A better way to pay for ICC

January 06, 2004|By Peter Samuel

GOV. ROBERT L. Ehrlich Jr. is right to be moving forward vigorously on construction of the Intercounty Connector. He campaigned for the road and was elected, in part, on the promise to build it.

It is a good project. It will enhance the economy and quality of life of Central Maryland, and it has overwhelming public support, as a recent poll shows.

Unfortunately, his administration's idea of how to pay for the $1.7 billion road is quite wrong. As reported in The Sun Dec. 11, the Ehrlich team has floated the idea of issuing hundreds of millions of dollars in "grant anticipation revenue vehicle," or GARVEE, bonds to finance the ICC.

Warren G. Deschenaux, director of the state's Office of Policy Analysis, is right in his claim that using the bonds would add greatly to the project's cost - perhaps $100 million. Worse, the bonds would take future federal transportation grant money away from other road and transit projects and direct it toward payment of the ICC's debt.

New Jersey used GARVEE bonds to finance transportation infrastructure several years ago, with disastrous results. The state is now within 18 months of exhausting its entire transportation trust fund because that money has been redirected toward paying off rotten GARVEE bonds. That would leave not a cent for the purposes for which the trust fund was created - building and maintaining roads and transit. An expert panel has reported to the state's governor that a 12.5 cent increase in the state gasoline tax is needed to shore up the trust fund. Maryland surely does not want to go down that path.

Indeed, it's possible that the state would not need to borrow to finance the ICC. In many places around the world, governments are turning to investors to bear the risks for major road projects; the investors are compensated through tolls.

Last month, a 27-mile toll road called M6 Toll was opened in Birmingham, England. The road cost $1.3 billion - all of which was privately financed. In San Diego, State Route 125 South - a 10-mile toll road costing $635 million - is under construction. It is being built with some federal loan money, but the financing is basically from investors who have a 35-year toll franchise.

In Australia, virtually all of the major new urban roads are privately financed toll roads. Toronto's new high-tech toll road is a private franchise that replaces cash tollbooths with highway-speed electronic toll collection. In France, Italy, Spain, Germany, Ireland, Greece and several East European countries, investors are financing roads. Korea, Malaysia, the Philippines, India, Pakistan and even China are tapping private capital markets for toll roads.

In the United States, Minnesota, Colorado, the Carolinas, Texas, Arkansas and Missouri are all inviting investors to finance major new road projects. Virginia has the privately financed Dulles Greenway and is considering about six other private projects - including one for the Capital Beltway and one for reconstructing Interstate 81 along the length of the state.

Maryland does not need to put its taxpayers in hock and foreclose future gas tax monies to build the ICC. Instead, the state should commission a thorough traffic and revenue study to determine the potential of toll revenue financing.

And the state should invite competitive private-sector proposals for financing the road so that the Assembly and the public can see what their options are. Motorists are prepared to pay for a good highway, especially now that bothersome toll plazas are no longer needed because of E-Z Pass-style transponders and cameras reading license plates.

The revenue study may find that some government support is needed. Perhaps state and federal funding will be required to cover the costs of route selection and environmental permitting and work to mitigate the impact on the environment. The state might pay for some of the interchange work with connecting state highways.

But it should be possible to have the bulk of the ICC's costs borne by investors based on the prospective toll revenue stream instead of putting all of the highway's expense on the back of taxpayers.

Peter Samuel is a contributing scholar of the Maryland Public Policy Institute and is editor TOLLROADS- news, a Web-based news service.

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