A conspiracy to privatize state roads or tool for enhancing the public good?
Public-private partnership would expedite express lanes, but give private company long-term revenues from U.S. 36
by Allen Best
The conspiracy outlined in the community meeting room of the Boulder grocery store last Friday night had familiar suspects: the Koch brothers, billionaires with fortunes derived from fossil fuels, their money empowering a group called the American Legislative Exchange Council, now colluded in an effort to repeal solar net metering in Colorado, privatize federal lands, (even the national parks!), and toll the state highways, starting with U.S. 36 between Denver and Boulder.
In calling the meeting, the advocacy group Drive Sunshine Institute had alleged a “sweeping 10-year effort by corporate lobbyists from the world’s largest toll road developers to create a Colorado state highway privatization board.”
At stake, said the group, was not just U.S. 36 but then C-470, Interstate 70 and who knows where it would end.
Fourteen state legislators in Colorado also saw shadows. A letter issued the day before by Matt Jones, a state senator from nearby Louisville, and 13 of his Democratic colleagues had called for a 60-day review before “entering into a secret 50-year toll lane contract” for managed express lanes on U.S. 36. The added time, the letter explained, was necessary so that legislators and citizens alike could understand restrictions on carpools, toll maximums and other provisions of the contract.
Better, said the letter from the legislators, would be to keep the private sector out of public roads. “The Denver-Boulder Turnpike started as a toll road under terms people knew about ahead of time. It was paid off in 15 years, much shorter than 50, with terms people understood.”
The turnpike opened in 1952, with a toll of 25 cents, and tolls were lifted in 1968, years ahead of projections.
At issue in the U.S. 36 kerfuffle are public-private partnerships, or P3s, contractual relationships employed to deliver private money to finance public improvements.
The first, likely not the last
U.S. 36 is the first highway in Colorado for such financing. It’s likely not the last. Other candidates include I-25 from Denver to Fort Collins, C-470 in the southwest metropolitan area, and I-70 through central Denver.
Was Colorado’s first P3 for highway improvements drawn up in private, away from public eyes?
Will Toor, a former Boulder mayor and Boulder County commissioner who has been involved in the U.S. 36 planning since 1998, said the P3 process was before every jurisdiction in the corridor, in open meetings, probably several times each. It was also subject to the National Environmental Policy Act, a process adopted by Congress in 1969 to ensure public participation.
The Highway 36 plan, he added, “is actually a very good project in that it provides multi-modal options for mobility.” While it was legitimate to question some terms of the agreement being considered, he said, linking the P3 with subterfuge of the American Legislative Exchange Council was off target.
In a sense, Colorado has come full circle. The first roads in the state were toll roads built by entrepreneurs . South of Trinidad, Richens “Uncle Dick” Wootton had a toll road for wagons across Raton Pass. Otto Mears (whose great-grandson, Davey Pitcher, now operates the Wolf Creek Ski Area) helped open up the San Juan Mountains with toll roads across Poncha and Marshall passes. For those in a hurry to help relieve Leadville of its silver ores in 1879, W.A.H. Loveland’s Bakerville and Leadville Wagon Road Co. built a toll road across the Continental Divide via the pass that bears his name. The cost: $1 for a vehicle with one span of horses. Horses, cattle and asses were 10 cents each.
During the Good Roads movement of the 20th century, public funding advanced incrementally. The epitome was the interstate highway system approved by Congress in 1956 and 1957. While President Dwight Eisenhower’s name went on those laws, that vision had been sketched out even before World War II by President Franklin Roosevelt. But crucial to executing the vision was funding. A coalition of Republicans and Democrats agreed to higher gas taxes, and the federal government paid 90 percent of construction costs.
But funding for maintenance, let alone expansion, of that highway network has foundered, in Colorado and across the country. Neither federal nor Colorado gas and diesel taxes have been raised since the early 1990s. Costs of steel, concrete and other ingredients of road construction have. By 2009, a state analysis identified 126 bridges as structurally deficient.
