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Advocates tout private roads as possible ’11 budget solution

There is no question that Arizona is in need of money. There is also no doubt that the state will need more roads as its population grows. Rep. Andy Biggs is hoping that a new law to allow private toll roads will help Arizona meet both needs.

Among the myriad bills signed by Gov. Jan Brewer earlier in the month was H2396, Biggs’ bill on public-private partnerships, or P3s, for private toll roads. The bill allows the Arizona Department of Transportation to enter into agreements with private companies to build new pay-for-use highways, which advocates say will help ease the strain on the state’s roads, free up state money and generate revenue that could help Arizona close future budget gaps.

Advocates believe public-private partnerships can help Arizona build much needed highways and freeways without raising taxes, the way the failed TIME initiative of 2008 would have. Others are skeptical, questioning how much revenue the state will earn from such projects, or how soon. Still others simply oppose toll roads on philosophical grounds.

Biggs said private companies already have inquired about possible P3 deals that have the potential to move quickly.

“We were told by different groups that put some of these types of deals together that they could get that stuff done within three to six months,” said Biggs, a Gilbert Republican.

Rep. John Kavanagh said the bill could bring in hundreds of millions of dollars in up-front payments that could go a long way toward bridging the projected budget gap that Arizona is expecting in fiscal 2011.

“We’re hoping that a chunk of the income would be up front to help us with the ’11 budget deficit,” said Kavanagh, a Fountain Hills Republican. “If not in ’11, then ’12. We’ll still be needing money in ’12.”

Rep. David Schapira, a Tempe Democrat, doesn’t doubt that the bill will help Arizona raise money. But he voted against the bill, he said, because of philosophical opposition to the concept.

“I think it’s an interesting system, but I don’t think there should be a public road that an individual person should have to pay to drive on,” Schapira said. “I think it certainly would bring in revenue but I don’t think that’s a good enough reason to do it.”

For advocates such as Biggs and Kavanagh, however, the bigger issue is whether these new public-private partnerships will help Arizona alleviate its looming transportation needs without imposing new taxes on the state’s residents or otherwise draining state coffers. They believe it can.

According to the Arizona Department of Transportation, which will have the authority to enter into contracts with private companies, the state will have to invest about $120 billion in new highways over the next 40 years to keep up with Arizona’s rapid growth. Based on current funding levels, the state would fall far short of that goal.

ADOT spokesman Timothy Tait said declining state revenue forced the agency to cut roughly $600 million from projects in the five-year transportation plan approved earlier in the year by the State Transportation Board.

“This is a concept that ADOT has supported,” Tait said of the public-private partnerships permitted by Biggs’ bill, “especially because of the fiscal challenges that we’re facing to try to continue expanding the state’s transportation network.”

Under the new bill, ADOT can identify transportation needs and reach out to companies it believes might be interested in a public-private partnership. The bill does not permit existing roads to be converted into privately owned toll roads. Instead, companies can construct new roads for paying customers.

Kavanagh and other supporters said they would not have supported legislation putting preexisting, taxpayer-funded roads under private control. Nor would Kavanagh have supported the bill if it put private companies in control of the only or primary transportation route to areas of the state, he said.

According to Phineas Baxandall, the senior tax and budget policy analyst for Arizona Public Interest Research Groups, or PIRG, a major problem with similar legislation in other states, such as California, was that the public-private partnerships law included a no compete clause which prevented the state from building new roads or making improvements to existing roads that competed with privately operated highways.

Biggs’ bill, however, bars ADOT from entering into an agreement with a private contractor that hinders it from undertaking new transportation projects on its own. The bill does call for “reasonable compensation” from the state to companies whose revenues are adversely affected by ADOT projects.

One provision of Biggs’ bill allows Arizonans to apply for refunds or credits from the state motor vehicle fuel license taxes. Another prohibits the use of photo traffic enforcement on toll roads and lanes.

Baxandall expressed concern over the compensation provision of the bill, saying, “This is important because otherwise private toll operators like to fill contracts with provisions about “compensation events” in which the state must compensate them for policies that reduce their toll revenue.”

Baxandall also said he was concerned that the bill does not require legislative approval for public-private partnerships, and felt the 50-year limit on the agreements was far too long.

Previous Arizona law permitted P3s for transportation, but included many restrictions that made such projects untenable, according to Leonard Gilroy of the Reason Foundation. Gilroy said the law’s “bare bones language” only permitted four pilot projects, nor did it provide authority for specific types of P3 projects or enable revenue sources that could be used in conjunction with private dollars.

“The new language has tons of explicit authority, deals with some of the public policy issues that have come up in other states in recent years, and is basically a version 2.0 overhaul that complete modernizes and upgrades the state’s (P3) statutes,” Gilroy said.

Former U.S. Transportation Secretary Mary Peters, who also served at ADOT, said the new legislation is superior to previous laws because it allows a combination of public and private financing, especially in terms of government credit assistance.

“In most cases, government entities can borrow money more cheaply than the private sector can,” Peters said. So under agreements like the ones permitted by H2396, “the private sector has access to those funds at low interest.”

The bill had near unanimous Republican support in the Legislature, though not all of its supporters believe the state will start receiving revenue in time to use it for the 2011 budget. Rep. Sam Crump, an Anthem Republican, said he supports the bill but doesn’t the money to start pouring in that quickly.

“People put too much confidence in the government. It can’t even move that quickly. I doubt we’re going to see anything from toll roads for several years,” Crump said.

Sen. Leah Landrum Taylor, a Phoenix Democrat, said she voted against the bill because of the lack of concrete numbers for projected revenue.

“As far as having clear research on all of that and seeing if that was really going to be something where we could even have any type of generation of revenue coming, I just didn’t see where there was enough research,” Landrum Taylor said. “I certainly wanted to know some concrete figures. A lot of it was more speculation, as far as I’m concerned, and we don’t have time for speculation.”

Brewer spokesman Paul Senseman said the governor is supportive of public-private partnerships, but was unsure whether she viewed privately owned roads as a potential budget solution.

“I know she supported that because it’s a concept she’s very familiar with and has been involved with public-private partnerships throughout her career as an elected official. She believes that they can be quite successful, and so she signed (the bill) as a matter of policy,” Senseman said.

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