Foreign Companies Are Buying Up American Highways and Bridges Built by U.S. Taxpayers

WASHINGTON (AP) -- Roads and bridges built by U.S. taxpayers are starting to be sold off, and so far foreign-owned companies are doing the buying. On a single day in June, an Australian-Spanish partnership paid $3.8 billion to lease the Indiana Toll Road. An Australian company bought a 99-year lease on Virginia's Pocahontas Parkway, and Texas officials decided to let a Spanish-American partnership build and run a toll road from Austin to Seguin for 50 years.

Few people know that the tolls from the U.S. side of the tunnel between Detroit and Windsor, Canada, go to a subsidiary of an Australian company -- which also owns a bridge in Alabama.

Some experts welcome the trend. Robert Poole, transportation director for the conservative think tank Reason Foundation, said private investors can raise more money than politicians to build new roads because these kind of owners are willing to raise tolls.

"They depoliticize the tolling decision," Poole said. Besides, he said, foreign companies have purchased infrastructure in Europe for years; only now are U.S. companies beginning to get into the business of buying roads and bridges.

Gas taxes and user fees have fueled the expansion of the nation's highway system. Thousands of miles of roads built since the 1950s changed the landscape, accelerating the growth of suburbia and creating a reliance on motor vehicles to move freight, get to work and take vacations.

In 1956, President Eisenhower pushed to create the interstate highway system for a different: to move troops and tanks and evacuate civilians.

The Bush administration's plan to let a foreign company manage U.S. ports met a storm of protest in February. But plans to sell or lease highways to companies outside the United States have not met such resistance.

John Foote, senior fellow at Harvard's Kennedy School of Government, said the government can take over a highway in an emergency. But he objects to selling roads to raise cash.

Last year, the city sold a 99-year lease on the eight-mile Chicago Skyway for $1.83 billion. The buyer was the same consortium that leased the Indiana Toll Road -- Macquarie Infrastructure Group of Sydney, Australia, and Cintra Concesiones de Infraestructuras de Transporte of Madrid, Spain.

Chicago used the money to pay off debt and fund road projects. Skyway tolls rose 50 cents, to $2.50; By 2017, they will reach $5.

The Indiana Toll Road lease is a better deal, Foote thinks, because the proceeds will pay for urgent projects such as road and bridge improvements.

That need is precisely why cities and states have begun to look to foreign investors.

Between 1980 and 2004, people drove 94 percent more highway miles, according to Federal Highway Administration statistics. But the number of new highway lane miles rose by only 6 percent.

Washington is not likely to produce more money to build roads. The federal highway fund -- which will have a balance of about $16 billion by the end of 2006 -- will run out in 2009 or 2010, according to White House and congressional estimates.

About half the states now let companies build and operate roads. Many changed their laws recently to do so.

So Illinois lawmakers are examining privatizing the Illinois Tollway, New Jersey lawmakers are considering selling 49 percent of the state's two big toll roads and a gubernatorial candidate in Ohio wants to sell the turnpike.

Indiana Gov. Mitch Daniels, who championed his state's toll road deal, now wants investors to build and operate a toll road from Indianapolis to Evansville.

Patrick Bauer, the Indiana House's Democratic leader, says such deals are taxpayer rip-offs.

Bauer believes Macquarie-Cintra could make $133 billion over the 75-year life of the Indiana Toll Road lease -- for which Indiana got $3.8 billion.

"In five, maybe 10 years, all that money is gone, and the tolls keep rising and the money keeps flowing into the foreign coffers," Bauer said.

The road, part of state Route 91, was built and run for $130 million by California Private Transportation Company, partly owned by France-based Compagnie Financiere et Industrielle des Autoroutes. The toll road opened in 1995.

Seven years later, Orange County was looking at gridlock. But it could not build more roads because of a provision in the lease. So it bought back the lease -- for $207.5 million.

To encourage more domestic investment in highways, former Transportation Secretary Norman Y. Mineta made a pitch to Wall Street on May 23.

"The time is now for United States investors -- including our financial, construction and engineering institutions -- to get involved in transportation investments," said Mineta, who left office July 7.

San Antonio-based Zachry Construction Co., along with Cintra, received approval on June 29 for a 50-year lease to build and run a toll road from Austin to Seguin for $1.3 billion.

That is part of Texas Gov. Rick Perry's vision to attract more than $80 billion in private funds for roads by 2030. He wants a new tollway from Oklahoma to Mexico and the Gulf Coast, and one from Shreveport, La., and Texarkana to Mexico. Cintra-Zachry reached a $7.2 billion deal last year to develop the project's first phase. The announcement of a $1.3 billion deal in June was part of that $7.2 billion agreement, said Perry's spokesman, Robert Black.

