Controversial road pricing in Denver: drawbacks of public-private partnerships

Like many state and local governments, Denver and the state of Colorado have realized that the demand for new taxes falls short of demand for new roads.  In light of revenue constraints, Colorado turned to the Federal Highway Administration’s Innovative Program Delivery unit to coordinate the eight member jurisdictions and a range of private investment firms, including the now defunct Lehman Brothers, to build the E-470 Tollway. The 47-mile road completes the eastern side of the beltway around the Denver region. The western end of the beltway never quite completed the loop, however, as environmental groups protested the proposed alignment that ran along a wildlife refuge and cut through open space reserves.  E-470, which runs through distant eastern exurbs of Denver and the wide open Colorado prairie, faced no such opposition.

The $1.23 billion project is innovative for being the first major public-private partnership for freeway construction since before the interstate highway era. Financing took the form of municipal revenue bonds that were backed by Lehman Brothers, George K. Baum and Company, and the Union Bank of Switzerland. The operator of the tollway is Parsons Brinckerhoff, a global transportation engineering and management company. E-470 is also known for being the first toll road to employ cashless tolling; even if you don’t have a transponder, tolls take photos of your license plates and automatically send you a bill.

The main criticism of E-470, despite its accolades from within the toll operators industry, is that the high cost of the tolls renders it inaccessible and burdensome to low-income drivers, especially those who use it for their daily commute working at Denver International Airport. Each of the five toll segments costs up to $3.25, making it one of the most expensive urban toll roads in the country. If you drove the entire half-circle of the beltway, it would set you back $14. As one upper-middle-class driver described it:  "You won't see anything but Land Rovers, Mercedes and Beamers. No one else can afford it." The E-470 highway authority plans to raise tolls annually, due to slightly lighter traffic than expected, in order to keep up with obligations on the debt service. Given the increasing suburbanization of poverty in the Denver region, the semi-privatization and pricing of this major highway may come under more scrutiny in the coming years.

A shorter western extension of E-470, the Northwest Parkway, has been far more controversial and problematic. The toll road was mainly conceived by the town of Broomfield as a way to connect an upscale office park, golf resort, and shopping mall directly to the Denver Airport. It seems the clientele envisioned from the beginning would have no qualms about paying for a toll road. The public-private arrangement has been criticized for suspected conflict-of-interest by the Chief Financial Officer, who straddled employment between both the public highway authority and the engineering firm contracted to design the road. Additionally, the engineering firm forecasted a wildly optimistic picture of the number of jobs the parkway would serve, presumably to garner support for the project. The firm overshot the 2004 projection by 67%; they estimated 109,000 jobs, but only 65,000 were actually served.

Even more controversial, however, was the attempt by the private toll operator, a Spanish company, to obstruct development of a nearby road by invoking a “non-compete clause” in their contract. Non-compete clauses entitle private toll operators to compensation if the government builds a road that may draw traffic off the toll road, and hence reduce revenue for the private operator. A Colorado state legislator even tried to prohibit these non-compete clauses from entering future contracts. A nationwide 2011 study of public-private partnerships found that these non-compete clauses, among other compensation claims embedded in the contracts, present serious issues of the tradeoff some public agencies can face between compensating toll operators or building more sustainable or efficient transportation infrastructure.

As Denver continues to barrel ahead into more public-private partnerships in transportation, including a new Highway 36 Express Lanes project connecting Boulder and Denver, let’s hope that the tenuous nature of semi-privatization of roads won't disrupt the city's vision for a sustainable and equitable regional transportation system.

References

Colorado Department of Transportation (2013). CDOT and HPTE Select Concessionaire to Complete the US 36 Express Lanes Project. 5 April 2013.

E-470 Highway Authority (2011). E-470 Historical Fact Sheet

Federal Highway Administration (2013). E-470 Tollway. Innovative Program Delivery.

International Bridge, Tunnel and Turnpike Association (2006). 2006 Toll Excellence Award Winners.

Jacob Smith for Golden (2012). Legislature Kills Max Tyler’s Bill to Prohibit Non-Compete Agreements. 2 March 2012.

Jaffe, E. (2013). The Future of Public Roads in Private Hands. Atlantic Cities. 5 May 2013.

Leib, J. (2008). Toll firm objects to work on W. 160^th. Denver Post. 24 July 2008.

Lewis, A. (2006). Roads Take their Tolls on Wallets. Denver Post. 1 January 2006.

Plunkett, C. (2006). Northwest Parkway has roots in suspect merging. Denver Post. 28 May 2006.

Whaley, M. (2012). E-470 tolls go up in January. Denver Post. 9 November 2012.