Goldman, Macquarie Face Fight on
Private Toll Roads (Update1)
By Angela Greiling Keane and Jonathan D. Salant,
June 11 (Bloomberg) -- The
trucking industry and congressional
Democrats are trying to put the
brakes on state efforts to lease
toll roads to Macquarie Bank Ltd.,
Goldman Sachs Group Inc. and other
Urged on by truckers such as U.S.
Xpress Enterprises Ltd., House
Democrats are considering
withholding highway funds from
states whose leases with companies
fail to meet proposed federal
standards. Critics of leasing say
private investors are more likely to
raise tolls than government
authorities are. Private investors
would also find it easier to fire
toll collectors and other employees.
New federal restrictions could
make investments in the $1.7
trillion of public roadways less
attractive to private interests. And
the mere fact of congressional
attention might have a chilling
effect on such deals, says Mike
McDermott, an analyst who works on
toll-road transactions in the New
York office of Fitch Ratings Ltd.,
which rates debt used to finance
``Those kinds of public debates
would make politicians at the state
level more cautious,'' he says.
For states with heavily traveled
roadways, lease agreements with the
likes of Macquarie and Goldman are
potential windfalls that would allow
them to meet budget needs without
Leasing the Turnpike
Pennsylvania, which says it faces
a $1.7 billion shortfall in
transportation funds during the next
20 years, might raise as much as $12
billion to $18 billion by leasing
the 537-mile Pennsylvania Turnpike,
according to an analysis by Morgan
Stanley. New Jersey Democratic
Governor Jon Corzine, 60, is also
looking at leasing state toll roads
to raise money for highway
construction and maintenance.
Such arrangements are common in
Australia, Chile, Spain and
elsewhere around the world.
Sydney-based Macquarie, the world's
largest private manager of public
facilities, said last month that it
raised $10 billion to buy more
infrastructure assets in Europe and
North America. Those assets would be
added to its existing stakes in the
Indiana Toll Road -- leased in 2006
for $3.85 billion -- and the Chicago
Skyway, leased for 99 years in 2005
for $1.83 billion.
New York-based Goldman Sachs, the
biggest U.S. securities firm by
market value, raised $6.5 billion
last year for a new fund to invest
in toll roads and other
infrastructure. Goldman is one of 48
firms interested in leasing the
Shortchanging the Public
Alex Doughty, a spokesman for New
York-based Macquarie Infrastructure
Group, didn't respond to requests
for comment. Goldman Sachs spokesman
Michael DuVally declined to comment.
House Democrats say they are
concerned the public will be
shortchanged by long-term private
partnerships need to take the public
interests in mind,'' House
Transportation Committee Chairman
Jim Oberstar, 72, a Minnesota
Democrat, said in a statement
provided by his office.
Oberstar's proposed guidelines
for private leasing agreements would
include guarantees that states could
upgrade highways parallel to leased
toll roads and protection against
price gouging by private companies.
States that didn't comply would face
the loss of federal highway funds.
Oberstar and House highways
subcommittee chairman Peter DeFazio
have sent letters to state officials
urging them to go slow. ``If
public-private partnerships are
abused, what you will cause is a
reaction on the state and federal
level that will put an end to
this,'' says DeFazio, 60, an Oregon
A `Patronage Bastion'
Pennsylvania Governor Edward
Rendell -- like Oberstar and
DeFazio, a Democrat -- says the
congressional concerns are
overblown. In his state, Rendell,
63, said in an interview, much of
the opposition to leasing the
turnpike has come from entrenched
partisan interests fearing the loss
of what has been a ``huge patronage
bastion for both political
Congressional Democrats have
found unlikely allies in
Chattanooga, Tennessee-based U.S.
Xpress and other trucking companies,
which in the last 10 years have
given about 80 percent of their
campaign donations to Republicans,
according to the Center for
Responsive Politics, a
Washington-based research group.
The growing interest in road
leasing shows that ``someone's
figured out how to make a lot of
money doing these deals and also
that someone, probably the users of
these roads, is going to pay
exponentially,'' says former Kansas
Governor Bill Graves, 54, chief
executive of the American Trucking
Associations. The trade group, based
in Alexandria, Virginia, represents
among others U.S. Xpress and
Overland Park, Kansas-based YRC
Worldwide Inc., the largest U.S.
Taxes Over Tolls
The truckers' trade group says
the industry pays $3 billion to $4
billion a year in tolls now. Graves,
a Republican, says the industry
would prefer higher fuel taxes to
Large trucking companies
typically sign long-term contracts
with customers that factor in
fuel-price fluctuations. Patrick
Quinn, 61, president of U.S. Xpress
and chairman of the ATA, said in an
interview that private control of
U.S. highways is ``unpredictable and
unknown'' and could increase tolls.
Frequent toll hikes, Quinn says,
would make cost planning difficult.
``We feel kind of comfortable with
the system'' now, he says.
After Indiana signed its lease
agreement, truck tolls on its
157-mile toll road rose 24 percent
-- the first increase since 1985.
They rose another 25 percent in
April and are due to go up again in
2008 and 2009.
Benefits and Risks
For politicians, there may be
both benefits and risks in such
arrangements. Private control may
free officials from being blamed for
higher tolls, says McDermott, the
Fitch Ratings analyst. They can say
``it's not me that's raising
rates,'' he says.
On the other hand, the higher
charges in Indiana helped Democrats
capture control of the state House
of Representatives and win a
congressional seat in the district
that straddles the highway.
``People thought it was done in
an unfair way, and they wanted
someone who would stand up for it,''
says Democratic U.S. Representative
Joe Donnelly, 51, who ousted
Republican Chris Chocola, 45.
Matt Pierce, a spokesman for the
Indiana Toll Road, says the lease
benefits motorists. ``Our primary
responsibility is to the consumers
who travel the road,'' he says.
``We're selling them time. We're
selling them that ease of moving the
The Bush administration is
backing the states' drive to get
business investment to run highways.
``Public-private partnerships are
vital to fixing this nation's
mounting mobility crisis because
private investment is based on
demand and not political
Secretary Mary Peters, 58, told a
highway group in Myrtle Beach, South
Carolina, on June 1.
With Bush's backing, and given
the financial needs of the states,
Pennsylvania's Rendell predicts more
such deals in the future. The
balding governor says he'll be able
to ``comb my hair in a pompadour''
before Congress clamps down on the