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State and Local Government

Should Drivers Fear Privately Operated Toll Roads?

By Jakob Puckett on Sep 17, 2020
Toll booth
Freakin Frames / Shutterstock

Are privately operated toll roads bad for drivers?

Not according to a new study from the Reason Foundation. The study highlights how residents can benefit from their state leasing a toll road and addresses many common concerns. As tolling is a potential solution to Missouri’s transportation funding woes, it is worth exploring this report.

How could Missourians benefit from a privately operated toll road? States usually sell toll road leases for several billions of dollars, and that money can be reinvested in other transportation projects. For instance, Indiana received $3.85 billion for its toll road lease, which was more than enough to fully fund a 10-year transportation improvement program to improve road quality. For a state like Missouri, with hundreds of millions of dollars in unfunded transportation priorities each year, granting a company a lease to operate a toll road could provide some of the revenue needed to maintain Missouri’s roads.

While this may be good for state revenues, individual drivers may have some concerns. For instance, couldn’t a private toll road company just keep raising rates? And who will guarantee that the road will stay in good condition? Both concerns are addressed during contract negotiations.

Lease agreements typically tie rate increases to an inflation index, and terms of potential increases are agreed to in the contract. Similarly, lease agreements usually include performance indicators that the operating company must achieve, such as meeting pavement quality and bridge condition standards, with a financial penalty for non-compliance. Many contracts also specify minimum levels of maintenance expenditures the leasing company must meet. There is typically a clause for the state to terminate the agreement and resume operations if such provisions are not met.

And what happens if the company operating the toll road goes bankrupt? This has happened before, with non-dramatic results. The road does not close, as the state still owns the road. For instance, the company operating the aforementioned Indiana toll road went bankrupt, and it simply sold the lease to another company that took over operations. A toll road company going bankrupt is hardly a foregone conclusion, though, as many toll roads have been privately operated by the same company for years.

While tolling is not yet a reality in Missouri, several bills have been introduced in the past few years to allow private companies to operate toll roads. The Reason Foundation study should help Missourians see the upsides of such a possibility.

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About the author

Jakob Puckett

Analyst

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