Toll Road Update - NAFTA Traffic

Toll Road Update - NAFTA Traffic

October 18, 2005 | By Jacob Falk in Washington, DC and Tracy Horton in Washington, DC

The federal highway bill signed by President Bush in August earmarks $833 million for projects within 100 miles of the US borders with Mexico and Canada.

The measure should spur new highway construction in the border states, but the $833 million is paltry in relation to need. There is growing concern that unless new roads are built, border crossing points will soon be too congested for efficient use. Transportation officials, wary of the governments’ ability to pay, are turning to private sector development as the best alternative for getting the necessary border projects done.

NAFTA

The US Federal Highway Administration and the Mexican Secretariat of Communication and Transport sponsored a “Border Finance Conference” in San Antonio, Texas in August. The focus of the conference was how to get new roads built along the US, Canadian and Mexican borders. Traffic among the three countries is booming thanks to the free trade zone created by the North American Free Trade Agreement — called NAFTA — and it is expected to increase as the countries approach a deadline of 2008 for full implementation of NAFTA.

Jeffrey Shane, a US undersecretary of transportation, said at the conference that the value of freight shipments among the US, Mexico and Canada increased an average of 8% a year since 1990 and is now more than 170% of what it was in 1990. “Mexico and Canada are the top two trading partners [of the United States], and trade among [these] countries is expected to keep growing,” Shane said. “In 2004, the US traded $711 billion in goods with Canada and Mexico,” which is almost $2 billion in goods and services a day. “Every year, some 350 million people legally cross the border between the United States and Mexico, and more than 200 million people cross the US-Canadian border.”

The increasing traffic is a problem because there are too few suitable border crossings to handle the growing truck traffic, no viable “straight-shot” highways from Mexico to Canada, and insufficient government funding to build them. The US interstate highway system was designed almost half a century ago in the 1950s at a time when significant cross-border trade on the scale generated by NAFTA was unimagined. Mexican highways are similarly deficient. The main crossing points, like the border station at Laredo, Texas, are overcrowded while other crossings are underused because the roads leading in and out of them are not equipped to handle large volumes of commercial traffic. Trucks moving north from Mexico into the US interior end up adding to the congestion on already clogged roads in San Antonio, Austin, Dallas and Houston. What are needed are straight-shot highways that would let them bypass these cities.

The United States knew when NAFTA was ratified in 1994 that this would be a problem. It had originally planned to build a “NAFTA highway” that would run 1,600 miles from Laredo, Texas to Port Huron, Michigan at the US border with Canada. Part of this highway already exists as Interstate 69 between Port Huron and Indianapolis, Indiana. This part was built as part of the original interstate highway system in the 1950s. The rest was authorized by Congress in 1998 in the “Transportation Equity Act for the 21st Century”— called “TEA-21” — but construction has yet to start. The completed interstate would continue south from Indianapolis to the Mexican border through Indiana, Kentucky, Tennessee, Mississippi, Arkansas, Louisiana and Texas. Most states in the corridor have begun the environmental studies needed to move forward with design and construction of their portions of I-69.

Construction of I-69 will help alleviate the effects of NAFTA congestion, but the problem is much larger than one highway. The US border with Mexico is approximately 2000 miles long. A joint working committee of US and Mexican transportation officials has identified 311 significant road projects that need funding in the border areas.

The US-Canadian border is more than 3,000 miles long. A similar joint working group of transportation officials from the two countries has identified 224 significant road projects that need funding.

The estimated total cost for projects along the US-Canadian border is $13.4 billion, and the funding shortfall for projects along the US-Mexican border is estimated at $10.5 billion. Government funding, which in the US is traditionally based on the collection of gas taxes, is unable to pay for these projects now and is unlikely to be able to pay for them any time soon.

US Actions

The amount of money the US government is able to provide is limited.

The federal highway bill that President Bush signed on August 10 authorizes $1.948 billion for road projects over the next five years through a “national corridor infrastructure improvement program.” Congressional spending is a two-step process. Congress first “authorizes” spending, but the money cannot actually be spent until another bill is passed formally “appropriating” the money. Congress still needs to appropriate the highway funds that were authorized in August.

