Privatized Highway Robbery

The unnoticed I-77 non-compete clause reveals the scam side of privatizing highways
FHWA

In 2006, the state of Indiana made a deal brokered and championed by then-Gov. Mitch Daniels, a former Bush Administration official, to hand over operation of one of the state’s major highways to a private consortium.

Under the $3.8 billion contract, ITR Concession Co.—a subsidiary of the Spanish-Australian alliance Cintra-Macquarie—would run the Indiana Toll Road, a 157-mile stretch of interstate across northern Indiana, for the next 75 years. ITR would collect tolls and assume responsibility for maintenance of the road and toll booths. In return, the company received hundreds of millions in tax breaks from the state.

Some of these details may sound familiar to people who oppose the idea of toll lanes on Interstate 77 in the Lake Norman area. This week, they—not to mention assorted planners and public officials along the route—were subject to a nasty shock: a little-noticed non-compete clause in the N.C. Department of Transportation’s contract with the lanes’ developer. The clause, as reported by the Observer’s Steve Harrison, would allow the company to receive damages from lost business if the state adds any new general purpose lanes over the 50-year life of the contract.

The developer? I-77 Mobility Partners, owned by Cintra US, the Austin-based American wing of the Spanish construction giant in the Indiana Toll Road project. The company has its hands in 28 toll road projects in nine countries, including seven projects in the United States. (Four of those are in Texas; the others are the Indiana Toll Road, I-77, and a project in Chicago.)

Not that there’s any need to make Cintra out as the villain. Their windfall is the natural outgrowth of public officials adopting one of the craziest, and most damaging, notions to emerge from the extreme free-market Libertarian right: That the national public highway system would improve under private ownership.

The basic premise—which I don’t really want to spend a tremendous amount of time or space on—is that private ownership of public highways would incentivize owners and investors to use the best, safest roads, and that travelers would naturally avoid the unsafe or crowded ones, etc., and the private sector could relieve financial pressure on taxpayers by assuming costs. (Walter Block, an Austrian-school economics professor at my alma mater, Loyola University New Orleans, has written an entire book-length treatise on the subject that begins, “Most people who read this book will dismiss it as the ravings of a lunatic.” Yes, and there’s a reason for that.)

As with most grand libertarian schemes, the theory begins falling apart once you even begin to put it into practice. But states are trying, backed by big investment bankers and giant foreign infrastructure conglomerates like Cintra, as detailed in a thorough Mother Jones report from 2007. Among other things, the piece notes that non-compete clauses are a common feature of toll road developers’ deals with public entities.

The story concentrates on the Indiana Toll Road, the assorted political and capital powers behind it, and the opposition from longtime Oregon Congressman Peter DeFazio, who gets to the nub of it: “It’s a scam, basically … You lose control of your transportation infrastructure. It means you fragment the system, ultimately. It just does not make sense for an integrated national transportation system.”

It doesn’t make long-term sense for the people who have to drive I-77 north of Charlotte, either, or the public officials who’ll have to react to growth over the next half-century but find themselves hamstrung, rather than freed, by the marketplace.

You could argue that privatizing roads at least benefits investors, but even that didn’t hold true in Indiana. This year, an Australian firm bought ITR, the company that holds the Indiana Toll Road lease. ITR had declared bankruptcy in the fall after missing a debt interest payment and fielding complaints “of long waits at toll plazas, bridges that haven’t been repaired in more than a year and rest stops that reek of urine.”

Categories: Poking the Hornet’s Nest