Caltrans Had No Choice But Make Deal With 91 Express Lane Firm

One of the most devastating criticisms of the now-aborted sale of the 91 Express Lanes to a nonprofit corporation was the charge that the private owner, California Private Transportation Co., had forced Caltrans to forgo safety improvements to the Riverside Freeway in order to protect the company’s profits. If true, this would be a serious indictment of this experiment with highway privatization. But that reading of the situation greatly distorts what actually happened.

From the outset, CPTC’s franchise agreement with Caltrans has guaranteed that the agency would not add lanes to the Riverside Freeway except for safety reasons until traffic on the freeway reached a specified level.

When Caltrans began design work on four miles of additional lanes from the Corona Expressway to Gypsum Canyon Road, CPTC objected that the agency was violating this provision. Caltrans at first said the new lanes were needed for reasons of safety, not smoother traffic flow. But after CPTC filed suit, and its attorneys discovered a memo in which Caltrans staff conceded there was no case on safety grounds, the agency quickly settled.

But why did Caltrans, an agency dedicated to serving the public’s transportation needs, agree to such a provision in the first place? The provision dates to the 1989 legislation that created the private toll road program, AB 680. Looking at the enormous need for increased transportation infrastructure as California continued growing, the Legislature concluded that the public’s willingness to support large fuel-tax increases was limited. To attempt to keep pace with the projected growth in travel, they authorized four pilot projects in which private companies would propose additions to the state highway system, to be developed entirely with private capital and managed by those companies for 35 years. Developers would put in some of their own cash but would raise the majority of the construction cost by selling revenue bonds to investors.

This was not a new idea. Several Bay Area toll bridges were developed using this approach during the 1930s, and private tollways form the backbone of the intercity highway networks of France, Italy and Spain. In all such projects, the key to being able to sell the bonds is producing a deal that presents only normal risks--construction cost overruns, shortfalls in early-year traffic, etc. The specific terms of the franchise agreement are critical factors in being able to sell the bonds to investors.

For that reason, nearly all toll road bonds are protected by some form of non-compete provision. After all, if there were no limit on what the public sector could do, in theory it could build enough nearby free lanes to attract nearly all the toll road’s paying customers, leaving the bondholders with little or none of their promised interest payments. So without such provisions, it is very difficult if not impossible to sell toll road bonds. For this reason, the public-sector toll roads in Orange County (Eastern, Foothill, and San Joaquin Hills) are similarly protected.

Honest people can disagree about when a proposed lane addition is needed for safety reasons, as opposed to simply improving traffic flow and reducing congestion, but the underlying principle remains. If Caltrans has the ability to add unlimited amounts of free capacity, no one is likely to buy toll road bonds. And there will be no toll roads.

Those who hate tolls and toll roads will be happy with that outcome. But they should pause to consider how California is going to cope with the addition of 15 million people and their cars over the next two decades.

Our choice is either massive increases in the gasoline tax (paid by everyone, no matter where they live or drive) or greater use of tolls and toll roads (which you have a choice whether to use).

The California Business Roundtable has identified $30 billion in transportation needs over the next decade; the California Transportation Commission puts the total at around $100 billion.

There’s no way we’re going to meet those needs via tax increases alone. Private investors are willing and able to put billions into California infrastructure; they’re already doing so in fast-growing Florida, Texas, Virginia and Washington. But they will only do so if we create a framework that makes such investment feasible.

A comprehensive public-private partnership law that includes a reasonable degree of protection from state competition with toll lanes is an essential tool for coping with California’s growth in the 21st century.