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Private Toll-Road Investors Get Low-Risk Deals From States

Private investors don’t want to suffer if tolls fall short
Florida will keep the tolls from this highway, while investors get guaranteed payments
Florida will keep the tolls from this highway, while investors get guaranteed paymentsPhotograph by Smith Aerial Photos

Private companies that invest in highways have typically shouldered the risk that income from tolls might not be enough to make the deal pay. Now, after at least 11 projects have struggled financially since 1995, the companies are persuading states to make fixed payments so it’s taxpayers who roll the dice. Under the arrangements, states receive toll revenue and have to cover any shortfall with money from their operating budgets. The terms typically call for the states to take over the roads after several decades. “It’s a very good idea to have private people provide roads,” says Gabriel Roth, a retired traffic consultant who has worked for the World Bank as a transportation economist. “But the condition in which the state pays up if there is no traffic is a disaster.”

In 2009, Florida agreed to pay private investors, including Madrid-based Actividades de Construcción y Servicios and pension fund TIAA-CREF, $66 million annually over 30 years to renovate an interstate highway near Fort Lauderdale and add toll lanes. The investors will also get payments of as much as $686 million linked to completing the project by June 2014. Without private investment, the state couldn’t have finished the project until the late 2020s, according to Paul Lampley, a construction manager for the Florida Department of Transportation. The arrangement will inflate Florida taxpayers’ costs by $13 million or save as much as $244 million, depending on which assumptions are used about construction costs and interest rates, according to the department. “With the financial crisis going on in 2008 and 2009, this structure made the deal close, despite all the turmoil,” says Leon Corbett, project finance manager at the department.