Senators push laws to end subsidies for leased roads

Two US senators have introduced separate bills that would cut subsidies for roads that have been leased by private investors and the states that lease them.

New Mexico Democratic Senator Jeff Bingaman and Iowa Republican Charles Grassley jointly introduced Senate Bills 884 and 885 to curb federal benefits for roads, such as Chicago’s Skyway toll bridge and the Indiana Toll Road, under current laws.

Chicago Skyway: still sparking debate

Bill 885 – titled “Transportation Access for All Americans” – would eliminate an indirect subsidy in the form of a depreciation allowance for highway leases. Current tax code allows the lessor of a highway to take advantage of an accelerated 15-year depreciation schedule for a certain portion of the upfront lease cost if they have “constructive ownership” of the road. Constructive ownership is generally attained by having a lease that exceeds the 45-year “useful life” of a road.

Taking advantage of the accelerated schedule is beneficial since a dollar today is worth more than a dollar tomorrow. Depreciation, the reduction of an asset’s value due to wear and tear, is a non-cash expense that lowers taxable earnings and thus boosts free cash flow today.

Jeff Bingaman

“These write-off schedules amount to a generous tax subsidy and are driving exceptionally long leases,” the Senators said in a press release, pointing to the 99-year lease for the Skyway and the 75-year lease for the Indiana Toll Road.

The bill wouldn't impact those roads since it is not retroactive. Still, Senator Bingaman, who chairs the Senate Finance Subcommittee on Energy, Natural Resources and Infrastructure, calls these transactions' lease lengths “the tax tail wagging the dog”.

He has previously expressed smilar criticism of long-lived leases for road assets.

“I appreciate that these infrastructure firms are merely following the

letter of the law.  But if depreciation rules lead to forms of investment that we judge to contravene public policy, then the Finance Committee should consider changing those rules, so that companies can write-off their investments on a timeline that more closely mirrors economic reality,” Bingaman said during a hearing on 24 July, 2008.

“It is impossible to envision how transportation will change in the next hundred years. As a point of reference, the Model T is 100 years old this year – can we even pretend to imagine what the next century will bring?” he asked.

Chuck Grassley

Bill 884 – titled “Transportation Equity for All Americans Act” – by contrast, would eliminate a direct subsidy in the form of federal funding for state highways. The federal government apportions tax dollars for states’ highway needs based on a formula that includes highway miles. The state of New Mexico, for example, has a total of 1,000 miles of interstate highways, while Indiana has 1,172. Both receive highway funding proportionate to this. However, New Mexico does not allow public-private partnerships for road assets, so all of its highways are maintained by the state, while 157 miles of Indiana’s interstate count is operated and maintained by a private sector partner. Those miles are still included in Indiana’s allocation, reducing the same funding from states like Mexico.

The senators call this “double-dipping” and have designed Bill 885 to eliminate private miles from inclusion in allocation of the highway trust fund revenues.

“Our bills would protect taxpayers from the triple whammy of funding highway construction, giving generous tax breaks to private industry to maintain the infrastructure, and then paying tolls to use that infrastructure,” Grassley, the top Republican on the Senate Finance Committee, said in a statement.

The bills' introduction was lauded by some industry groups.

“The legislation will eliminate expensive federal subsidies that now flow to privatized highways. When a state or city leases a highway, it receives significant compensation, but taxpayers always end up paying higher tolls to the private operator,” the American Trucking Associations, a group that represents US trucking firms, said in a statement.

Bill 885 has been sent to the Senate Environment and Public Works Committee. Bill 884 has been sent to the Senate Finance Committee. Neither has yet had hearings scheduled.

If the bills are approved by their respective committees, they will be referred to the Senate for a vote.