"In Texas, our population is going to double in the next 40 years and our current infrastructure can't handle that growth," Black said.

Not everyone in Texas buys the idea. Harris County officials recently voted against selling three toll roads. Also, independent gubernatorial candidate Carole Keeton Strayhorn opposes Perry's toll road plan.

Lost Highway The foolish plan to sell American toll roads to foreign companies. By Daniel Gross Posted Wednesday, March 29, 2006, at 4:56 PM ET For rent: U.S. toll booths If a governor told you there were a way to spread pork, raise funds for infrastructure investment, promote jobs, avoid raising taxes, and put a dent in the trade deficit—all in one fell swoop—you might think he had a bridge to sell you. And you'd be right. Only in this case, it's a toll road. And instead of a sale, how about a long-term lease?

Earlier this month, in a triumph for Gov. Mitch Daniels, Indiana's House narrowly approved his proposal to lease the 157-mile Indiana Toll Road, which spans the northern part of the state, for $3.85 billion to a joint venture of Cintra, a Spanish company, and Australia's Macquarie Bank. The two companies have been active in the U.S. road business. In 2004, the two inked a 99-year lease for the 7.8-mile elevated Chicago Skyway. Last year, Macquarie completed its acquisition of the Dulles Greenway outside Washington, D.C. And Cintra, which manages toll roads in Europe and the Americas, is a strategic partner to the Texas state government in the planned Trans-Texas Corridor. There are likely more such deals to come.

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For Daniels—who failed to live up to his nickname ("The Blade") when he served as director of the Office of Management and Budget in the first Bush administration—the 75-year lease is an elegant solution. The state needs billions of dollars to invest in new roads. Getting the cash upfront will allow Daniels to speed up construction on needed infrastructure projects, create new jobs, and fund his Clintonian Major Moves initiative. (Here's a list of projects to be funded and a fact sheet on the deal.) And by raising the cash from foreigners, he's doing his part to rein in the pernicious current-account deficit. "Too often in Indiana, we see Hoosier dollars and jobs leaving the state. Major Moves is an exciting opportunity to recapture U.S. dollars by attracting foreign investment, and use them to create jobs for Hoosiers," he said.

What's in it for the foreign companies? Huge potential profits. Gigantic, steady profits. Toll roads are an incredible asset class. They're often monopolies. They can support debt, since they provide a recurring guaranteed revenue stream that is likely to rise over time, as more people take to the roads and tolls increase. According to Cintra, the Indiana Toll Road generated $96 million in revenues in 2005, and Cintra expects a 12.5 percent internal rate of return on its investment. The heavy lifting has already been done: The state or federal governments have acquired the land and rights of way, built the roads and maintained them for years, and enacted toll increases. All the private companies have to do is deliver cash upfront, maintain the roads, and collect the windfall. The buyers can also increase their profits by making toll roads run more efficiently with technology. After assuming control of the Chicago Skyway, the Cintra-Macquarie consortium installed electronic toll equipment on some lanes. And by refinancing nimbly, companies can cash out. Last year—just seven months into its 99-year lease—Cintra announced that it had recovered 44 percent of its initial investment in the Chicago road through refinancing.

(So, why aren't American companies buying up our toll roads? Here's a theory.)

This easy money for foreigners makes the locals uneasy. In mid-March, the Indiana House approved the deal by a surprisingly slim margin. The Indiana scheme continues to engender local opposition. Last week, while participating in a panel discussion in South Bend, Ind., I got the sense that the toll lease made Hoosiers uneasy for reasons they couldn't quite articulate. It's not like the buyers could uproot the concrete and move it to Queensland, Australia, or Seville, Spain. The 400-page contract spells out in detail obligations of the consortium to invest in maintenance and safety and to keep a lid on toll rates. And unlike the Dubai ports case, it's hard to see how management of the toll road by a foreign entity could raise security threats.

I think the uneasiness has more to do with what it says about the peculiar fiscal climate in the United States. How is it that in the richest nation on the earth, localities simply don't have the cash to do necessary maintenance on basic infrastructure, the political will to raise such funds, or the competence to run such easily profitable operations? Why are they being forced to sell off long-term cash cows for short-term cash?

Leasing or selling a public asset is a classic one-shot—a short-term measure that bolsters the balance sheet today but that can't be repeated. While politicians like Daniels focus on getting through the next few fiscal years with minimum pain, foreign companies are thinking about how to get rich off of tolls for the next three-quarters of a century. From Gov. Daniels to his former boss, President Bush, there's a troubling unwillingness to align governmental resources with the express goals and responsibilities of government. At the federal level, we rely on China's central bank to buy our bonds and fund basic operations. As a result, our tax revenues wind up in Beijing—as interest payments. At the state level, Indiana is relying on foreign companies to lease public infrastructure like toll roads. And under these arrangements, tolls—taxes people pay for driving—are being paid to foreign shareholders of foreign companies.

