Archive for May, 2010

Industry Experts Debate Commercial Rest Areas

Friday, May 21st, 2010

Over the last year, states such as Arizona, Colorado, Georgia, Maine and Vermont have shuttered their state-run highway rest areas to help close budget deficits. Virginia closed 19 rest stops in 2009 under then-Gov. Tim Kaine (D) but has reopened them since Gov. Bob McDonnell (R) took office in January.

Kaine also worked with the state’s congressional delegation in a failed attempt to allow Virginia to commercialize its rest stops. The current surface transportation law bans interstate rest areas built after 1960 from offering commercial services like food and fuel. In February, Arizona Gov. Jan Brewer (R) wrote to Transportation Secretary Ray LaHood urging that the commercialization ban be dropped. Other states, including Georgia and New Jersey, have also been pushing the idea recently.

States argue that commercializing rest stops would allow them to raise revenues while keeping open rest areas that drivers and long-haul truckers depend on. Communities and businesses located off the interstate that serve highway motorists respond that food and fuel operations at rest stops constitute unfair competition and would cause them significant economic losses.

As part of the upcoming surface transportation reauthorization, should the law be amended to allow states to offer commercial services at highway rest areas? Which approach — current law or commercialization — best serves highway users?

State-Enabled Monopolies

By Lisa Mullings

President and CEO, NATSO

If the government is allowed to compete unfairly with private-sector businesses, shutting down existing businesses and putting people out of work, there should be a compelling reason. Rest area costs don’t provide such a reason.

Imagine this scenario: A governor inks a deal with a multinational corporation, granting an exclusive right that will close small businesses and send thousands of pink slips to state citizens.

It sounds like something that would never happen, yet that’s exactly what expanding rest area commercialization would do. You don’t have to take my word for it, though. If you examine those states with commercialized rest areas, you could not help but notice what a harsh environment they create for any potential competition. In those counties with commercialized rest areas, there are half as many travel centers, truckstops, convenience stores and restaurants (according to a University of Maryland study).

Rest area commercialization has attracted the buzzword “privatization,” suggesting that it is good for business. Nothing could be further from the truth. Ask a small business owner if he wants to bid on a state lease at a rest area. First, that business owner most likely has invested everything in his restaurant or travel plaza, so it would be impossible for him to abandon such an investment for a leased property. Second, it is naïve to expect that a small business would win the bid. The only entities to hold commercialized rest area leases are multinational companies, such as HMS Host, who control all of a state’s rest areas.

If the government is allowed to compete unfairly with private-sector businesses, shutting down existing businesses and putting people out of work, there should be a compelling reason. Rest area costs don’t provide such a reason. Rest area maintenance costs a fraction of a percent of a state’s transportation budgets. For example, the annual cost of maintaining those rest areas closed by Virginia (later reopened) costs the same as paving a half-mile of roadway.

Rest areas selling food, fuel and other services shut down competition because they are state-enabled monopolies on the shoulder of the road. Interstate travelers will pay a surcharge, with fewer choices, higher prices and less parking. Thousands of state citizens will be in danger of losing their jobs. Businesses that must close will deprive local governments of tax revenue that is critical to funding a community’s schools, police and fire protection.

It is easy to understand the panic many state officials are feeling because of the effects of the recession. Reversing sound public policy by expanding rest area commercialization is no solution.

But road safety is of vital concern

By Gabriel Roth

Research Fellow, The Independent Institute

Because tired drivers can cause fatal accidents, the federal government has a compelling — indeed a vital — interest in ensuring the availability of convenient rest areas on inter-state highways. So a federal ban on selling fuel and food at rest stops seems to make no sense.

New or improved roads can make some locations more (or less) profitable for business, and such changes are part and parcel of any dynamic economy. Should not road owners — even when the owners are states — have the right to enhance their facilities?

