As noted above, many of the innovative financing techniques available for highway infrastructure projects are based on the premise that private financing can be repaid with the revenue generated from the operation of the highway asset. In other words, the fees charged on users of the facility (in the form of tolls or other congestion pricing measures) can be used to repay the debt or equity investment made by the private-sector partner. Although the concept of using cash flows to repay the investors is simple, the actual negotiation and implementation of such an arrangement is fraught with controversy and complexity because of the extent of private-sector involvement in setting user fees.
The most controversial aspects of the Chicago and Indiana transactions involved the agreement to allow the private concessionaire to control the level of tolls charged to users over the life of the long-term lease.218 Both transactions involved a contractual restriction on the extent to which the concessionaire could raise tolls,219 although many stakeholders believe the restriction is not sufficient and gives the concessionaire too much discretion to raise tolls.
The same issue is raised if a variable pricing arrangement is used to repay private-sector investment in a new or existing facility. The public- and private-sector partners must agree on the extent to which the private investor will have the discretion to set variable prices based on varying congestion conditions. This can be more difficult to negotiate than a flat tolling arrangement because the purpose of congestion pricing is to manage demand, and thus the private operator must be given some flexibility to establish such pricing based on changing traffic levels.
In some jurisdictions, the question of who has authority to establish or modify user fees and under what circumstances is governed by applicable law. For example, many states (including Arizona, Florida, Minnesota, North Carolina, and South Carolina) specify by statute what entity has the authority to impose user fees and under what circumstances fees may be changed.220 The recent legislation in Florida specifies that toll rates must be indexed to the CPI or a similar index and must be adjusted at least every 5 years.221 In other jurisdictions, this issue must be negotiated by contract. If the private sector is given greater flexibility to impose and modify user fees such as tolls, the private sector will have a greater ability to finance its involvement in the project on favorable terms. Whether the issue is governed by law or by contract, the public sponsor should take steps to ensure that the private-sector participant can earn a reasonable rate of return on its investment. To the extent there are surplus revenues beyond that reasonable return, whether due to higher than anticipated traffic demand, improved throughput, or other factors, the parties must agree on how those surplus revenues will be allocated among the project participants.
The Chicago and Indiana transactions are viewed by many as a windfall for the private concessionaires because the anticipated revenue cash flow during the term of the concession is likely to exceed their "return on investment."222 Thus, many of the innovative financing structures being discussed today would involve some form of revenue sharing between the public- and private-sector partners. The public sector recognizes that the private sector must expect some reasonable return on its investment to obtain sufficient financing arrangements to participate in the project on an equity or debt basis. The public sector has been requiring interested partners to share the return over and above that threshold amount to create an incentive whereby both the private- and public-sector partners are encouraged to reinvest excess proceeds in other public initiatives.
There are a number of different technologies that can be used to collect tolls or other user fees, including electronic toll collection systems (such as an EZ-Pass),223 automatic vehicle identification systems,224 and video based toll collection enforcement systems.225 Some of these systems raise privacy concerns that must be addressed at the state level.226 There is also the issue of whether private companies will be given the authority to collect tolls and other user fees, particularly if technologies raising privacy concerns will be used. For an automated electronic toll facility, there is also the practical problem of how to ensure that all motorists using a particular tolled facility will be able to obtain transponders before the facility opens for traffic.227
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218 See Craig L. Johnson, Martin J. Luby & Shkhrukh I.Kurbanov, Toll Road Privatization Transactions: The Chicago Skyway and Indiana Toll Road, Ind. School of Pub. & Env.Affairs, Sept. 2000, available at http://www.cviog.uga.edu/services/research/abfm/johnson.pdf.
219 Id.
220 See, e.g., Ariz. Rev. Stat. §§ 28-7701-28-7758, Fla.Stat. Ann. § 338.22-338.241, Minn. Stat. Ann. §§ 160.84-160.93, N.C. Gen. Stat. § 136.89(a)(3), S.C. Code § 57-5-1310,et al.
221 See Fla. Stat. § 338.165.
222 See Johnson et al., supra note 219.
223 See http://www.ezpass.com/.
224 For example, the Houston, Texas, Transtar system, description available at http://www.houstontranstar.org/about_transtar/docs/2003_fact _sheet_2.pdf.
225 The California Bay Area has utilized a video-based toll collection enforcement system since 2001 and is in the process of upgrading its system. See, e.g.,http://www.tollroadsnews.com/node/3510.
226 See, e.g., Reepal S. Dala, Chipping Away at the Constitution: The Increasing Use of RFID Chips Could Lead to an Erosion of Privacy Rights, 86 B.U. L. Rev. 485 (2006); Nicole A. Ozer, Rights "Chipped" Away: RFID and Identification Documents, Stan. Tech. L. Rev. 1, 26 (2008).
227 See, e.g., the history of EZPass. Transponder conversion schedule, available at http://www.nh.gov/dot/bureaus/turnpikes/documents/ezpassPro jectUpdate072005.pdf.