June 17, 2006
Selling toll roads: Fear it

Those of you who use Harris County's toll road system on a regular basis, read this and think about the implications.

The Harris County toll road system could be sold for as much as $20 billion, but only if the county were willing to cede control over toll increases to a private company.

There is "a direct correlation between the rate at which the tolls would be permitted to increase and the value the county would realize from the sale," the county's office of management services said in a report.

How much are you willing to pay for that trip on the Sam Houston or Westpark toll roads? More to the point, how much do you think the Harris County Toll Road Authority thinks you're willing to pay? If they're serious about going through with this boneheaded idea, you'd better hope they guess correctly.

The county would be more likely to net $5 billion to $12 billion after paying off bonds, concluded JP Morgan and Popular Securities in a study commissioned by the county.

I'm going to ask a question that I asked before when this madness first surfaced: What in the world does Harris County need all that cash for? What could they possibly do with it?

OK, I know that Harris County would not get a lump sum up front for the toll roads, but would instead get paid over time. The thing is, sooner or later those payments would end, meaning that the county would eventually lose a steady source of income, as well as the option of ending the tolls for an asset that's been fully amortized. I realize that all this may happen many years from now when we're all dead, but unless you think Harris County will cease to be a functioning entity, or you think we'll all finally have those flying cars we were promised in 2000, then how is this a responsible thing for the HCTRA to do? Remember, the only way this kind of deal makes sense for the buyer is if they think they'll get more money back than they pay. So please, someone tell me: In what way does the county benefit from that?

At its annual capital improvements meeting Tuesday, the Commissioners Court will consider whether the toll road system, whose annual revenues have increased steadily, should be sold, leased or continue to be operated by the Harris County Toll Road Authority.

If the county opts for selling or leasing, the court is not expected to make a specific decision for months. It could authorize a more detailed study.

And once again I ask: Do we, the taxpayers of Harris County, get any say in this? As in, do we get to vote on it? If not, why not?

JP Morgan and Popular Securities advised Commissioners Court to determine how much control it needs to exercise over the system before deciding whether it should sell the system to the highest bidder.

The study noted that motorists likely would turn to the county with complaints about tolls or other issues, no matter who owned the system.

The county wants "to avoid having a successful sale and a failed public policy," the JP Morgan and Popular Securities report said.

Damn right. And if the Commissioners' Court wants a peek at their future, consider this.

The decision to hand the Indiana Toll Road to an Australian and Spanish team for $3.8 billion at the end of this month has blown up into one of the biggest brawls here in a generation. It has unsettled the state's politics in the months before the November elections, pitting a governor who was President Bush's first budget director against the people of northern Indiana, which the highway passes through.

Max Sawicky calls this what it really is:

When a government takes a lump sum in exchange for permitting a private firm to manage a road and levy tolls, it is not only privatizing. It is borrowing, worsening its fiscal position. Most states are looking at growing budget shortfalls in the future, as Medicaid costs in particular continue to grow more rapidly than their revenues.

The Gov could just as easily contract out operations and management, but keep the tolls for itself. The fact that the money is earmarked to new projects -- investment -- is irrelevant. It's still borrowing. You could just as easily keep the roads and float a bond -- also borrowing -- for the new projects. The leasing is not necessary. The political onus against explicit borrowing can warp decisions.

Yes. The question is what are they borrowing all this money for? The example of Indiana in that WaPo article at least makes a decent case why a government might consider doing this. We have no idea at this point what Harris County has in mind. Why is that?

There's more heavy-duty economics on this at Angry Bear. I really don't think I can overstate how bad an idea I think this is. I just hope that someone - anyone - expresses skepticism at Tuesday's Commissioners' Court meeting.

Posted by Charles Kuffner on June 17, 2006 to Planes, Trains, and Automobiles | TrackBack

I don't know anything about the Beltway 8 toll road situation, but I find this Sawicky quote absolutely incomprehensible:

When a government takes a lump sum in exchange for permitting a private firm to manage a road and levy tolls, it is not only privatizing. It is borrowing, worsening its fiscal position.

Is Sawicky saying borrowing is aways a bad thing? What about borrowing to pay for college? What about borrowing to pay for a house?

How is selling a concession for a lump sum the same as borrowing? Does the entity need to pay the lump sum back? This sentence simply makes no sense.

Posted by: binkley on June 17, 2006 4:27 PM

I'm with brinkley: the Sawicky quote is just ludicrous. If the tollway were to be sold, the purchase price is not an amount that would need to be paid back; it is simply exchanging one asset (road) for another (cash annuity), and, with most of the proceeds going to retire debt early, *helps* the fiscal position.

But whether this is better than just keeping the dad-blame thing, I don't know (but, at first blush, tend to doubt).

Posted by: Joe White on June 17, 2006 5:19 PM

I'm still looking for the guy who sold the idea to Commissioners Court and said it's a good thing to do.

Posted by: Charles Hixon on June 17, 2006 9:31 PM