Political Benefits of Privatization

Privatization of roads offers elected officials political benefits beyond the ability to avoid potentially unpopular tax increases to pay for transportation. In the short term, privatization promises a huge budget windfall, especially for privatization of existing roads, which creates budget slack and an ability to dedicate resources to other favored projects. New private roads offer special opportunities for credit-taking and ribbon cutting ceremonies. In either case, the long-term financial downside, particularly the loss of toll funds and rising toll rates paid by drivers, often is overshadowed by the short-term windfall.25 For instance, the Indiana Toll Road deal used a 75-year lease to finance a 10-year transportation plan. Whatever structural budget shortfalls Indiana faced before the deal will return in the 11th year , but the state will need to face these shortfalls without revenue from its toll road.

Privatization may also be attractive to elected officials because it gives them political cover for toll hikes they fear will be unpopular. Potential investors claim that by outsourcing toll collection to a private company, drivers' anger will not be direct-ed at the politicians who authorized the toll hikes. Moody's bond rating agency, after conceding that governments can generate these same upfront payments by borrowing against future toll collections without privatization, offers the counterpoint that, "If they pursue the option [without privatizing], governmental authorities must take responsibility for their own toll raising decisions, rather than distancing themselves from these decisions through a long-term concession to a private entity." 26 Fitch bond rating service, similarly, lists as a merit of toll road privatization, the ability to "distance government from toll increases." The report explains that, "the political risk related to toll rate increases could be minimized by transferring the authority within an overall rate-setting framework to the private sector."27