Federal law allows a State to enter into a transaction to allow a private party to invest in and improve an already-existing federally funded highway. Such a transaction could either be a sale or a long-term lease of a Federal-aid highway facility to a private investor. The ability of the private investor to charge tolls would be governed by 23 U.S.C. 129 and other provisions of Federal law relating to tolling. The investor could also rely on other revenue streams to make the lease payments or to pay the debt service.
=> What are the conditions for such a sale or lease?
A lease or sale of a facility funded by Federal-aid highway funds must be made under the following conditions:
• Fair Market Value. The State must charge, at a minimum, fair market value for the sale, use, or lease renewal of real property (including land and any improvements thereto) that has been acquired for Federal assistance.
• Toll Agreement. If the facility will be operated as a toll facility, the State transportation department and other public authority with jurisdiction over the facility, if any, must execute a toll agreement with the FHWA. The law establishes a number of preconditions for the tolling of existing highways.
• Continued Maintenance Responsibility. The State must continue to be responsible for ensuring that the facility is properly maintained. This maintenance responsibility can be met through an agreement with a private entity, including the lease or purchase of the highway.
• State Retains Adequate Interest in Property. The State must continue to have adequate interests in the property that would permit it to construct, operate, and maintain the facility in the event the private entity was unable to. Such interests would be deemed to be adequate if the State retains the right and responsibility to construct, operate, and maintain the facility if the private entity becomes insolvent or otherwise neglects to properly construct, operate, and maintain the facility.
Real Property Devoted Exclusively to Public Highway Purposes. The State must continue to ensure that all real property, including air space, within the right-of-way boundaries is devoted exclusively to public highway purpose unless the Administrator approves a non-highway use. Such use will be approved only if the FHWA determines that the additional use, installation, facility, or encroachment is in the public interest and will not impair the highway or interfere with the free and safe flow of traffic.
• Specific Lease Provisions. If the State is leasing real property (including land and any improvements thereto) that has been acquired with Federal assistance, the lease must include the following: a provision to ensure the safety and integrity of the federally funded facility; a provision governing lease revocation or reversion; a provision governing the removal of improvements at no cost to the FHWA; a provision to hold the State and the FHWA harmless; a provision concerning nondiscrimination; and provisions providing for access by the State and FHWA for inspection, maintenance, and reconstruction of the facility.
• Design Standards and National Network Requirements. The State must continue to ensure that the facility meets the applicable design standards and, if on the National Network, ensure that the facility continues to meet the National Network requirements.
• Ensure Compliance with Federal Requirements. The State must remain responsible for ensuring compliance with all applicable Federal requirements with respect to the facilities.
=> How may the proceeds of the transaction be used?
The proceeds from the transaction must be used in the following ways:
• Proceeds from Sale or Lease: If any of the real property (including land and any improvements thereto) for the project was acquired with Federal assistance, the State is required to use the Federal share of the net income from the sale or lease only for projects that would be eligible for assistance under Title 23, United States Code. The Federal share is defined as a percentage based on the amount of Federal funding used on the facility compared to the total funds spent on Title 23 eligible work on the facility at the time of the sale or lease. The non-Federal share is not subject to this restriction. 23 U.S.C. §156.
• Toll Revenues: Toll revenues from this transaction must first be used for debt service, to provide a reasonable return on investment to private parties, and for the necessary operation and maintenance of the facility. If the State certifies that the facility is being adequately maintained, any excess toll revenues may be used for any Title 23 eligible purpose. 23 U.S.C. §129.