Inability to Guarantee State-of-the-art Safety and Maintenance Standards
The public may want major traffic arteries to have cutting-edge safety technologies and traffic management. Private road operators, on the other hand, have an incentive to reduce costs by avoiding these outlays. Private investors want protection against large increases in safety or maintenance costs. As a result, road contracts typically require private operators to meet only generally applicable safety standards. In order to obtain state-of-the-art highway safety, Indiana must pay the additional cost of constructing and maintaining the road to the higher standards, as well as to compensate the private company for any lost tolls caused by the construction.
In the future, new standards may include things such as new surfaces, embedded road sensors, or technologies that are not currently envisioned. The Chicago Department of Transportation, for example, has recently conducted a study which found that using a new type of road surface that includes recycled rubber is slightly more expensive than regular asphalt but creates a number of public benefits. It reduces strain on sewers and other water infrastructure because the surface is porous enough to allow water to return back into the ground. It also creates an outlet for used tires that are otherwise difficult and costly to dispose of. Despite the potential public benefits, a private operator would most likely be dissuaded from upgrading to this standard by the extra costs.59
| Loss of Public Control: Camino Colombia Toll Road The Camino Colombia Toll Road is a prime example of problems with lack of public control associated with privatization. The Camino Colombia Toll Road, located in Texas, first opened to traffic in 2000. Completely financed by private investors at a cost of $90 million, this road was intended to support the increased traffic associated with the North American Free Trade Agreement.56 Politicians predicted the road would be a "generator of regional economic activity" and provide congestion relief. However, the road fell far short of its projections. An independent auditor predicted that the Camino Colombia road would generate $9 million in revenue within the first year, but instead it only received $500,000.57 By 2004, the toll road had failed and bondholders foreclosed on the remaining $75 million note. The road was sold at an auction for $12.1 million to John Hancock Financial Services Inc. TxDOT had initially bid $11.1 million for the road, but was unwilling to increase its offer. After purchasing the roadway, John Hancock Financial Services, Inc. immediately closed the road to all traffic. This move forced TxDOT to pay the private company $20 million to purchase the road, allowing it to finally reopen the route after five months.58 This clearly shows one of the pitfalls of privatization. Texas lost complete control of transportation along the toll road, while a private entity had the right to close the route regardless of the public consequences. Unfortunately, many transportation officials do not appear to have learned from this experience, and future privatization agreements may have similar results. |
Even if high maintenance standards are specified in a contract, without proper oversight private companies will have a monetary incentive to under-invest. Private operators may seek investments that help attract drivers, but these are not necessarily the kind of safety, environ-mental, and other investments that public policy requires. Unfortunately, states have exhibited an inability to properly oversee private contractors in the past. The Federal Highway Administration, in a review of quality assurance activities, found numerous deficiencies "such as a lack of independent sampling of highway materials for verification tests; inadequate statistical comparisons of the test results; and insufficient state control of test samples, sampling locations, and testing data." They also found that pavement on highways is deteriorating faster than expected, which they attribute in part to the weaknesses in oversight.60
Private operators will have a greater incentive not to invest in improvements and maintenance as they come under financial distress or approach the end of a contract. Private operators should be required to provide prior safeguards against this possibility. For instance, for I-495 in Virginia the operator is required to provide a letter of credit or performance bond that the DOT can use if the roadway is not returned in proper condition. Public agencies can also retain a portion of tolls during the final years of a contract and dispense them only if facilities are returned in good condition. These kinds of measures can - and should be included with any contract; but they represent yet another area that government lawyers and accountants will need to monitor.