Brownfield projects are existing assets with well established operating histories and cash flows. As we mentioned in the introductory chapter, a consensus has emerged against the sale or lease of an existing Texas highway. However, other states either have gone ahead with brownfield projects or are actively considering doing so. As such, the topic remains relevant to this Committee's charter.187
While critics have raised a number of arguments against brownfield projects, these boil down to the following points:
• To a far greater degree than with greenfield projects, the lease of a brownfield project is subject to the inevitable temptation for local officials to grab a large, headline-generating up-front payment at the expense of the taxpayers' interests in the project's later years.
• Often, entities leasing transportation infrastructure do so to raise money for non-transportation related spending or to fill other budgetary shortfalls. Thus, motorists' tolls serve more as a general tax than as a means of improving mobility.
• The primary users of privatized brownfield roads are often not residents, nor voters of, the entity leasing the asset. The transportation system, as a whole, could suffer as more jurisdictions adopt a "soak the out-of-towner" mentality.
To date, there are two operating examples of brownfield toll roads in the United States: the Chicago Skyway and the Indiana Toll Road (though New Jersey and Pennsylvania have recently considered similar moves). Both projects suffered from the above flaws.
In 2004, the City of Chicago leased the Chicago Skyway - a 7.8 mile highway linking the Indiana Toll Road to the Dan Ryan Expressway (I-57) - to a partnership between Cintra and the Macquarie Infrastructure Group for 99 years in return for an upfront payment of $1.83 billion.188
The city utilized these proceeds to pay off outstanding debt (both the $430 million in Skyway bonds as well as other city debt), and to invest $500 million in a long term reserve fund to be used only in a dire financial emergency. Of the remainder, approximately $375 million
went into an annuity, whose funds are being expended annually to help cover city operating costs (this will be depleted after 2011), and $100 million was set aside for human services and neighborhood and business investment programs - ranging from the city's program to end homelessness to an ex-offender job training initiative (this money will run out after 2009).189
Aside from the diversion of proceeds away from transportation purposes, the Chicago Skyway deal has also been criticized for the fact that the increased tolls required to support the $1.83 billion up-front payment will primarily come out of the pockets of commuters entering Chicago from Indiana. Thus, the seller of the asset gains the benefits, while none of the constituents of the seller bear the costs.190
The 2006 lease of the Indiana Toll Road was a similar monetization of an existing asset - in this case a 157 mile highway stretching across the northernmost part of the state from Ohio to the Illinois border. IDOT leased the road for 75 years to a Cintra/Macquarie consortium in return for an upfront payment of $3.85 billion.
While the Indiana upfront payment was intended to fund a ten-year transportation capital improvement program (and is thus more justifiable from a transportation policy perspective than the Chicago Skyway deal), critics have noted that the Indiana Toll Road's primary users are long-haul truckers - who are not Indiana voters - traveling across the state. Trucking industry personnel are concerned that a proliferation of similar transactions (requiring a corresponding increase in tolls) could threaten their livelihoods.191
Given the population distribution within Texas and the extensive travel between the state's major cities, Texas is unlikely to be as subject to efforts to shift the burden of highway finance to residents of other states. Nevertheless, state policy makers should remain vigilant that money raised for transportation remains in the transportation system, and that the state does not succumb to the temptation to shift costs to later generations in an effort to relieve a budget shortfall today.
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187 To clarify further, some projects are hybrid, or "rehabilitated brownfield" projects. These are operating projects that are in need of immediate and critical capital improvements, and as such, are more risky than the typical brownfield project, yet less risky than a greenfield start-up project.
188 See Buxbaum, Jeffrey and Ortiz, Iris, "Protecting the Public Interest: The Role of Long Term Concession Agreements for Providing Transportation Infrastructure," USC Keston Institute for Public Finance and Infrastructure Policy, Research Paper 07-02; June 2007.
189 Source: Washburn, Gary, "Daley's Way, Not Skyway," Chicago Tribune, 25 October 2007.
190 See Enright, Dennis, "The Chicago Skyway Sale: An Analytical Review," NW Financial Group, LLC, 1 May 2006.
191 Enright, Dennis, "Then There Were Two: Indiana Toll Road vs. Chicago Skyway," NW Financial Group, LLC, 1 November 2006.