For whom the road tolls

The DenverPostcom is rerunning a three part series today (one, two, three) about the future of Toll Roads in Colorado.

While I was originally going to focus on the roads, I want to take a quick segue into a this quote in the "Roads to Riches" or "one" above, that discussed the fact that most toll revenue projections are well below forecasts. You can read the article to see if you buy the "Chinese Wall" argument (I don't), but what got me was the dismissal of the "investors aren't getting accurate information" argument (they're not)

bonds are purchased by sophisticated investors who understand what they are getting into. And the official statements warn that the revenue projections could be in error and that the bonds are for the consideration of experienced investors.

"These are not mom-and-pop people," said Pamela Bailey- Campbell, a consultant Vollmer hired to help it prepare the traffic study.

However, almost by definition these types of bonds are purchased by buyers seeking safety (low risk, low return), especially in these tax-exempt types of purchases. The target buyer is generally older, looking to protect their assets either for retirement, or during retirement, and not altogether too sophisticated. A default, or revaluation of the yield can devastate them. These aren't junk bonds, they're not foreign bonds, they are bonds with State approval. They are both sold and perceived to be safe. M(r)s. Bailey-Cambell is deluding herself if she feels otherwise.

Now on to the my original intention.

Historically, I've supported toll roads. I view them as a user fee, which I find superior to general taxation. However, the increasing direction of toll roads towards public/private agreements is giving me pause, especially when eminent domain issues arise. Going back to Kelo, the main argument from the City was that the city would be better off with the tax revenue from improvements made to the land that was seized (stolen) from the original owners and transferred to the new owners (hello communism). Looking at public/private toll roads through that lens, it's essentially the same argument. The State is giving your land to someone else in the hopes that they will do more with it than you. Apparently, with toll roads there's a lot of "hope" built into the system as most roads are under performers, even three years out.

a review of 23 new turnpikes nationwide shows that a clear majority are failing to meet revenue projections to justify their costs.

Even with adjustments for the break-in period in the opening years, 86 percent of new toll roads in eight states failed to meet expectations in their first full year.

By year three, 75 percent - 15 of the 20 that have been open that long - remained poor performers...

The $416 million, 11-mile parkway from Broomfield to E-470 has attracted just half the cars forecast since it opened in 2003.

So the basis for a taking may be greatly flawed.

Having said that, I still favor tolls. My solution is that if a private enterprise feels that it can make a profit from a toll road, it should have to buy the necessary land on its own. My bet is that my little clause makes the cost of purely private toll roads prohibitive, which is mostly why the public/private relationship is needed. But maybe if you did it through the equity market instead of the bond market, a solution would develop.