Thomas Black

Physical infrastructure — highways, bridges, ports, internet servers, potable water — provides the backbone of an economy, even in an increasingly digital and virtual world. Most people recognize that it makes the nation more competitive and efficient and support investment in these projects. That backing begins to fade when it comes down to who’s going to pay for it and in whose backyard it will end up.

President Joe Biden’s administration has supercharged the push to improve and expand U.S. infrastructure with the $1.2 trillion Infrastructure Investment and Jobs Act and, to a lesser extent, the green-economy bill and the Chips and Science Act.

Everyone is eager to tap into the infrastructure bonanza, and the investment money is already moving out the door at a good pace, with 56,000 projects funded with $454 billion, including 9,000 bridges and 165,000 miles of road, according to the White House. State and local authorities are handling 90% of the funding allocation, which helps pinpoint the most pressing needs.

Money from the infrastructure act has the greatest impact for works that are critical yet unlikely to be financed by local budgets or private companies, such as replacing lead pipes in the water system and expanding broadband to rural areas. Still, Brightline West, a high-speed rail line that intends to connect Las Vegas with the outskirts of Los Angeles, received $3 billion. Mitch McConnell, the Republican Senate leader who rounded up support for the infrastructure bill, made sure his home state of Kentucky benefited with a $1.4 billion grant to upgrade a bridge across the Ohio river that links Kentucky and Ohio near Cincinnati. All federal taxpayers are picking up the tab for these projects.

The fairest way to obtain money for many infrastructure projects is to get it directly from the users. One good example is the gasoline tax, which replenishes the Highway Trust Fund. Unfortunately, there’s no political will to lift it from 18.4 cents a gallon, where it has sat since the last increase in 1993.

Two of the best alternatives for user-paid infrastructure are toll roads and variable-fee express lanes. States with fast growing populations, including Georgia, Florida, and Texas, are embracing toll projects because they can’t wait for federal funding to expand traffic capacity. These highways shouldn’t be funded with infrastructure act money, and it just so happens that private capital is eager to invest in solid transportation projects. Booming cities such as Atlanta, Nashville, Dallas, and others must stay ahead on infrastructure or face congestion that reduces the quality of life, which eventually kills the boom.

Ferrovial SE, a Madrid-based company that just listed on the Nasdaq, is one of those companies eager to take the risk of financing and building toll projects. The company wants to ride the U.S. infrastructure boom, Chief Executive Officer Ignacio Madridejos said, and is selling some of its projects around the world, including a stake in Heathrow Airport, as part of its new focus on North America. Toll roads and airports are of keen interest for the company, he said.

The Spanish company has had both good and bad experiences with tolled infrastructure in the U.S., providing insight and valuable lessons. Ferrovial lost all of its equity in a 41-mile stretch of tolled highway between Austin and San Antonio in Texas. State Highway 130, which is probably most famous for its 85-mile-an-hour top speed limit, opened in 2012 and went into Chapter 11 bankruptcy in 2016 because the traffic didn’t meet the company’s estimates. While this was a misstep and the section that Ferrovial built is now publicly owned, the toll highway still exists and now has more traffic as Austin’s urban sprawl reaches it, including Tesla Inc.’s new gigafactory and headquarters.

The risk for companies is both on the traffic estimates and construction, where delays and cost overruns can bite into profit, Madridejos said. “In the beginning, we learned by making mistakes,’’ he said. “Now we have a much better understanding of the revenues, traffic and how the users behave.”

Ferrovial had more success expanding Interstate Highway 35, which cuts through Dallas and surrounding suburbs. The company added express lanes, which increased capacity while maintaining a free option for motorists. The charge for the express lanes varies depending on the traffic, providing a choice for drivers who are willing to pay to travel faster. The traffic on these express lanes has surpassed the company’s estimates. There were 22 express toll lane ventures in the U.S. at the end of 2019, according to the Department of Transportation, including on Interstate 95 in Virginia and Florida. North Carolina converted its high-occupancy vehicle (HOV) lanes, which didn’t encourage carpooling as expected, to tolled express lanes on I-77. Georgia plans to build express lanes along 16 miles of SR 400 in Atlanta, and Tennessee wants to add optional toll lanes on highways around Nashville, Chattanooga and Knoxville.

“The winners will be those that have the infrastructure,” Madridejos said. “With today’s fiscal deficits, it will be difficult to cover these needs with public funding.”

Expect more of these toll road and express lane projects as states seek options to keep their infrastructure ahead of growth without breaking their transportation budgets or waiting for Congress to pass another huge infrastructure bill.

Thomas Black is a Bloomberg Opinion columnist writing about the industrial and transportation sectors. He was previously a Bloomberg News reporter covering logistics, manufacturing, and private aviation.