K&LNG
NOVEMBER 2006
Alert
Transportation
Trucking Industry Adopts Formal Opposition to Sale or
Lease of Highway Toll Facilities
The American Trucking Association (ATA), the
nation's largest trade association for the trucking
industry, last week adopted a formal policy opposing
the sale or lease of U.S. toll roads, bridges and
tunnels to private entities. The State of Indiana
and the City of Chicago, among others, have made
headlines recently by granting long-term leases of
their highway toll facilities to private entities in
exchange for upfront payments in excess of $1
billion. These types of "concession" transactions
have generated significant interest among state and
local transportation agencies that are hungry for
capital funds in the face of shrinking appropriations
and increasing constituent demands. These
transactions also have generated significant
controversy, particularly from the trucking industry
that has expressed concern about the potential
loss of government control over the operation,
maintenance and pricing of highway toll facilities.
This Alert provides a brief overview of the ATA
policy and its potential impact on the future of
such highway concession arrangements.
on highway safety, security and the motoring
public." Graves also announced that the "ATA is
prepared to lead a national coalition of highway
users in opposition to these financing schemes that
offer a short-term windfall but a long-term recipe for
disaster."
The ATA policy also contains ten "recommendations"
in the event that highway toll facilities are sold or
leased to private entities in the future. These
recommendations are summarized below:
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Summary of ATA Policy
The ATA policy states that it "strongly opposes
the lease or sale of toll roads, bridges or tunnels to
private parties." In announcing the new policy,
ATA President and Chief Executive Officer Bill
Graves called on government to abandon this
financing technique, which he claimed generates
revenue "at great expense to the trucking industry
and taxpayers and with potential negative impacts
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Proceeds from any such sale or lease should be
used by the government exclusively for investing in
toll-free highway facilities.
The level of toll rates on "privatized" facilities should
not be allowed to recover more than the actual cost of
constructing, operating and maintaining the facility
plus a reasonable return on investment and debt service.
Adequate facilities for the trucking industry,
including access to food, fuel and safe parking
accomodations, should be provided.
Users of such facilities should be provided with a
rebate of federal and state fuel taxes.
The private owner or operator of any such facility
should be prohibited from imposing their own
restrictions or special fees on vehicle configurations
(e.g., oversize/overweight vehicles) and commodities
(e.g., hazardous materials).
A sinking fund should be established to ensure
that sufficient revenues are available for continued
maintenance and operation of the facility.
Kirkpatrick & Lockhart Nicholson Graham LLP
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Non-compete clauses that prevent improvements
to competing highways should not be included.
Open Road Tolling (ORT) technology and
transponder technology compatible with that used
on other interstate toll roads should be adopted.
Performance specifications should be adopted which
ensure that the facility is operated and maintained
adequately, provides a level of safety comparable
to similar facilities, and provides for acceptable
traffic flows.
The public sector participant should be allowed to
terminate the sale or lease agreement if it determines
that continuation of the arrangement is not in the
public interest. In addition, an oversight committee
representing all major stakeholders (including the
trucking industry) should be established to monitor
the operation of the facility and the need for
amendment or termination of the arrangement with
the private sector participant.
Ramifications of ATA Policy
The ATA's adoption of a formal policy in
opposition to the sale or lease of highway toll
facilities to private entities does not come as a
major surprise. The U.S. trucking industry has
been almost uniformly opposed to these types of
transactions for several reasons. First, the trucking
industry is opposed to any potential increase in the
level of tolls. The trucking industry believes that
such increases are more likely when highway
facilities are controlled by private operators driven
by profit motive instead of public interest. Second,
the trucking industry opposes the reallocation of
highway user fees to non-highway projects.
The City of Chicago, for example, may use much of
its upfront concession payment for non-highway
purposes that will not be perceived as direct benefits
by the trucking industry.
The ATA's list of ten recommendations ultimately
may have more relevance than the formal
opposition policy if the public sector takes these
recommendations into consideration in future
concessionaire arrangements. Many of these ATA
recommendations address issues that are likely to be
covered in a typical agreement between the public
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sector owner and the private sector purchaser or
lessee of a highway toll facility. For example, it is
common for such a sale or lease agreement to
contain performance specifications in order to allow
the public sector to retain the necessary level of
control over the operation and maintenance of the
public highway facility. Similarly, the public sector
sponsors typically require the private sector
concessionaire to provide EZ-Pass or other tolling
technology that is compatible with systems used on
other toll roads. The private sector participant in
both the State of Indiana and City of Chicago deals
is required to implement such tolling technology,
which will lead to more efficient revenue collection
and greater cash flow over the term of the
concession.
Several of the ATA recommendations, however,
are more controversial and, if followed, would likely
reduce the attractiveness of such concession
transactions from both the public and private
perspective. For example, ATA's position that
concession proceeds must be used exclusively for
investments in non-toll highways is a significant
limitation on the ability of the public sector to
leverage its highway assets for non-highway
purposes. In certain circumstances, a highway
concession transaction may be valuable to the
public sector precisely because it may facilitate the
allocation of funds to other purposes. ATA's view
that the public agency should have the right to
terminate the concession during the term if it is not
in the public interest, and that an oversight
committee should be established to monitor the
concession arrangement, are likely to cause
significant concern among potential private sector
investors. These investors need "investment grade"
certainty as to the likelihood of sufficient positive
cash flow over the term of the lease or useful life of
the highway facility in order to justify making a
substantial upfront concession payment. The ATA's
views with respect to termination are unlikely to
incentivize private sector interest in these
transactions.
Kirkpatrick & Lockhart Nicholson Graham
LLP
|
NOVEMBER 2006
Conclusion
The trucking industry's opposition to the sale or
lease of highway toll facilities to private entities is
well known. The ATA's formal adoption of a policy
to this effect is not surprising, but the ATA's
issuance of ten recommendations to follow in such
transactions reflects a recognition that additional
concession agreements are likely to occur in the face
of ATA opposition. Thus, the ATA has attempted to
shape the debate by formalizing its position on some
of the key issues raised by such transactions. Many
of the ATA's concerns are already being addressed
in typical concession negotiations. As noted above,
however, several of the views expressed by ATA are
likely to discourage public and/or private sector
participants from engaging in such transactions.
These views may have to be ignored if state or local
governments want to leverage their highway toll
facilities for upfront capital funds.
Edward J. Fishman
efishman@klng.com
202.778.9456
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