Jeff Bingaman United States Senator from New Mexico

WASHINGTON – U.S. Senators Jeff Bingaman (D-NM) and Charles Grassley (R-IA) today introduced two bills to eliminate expensive federal subsidies that now flow to privatized highways.

Several state and local governments have already leased to private companies existing highways, including the Chicago Skyway and Indiana Toll Road, which were leased to private operators for 99 and 75 years, respectively.  When a state or city leases a highway, it receives significant compensation, but taxpayers almost always end up paying higher tolls to the private operator.

Current law provides private highway operators a federal subsidy through the tax code’s exceedingly generous cost-recovery provisions.  Specifically, the tax code allows a private highway operator to depreciate, or write off, the portion of a highway lease attributable to infrastructure if the lease is sufficiently long – generally, longer than the 45 years highway infrastructure is expected to last.  Once a lease beats that hurdle, the depreciation write-off occurs over 15 years – that is, the lessor’s entire investment is recovered over only one-third of the highway’s expected life.  And regardless of the lease’s actual length, the lessor can write off the right to collect tolls over 15 years, which in the case of the Chicago Skyway is less than one-sixth of the total lease period.  These write-off schedules amount to a generous tax subsidy and are driving exceptionally long leases.

Meanwhile, federal highway funding continues to flow to the state, as though the highway had never been privatized – a practice that shortchanges states that do not have private highways.

Bingaman and Grassley’s bills would end both forms of taxpayer subsidy.  Their “Transportation Access for All Americans Act” (S. 885) would revise the tax code’s cost-recovery schedules so that private lessors can write off their investments on a schedule that is consistent with what the Bureau of Economic Analysis says economic reality would dictate.   The “Transportation Equity for All Americans Act” (S. 884) would put a stop to double dipping, where a state government receives payments from both a private party and from the U.S. Treasury for the same highway.

“The tax code’s exceedingly generous cost-recovery provisions create a perverse incentive to tie up critical American infrastructure in private hands for generations to come,” said Bingaman, Chairman of the Senate Finance Subcommittee on Energy, Natural Resources.  “What we have is the tax tail wagging the dog, with dangerous consequences for America’s transportation policy.  We must eliminate this perverse incentive and stop subsidizing these private highway operators – who are primarily Spanish and Australian banks – with American tax dollars.”

“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,” said Grassley, the top Republican on the Senate Finance Committee.

The senators noted that shutting down this tax subsidy could raise considerable revenue for the U.S. Treasury, and that they would consider using the revenue to address transportation finance challenges. 

The Transportation Access for All Americans was sent to the Senate Finance Committee.  The Transportation Equity for All Americans Act was sent to the Senate Environment and Public Works Committee.