Private Roads and Tolls

Private roads were once the norm, and other countries such as Mexico are engaged in extensive private toll road projects. A number of projects have also been proposed in the U.S., although only a handful have progressed to construction. The assumption is that private contractors can build and operate toll roads faster and less expensively than public agencies. Typically, the private builder is guaranteed a given profit margin from tolls, and the road reverts to the public agency at completion of construction, with the contractor operating the facility until the concession period ends. The builder is usually responsible for maintenance.

Although this approach can make sense if no other public funds are available, under the current tax and regulatory environment, the public will generally pay more for a private road than a public one. There are several reasons for this. First, it must be remembered that Michigan already contracts out a good deal of the design, and virtually all of the construction for roadbuilding. In a completely private road project, the contractor must generate enough efficiencies over and above what is found in the above system to overcome some costs that the publicly funded road does not incur. The private road costs to the public include higher capital costs due to funding which does not include tax exempt interest as in the case of publicly funded roads.

Theoretically, one would expect the private builder to offset these costs by completing the project faster and more efficiently. However, a private builder will have a much more difficult time than government in acquiring land and in securing environmental permits. At best, the private operator will have no worse performance than the government general contractor. The private contractor may also have added incentive to speed the planning and design process, and to get the construction done as fast and as inexpensively as possible. It is not at all clear that Michigan citizens would accept a toll system to pay for such roads at this time.

Private roads make more sense at unique locations such as international border crossings, and Michigan already has several examples of private facilities, including the Ambassador Bridge at Detroit. It is also clear that private organizations can perform maintenance more efficiently than government agencies and there are potential savings in maintenance budgets from privatization. However, it is not as clear that government can acquire such services for less cost and at service levels equal to what are obtained from public agencies and employees.