the U.S. is at a crisis level and states are scrambling to try to come up with the funds," Rep. Terri Austin, chair of the Indiana House of Representatives Roads and Transportation Committee, who was critical of her state's decision to lease the Indiana Toll Road. While the sale produced funds for state highways, the benefits have been distributed disproportionately within Indiana. Austin is also concerned that the consortium, which froze tolls through 2016, might jack up rates. "The consortium maintains the authority to set the tolling rate upon the expiration of that freeze," she said.