Toll Roads In General

[rrich]

The political need for tolls on a road seem to be an attempt to justify the cost of construction of the road.

While, in reality, the perpetuation of toll collecting seems to be necessary to afford the toll collectors.

DUNNO but it seems to be a universal truth all over the planet.

[rob streeper]

The State of Texas allowed the construction of a privately run high-speed toll road connecting Austin (capital city) with Seguin (almost nowheresville). It's been a monumental failure.

[Christos]

This could turn out to be a very complex discussion.

Normally when a toll road is constructed it is done by a private road builder who will in turn benefit from the toll that they collect once the road is completed. It would normally have a time limit of xx years and then the road is handed back to the government. Unless an extension is required then more years are added. This is what happened to the Sydney Harbour bridge toll, the tunnel was built and the toll collection period was extended.

It would be nice to have all road building done by the government but that by far in the too hard basket.

[Bohdan]

In Victoria Westgate bridge was built as a toll bridge and it was a financial disaster as nobody wanted to use it. They sold it to the government who removed the toll and suddenly the bridge couldn't handle the traffic and had to be extended.

The other toll freeways were such a financial success that the local councils were persuaded to close alternate routes to force the traffic onto the toll roads.

[Dibbers]

Toll roads are the biggest con job going around IMO.

Its politicians looking after their future interests and nothing else. If i'm a private toll road company, and i'm investing $16b in the construction of a toll road, plus its upkeep etc, I'll need to recoup at least $30b over the life of the contract for it to be a viable investment. The initial $16b investment (plus interest paid on the loan, because i don't just have $16b lying around), the maintainence of the road over the duration of my 44 year contract (or however long it is), and all the tolling administrative costs, there still needs to be a decent profit margin left over for me to get my $20m annual bonus and to keep shareholders happy.

Now, if i'm a govt building these roads, I invest $16b in taxpayer money. If i have to borrow, I currently get record low interest rates. I can toll the road to help recoup cost faster but at a significantly lower pricing point because my goal is to pay off the cost and upkeep of the road, not to make a profit. Now, to account for additional maintainance costs that new roads will create, i could keep a toll on the road once the initial investment & interest has been paid off, but it could be a nominal fee as again, only trying to cover my costs not to turn a profit.

So while a private company will toll the road at $4.30 increasing inline with CPI or 4% (whichever is greater) every year, A govt could toll the road at $2 only increasing in line with CPI, and once paid off a nominal toll of $0.50 per vehicle for maintainance costs.

I know which one will be more palatable among voters and makes more sense to me... shame the sensible option for the community doesn't guarantee me a seat on the board of a multinational company and a $500k salary in my post political career...

**Note: Numbers are a guestimate but you get the idea.

[ian]

Toll roads are the biggest con job going around IMO.

if i'm a govt building these roads, I invest $16b in taxpayer money. If i have to borrow, I currently get record low interest rates. I can toll the road to help recoup cost faster but at a significantly lower pricing point because my goal is to pay off the cost and upkeep of the road, not to make a profit. Now, to account for additional maintainance costs that new roads will create, i could keep a toll on the road once the initial investment & interest has been paid off, but it could be a nominal fee as again, only trying to cover my costs not to turn a profit.

So while a private company will toll the road at $4.30 increasing inline with CPI or 4% (whichever is greater) every year, A govt could toll the road at $2 only increasing in line with CPI, and once paid off a nominal toll of $0.50 per vehicle for maintainance costs.

unfortunately, privately financed and operated toll roads are an example of how weak kneed our politicians are.

State treasuries are always concerned with where future state revenue will come from -- after asset sales, the major sources of State based revenue (in Australia) are payroll taxes, land tax and stamp duty on property sales. These taxes scale poorly with population growth -- retirees tend to consume services while paying comparatively little tax. State Treasury is very concerned that future politicians will succumb to voter pressure and remove tolls, leaving Treasury to fund the loan repayments from money otherwise needed by Health, education and the Police.
The "easy" answer is to remove the uncertainty around future toll revenue from political hands by contracting the private sector to Build Own Operate the facility.

[Dibbers]

unfortunately, privately financed and operated toll roads are an example of how weak kneed our politicians are.

State treasuries are always concerned with where future state revenue will come from -- after asset sales, the major sources of State based revenue (in Australia) are payroll taxes, land tax and stamp duty on property sales. These taxes scale poorly with population growth -- retirees tend to consume services while paying comparatively little tax. State Treasury is very concerned that future politicians will succumb to voter pressure and remove tolls, leaving Treasury to fund the loan repayments from money otherwise needed by Health, education and the Police.
The "easy" answer is to remove the uncertainty around future toll revenue from political hands by contracting the private sector to Build Own Operate the facility.

But it doesn't do that, because the contract is always backed by a govt guarantee that should patronage not meet projections, the govt will foot the difference. So there is still the potential for the govt to have to bail out big business.

[ian]

This could turn out to be a very complex discussion.

Normally when a toll road is constructed it is done by a private road builder who will in turn benefit from the toll that they collect once the road is completed. It would normally have a time limit of xx years and then the road is handed back to the government. Unless an extension is required then more years are added. This is what happened to the Sydney Harbour bridge toll, the tunnel was built and the toll collection period was extended.

not quite

The world's best fireworks platform (AKA the Sydney Harbour Bridge) and the associated rail connections were built and owned by the NSW government. Toll revenue from vehicles, people and animals using the bridge went towards servicing the loan -- which IIRC was at 3% or less -- and maintaining the structure. Nowadays few will remember that train, tram and bus trips across the bridge accrued a surcharge (relative to an equivalent journey that didn't use the bridge) that was paid into the Sydney Harbour Bridge account.

