Tuesday 20 September 2011

San Diego "nationalises" a private toll road

I wrote in July about how the San Diego Association of Governments (SANDAG) was considering “nationalising” (there isn’t a handy word for governments short of central government acquiring businesses) the bankrupt South Bay Expressway. The reasons being that the concession for the toll road had gone bankrupt and so it was seen as a potential “bargain”. However, SANDAG isn’t looking for a way to give taxpayers a good return, but to effectively cut the tolls to make it a more general use route. It is seeking to subsidise it.

One report suggests that the road is seen as a cheaper alternative to expansion of Interstate 805, which is estimated at a cost of US$700 million. So as a result, SANDAG bought the South Bay Expressway (SR 125) for US$345 million. It had been a dud investment for the Macquarie group as traffic turned out to be half that of forecasts.

However, as much as this may be sold as a bargain, one politician is clearly getting a rush of blood to the head saying "Could those tolls be half that price? Could they be one-fourth? Could they go away? Anything is possible," said Chula Vista Mayor Cheryl Cox. Apparently Cheryl Cox’s voters are happy to pay more taxes in response. Currently, tolls are based on vehicle type and distance. The maximum for a car is US$4 for a 10 mile trip, with a minimum of US$0.85 at the moment, obviously reducing this would increase demand, and a free road would do the most, but do taxpayers really want to pay for that?

One approach could be to treat a calculation of the fuel tax revenue generated from the road’s use as a shadow toll to offset the existing tolls (after all, anyone using fuel tax is already paying to use a road). However, assuming SANDAG just want to optimise use of the road, there will need to be some demand modeling about what tolls would maximise the economic efficiency of the network.

Of course this is exactly what has been advocated by some for the UK's M6 toll road, but the government here is uninterested in finding money (that it doesn't have) to buy a road that it wont make money from (and it is NOT bankrupt, but has a relatively content owner).   Yet it isn't on the cards for the bankrupt toll roads in Australia.   The simple reason being that the road doesn't close, and unless a government is keen to use taxpayers' money to subsidise tolls, there isn't much point in having taxpayer money risked on the road. It is interesting that the USA, oft cited as the example of unfettered free market capitalism, is now an example of quite the opposite.

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