JUNE 2, 2010

How Public-Private Toll Roads are Financed

Robert Poole clarifies a number of misconceptions about how toll roads are financed - particularly in the cases of public private partnerships for new projects. This is not a direct response to, but effectively refutes, a number of claims made in a recent Patriot News guest column:

First, an alphabet soup of huge tax breaks and subsidies drives private investor interest in infrastructure privatization. Second, privatization contracts require the public to guarantee revenues expected by private contractors.

Neither statement is accurate; as Poole writes:

In America’s limited experience with public-private partnership toll roads thus far, there are two kinds of circumstances in which critics could identify something as a “subsidy.” First, they can point out that Congress in 2005 allowed for tax-exempt toll revenue bonds to be issued for use in PPP toll projects. All this did was level the playing field between government and the private sector when it comes to issuing bonds. As long as we’ve had a federal tax code, governments have been able to issue bonds that are exempt from taxation on the interest they pay to bondholders. Prior to 2005, PPP toll roads were at an artificial disadvantage compared with public-sector toll roads, since the latter could issue revenue bonds at (lower) tax-exempt rates, but PPP toll roads could not. Most conservatives and libertarians do not consider exemptions from taxes as subsidies. (Personally, I would like to see all tax-exemptions for bonds abolished, but until that day comes, I’m all for a level playing field.)

The other claim for “subsidies” to public-private partnership toll projects could be made in cases like the Beltway High-Occupancy Toll (HOT) lanes in Virginia and the LBJ HOT lanes in Dallas. In both cases, the government wanted a larger and more costly project than the private sector could finance, based on projected toll revenues. So in both cases, the end result was the government agreeing to pay for certain portions of the project that it required to be included and the PPP company financing the rest. And in both of these cases, the long-term agreement between the state DOT and the PPP company includes revenue-sharing, so that if the project does well in terms of toll revenue, in future years the government will get a share of the revenue as a return on its investment in the project.

...

In the vast majority of cases, toll roads - whether public-sector or public-private partnerships - are self-supporting. And their only revenue comes from people who choose to drive on them, because the time savings and other attributes of the toll road are worth more to them than the price of the toll.

posted by NATHAN BENEFIELD | 02:00 PM | 0 comment

APRIL 27, 2010

PA Needs Infinity Dollars to Repair Roads

The Tribune Review has a story that transportation advocates are now claiming that Pennsylvania needs $3 billion in additional revenue per year just to keep roads and bridges up to standard. This is almost double what the estimated need was a few years ago, and far higher than the $400-plus million the state would have gotten from tolling I-80. It seems that when it comes to transportation - like many other areas of government spending - the solution is always "more money."

Here, however, are some free-market solution, that don't involve higher taxes on Pennsylvanians

• Transportation Funding Solutions Require Reforms and Reprioritization
• Report: The Emerging Paradigm: Financing and Managing Pennsylvania's Transportation Infrastructure
• Commentary: Five Alternatives to Tolling I-80
• Policy Brief: Mass Transit Reform: Lessons for Pennsylvania
• Policy Brief: Paying for Our Paving: Why Leasing the Turnpike Makes Good Economic and Public Policy Sense
• Reason Testimony: Modernizing and Expanding Pennsylvania's Transportation Infrastructure through Public-Private Partnerships

posted by NATHAN BENEFIELD | 09:29 AM | 3 comments

JANUARY 19, 2010

Five Alternatives to Tolling I-80

A recent Pocono Record article calls the Pennsylvania Turnpike Commission's proposal to toll I-80 "a riddle with no easy answers" (HT GrassrootsPA). However, there are alternatives to that plan, which is little more than a tax on I-80 drivers, that would free up dollars to be spent appropriately on transportation infrastructure.

1. Repeal prevailing wage laws. Prevailing wage laws drive up costs for construction. State mandated wages for government projects 40% higher, on average, than the private sector pays for the same work. Repealing these laws, and paying market wages, would free up hundred of millions, if not billions, for highway construction and repair.
   
   
2. Stop redirecting highway and bridge money to other purposes. While the transportation community bemoans the need for additional funding, citing structurally deficient bridges and dilapidated roads, hundreds of millions of dollars each year are redirected from road maintenance to bike trails, beautification projects, and new roads named for politicians. Just recently, Rendell gave $7 million from a mysterious pot of money in PennDOT to give bonuses to SEPTA workers, rewarding them for striking on election day.
   
   Furthermore, Act 44 - which includes tolls on I-80 and higher Turnpike tolls - promises $250 million annually for mass transit even if I-80 isn't tolled (and a ten-year average of $414 million to transit agencies if it is). These toll dollars should not be used to prop up inefficient transit agencies, but should be dedicated to bridge and highways - specifically those used by Turnpike drivers.
   