New funding models face high and often knotty barriers. Drivers could be charged for miles traveled or charged more during times of congestion. Technology exists to implement these equitable taxing methods, but privacy concerns and resistance to change seem sure to delay their adoption.
FASTER, the law adopted by Colorado in 2009 when Bill Ritter was governor, levied a new tax on rental cars and established proportional annual taxes for other vehicles based on weight of vehicles. The new taxes were projected to yield $252 million annually, boosting the Colorado Department of Transportation’s annual budget to $1 billion. But legislators realized that alone wasn’t enough.
Joe Rice, who sponsored the bill in the Colorado House, was ousted by a Republican opponent in Littleton in the next election, at least partly because of his sponsorship of the bill. Only one Republican, Al White, from northwest Colorado, crossed party lines to vote for the law. He now directs the Colorado Tourism Office in the Hickenlooper administration.
That same law created High Performance Transportation Enterprise, nesting it within C-DOT, and gave it authority to execute P3s and other innovative financing techniques.
Dan Gibbs, then a state senator who co-sponsored the legislation creating the HPTE, says with Colorado projected to accommodate another million people in the next decade, more tools were needed.
“I have no regrets at all. I am very proud of that bill,” says Gibbs, now a Summit County commissioner.
Also of transportation interest on MTN:
U.S. 36 between Denver and Boulder was the “test tube baby” for the new authority to investigate P3s, says Tim Gagen, the town manager of Breckenridge and chairman of the HTPE governing board. “It was the first one ready and was far enough along in the (planning) process.”
Built with tolls collected between 1952 and 1967, the 18-mile corridor now struggles to accommodate the daily deluge of between 80,000 and 100,000 cars.
The U.S. 36 plan has drawn national recognition from the Urban Land Institute (See: “When the Road Price is Right: Land Use, Tolls, and Congestion Pricing”) and notice in the New York Times (See: “Highway Expansion Encourages More than Just Driving.”)
“The reason it got national attention is that it is a marriage of bus transit and vehicle traffic,” says Michael Cheroutes, director of the HTPE. “People view those as competing modes of transportation. But in fact what we’re doing here is creating additional capacity for both buses as well as cars.”
BRT beats rail for speed
Centerpiece of the first phase, costing $318 million, will be a one new high-occupancy toll lane, or HOT, in each direction. Single-occupancy vehicles, however, will be required to pay tolls. For free use, vehicles will be required to have a minimum of two riders (increasing to three at some point).
This express lane will also be used by buses. They will initially be dispatched every 7 to 15 minutes, accelerating to 3- to 5-minute frequencies during peak periods as demand grows. When approved by voters in 2004, RTD’s FasTracks identified bus-rapid transit for the corridor (BRT) as well as rail. The rail component has been postponed, and some, including Toor, contend BRT is better than rail. It’s certainly much less expensive and speedier. Express lane travelers from Boulder, both on bus and in cars, will reach Denver 24 minutes faster than those in the general-purpose lanes.
The project also includes a bicycle commuting lane, sound walls in some places and the use of electronic technology to better communicate with travelers and hence manage traffic.
But this collection of local, state and federal funds came $120 million short of what is needed to complete the second, five-mile segment from Louisville to Boulder. C-DOT in April 2013 chose Plenary Roads Denver. It’s the first U.S. project for the Canada-based Plenary Group, the team leader.
Plenary Roads Denver, in addition to up-front financing and road construction, must maintain the U.S. 36 corridor roads, including the general-purpose lanes. In exchange, it can collect tolls in the express lanes.
Tolling authority will be contractually limited. The management criterion can’t be to maximize revenue by putting more vehicles in the (managed toll) lanes,” says Toor. Through adjustment of toll rates, traffic must be limited so as not to impede the buses. “
Further, once the private contractor has raised sufficient revenue to pay off its bonds, a portion of the revenues will be diverted to other public transportation strategies.
