PAY-AS-YOU-GO TRAVEL IS MORE THAN A NOVELTY.

Byline: Robert Poole 

AMERICA is using up its highways. The Federal Highway Administration announced recently that federal, state and local governments are spending $16 billion a year less than needed simply to maintain the current level of highway quality (let alone adding capacity in areas of major growth).

What's happened is that the gasoline tax has ceased to be an adequate source of highway revenue. During the '50s and '60s, average fuel economy kept declining, as we bought larger and heavier cars. So gas-tax revenues soared, enabling us to build the Interstate highway system.

Today, gas-tax revenues keep shrinking, in real terms, just as we're reaching the stage at which much of the Interstate system needs major reconstruction.

Americans actually bought seven percent fewer gallons of gas in 1991 than we did in 1975, thanks to huge gains in automobile fuel economy. But we're driving far more than ever before, resulting in greater wear and tear and congestion on the highways.

Put the two together and you can see why we are destroying our once-grand highway system.

These trends make all the more noteworthy the opening of California's first privately financed toll road, the SR 91 Express Lanes. This 10-mile, $126 million project offers a new paradigm for how this country can fund, manage, and use highways in the 21st century.

The four Express Lanes are the world's first fully automated toll road. This is also America's first-ever use of peak-hour pricing. To guarantee the road's promised time-savings, compared with the horribly congested lanes of the adjacent Riverside Freeway, the Express Lanes charge $2.50 at peak hours, with lower charges at less-busy times, all the way down to 25 cents at night.

Financing for the road was provided entirely by the private sector. Investor equity plus debt provided by banks and insurance companies are paying all the costs of developing the road. Repayment of those costs, plus all operating and maintenance costs (including highway patrol costs) will come from the tolls.

It's a significant addition to the highway system at no cost to California taxpayers. And thus far, it seems to be quite popular with commuters in the 91 corridor.

Privately financed toll roads are becoming a worldwide trend. France and Italy have long used this technique to develop their extensive motorway system. The concept has recently spread to Latin America, the Asia-Pacific region, and Eastern Europe. Germany is considering tolling and privatizing its famed autobahn system, and England its motorways.

Here at home, the past decade has seen a dozen states authorize long-term franchises for privately developed tollways. In late September, Department of Transportation Secretary Federico Pena cut the ribbon on the Dulles Greenway, the country's first privately financed tollway in over 50 years.

Skeptics maintain that privately financed tollways will remain a curiosity, rather than an increasingly important tool for rebuilding our highway system. In so saying, they ignore the powerful advantages offered by this new approach.

First and foremost is a major new source of capital. Australia has begun to tap the public equity markets for private tollways, with a successful public offering last winter for a new Sydney project and a larger offering planned this winter for a major Melbourne tollway.

Other potential sources are the insurance industry (which has already invested in the Dulles Greenway) and America's $5 trillion pension-fund industry. The long-term nature of toll roads is a good fit with these industries' investment requirements.

But the case for such tollways goes well beyond better funding. Requiring a state transportation agency to offer major highway projects first to the private sector should markedly improve resource-allocation decisions.

The highway arena is notorious for pork-barrel spending, in which projects are approved whose political benefits far outweigh their true economic benefits. But private capital will only fund a project if it is supported by "investment-grade" traffic and revenue studies demonstrating an adequate return on investment.

Users, too, should benefit greatly from this new paradigm. In the near term, privately financed tollways are most likely to win approval where they add needed capacity years sooner than otherwise, especially to provide congestion-relief in major urban areas.

California and a number of other states permit a private tollway only where an alternative free route is available. Thus, users will be able to choose to pay a toll in exchange for better service or continue to use existing routes still paid for by the gasoline tax.

California needs to update its pilot-project legislation into a comprehensive measure that takes full advantage of the private sector's capabilities - as recommended in a recent report by the California Commission on Transportation Investment.

In addition, federal law presents at least two major obstacles. First, many of the most attractive candidates for rebuilding and modernization as private tollways are part of the Interstate system - and thereby off-limits.

Second, unlike their public-sector counterparts, private tollway developers are unable to make use of lower-interest-rate tax-exempt bonds. If Congress addressed these two issues, both states and the private sector would have much greater incentive to use private capital to rebuild our vital highway system.