Of course, by selling public infrastructure at high prices, state governments could be taking foreigners for a ride. The Japanese famously overpaid for Rockefeller Center, after all. It's possible that Indiana just ripped off the Spaniards and Aussies. But I doubt it.

"Yet..."

That is the operative word. Here in Texas, we have a governor who tried 2 years ago to convert 3 freeways into toll roads.

He's also on a wild building spree of signing contracts with foreign entities to build toll roads that the state clearly doesn't need, but will saddle the state with non-compete contract clauses (which, by the way, are kept secret from the public) that prohibit upgrading of existing freeways, lest they compete with the new foreign-built toll roads. We don't even need this road system here, all we need are some extra lanes in key areas.

It's almost like Romania's Communist leader Nicolae CeauÅŸescu's monument to himself (note, he as dispatched by his constituents prior to completing it).

http://home.xnet.com/~jkelley/BucharestBugle.fldr/BuchBugle19-20.html

In the end, Texas is well on its way to having its main highways foreign-owned, and its existing freeways crumbling on the vine. The bottom line is that this is the Republican version of tax and spend. In our case, we (Republicans) are more clever than the Dems in that we tax by proxy, allowing a Spanish company to come in here and take over our roads - and then charge us through the teeth.

That's the gift we got when the Republicans took over power here. It almost makes yearn for the Richards days.

Ok Perry staffers, have at me!

Treasurer outlines investments from Toll Road lease

Indianapolis - Major Moves is making major money for the state of Indiana. The $3.8 billion the state collected in the Toll Road lease deal is now earning quite a bit of interest.

On Thursday alone, Indiana made more than $535,000 in interest from that amount. Every second, the money from Major Moves is making $6.

State Treasurer Tim Berry says while the money is currently invested, he is reviewing proposals for long-term investment.

A group of Spanish and Australian investors paid the nearly $4 billion to lease the Toll Road for the next 75 years. The Indiana Finance Authority transferred the money to the treasurer's office Wednesday, and it was immediately placed in various interest-earning accounts.

Nearly $3 billion was placed in government-sponsored securities including Fannie Mae and the Federal Home Loan Bank. Much of the rest went to banks in Indiana.

The money will eventually be used to finance road projects around the state.

At least Houston, Harris County had the good sense not to sell their cash cow. These are the reasons given for not selling out to Cintra.

1. The Harris County Toll Road system generated ~$318 million in toll revenue during the last fiscal year. This cash cow currently belongs to Harris County taxpayers. As Harris County tax payers, we are essentially shareholders of HCTRA. We taxpayers already receive the financial benefits from public investments like the Sam Houston Toll Road, and we will for years to come. Some of that revenue is spent servicing HCTRA’s $1.8 billion in debt, and the rest is spent to improve and expand the toll road system.

2. In order for the County to receive up front today as cash the benefit of 30-75 years of future toll revenue -- the "multi-billion dollar windfall" referred to by Judge Robert Eckels -- taxpayers will have to pay a significant premium, either in the form of increased borrowing costs, increased tolls or both.

3. Harris County is already in the business of borrowing against future toll revenue (i.e. floating toll-backed revenue bonds) to get cash today to pay for road projects. As long as the county's bond rating remains investment grade, the county enjoys a lower cost of capital than that of any U.S. for-profit entity (e.g., bank, hedge fund, toll consortium, etc.).

4. An investor (i.e. Cintra/Zachery) will be interested in this deal based on the profits they expect to be able to extract from the toll roads, which must more than cover the price they pay to Harris County and whomever is providing the capital to purchase the tollroads.

5. Harris County, as a public entity, can borrow at a lower rate of return than a private borrower can achieve. Given that a private investor will have a higher cost of capital than Harris County does, then basic finance says that the present value of the cash flows from our toll road system will be worth less to them than they are to Harris County. Since the cash flows are worth less to a private investor than the County, that means no private investor can afford to pay the County what the flows are worth to taxpayers.

6. Further, this “deal” is a once-only proposition. If we sell our interest in Harris County's toll revenue to a private investor, we can never again borrow against it. We will have to borrow against other, less-desirable assets, which will affect the County's bond rating. So, this "deal" may have the effect on Harris County taxpayers of raising our cost of borrowing to 3-5 times the current rate. It would suddenly be as if we had built the toll road system and then decided to pay for it with high-rate credit cards instead of the low-risk bonds for which the taxpayers voted.

In my opinion, it is NOT in the interest of Harris County taxpayers to allow the County to do such a deal. Frankly, I'd prefer the County did not spend any more money studying the concept either.

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