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Awaiting the Johnson Commission report – Public-private partnerships and tolls can finance highway renewal

Montreal, October 11, 2007 – Public-private partnerships (PPP), financed by tolls, can provide an advantageous way of carrying out a substantial number of highway renewal projects. In a series of three Economic Notes published by the Montreal Economic Institute, economist Mathieu Laberge says this could enable the Quebec government to save public funds in future reconstruction work on the Turcot interchange, the Metropolitan highway or, eventually, the Louis-Hippolyte-Lafontaine bridge and tunnel. “International experience shows that PPPs can help finance not only the construction but also the renewal of highways and other road infrastructure,” Mr. Laberge states.

The PPP approach for stable financing

With the scope of the highway rebuilding challenges the Quebec government faces over the next few years, it could consider setting up PPPs. Experience in other countries indicates they would provide for more stable and more ample financing. Currently, government investment in roads is subject to the vagaries of political compromises between competing priorities involving various departments and more highly publicized needs. This works to the detriment of investments whose effects may be less apparent but will be felt over the longer term, such as maintaining the quality of the highway network.

Road infrastructure is a major determinant of economic growth, and it is crucial not to stint on its maintenance and improvement. Low investment levels produced by the public financing mode have led to a continuous decline in the value of the expressway network, found in 2005 to have just 55% of its 1975 value. In this regard, the author recommends making the budget process more responsible by asking the Auditor General of Quebec to clarify the accounting practices governing how spending on road maintenance is accounted for.

The Department of Finance is planning to allocate several billion dollars over the next few years to catch up on road upkeep. It would be desirable to depoliticize the process and, by means of PPPs, to implement an independent, responsible, transparent and rigorous approach to reducing costs and bringing in additional funds. This method aims to share responsibilities and benefits between the private and public sectors and to impose tight discipline, with penalties and bonuses to promote compliance with timelines and to punish cost overruns. Private partners will have an interest in providing services within the required time and in maintaining the infrastructure concerned in good condition since they will be responsible for its subsequent management. They will have to offer quality service if they wish to maintain an adequate revenue flow from tolls. They will also provide benefits to the public sector through their capacity for innovation and adaptation.

Modulated electronic tolls are an advantageous solution

The gradual establishment of permanent tolls could be considered as a way to finance all rebuilding work on the main highways without relying on government financing and without increasing the public debt. Most countries apply the user-pay principle to finance their highway networks, in addition to general taxation. A Léger Marketing poll published today indicates that a majority of people in Quebec support this approach and a return of tolls (see this press release).

Most of the funds spent on the road network come from revenue sources that respect the user-pay principle. This is true of the fuel tax and of licence and registration fees. But not all forms of collection are equal. Tolls represent the best means, because they link the amounts paid directly to road use, whereas licence and registration fees represent lump sums that guarantee unlimited access to the service. Tolls are also superior to fuel taxes because they can be modulated to bill different amounts based on the time of day, thereby helping alleviate traffic congestion. For all these reasons, electronic tolls are the way of the future.

The three following Economic Notes were prepared by Mathieu Laberge, an economist at the Montreal Economic Institute and holder of a master’s degree in international economics and econometrics from the University of Nottingham:

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Information and interview requests: André Valiquette, Director of Communications, Montreal Economic Institute, Tel.: 514 273-0969 ext. 2225 / Cell: 514 574-0969 / E-mail: avaliquette@iedm.org

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