Private Deals Must Also Cover Shareholder Profits
While the high capital costs of privatization alone ensure the public cannot get as much value from a private deal as it could from a public one, public value is also reduced by the high profits the investors make. For instance, Cintra, one of the companies purchasing the Chicago Skyway, revealed that it anticipates bringing in a 12.5 percent return on equity.87 Analysis by Infrastructure Management Group similarly found that investors in recent concession deals expected a long-term return rate of around 12 percent on existing toll roads and 14 percent or higher for projects involving new construction.88
| Securitization without Privatization Public entities are able to securitize or "monetize" future toll road revenues without going through the process of privatization. In testimony before the New Jersey Assembly's Transportation Committee, securitization expert Peter Humphreys explained that, without privatization, the state could generate a large up-front payment even without aggressive toll hikes. By securitizing future toll revenue, he calculated, the state could generate an upfront payment of $1.2 billion for each annual $100 million of future toll revenue it securitized for 15 years. Given that New Jersey tolls currently generate $700 million a year, a single deal without a single toll hike would then generate $8.4 billion over 15 years.82 Securitization is not always a wise option for state governments because it too is a form of borrowing from future toll payers, but states that pursue this option will at least generally get a better deal than if that same borrowing is done through privatization. |
Whatever the profit share allocated to shareholders, this is a net loss to the public. Drivers on private toll roads must not only cover the costs of road construction and maintenance; they must also pay for the extra compensation of shareholders and executives. Due to the large profit margins, operators of private roads are required to raise much more revenue than public agencies. This extra revenue is achieved through higher tolls than would have been charged without privatization.