Roads to riches

But there's a downside to the quick cash: planned toll hikes that are usually quite aggressive. Chicago's Skyway could see car tolls rise from $2 in 2005 to $5 by 2017. For some perspective, if a similar scheme were applied to the Pennsylvania Turnpike during its 67 years of existence, the toll for traveling from the Delaware River to the Ohio border would be as much as $553 now instead of $22.75. Macquarie, which teamed up with Spain's Cintra to purchase the Chicago Skyway and the Indiana Toll Road, underscored the governmental trade-off during a presentation at the recent White House Surface Transportation Legislative Leadership Summit: "More Money or Lower Tolls." In an extreme scenario, governments could begin to sell properties that aren't tolled to private owners who will impose fees.

Of course, tolls won't go to the moon if they result in dramatic reductions in traffic. For example, investment firm NW Financial Group estimates that if the Chicago Skyway pricing scheme were applied to New York's Holland Tunnel over its 80 years, it would cost $185 to travel through it instead of the current $6. "No one will pay that much," says Murray E. Bleach, president of Macquarie Holdings (USA) Inc. "It's just not going to happen."

Still, Indiana legislators became so alarmed by promised hikes that they changed the terms before the toll road lease was completed. The state set aside $60 million to pay the difference in tolls for up to two years or until the buyers install electronic tolling equipment. After that, the fee for cars with electronic toll cards will rise to $4.80 over the full 157 miles, while the fee for cars without the cards will soar to $8. After 2010, both rates will rise each year by 2%, the pace of inflation, or the rate of economic growth, whichever is highest.

The certainty of future toll hikes doesn't jibe with the uncertainty of service quality. Assets sold now could change hands many times over the next 50 years, with each new buyer feeling increasing pressure to make the deal work financially. It's hardly a stretch to imagine service suffering in such a scenario; already, the record in the U.S. has been spotty. In 2003 the city of Atlanta ended a lease of its water system after receiving complaints about everything from billing disputes to water-main breaks. The city wrestled with the owner, United Water Inc., over basics like the percentage of water meters it should monitor. Both parties acknowledge that the contract lacked specifics. In the end, "we didn't believe we were getting performance," says Robert Hunter, commissioner for Atlanta's Dept. of Watershed Management. "I don't believe the city will ever look at privatizing essential services again." United Water says the contract wasn't financially feasible because Atlanta's water system was in worse shape than the city had represented.

States are wrestling with other public policy issues, too. Bankers say New York could reap a combined $70 billion for long-term leases on a bunch of assets, including the state's lottery, the Tappan Zee Bridge, and the New York State Thruway. New York state officials have looked into the option of leasing the lottery, which itself might command $35 billion — a sum that could substantially upgrade, say, New York's higher education system. The downside? The state would probably have to remove constraints on the lottery's marketing designed to discourage people from gambling more than they can afford. If the state insists on keeping the constraints in place, it could reduce the value of selling it.

MORE FROM BUSINESSWEEK

BusinessWeek Section Front

Stock Picks: Wal-Mart, Hewlett-Packard, Brocade After AMD: Intel's Next Big Battle Stocks Fall as Dollar Rebounds Stocks Finish with Modest Gains How to Move Beyond the DIY Transition to Encore Careers The Case Against Retirement Stocks Finish Mixed Will Cigarette Maker Reynolds Try Kicking the Habit? Market Risk: Key Signals to Watch Now Why Google Is Buying AdMob BusinessWeek Section Front