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Business Can't Compete With Government, Needs Special Help

The competition between public and private sectors is handicapped. But it is the private sector that often cannot compete without being given more strokes.

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No matter how long the lease, the intangible “franchise right” to collect tolls can be amortized over 15 years – even though economic reality would dictate an amortization period equal to the lease length.

The amendments, offered by  Senator Jeff Bingaman (D-NM) eliminate both tax benefits.  The private company must depreciate the cost of the existing highway infrastructure over 45 years while amortizing the intangible “franchise right” to collect tolls over the entire length of the lease.

When an existing toll road is privatized, all responsibility for maintaining the road, collecting tolls, paying the investors’ profit, etc. are taken on by the private entity.  However, because such a privatized toll road continues to be a factor for federal formula funding for highways, the nation’s highway users and taxpayers are essentially continuing to pay for the road despite the fact that a state no longer has any responsibility for operating or maintaining it.  The Senate bill eliminates the lane-miles and vehicle-miles traveled (VMT) for any “privatized” toll road as a factor in the formulae used to apportion federal highway funding.

The net effect of these changes is to reduce the taxpayer subsidy private companies receive to operate toll roads.

The changes have been strongly endorsed by the trucking industry because privatizing highways generally results in higher tolls. They have been just as strongly opposed by Wall Street and law firms that stand to gain on fees from such deals.

The bill is now in the House.  Guess which side is going to win?

I believe a good argument could be made that the public sector deserves a handicap because of all the qualitative benefits public ownership brings.  I can’t imagine any serious argument justifying subsidies to the private sector.


David Morris is co-founder and vice president of the Institute for Local Self Reliance in Minneapolis, Minn., and director of its New Rules project.

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