When the Harbour Tunnel was approved in 1987, the private proponents secured a deal that included a $200M interest free non-recourse loan, and $1 for every vehicle crossing the bridge or using the tunnel regardless of direction. The toll increases at the greater of inflation or the rates set out in the legislation -- https://www.legislation.nsw.gov.au/#...t/1987/49/sch5 if you want to have some fun with a spread sheet. At the time the tunnel opened, something like $15M was outstanding on the Harbour Bridge loan, which was paid off to keep the books "straight". Unfortunately for NSW motorists, the ATO ruled that the tunnel was a join venture leaving NSW tax payers on the hook fopr Commonweath tax. From memory, the annual payment to the tunnel owner / operator peaked at around $120M.

[ian]

But it doesn't do that, because the contract is always backed by a govt guarantee that should patronage not meet projections, the govt will foot the difference. So there is still the potential for the govt to have to bail out big business.

not for the toll roads I'm most familiar with.

the typical scenario for a toll road that gets into trouble is
the merchant bank who puts the deal together makes a motza.
the prime contractor probably makes a profit -- I've seen profit forecasts as high as 20% on a $4.5 B build.
actual traffic doesn't match the projections so the toll road company goes into receivership.
the receiver sells the toll road and tolling rights to a subsequent investor.
the initial investors take a bath -- sometimes to the tune of a 100% loss.
the merchant bank putting together the second deal makes a respectable profit.
the new investors may or may not pay too much for the road.
the cycle repeats -- think Sydney's cross city tunnel -- until a stable experienced operator takes the road over.

[Dibbers]

not for the toll roads I'm most familiar with.

the typical scenario for a toll road that gets into trouble is
the merchant bank who puts the deal together makes a motza.
the prime contractor probably makes a profit -- I've seen profit forecasts as high as 20% on a $4.5 B build.
actual traffic doesn't match the projections so the toll road company goes into receivership.
the receiver sells the toll road and tolling rights to a subsequent investor.
the initial investors take a bath -- sometimes to the tune of a 100% loss.
the merchant bank putting together the second deal makes a respectable profit.
the new investors may or may not pay too much for the road.
the cycle repeats -- think Sydney's cross city tunnel -- until a stable experienced operator takes the road over.

Im pretty sure thats the arrangement for the new westconnex in sydney... the govt is even trying to induce drivers to use tolls by granting free rego if you spend $25 or more a week in tolls...

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[AlexS]

But it doesn't do that, because the contract is always backed by a govt guarantee that should patronage not meet projections, the govt will foot the difference. So there is still the potential for the govt to have to bail out big business.

All sorts of sweetheart deals are done with the private builders. When the M2 was built (Bruce Baird was transport minister then) a deal was done that means the government has to pay penalties if it allows any new bus routes that would compete with the M2, or if it builds any competing railway line. It also did a lot of work to force traffic off public roads and onto the M2. I suspect that similar deals are in place for all the other tollways, but of course, these deals are always 'commercial in confidence'.

[ian]

Im pretty sure thats the arrangement for the new westconnex in sydney... the govt is even trying to induce drivers to use tolls by granting free rego if you spend $25 or more a week in tolls...

I no longer follow Sydney's toll roads in detail, but last time I looked the WestConnex (M4 expansion / extension) was "different". The road is being built and financed by the NSW Government. (Government ownership and financing is hidden behind a corporate structure It's been announced that 51% of the company will be sold.) I understand that the revenue stream from the widened section of the M4 (Parramatta to Homebush Bay Drive) has been (or will be) sold -- I believe the finance industry term is "securitisation" -- with the lump sum payment going towards partly funding the eastern extension. The intent is to sell the completed project to the private sector once post opening traffic volumes stabilise.

Given the reports of people's resistance to paying the new toll, and the government's longer term aims for Westconnex, I'm not surprised that incentives are being offered to use it.

[rrich]

WOW! I didn't think that I would open this can of worms!

As for the self perpetuation. . . .
The Lincoln and Holland tunnels, NYC to New Jersey, are $15 cash. When I was a kid (1950s) the tolls were less than $2 and supposed to end about the end of the century.

[doug3030]

Toll Roads, as well as Speed and Red Light Cameras (as mentioned in the other thread) - just another reason to hate Victoria, particularly if you drive a ute.

On Melbourne toll roads, the idiots in our state government allowed the toll companies to classify vehicles as cars, light commercial and heavy vehicles. Looks fair enough except for the definition of a light commercial vehicle. If a vehicle has a cab-chassis construction it is automatically a light commercial vehicle, unless it is a heavy vehicle.

I drive a Colorado. Thanks to the Victorian Government this is charged a light commercial vehicle toll, so I would be charged $12.65 for an e-tag trip from the Westgate Freeway to the Monash Freeway through the tunnel. If you drive a similar sized 4wd such as a Land Cruiser or Patrol, which have a station-wagon body (not cab-chassis) they pay the same as a car - $7.90.

Where's the justification? Does my Colorado take up more room or cause more wear and tear on the toll road than the Land Cruiser? I think not - just some idiot in the Government let the toll road operators put one over us when setting the definitions of the classes of tolls.

But wait - there's more. Last year Citylink realized that they were missing out on even more money because Commodore and Falcon utes, which were being charged as cars are actually cab-chassis vehicles so now even these small 2wd utes are being charged the extra $4.75 per trip through the tunnel.

Now of course you would think that the Government could just change it for common sense reasons - but if they do, under their contract with Citylink they would then have to pay compensation for lost earnings. Since the Government has a choice of paying for their own stupidity or continue letting the ute owners of Victoria pay for it for them guess who is left holding the bag?

There is, however a perfectly legitimate and legal way to get around this, but it is not well known...

[TermiMonster]

There is, however a perfectly legitimate and legal way to get around this, but it is not well known...

So are you going to keep us hanging?
TM