Privatization of America's Highway Infrastructure Term Paper

  • Length: 12 pages
  • Sources: 12
  • Subject: Transportation
  • Type: Term Paper
  • Paper: #39964396

Excerpt from Term Paper :

The highway system is an important part of the infrastructure that gives America a competitive advantage. Anything that threatens the highway system in the United States is a threat to the competitive advantage of America. These threats include a lack of funding. When one considers the current situation from this perspective, the importance of finding a solution to the problem of how to fund the highway system becomes one of the most important topics that the government faces.

The need for finding is obvious. We have already mentioned the possibility of raising taxes as a means to fund the necessary maintenance and expansion. However, the government is reluctant to take this route for fear of public repercussions. Raising taxes in the amounts needed could lead to devastating economic impacts. This is not the answer for obvious reasons.

The original highway system of the United States was built by private enterprise. It was a sector of the American economy and was maintained through funds collected for use of the highway. One solution that has been suggest is that the highway system be returned to private enterprise and they be allowed to collect funds for the maintenance of the roads, as well as to take a little profit for themselves. There are many sides to this argument. There is also a proposal that calls for an integrated effort between the Federal Government and Private entities. The follow will discuss arguments on both sides of the issue.

The privatization of the highway system in the United States will result in many currently public roads becoming toll roads. Drivers will have to pay their portion of the maintenance of these roads as a result of their use of this resource. There are many ways to look at this issue. From one perspective, the American taxpayer already pays for the road system through gasoline and other taxes. There are fears that allowing private companies to use the highway system as a source of income would allow for price gouging. Privatization of the highway system would still generate funds through corporate taxes that could be used for the maintenance of public roads. Taxes would still be a part of the picture. Corporate taxes could generate more funds that the taxes paid by private citizens. Corporations are taxed at a higher rate and the amount upon which they are taxed is higher as well (Decorla-Souza, p. 239). This issue is often not addressed in literature regarding the highway finding issue.

Aside from the fears about price gouging if the highway system comes under private ownership are fears about security. In the post-9/11 world, this is always a concern. However, when one looks at this issue realistically, this threat also affects many other portions of the infrastructure such as air travel, the power grid and vital urban services. Private entities, such as chemical factories have already solved many of these issues successfully. Private highway companies could look to these other systems as a source of information on how to resolve these issues. Competition will be a major component of the negotiations in this state. This is not a standard component in private/public contracts, but is will play a role in future development around the DC area (Decorla-Souza, p. 239)

Everyone makes the assumption that private enterprise will be successful. However, if we take private investment in Spain as an example, we learn that during the 1970s costs exceeded estimates by private entities. The companies running the toll roads went bankrupt and the government had to bail them out (Engel, Fischer, and Galetovic, p. 20). This cost the public more than if they had funded the roads themselves. Three is some downside risk that must be considered in this decision.

Now let examine some of the key proposals and companies involved in toll roads in the United States. Two of the key firms that are considering entrance into the highway system in the United States are Macquirie, an Australian firm and Cintra, a firm from Spain (Cho, p. 38). One of he key concerns is that income from these enterprises will benefit Australia and Spain more than they will benefit the U.S. In terms of revenues. The sale of toll roads to private entities is a growing trend in Canada, Asia, and Europe (Samuel, pp. 5-14).

We have several examples of the privatization process in the United States already. In 2007, Mayor Daley of Chicago signed over a stretch of road called the Chicago Skyway (Cho, p. 38). The lease term will be for 99 years. The Chicago Skyway was once a member of what was called "one of the worst run government agencies in the nation" (Samuel, p. 1). One of the key concerns in the Chicago Skyway were how to accomplish needed repairs and expansion with minimal disturbance of traffic patterns. This is always a consideration in any project. Closing the road during construction was not an option because the revenues collected from tolls were the only source of funding for the project (Hansen, p. 8). Civil Engineers devised several creative answers to the dilemma and proved that major road construction can take place with a minimum of traffic disturbance. These construction feats were accomplished using only 6.4% of the toll revenue for the entire year. Funding during construction is a key concern in toll-funded roads. The Chicago Skyway is an excellent example of how private enterprise can resolve many problems that are insurmountable for public entities.

The sale of Orange County CA-91 is a controversial issue for many reasons. This stretch of road has suffered from a lack of funds for many years. The population of the area has grown astronomically in recent years. The government had only limited funds with which to work and they were not sufficient to maintain the capacity increases needed (Samuel, p. 4). Privatization will be a more palatable way to achieve highway capacity to the level needed now and in the future (Samuel, p.4). One of the key issues in this endeavor is that private enterprises might have to use bank financing or other means to fund the project initially. One of the most controversial topics surrounding CA-91 is the use of bonds as a funding source (Hobby, p. 3). There are some that argue in favor of the use of bonds because the city receives the benefit of the project. Others strictly resist the use of public funds for private corporate use (Hobby, p. 4).

Currently Pennsylvania is considering proposals for the purchase of portions of toll roads throughout the state (Samuel, p. 12). A different set of circumstances and issues surround new construction, called "Greenfield issues," and those involving existing roads, called "brownfield issues" (Smith, p. 8). Pennsylvania has both types of projects on the books. De Palma and Lindsey (2000) analyzed the operating efficiency of a public and private road under various pricing and demand conditions. They concluded that the public road could run much more efficiently than the private road (p. 29). This analysis used many assumptions, such as capacity projections and census growth that might make a difference in the actual results obtained. Policies based on algorithms are useful, but must be taken into consideration with real-world case-based scenarios.

New Jersey is considering sale of the New Jersey Turnpike and Garden State Parkway (Samuel, 14). At the current time, New Jersey's governor has not taken a stance on the privatization of New Jersey's roads, but he is aware of the financial aspects (Bary, p. 17). The Illinois Tollway operates 274-mile of roads and generates approximately $583 million in revenue (Bary, p. 17). This system is state of the art and has an electronic toll collection system that allows drivers to pass through at highway speeds (Bary, p. 17).


There are no easy answers when it comes to who should fund America's highways. The current financial crisis regarding funding has led to a paradigm shift away from the philosophy of standardization that existed in the 1920s. In the current crisis, it appears that standardization is a key problem faced in the privatization issue. There are fears that if the highways are privatized, then standardization will be sacrificed. People fear substandard roads. However, this is not the example that we get from our currently operated toll roads, such as I-95 in northern Ohio. These roads are often well repaired and maintained.

The jury is still out as far as the privatization issue is concerned. Recently, private enterprises are taking responsibility for the development of roads, tolls, and other transportation operations. This is largely the result of their needs. Industry depends on the highway system and this is often a consideration for the expansion of businesses. Private enterprise is competitive and in order to remain competitive, they must employ the latest technology to make their operation efficient. It is not likely that private enterprise would employ anything but state…

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