   
3. Enable public-private partnerships. Public-private partnerships (P3s) are the emerging paradigm in transportation funding. While the proposed Turnpike lease received the bulk of media attention, P3s are far more expansive than that. Using P3s on new construction - express lanes, high occupancy lanes, new highways, new bridges, and the like - are much less controversial, and could happen now. Len Gilroy of the Reason Foundation outlined the potential for P3 in Pennsylvania in a recent testimony.
   
   
4. Eliminate the Pennsylvania Turnpike Commission (PTC). Instead of giving the Turnpike Commission control over I-80, we should eliminate what is among the most corrupt and inefficient agencies in the country. Doing so, rolling the Turnpike Commission into PennDOT, and eliminating an unnecessary bureaucracy (e.g. the PTC employs one "manager" per mile of road) would offer substantial saving in transportation spending.
   
   
5. Privatize rest stops. While the state spends taxpayer dollar to manage rest stops along its highways, they could make money by privatizing them, and leasing out the property to restaurants and service stations. While service plazas can be found along the Turnpike, federal law prohibits this amongst freeways. However, as Ronald Utt points out in a recent Heritage paper, this law was intended to protect existing businesses in the 1950s - most of which no longer exist - and there is little will to enforce it. In fact, Pennsylvania already has privatized several rest stops, but there is opportunity to do much more - for instance, along I-80.
   

The idea that we simply need to spend more money in transportation - and raise taxes or tolls to do so - is wrong-headed. Until the state starts spending current tax and toll dollars efficiently, and capitalizes on opportunities for private funding, lawmakers have no reason to ask taxpayers and drivers for more revenue.

posted by NATHAN BENEFIELD | 10:15 AM | 2 comments

JANUARY 13, 2010

Onorato's Economic Plan: Some Good Ideas, Some Bad Ideas

Pennsylvania Governor Candidate Dan Onorato outlined his economic development proposals yesterday. He has some good ideas in there, but a lot of the same old handouts for special interests.

Business Tax Reform: Onorato proposes cutting the Corporate Net Income Tax (CNIT) from 9.99% - 2nd highest rate in the US - to 7.99%, "or lower." Onorato would also eliminate the cap on Net Operating Losses and indicates support for moving to a single-sales factor. Onorato also supports completing the phase-out, i.e. eliminating, the Capital Stock and Franchise Tax (CFST).

However, Onorato also wants "business tax changes to fully pay for these reforms". While there are a number of specialized tax credits that could be eliminated, like the Film Tax Credit, that doesn't seem to be the route Onorato wants to go, proposing new tax credits and expanding some like the R&D tax credit (see below). I would guess that Onorato means he wants mandatory combined reporting, which is not a good step in tax reform. The best way to "pay for these reforms" is to get the economy growing again. The CNIT dropped 18% last fiscal year, and is 16% below that so far this year, far greater revenue losses than a cut in rates - even assuming a static model.

Regulatory Reform: Onorato wants greater transparency in the regulatory process, and greater efficiency, which has certainly been a problem in Pennsylvania.

P3s in Transportation: Onorato embraces public-private partnerships in transportation. He also call for increased state funding and getting more federal funding (note that the same taxpayers foot the bill), but fails to call for spending reforms.

Transparency: Onorato supports far greater transparency in economic development, including "publishing an annual report to the General Assembly and the public that details all forms of state spending on economic development," upgrading Investment Tracker with "information about actual job creation, wages and benefits; industry sectors; and location." With any luck, the level of transparency Onorato wants may be achieved even before he takes office.

Phasing in of electric rates: This is not a well thought-out idea, and many of the options Onorato wants to encourage are already available.

New Welfare Programs: Onorato proposes a state Earned Income Tax Credit, which is a better tool for delivering aid to low-income residents than current welfare programs or minimum wage laws, but should not be simply another addition to these. He also proposes a tax credit for job creation, which is well-intentioned, but would not actually create any jobs that would not otherwise exist.

Lots of politically selected corporate welfare: Unfortunately, Onorato continues to suggest government-directed economic development subsidies are the way to improve Pennsylvania's economy. While calling for an end to WAMs, he proposes an array of spending programs that are just like WAMs - only at the discretion of the governor - and tax carve-outs:

• Tax breaks for "high growth companies"
• "Adequate funding for Small Business Development Centers and economic development organizations"
• "expand the Pennsylvania Technical Assistance Program"
• "Onorato will launch a Domestic Business Outreach Program"
• "Increase venture capital investment in Green companies and other emerging sectors"
• Create a new state "micro-lending" program"
• A "$25 million per year competitive funding pool within four years to serve as a match for industry-sponsored research"
• "Restoring" the Research and Development Tax Credit

Pennsylvania's tax burden is among the highest in the nation, and that is driven by spending - in fact Pennsylvania ranks second of the 50 states in economic development spending.  Mere tax reform, without lowering the overall tax burden, while adding new corporate welfare spending won't get Pennsylvania's economy growing ate.

posted by NATHAN BENEFIELD | 10:20 AM | 1 comment