Title: APPLYING THE TOLL ROAD PRIVATIZATION MODEL TO OTHER ASSETS
1APPLYING THE TOLL ROAD PRIVATIZATION MODEL TO
OTHER ASSETS
- John Schmidt David Narefsky
- NYU Wagner Rudin Center for Transportation
- Policy Management
- March 25, 2008
2 CHICAGO SKYWAY AND INDIANA TOLL ROAD
- First privatizations of major U.S. toll
roads-transactions done in 2005 and 2006 - Sparked wide interest in U.S. privatization
- New infrastructure funds/commitments by pension
funds have created pool of 400B for U.S.
infrastructure investment
3LARGE VALUES RECEIVED BY PUBLIC ENTITIES
- 1.85B to City of Chicago for 99 year lease of
Chicago Skyway - 3.8B to State of Indiana for 75 year lease of
Indiana Toll Road
4VALUE FROM 2 SOURCES
- 1. Value of asset increases in private hands
- Private operator will raise tolls regularly
- Capital costs significantly reduced
- Lower after-tax financing cost
52. Public recovers its equity in the asset
Equity increases with overall value
Long-term equity in U.S. infrastructure
has enormous value in world market
6MAKES SENSE IF PUBLIC HASBETTER USE OF CAPITAL
- Public capital not needed in operating roadscan
be redeployed to other uses - Chicago created 500M reserve, paid off 400M
city debtraised bond rating significantly
reduced financing costs - Indiana put 3.8B into transportation
infrastructureonly fully funded U.S.
transportation program
7OTHER ELEMENTS OF MODEL
- Long-term lease shifts all financial risks to
private operator - Any debt is subordinate to lease obligations
of maintenance/capex - Operating standards assure quality
- ? Independent engineering inspections strong
remedies for violation
8TRANSPARENT COMPETITIVE BID PROCESS IS ALSO KEY
- No politics - professionally run
- Open to all qualified bidders - no local or
national xenophobias - Bidding based on fixed contract with decision
based solely on price
9MODEL CAN BE USED FOR OTHER TYPES OF ASSETS
- Assets must be revenue-producing
- Infrastructure investors want stability and
predictabilityideally monopoly or quasi-monopoly
element - Private operators must bring added value to get
substantial returnsincrease political support
10CHICAGO UNDERGROUND PARKING SYSTEM
- 9000 spaces4 connected garages--underneath Grant
Park/Millennium Park in downtown Chicago - Owned by City and Chicago Park District
- After competitive auction, leased in 2006 to
Morgan Stanley Infrastructure Fund for 563M
11ASSET VALUE INCREASED UNDER PRIVATE OPERATION
- Private operator could raise parking ratesstop
subsidizing suburbanites and others driving
downtown - Flexibility to take advantage of special
eventsdevelop relationships - Substantially reduced cost of major
reconstruction of one garage - Improved signage--new revenues from advertising,
concessions
12CITY COULD REDEPLOY CAPITAL TO OTHER NEEDS
- Used partially to pay off Millennium Park bonds
that were drain on city revenues - Most proceeds used for capital improvements at
neighborhood parks - Chicago Park District had no prior capital
programenormously popular result
13OTHER PARKING POSSIBILITIES
- Street parking--Chicago is now privatizing street
parking system--asset of every city - Airport parking--Puerto Rico is privatizing San
Juan Airport Parkinghas ideal monopoly
elements - Private operators can maximize revenues, bring
efficienciescities or airports can use capital
for other purposes
14LOTTERIES
- Illinois and Indiana Governors proposed lottery
privatizations in 2007no legislative approval
yet in either state - State lotteries vary enormously in per capita
revenuesuneven management - Private operator can bring best practices and
increase revenues substantially - States can redeploy capitalto education in
Indiana, capital projects in Illinois
15PORTS
- Port of Corpus Christi proposing to build new
terminal facility on privatized basis - Existing terminals being privatized in Portland
- Virginia just established commission to study
privatizing Virginia Port Authority - Large-scale U.S. need for expanded port
facilitiesprivate capital essential
16TRANSIT
- Generates revenue, but no profitrequires ongoing
subsidy - Can still be privatized to reduce subsidy
- BART undertaking privatized Oakland Airport
connector - Denver Regional Transportation District proposing
privatized light rail system