The money set aside for the national corridor infrastructure improvement program is supposed to be spent in ways that “promote economic growth and international or interregional trade,” including NAFTA trade. However, Congress left federal highway officials with little discretion, choosing to “earmark” a lot of the funds. For example, Congress directed that $50 million must be used for general construction of I-69 in Texas, Louisiana, Arkansas, Mississippi, Tennessee, Kentucky and Indiana, $75 million for specific I-69 projects in Arkansas, $100 million for specific I-69 projects in Tennessee and additional amounts for various improvements to existing highways that will become part of I-69.

The highway bill also authorizes $833 million for NAFTA projects near the US border. This is the amount that Congress suggested the federal government would spend over the next five years under a “coordinated border infrastructure program.” This money will be apportioned among the US border states based on the ratio of incoming commercial truck and personal motor vehicle traffic, the amount of incoming truck cargo and the number of border points of entry in each state. Some of the money may be used for qualifying projects on the Canadian or Mexican side of the border where such spending would help to ease congestion in the United States.

The sums that the highway bill authorizes are a drop in the bucket compared to need. Government officials attending the border finance conference in August agree that federal funding will be insufficient and spent most of the conference talking about how to get the private sector involved in road projects.

State Actions

Texas has already taken steps on its own to deal with NAFTA congestion. The state is implementing an ambitious plan to build a 4,000-mile, $180 billion transportation corridor of superhighways and pipelines called the Trans-Texas Corridor, or TTC, with private funding. The pressure placed on Texas highways by NAFTA traffic is one of the main drivers for the state’s move toward innovative financing solutions. Texas selected a Cintra-Zachry consortium to develop the first stage of the project — a new $7.2 billion superhighway along the I-35 corridor, which stretches from the Mexican border in the south to the Oklahoma border in the north. The I-35 corridor will allow traffic to bypass San Antonio, Austin and Dallas while heading north.

The I-35 corridor in Texas is expected to serve as a “blueprint”— or test run — for development of the Texas portion of the I-69 NAFTA highway. The environmental studies for construction of I-69 in Texas got underway in early 2004 and are expected to conclude in 2006. Further environmental studies will be necessary if a preferred corridor is selected. No contracts have been awarded for the development or construction. The state expects to have to rely largely on private funds.

Meanwhile, in Indiana, Governor Mitch Daniels is proposing to use a public-private partnership to accelerate the state’s construction of its remaining portion of I-69. Indiana does not currently have legislation authorizing use of PPPs to build road projects. The governor has asked the state transportation department to work on bill language to present to the legislature. If the plan passes, then the remainder of I-69 in Indiana may be built as a public-private toll road.

The remaining section of I-69 in Indiana will run 142 miles from Indianapolis to Evansville. Construction had been scheduled to begin in 2017, at the earliest, but under the governor’s plan, construction will begin sooner. The estimated cost of the I-69 extension is $1.8 billion, with $700,000 to be spent over the next 10 years. The estimated savings to the state if the I-69 extension is built as a state-owned toll road is $700,000. If the I-69 extension is built as a PPP, the estimated savings to the state is between $900 million and $1.5 billion. The current round of environmental studies on the six sections of the proposed highway is expected to be completed by the summer of 2007.

Mexico

The United States is not the only NAFTA country looking at private ownership of roads to break the developing gridlock along the US-Mexico border. Mexico is doing so as well.

Mexico currently has 116 active public-private highway projects, and is expecting to develop more under a new national PPP program. Mexico has had a PPP toll road program since the mid 1990s, but the existing program has been a disappointment. The Mexican transport ministry announced a new program in 2003 that set aside $1.2 billion for nine concessions of varying length and size. The new program appears to be better thought out than the old program, and Mexico expects to put a number of other toll roads out to bid in the near future.

One of the proposed toll roads that is expected to go to bid as a PPP project this fall would connect Monterrey, a major industrial city, to the NAFTA highway on the Mexican side of the border. The NAFTA highway in Mexico is Highway 57 and runs between Mexico City and Laredo, Texas. North of Monterrey, Sabina Hidalgo may get an 88-mile PPP toll road to connect it with Colombia, a border-crossing point upriver from Laredo. Another border project proposed by Mexico would be a privately-built and operated highway and border-crossing bridge. The bridge would be located approximately 19 miles upriver from Reynosa, and would help alleviate overcrowding and delays on two bridges.