“At that point, local governments will be part of the decision-making about how those dollars are spent,” said Toor in an interview after the meeting. Almost certainly, he believes, some of that money will be allocated for public transportation.
How much of its own money, as opposed to borrowed money, does the private contractor bring to the table? When asked that question in Boulder, Cheroutes said that it’s proprietary information, but indicated it’s around 20 percent, or about the same as a mortgage. “It’s close to that,” he said.
Advantages of P3’s
Why does Colorado see value in P3s?
Reduced costs of construction, says Gagen. He cites studies that have shown the private sector can shave 20 to 25 percent off construction.
Second, private companies can absorb the uncertainty of revenues over a longer time period.
“In order to even get close to being able to do this project, we would have had to undertake a substantial debt with very uncertain revenue flows,” says Cheroutes.
The private company, he says, can absorb short-term uncertainty of revenues because of the longer-term rewards delivered to pension funds, insurance companies and other investors with 50-year time horizons.
Too, local governments are constrained in their borrowing abilities. “It’s typically hard to go more than 20 years in municipal bond market,” explains Toor. “Here you can finance over 50 years.”
P3s have a place in the public transportation of the future, says Toor, but it’s all in the details. “They can be done right, or they can be done poorly. You can look at P3 parking in Chicago and that’s a disaster. So you want to be sure they’re done right.”
Is the P3 in Colorado being done right? Toor believes the state agency can deliver greater transparency in future projects by providing details earlier in the process. “This is the first time they have done this, and they are doing their best.”
Cheroutes says P3s are being studied for other projects. Adding express lanes to C-470 in the southwestern metro area would cost $200 million to $250 million. It’s big enough to need help, but toll revenues appear too small to attract competing proposals from private companies. “It doesn’t look like it’s the right profile to access the private bond market,” he says.
But on reconstruction of Interstate 70 through Denver, he says, a P3 almost assuredly will be required. The study of that is just beginning.
C-DOT plans to start tolling in the summer of 2015 on I-70 in Clear Creek County, but will do so without need of outside bonding. The agency plans to “harden” the shoulders of east-bound I-70 between Empire Junction and Floyd Hill, to accommodate an additional lane of traffic during congested periods. If prices can be juggled correctly, the lane will draw people willing to pay extra for the drive to Denver if assured of going 45 mph or faster.
Toor, who is now director of transportation programs for the Southwest Energy Efficiency Project, sees an opportunity. “From the start, toll revenues could be used to help pay for some really good bus service in those tolls lanes to the ski areas,” he says.
C-DOT last November announced plans to establish an express bus service for I-70 as well as along I-25. The bus service is expected to begin operation late in 2014, using a budget of $3 million a year. On I-70, one round-trip per day will be offered between Glenwood Springs and Denver Union Station. The I-25 route will have six round-trips per day.
Could the critics be right about this privatization of revenues? The quarrel, in part, is the 50-year horizon of the agreement, encumbering future generations.
In a column published in the Arvada Press, former state legislator Miller Hudson points to a mixed record for P3s for highways elsewhere in the country. He also notes that it is fundamentally an end around of the 1992 Colorado constitutional amendment requiring voters to approve tax increases. With the exception of FasTracks, they have shown no appetite for transportation taxes.
“If Colorado drivers don’t desire a network of tollways, like Florida, a vigorous public debate is necessary sooner rather than later,” he concludes.
Former legislator Joe Rice, interviewed on Friday, said the P3 process has unfolded as he had hoped it would. It’s up to local communities along the corridors, whether U.S. 36 or I-70, to decide if and how it is done.
“There are legitimate arguments against 50-year concession or a 25-year concession,” he says. And if communities along U.S. 36 think they can pay for road improvements in 15 years without private money, as occurred with tolls on the turnpike 50 years ago, they should do so, he added.
As for conspiracies. “They’re just not there,” he says.