Another mechanism that can raise new revenue for transportation projects is the sale of highways or other transportation facilities to private industry. In 2005, Chicago completed a $1.83 billion transaction to sell the rights to operate the Chicago Skyway-a 7.8-mile, six-lane toll bridge-to a private company. Since then, lawmakers and transportation officials in at least 13 states have taken steps to evaluate proposals or legislation to privatize public transportation facilities. Although such transactions are relatively new, they already are fairly common in Europe and Asia. At least 19 other countries have sold facilities or concession rights for airports, ports, railways, roads and waterways to private entities. A bill introduced in New Jersey in March 2006 would allow the New Jersey Turnpike and the Garden State Parkway to be sold to a new corporation owned 51 percent by the New Jersey Turnpike Authority and 49 percent by private investors.18
For state and local governments, the most significant advantages of privatizing a transportation facility are the up-front revenue and elimination of the risk of future losses. Rather than wait for money to collect over many years, the government receives revenue from the facility right away without an immediate tax or rate increase. By selling a facility or concession, the jurisdiction also can shift the operating risk to the private party.
Privatization also can provide incentive for the private entity to improve services and streamline operations. For example, a toll road operator can best boost income without raising rates by increasing the traffic volume and the corresponding number of tolls collected. The operator therefore has incentive to make the road more appealing to motorists by improving road capacity, enhancing pavement conditions, shortening the time for toll collections, reducing congestion and increasing travel speeds. Operators also are motivated to use innovative mechanisms such as congestion pricing or electronic fare collection to solve congestion problems.
Lawmakers may have some concern about ceding control of public facilities to private entities. In the Chicago Skyway and other privatization examples, the jurisdictions that sold the transportation facility or concession have stipulated the terms of operation in extensive contracts with the buyer. Contracts can address many issues that might arise from the sale, including limits on toll pricing, enforcement, maintenance, snow removal and other operating standards. The contract can provide penalties if the private entity fails to comply, including fines or loss of control of the facility. However, in a long-term contract-Chicago signed a 99-year lease ceding control of the Chicago Skyway-there are questions about whether the penalties would effectively deter problems at the end of the contract. In year 90 of a 99-year contract, for example, a private company might stand to lose less than they might lose in year five of the agreement.
Another potential flaw to many plans to sell rights to transportation facilities is the inability to predict long-term conditions. Government officials may become limited by a long-term contract and be unable to adapt to changing needs. In California, for example, Orange County officials signed a $120 million contract with private investors in the 1980s to build and operate express lanes in the median of Highway 91. The contract included a non-compete clause that eventually prevented the county from making improvements to meet rapid growth. The county eventually spent $207.5 million to buy back the lanes.
The jurisdiction also will inevitably lose control of employment decisions related to the facility. A private entity may be motivated to save money by employing fewer workers for lower pay and benefits than might be provided by the government.
Another privatization concern is whether the revenue from the sale of a transportation facility actually is spent on transportation projects. State laws usually do not mandate that proceeds from a sale must be used for transportation purposes. Chicago officials, for example, elected to spend Chicago Skyway revenues on housing programs and other nontransportation-related projects.