Non-compete Clauses

Toll road investors want assurances that traffic levels will meet or exceed predictions, even in the event of toll increases. Some privatization contracts therefore explicitly limit states' ability to improve or expand nearby transportation facilities. The U.S. Department of Transportation, in its Report to Congress on Public Private Partnerships (December 2004), strongly supported the inclusion of such "non-compete" clauses to help attract private investment.

In Colorado, one deal went so far as to require adjacent municipalities to add stop lights and reduce speed limits on local roads as a way to reduce potential competition.46 Though the operator of the road was technically a public entity, it was heavily financed by private investors who demanded protection of future revenues. California, which used a private concession deal to create new toll lanes in the median of State Road 91, was subsequently forced to buy back the road because non-compete clauses prevented the state from improving the corridor and led to high-profile litigation. Similarly, Indiana is prevented from building a four-lane, divided highway more than 20 miles long (or expanding a current highway to Interstate standards) within 10 miles of the East-West Toll Road for at least 55 years without providing compensation to the toll road operator for lost revenue.47

Non-compete clauses are included in many privatization contracts to protect the investors. A report by the Texas Legislative Study Committee on Private Participation in Toll Contracts claims that non-compete provisions are necessary for private entities to be able to sell bonds. If such a provision were not included, the state could easily build a free, competing roadway that would divert traffic from the private toll road, eventually forcing the company into bankruptcy. This actually occurred in New Jersey with the Beesley's Point Bridge. The private bridge was originally built in 1927, but in the 1950s a competing public bridge was constructed only 300 yards away. After the construction of the public bridge, revenues from the Beesley's Point Bridge plummeted, and the bridge was eventually closed to traffic in June 2004. Recently, Cape May County took over the bridge.48 

Even when privatization agreements do not include an explicit non-compete clause, there may be an understanding between the state and the private operator. For example, Virginia had an "understanding" with the private operator of the Dulles Greenway not to make improvements on competing roads ahead of schedule (though VDOT eventually reneged on this under-standing).49 Concession agreements in both South Carolina (Southern Connector) and Virginia (Pocahontas Parkway) include vague language that prohibits the state DOTs from pursuing activities that could be considered competitive in nature.50