Environment and Government and Technology

ECONOMIC ANALYSIS: Let the private sector operate the Toll Road

February 13, 2006

Watching the tug and pull of partisan politics in full bloom in our state capital brings to mind that old saying about making laws and making sausage. You don't really want to see how either one happens.

But as our elected leaders posture and fight over the table scraps of new revenue that can realistically be said to be squeezed out of what has historically been an overcommitted state budget, another, more hopeful, vision comes to mind.

It's a vision of a break, a timeout, for introspection and evaluation. We spend an awful lot of money in the public sector, after all. Shouldn't we pause from time to time, put everything on the table, and ask what it is that our governments do well, and what it is that they do poorly? And are there things that can be publicly supported, instead of publicly operated?

It's not about ideology; it's about performance. In the public realm, there are constraints on behavior that don't exist in the private sector, and vice versa. Contrast, for example, the reaction to the recent announcement of the closings of several Osco Drug stores throughout the state with what occurred in the aftermath of the announcement of closing state-run Bureau of Motor Vehicles offices. Is it any wonder the private sector is more efficient?

The private sector is ultimately, of course, a more selfish environment as well. Its concern for the bottom line does not bode well for such socially important concepts as universality, equality or even compassion. And, of course, governments give us laws and protections no society can live without.

But can governments run toll roads? Of course they can, and they do, almost everywhere around the country. But the $3.9 billion bid for operations of the Indiana Toll Road by the same Spanish-Australian consortium that recently assumed operations of the Chicago Skyway is pretty solid proof that the private sector can do it better.

Over the term of its 75-year lease, that bid is a bet that the company can carry out capital improvements, operate the road, and make what is essentially a $200 million annual mortgage payment, and still make a profit for its shareholders. How can it do that?

In a word, service. Sure, private sector operations of the Toll Road will raise rates, but, like any business, it can't afford to scare its customers away. So you can expect the company to carry out the kind of improvements that will make usage of the road go up, not down.

Don't like stopping every few miles to dig into your pockets for money? You don't have to. Technology for automatically assessing tolls without slowing from highway speeds-with monthly payment by mail-has existed for years, but don't count on the public sector to provide it. A private-sector company that needs to increase ridership to make a profit, however, will. Because it has to, to earn a return on its investment.

The highly publicized feeding frenzy over the distribution of the proceeds of the lease misses this point.

Yes, we need more money to build roads, and leasing the toll road, whatever its risks, accomplishes this aim. But we also need our publicly run enterprises to be efficient, innovative and customer-oriented. And if that can be accomplished best by letting the private sector take the helm, that's exactly what we should be doing.



Barkey is an economist and director of economic and policy study at the College of Business, Ball State University. His column appears weekly. He can be reached by e-mail at pbarkey@ibj.com.
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