No More Road Socialism
Whenever I engage anyone in a discussion about getting rid of government, the first question I'm posed with is: "what about the roads?" "How would that work? I mean, if private enterprise owned the roads, then the road owners would jack up the price to point where we couldn't leave our homes." As if that's what private firms do: raise prices to the point where no one can afford their products.
Private firms must provide products that people want to buy; at a price consumers are willing to pay. Otherwise, these firms go out of business. Government, the current owner of most roads does not go out of business, no matter how crummy a product or service it produces.
Thus, I had to smile when I picked up the May 8th edition of Barron's, with it's cover story entitled, "Paying Up!" It seems that state and city governments around the country are selling their toll roads to raise cash. And it's foreign companies that are buying these roads.
The Chicago Skyway toll road was just sold for $1.8 billion, while the Indian Toll Road just went for $3.8 billion. Both sales were in excess of 40 times trailing annual earnings, rich valuations that has greedy politicians salivating. The Pocahontas Parkway sold for 60 times revenue, or $611 Million. And the Pocahontas is only nine miles long.
"Ironically," wrote Andrew Bary, "the largest private toll outfits are from Western Europe — hardly a bastion of free-market capitalism — while virtually all major toll roads in the U.S. are publicly owned."
Bary points out that in addition to existing road sales, new toll roads are being built by private enterprise. A Spanish company, Cintra will lead a group to build a 316-mile toll road between San Antonio and Dallas.
Drivers will receive better service from private toll road operators. Many government operated toll roads do not even have electronic toll-collection systems in place. "Private enterprise can do amazing things with an asset that has been poorly managed by the public sector," according Peter Samuel, publisher of TollRoadsNews. Samuel told Barron's that the new owners of the Chicago Skyway have increased traffic five percent and toll revenue 33 percent.
"Toll authorities often are inefficient because profit maximization generally isn't a top priority," Bary explains. In fact state toll road departments are ripe with patronage and corruption. "It used to be that whoever was the governor's top fundraiser got to run the tollway," Illinois state senator Jeff Schoenberg told Bary.
Indiana Governor Mitch Daniels asked his state agency once to estimate the cost to collect a 15-cent toll. "This being government, nobody knew, and they finally got back to me and said it was 34 cents," says Daniels. "My response was that we'd be better off on the honor system."
Unfortunately, none of the governments are getting out of the road business completely. But, it is interesting that these toll roads are being sold to finance other infrastructure needs. This infrastructure evidently can't be financed with the current tax structure; or, perhaps, the proper incentives are not in place.
If all roads were privately held, the firms would have a financial incentive to make improvements and provide additional capacity when needed. Can you imagine if I-15 was privately held? Given the demand and financial incentives for people to come and go from Las Vegas to Southern California, if I-15 were owned by I-15 LLC, there would likely be four lanes coming and three leaving Vegas. Instead, government I-15 has motorists spending hours waiting in traffic and deadly accidents are frequent.
If MGM Mirage can spend $7 billion on CityCenter and Boyd can spend $4 billion on Echelon, these two could finance the purchase and widening of I-15 in a heartbeat. The cost of that 316-mile stretch in Texas is $6 billion. LA to Vegas is 275 miles.
If a consortium of gaming companies purchased I-15, it's likely they wouldn't even charge a toll, especially for their customers, potential customers or vendors.
Does the idea sound crazy? Remember, the state of California is up to its neck in debt. If Gary Loveman, Terry Lanni and some other strip honchos would get together and dangle a few billion in front of Arnold, that never-gonna-happen idea for a bullet train can be mothballed once and for all, and a few more ribbons of blacktop will start materializing. And instead of burning up gas stranded in traffic, those Californians will be dropping money in slot machines like they want to be.