Like most states these days, Oklahoma faces a serious shortage of funds to maintain, repair, and expand its highway system. The principal highway funding sources—state and federal fuel taxes—have not kept pace with inflation, with rising construction costs, or with the extent of driving.
One alternative to either doing nothing or sharply increasing fuel taxes is to use toll finance to pay for new lanes and new roads in areas where demand is greatest. Other states and other countries have had considerable success with public-private partnerships for such toll projects. This is an alternative Oklahoma should seriously explore.
Most U.S. highways have a design life of about 30 years, before needing major reconstruction. That means much of the Interstate system and many of our urban expressways are nearing the time when, for safety and reliable-service reasons, they will need to be rebuilt. In growing urban areas and on major long-haul truck routes, we don’t have enough lanes to handle today’s traffic, let alone what’s projected for 20 years from now. So many of these roads will need to be rebuilt with more lanes.
Given these grim facts, I am not surprised when I hear heads of transportation departments in state after state say that with existing funding sources, they can barely keep pace with routine preventive maintenance, let alone rebuilding or expanding their highway systems.
State departments of transportation (DOTs) have pursued many forms of innovative finance over the past decade. Nearly all of them amount to some form of borrowing against future transportation revenues. But all such methods merely rearrange the timing of existing sources of revenue; they don’t add to the total amount of investment into the highway system.
However, using tolls to finance new lanes or a new highway or bridge is a very different story. We now have a completely new source of funds to pay for particular investments in new capacity. Moreover, in most cases the use of the new toll lanes will be optional—people have the choice of whether to pay to use them (if the benefits from doing so are worth more than the amount of the toll) or to continue using the existing lanes funded by fuel taxes.
This is already being done in other states. The basic model being used in Florida, Texas, Virginia, and others states involves a long-term contractual agreement (called a concession agreement) between the investor-owned toll company and the state DOT. In exchange for the right to charge tolls for a long period of time (typically, from 35 to 75 years), the company agrees to design, finance, build, operate, maintain, expand, and (as necessary) rebuild the toll road or bridge. Assuming the underlying economics make sense (i.e., demand strong enough to support enough toll revenue to make ends meet), the company can take this agreement to the capital markets and fund the project.
This sort of agreement creates a public-private partnership in which the state and the company have a shared interest in the project meeting real transportation needs, consistent with both the public interest and the expectation by the investors of a return on their investment.
While this may sound like a radical departure from traditional U.S. highway practice, the idea actually has a long history. In a more rudimentary form, it was the model used for virtually all the 18th and 19th century U.S. and British turnpikes of the pre-automobile era. It was used in the 20th century for a handful of U.S. toll bridges (e.g., Detroit’s Ambassador Bridge), and is the basis for most of the post-World War II toll motorway systems of France, Italy, Portugal, and Spain. It was used for the huge Channel Tunnel between Britain and France, and also for nearly all the urban expressways in Sydney and Melbourne, Australia. In recent years the toll concession model has been adapted to the major countries in Latin America, and to meet the need for modern motorways in the former communist countries of Eastern and Central Europe.
And in the last 15 years it has been rediscovered in the USA. California and Virginia passed pilot programs in the 1990s under which three new toll projects were built successfully. Virginia expanded the idea into a major part of its transportation program, as has Texas and, more recently, Georgia and Florida. All told, nearly two dozen states have enacted some form of enabling legislation for public-private partnerships in transportation, and competitions are under way for projects in about half of them.
Oklahoma’s continued quality of life depends on excellent personal mobility, as well as an efficient goods-movement system. Both depend critically on adequate highway capacity, properly maintained. The status quo cannot deliver that. But tolling and long-term concessions could play an important role in doing so.
Robert Poole (B.S. and M.S. in mechanical engineering, Massachusetts Institute of Technology) is director of transportation studies at the Reason Foundation, a free-market think tank he founded in 1978. Poole has advised the Reagan, George H.W. Bush, Clinton, and George W. Bush administrations on privatization and transportation policy, and has advised a half-dozen state DOTs on tolling and public-private partnerships. A longer version of this article was published this month by the Oklahoma Council of Public Affairs (ocpathink.org).