New Toll-Road Projects Aim to Ease Overburdened US Highway System

COMMUTERS in California who daily pack onto a crowded highway between Riverside County and Orange County may soon have a more expensive way to get to work.

A private developer, CRSS Equity Projects of Houston, has worked out an agreement with the state of California to build a 10-mile, four-lane toll road in the wide median strip of the freeway.

"You look right and you look left, and there are your potential customers, backed up for miles, dying for a chance to use a toll road," says Steven Steckler, a Price Waterhouse consultant who also heads the Washington-based Privatization Council's transportation task force. About 250,000 cars use the eight-lane Riverside-Orange County freeway each day. Traffic clogs the road for three hours each way during rush hour.

"Every time someone uses the toll road, they are opening up space on the regular road," Mr. Steckler says. "Effectively the toll road is subsidizing the people on the free road.... It's new capacity."

This project is one of four private-sector developments under way in California. Four companies will spend $2.5 billion building toll roads in the state.

Including toll bridge and tunnel traffic, the nation's 4,732 miles of toll roads carried more than 3.5 billion vehicles last year, generating $3.5 billion in total revenues, according to the International Bridge, Tunnel and Turnpike Association (IBTTA) in Washington.

Huge infrastructure demands on states with tight budgets are spurring a significant "rethinking of government," Steckler says. "States are interested in using the private sector as a supplemental partner in developing their infrastructure."

"Private capital often acts like a catalyst for getting done what the state has wanted to get done for a long time," he adds. "But in a lot of places we [states] have laid down as much concrete as we can and the focus now has to be on the expansion and repair of existing facilities."

Though the federal Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) smoothed the way for the sale of badly deteriorated facilities to private operators for rehabilitation, the real impetus toward privatization has come from the state level, according to Clifford Winston, a senior fellow at the Brookings Institution in Washington. "State efforts are opening people's eyes," he says.

States are experimenting with a range of privatization projects, according to Neil Schuster, executive director of the IBTTA. He points to the Dulles Toll Road extension in Virginia, the four projects in California, three more in Arizona, and proposals in Texas, Minnesota, Illinois, and Michigan.

Yet tolls "will in no way replace the gas tax as our primary means for building and maintaining roads," Mr. Schuster says. He predicts more combined financing of large urban projects in the future. "Where taxes alone or tolls alone cannot do it, it may be a combination that can make a project go."

A combined effort may be best for the country, says Roger Feldman, head project finance partner at McDermott, Will & Emery in Washington: "When you have [joint] public-private ventures, the probabilities of getting more productive infrastructure are improved."

Mr. Feldman sees opportunities for defense industries to focus their energies on high-tech solutions for infrastructure problems, such as "intelligent highways" equipment, including optimal-routing devices, electronic toll-collection equipment, and other innovations.

The Washington-based Intelligent Vehicle Highway Society of America estimates that there may be a market of $210 billion or more for this equipment over the next 20 years.California's four experimental highways have to be innovative because the government's private partners not only have to figure out how to do the project but also how to make a profit, Feldman says. Public-private ventures in general are more likely to develop innovations than standard public procurement of projects, he argues.

The Orange County-Riverside County toll road project will be the first totally automated toll facility in the US, according to Gerald Pfeffer, the project developer. Tolls will be collected with a device a little bigger than a credit card that is placed on the windshield. A prepaid account is debited electronically as the car passes under an antenna at regular highway speeds. Mr. Pfeffer says the road will be the first comprehensive demonstration in the US of "congestion pricing," where prices vary throu gh the day.

"Environmental groups are very supportive [of electronic tolling]," Pfeffer says. "One way to improve air quality is by discouraging people from making trips during peak hours."

The higher fee at rush hours will tend to spread nonessential traffic into less congested parts of the day, reducing overall travel time, and hence the amount of pollution.

IN Norway, electronic tolling equipment was installed last October on the "toll ring" around Trondheim. Up to 90 percent of peak-hour drivers are using the "Que-Free" system, according to a Reason Foundation report.

"In a lot of ways, privatization is government at its best and most innovative," Steckler says.

Edward Hudgins, deputy director of economic policy studies at the Heritage Foundation, agrees but says that the current political climate is stifling innovation. "Bureaucrats can stop a privatizing approach cold," he says.

With the presidential election nearing, both candidates are promising to spend more.

"It's simply a bidding war between George Bush and Bill Clinton," Mr. Hudgins says. "If whoever is president next time around is still handing out billions of dollars, then there is not as much incentive to come up with innovative ways of creating infrastructure."But once the election is over, Feldman says, a tight budget will foster a search for new funding strategies. "As it becomes clear that you cannot possibly appropriate enough federal funds to do this [rebuild infrastructure], pension funds should

be looked at."

Financier Felix Rohatyn, in conjunction with Rep. Richard Gephardt (D) of Missouri and the Rev. Jesse Jackson, has been promoting a $500-billion plan for infrastructure investment that would attract pension-fund resources.

Privatization aids local governments with more than just reconstruction: By moving infrastructure into the private sector, it becomes tax-generating, rather than tax-exempt. For instance, the privately-funded Dulles Toll Road extension in Virginia is expected to produce $500 million in taxes over 20 years. For every private dollar invested, the government will get $2 of tax revenue.

Economist David Aschauer is less sanguine about prospects for private-sector funding, predicting that private sources will make up about 10 percent of infrastructure funds in the next decade.

"It is a relatively minor part of the funding that has to be accomplished," the Bates College professor says.

"Private financing of roads has been used successfully overseas," Schuster says, "but here in the US it will take a while for people to get comfortable with it."