Wheels of fortune: toll roads are one way to relieve congested highways. But to reap rewards, the public-private partnerships that build them should shoulder more risk.

• Author: Hood, John
• Position: Free&Clear

For any good idea, there are bad arguments. Consider the growing use of public-private partnerships--P3s--to add new highway capacity financed by electronic toll collection. Though North Carolina has only recently entered the field, with the successful launch of the 18-mile Triangle Expressway in Wake County, P3 toll roads are common in Europe, Asia and many U.S. states. Policymakers here want to use the concept to add lanes on the highly congested stretch of Interstate 77 north of Charlotte and to build bypasses to the east and west of the Queen City, among other projects.

I have long favored P3 toll roads. One of the first policy studies published by my think tank, the John Locke Foundation, urged North Carolina leaders back in 1991 to use private companies and new technologies for toll collection and traffic management to help meet the state's transportation needs.

However, that doesn't mean I buy every argument for them. Inviting private investment doesn't mean government is getting something for free, as some lobbyists seem to suggest. And charging motorists by the roads they use rather than by each gallon of taxable gas they consume isn't likely to change their driving habits much, as some environmentalists claim.

There's nothing new about financing North Carolina transportation with private capital. For decades, investors have bought state and local road bonds. They bought them to get a good rate of return with relatively low risk (particularly if investors have high incomes and thus benefit disproportionately from the federal tax exemption for municipal bonds). By using debt rather than pay-as-you-go financing, government takes on an additional cost. The deal can still benefit taxpayers, however, if it brings lower costs elsewhere (such as land acquisition) and hastens the completion of projects that pay immediate returns by alleviating traffic congestion or facilitating economic growth.

The same kind of calculation applies to P3 projects. Virtually all road construction involves private investment and private contractors. What's different about P3 deals is that the investors and contractors are often housed in the same company or partnership and continue to play a role in operating the road after its completion. One of the concept's true selling points, in fact, is that such integration encourages greater efficiency in road design and construction because companies have a financial incentive to minimize cost over the long run. It's...