Privatization of America\'s Highway Infrastructure

Privatization of America's Highway Infrastructure

Brief History of Public Roads

The Role of States

Federal Efforts to Build Our Highway System

What is the Answer?

Increased corporate taxes and revenue for localities

Fears of price gouging

Competition leads to better management

Managing downside risk

Examples of privatization at work

Chicago Skyway

Considerations for future Pennsylvania projects

The future of New Jersey highways

Advantages vs. consumer fears

Hybrid techniques

Solutions must consider local situation

The Privatization of America's Highway Infrastructure

"I am aware, Gentleman, that the want of a good, permanent road is, at present, the principal defect in the communication between the middle counties and the metropolis." - Thomas Mifflin, Pennsylvania Governor 1791

Roads are one of the oldest elements of the infrastructure of any civilization. The first roads to be constructed were nothing more than paths through the wilderness. These paths allowed for easy travel by clearing the way. They also guided the traveler and showed them the way to their destination. Roads were important for the establishment of commerce and the growth of civilization. The U.S. highway system was one of the key elements that allowed for the growth of the wealth of the nation.

However, currently the funding and ownership of the U.S. highway system has come under fire. No longer able to support itself, the government is exploring many options to keep the nations' most valuable asset functioning. One of the options currently being considered is the privatization of the highway system. This research will explore many issues involved in this decision, as well as the viewpoints of opposing sides.

Brief History of Public Roads

The Federal government realized that the highway system was critical to the growth of the economy. An efficient highway system allows for the transport of goods and services. The first highway was begun in 1792 by a private company. It was authorized by the Pennsylvania State Legislature to connect the City of Philadelphia with Lancaster County (ExplorePA History). This began a trend that led to a network of toll roads. It soon became obvious that roads increased property value and provided access to sections of the nation that were otherwise difficult to reach. The road system facilitated the growth of the nation as a whole, rather than restricting it only to those areas that were accessible.

The nation's first major toll road was the Philadelphia and Lancaster Turnpike completed in 1794. It was built and operated by a private company, the Philadelphia and Lancaster Turnpike Road Company. This turnpike was a rock and gravel road that spanned 62 miles. Up to this point, the roads linking Philadelphia and the agricultural farms in Lancaster County were "often in terrible disrepair - with ruts, gaping holes and tree stumps that made them impassable."(ExplorePA History).

To finance the construction the company sold stock in the project. It cost more than $450,000. To recoup its investment and generate revenues, the company charged travelers tolls, paid at tollgates located every ten miles along the route. Over time, inns and taverns were built along the route and offered food and a place to stay to travelers. At the height of summer, more than 1,000 wagons traveled the turnpike each day, carrying a variety of fruits, vegetables, meats, grains and beverages product from the surrounding farms to the city. (ExplorePA History).

This turnpike became the main artery for commerce and communication between Philadelphia and the Lancaster farmlands. Although originally designed to move agricultural goods east, the Turnpike also carried travelers heading to western Pennsylvania and beyond. Despite the enormous cost of construction, the turnpike turned a profit for its investors and inspired the formation of other companies to construct paved roads. By 1804, Pennsylvania had two new turnpikes and the Lancaster turnpike extended west all the way to Pittsburgh. From 1805-1835 there were over 200 private turnpike companies, which built more than 3,000 miles of roads. (ExplorePA History).

By the 1830s, however, the Lancaster Turnpike had to contend with new developments in transportation - canals and railroads. Soon the turnpike was overshadowed by the railroad, which could move freight much faster and much more efficiently than a horse-drawn wagon on a paved road (ExplorePA History).

The U.S. highway system was the first to set a national standard for roads and highways (Cooper). The Federal Aid highway Act of 1925 was a response to confusion created by the existing network of 250 named highways. The old system used names and colored bands on telephone poles. Often the same names were used for two different highways. This was especially the case when it came to local and state roads (Cooper).

The new system would use uniform numbers for inter-state highways and a standardized shield that would be recognizable to everyone. The first roads were toll roads and allowed for private ownership. The Federal Aid Highway Act of 1925 changed the status of Toll Road ownership, giving the states authority to build and administer the highway system. People complained that they felt the new system would make the roads cold and impersonal (Cooper). It was apparent that the people did not only see the roads as functional, they were proud of them and felt they were an important part of their heritage. America's love affair with its roads continues today.

When the automobile was invented, it changed the way people thought about roads. In the urban areas, there were sufficient mass transportation systems such as streetcars and subways. However, if was different in rural parts of the nation. Cars could not travel as easily across open terrain as the horse and buggy. The railroad system made traveling across the nation easier, but this still left many parts of the country "out of the loop." When Ford standardized the production of the automobile, it created the need for a better road system. People did not think that the car would become popular, or that it would ever replace the horse and buggy. However, over 16.5 Model T's were sold, dispelling any doubts that they would become a necessity (Cooper). Along with the rise in the number of automobiles came the need for better roads.

The Role of States

As the number, weight, and size of the vehicles using the highway system grew, so did the width, strength, and materials used to construct the roads (Cooper). As states, such as California began to build their own system that suited the needs of their state, the old U.S. system began to fall into disuse. Eventually, many of these old U.S. highways were integrated into the systems of individual states (Cooper). By 1972 only 8 of the original U.S. highways remained (Cooper).

States took over funding of what had formerly been under Federal regulation and funding. Interstate highways became almost obsolete and the line between a state and federally funded highway became blurred. The burden of maintaining the highways system migrated from the federal government to a situation that placed a majority of the burden on individual states. Often there simply were not enough funds available to maintain the roads. Many fell into disrepair as a result (Cooper).

Federal Efforts to Build Our Highway System

The Eisenhower administration placed the repair and maintenance of the highway system at the top of his agenda. In 1956, the Federal Highway Act planned to fund $32.5 Billion dollars over a 13-year period to be used to build 41,000 miles of road. This project took longer than expected and was not completed until 1991.

One of the key reasons for this delay in completing this road project and for the inability to maintain existing roads is a lack of funding. There are several difficulties that contribute to the problem. There are many roads for which maintenance has been delayed. These roads are now becoming critical and the funds must be appropriated to maintain them. There is now no longer a choice in many cases. There are budget gaps between maintenance and the building of new infrastructure that let many projects slip through the cracks.

The costs of maintaining the highway system continue to rise. The number of roads that must be maintained increases over time. The costs of labor and materials to maintain the roads also continues to go up. The amount of money needed to maintain roads increases, but the government is reluctant to raise taxes to make the system self-sufficient. Political leaders are reluctant to raise the gasoline tax when combined state, local, and federal gasoline taxes already range from 26.4 center per gallon in Alaska to 60.8 cents in New York. The Federal tax represents 18.4 cents of these totals. Government officials fear repercussions from the public if they increase the tax any more. The funding of the highway system in the United States is a growing problem, one for which funds are short and solutions are few.

What is the Answer?

The problems facing the maintenance and growth of the American highway system have grown to epidemic proportions. If a solution to the problem cannot be found then it could place the ability to move people, goods, and services within the United States. 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).

Conclusion

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 of the art as they strive to reduce operating expenses and increase revenues. The focus of this technology would be on improving efficiency, for example at the tollbooths themselves. Electronic toll passes would reduce or eliminate labor in many cases.