Solving transportation problems with broadband investment logic

9 November 2013 by Steve Blum

The meter is running.

There are two fundamentally different choices for financing infrastructure projects in California: public money or private investment. Private ownership predominates in the telecoms and energy sectors. Water is a mix of both, although the big ticket projects are primarily publicly owned. Roads are nearly all taxpayer-funded and managed by government agencies.

An accumulating backlog of deferred maintenance on publicly owned infrastructure – one estimate puts it in the $800 billion range – grabbed the attention of participants at the second annual California Economic Summit, held this week in Los Angeles. Part of the solution is to reduce costs. Even so the tab will be steep and current cash flow, from taxes of various sorts and euphemisms, won’t cover it.

Many pushed for the simplest solution: change Californian laws to make it easier to raise taxes. But another possibility is to attract private capital investment by creating a business model that allows a sufficient return on investment. To do that, roads would have to be treated more like a public utility – pay for what you use – than an all-you-can-eat public good.

The gas tax was originally conceived as a user fee for drivers. The heavier your vehicle and the farther you drive, the more gas you buy and the more wear and tear you put on the roads. Over time, though, gas tax money was diverted to other uses and gas mileage started rising. With the advent of electric cars, the disconnect between income and expense continues to grow.

Replacing the gas tax with some kind of pay-as-you-go road use fee would create a clear revenue stream. Giving a share of that to private investors who pay for rebuilding and maintaining particular stretches of road could make a return on investment case. Or not. Either way, it’s the same kind of decision that telecoms or electric utility investors make every day.

Investor-owned service providers are accustomed to asking for – and getting – subsidies from public agencies in exchange for building infrastructure that meets policy goals. Turning that model around – tapping user revenue to meet ROI goals – works just as well.