Whether commercialized rest areas can constitute “unfair competition” would seem to depend on the circumstances. They certainly need not be subsidized, nor be “state-enabled monopolies”, except in the sense that every facility is a monopoly in its own location. Commerce, which should be encouraged by the federal government, is in some respects still regulated by the states concerned.

Should not legal facilities that improve road safety merit government encouragement rather than government bans?

A Rest Stop on the Road to the Future

By Geoffrey S. Yarema

Member of the National Surface Transportation Infrastructure Financing Commission, Nossaman Infrastructure Practice Group Chair, Nossaman LLP

This is no longer a question of who gets to sell fast food to weary travelers. The question is: how will we maintain our interstates to serve motorists’ changing needs when funding shortfalls and liability concerns are causing states to close existing rest areas in unprecedented numbers?

The upcoming reauthorization will present an excellent opportunity for Congress to rethink its outdated blanket prohibition on the commercialization of state-owned safety rest stops. This is no longer simply a question of who gets to sell fast food to weary travelers. The question is: how will we maintain our interstates to truly serve motorists’ changing needs at a time when increasing funding shortfalls and skyrocketing liability concerns are causing states to close existing rest areas in unprecedented numbers? A more nuanced balancing of interests seems overdue.

As just one example of how these rest stops might be valuably utilized without impinging on off-right of way private sector services, the Pacific Coast states (California, Oregon, and Washington) are trying to ensure the availability of alternative fuels along the I-5 corridor from British Columbia to Baja California, one of USDOT-designated critical “corridors of the future”. A backbone like this would serve to jumpstart the development of a wider distribution network essential to spur a wider acceptance of alternative fuels vehicles in passenger and freight fleets and consequently substnatially reduce emissions. Private fuel distribution networks will be less likely to make this investment in advance of a large customer base demanding the service.

There are other examples of how the use of rest areas within the interstate system should be allowed, while at the same time protecting the many excellent and important businesses off-right of way currently serving the traveling public. It is increasingly clear that a black and white policy, based upon 1950’s definitions of commercial activity, no longer reflects an optimal transportation policy combination of technology. In key areas policy appears to be unnecessarily protecting businesses at the expense of innovative and integrated ideas for the future of our transportation infrastructure.

False Choices

By Lisa Mullings

President and CEO, NATSO

Do you oppose commercial activity at rest areas, or do you support roadway safety? This is the false choice posed by Mr. Roth.

Drivers have access to fewer spaces on commercialized Interstates, not more. This is undeniable fact, not baseless conjecture. There are 33 percent fewer spaces, mile for mile, on commercialized Interstates. So if you agree that the federal government should support pro-safety initiatives, and you believe parking will further that worthy goal, then commercializing rest areas might be the last thing you’d want to do. (Furthermore, if we want to encourage rest area parking from a public policy perspective, perhaps states should keep them open regardless of whether they turn a profit.)

I must admit I am confused about Mr. Roth’s second argument, that “new or improved roads can make some locations more (or less) profitable.” Highway investments put people to work, reduce congestion and support America’s competitive standing in the world economy. Unquestionably, these are all worthy public policy goals that benefit American businesses and its citizens collectively. On the other hand, rest area commercialization benefits one state-enabled monopoly at the expense of many.

As for Mr. Roth’s final point that the government should encourage commerce, I wholeheartedly agree. Unfortunately, rest area commercialization has the opposite effect, which is why so many businesses oppose it.

No false choices

By Gabriel Roth

Research Fellow, The Independent Institute

I offered no “false choice”. I support both road safety and the commercialization of rest areas.

Lisa Mullings is sure to know more than I do about rest areas, but even her eloquence has not convinced me that a federal ban on commercial activities in rest areas is in the public interest.

Ms. Mullings asks why “new or improved roads can make some locations less profitable.” Here is an example: A new by-pass can attract traffic from other routes and thus make locations on the old routes less commercially attractive.

Let’s Right the Distortions

By Lisa Mullings

President and CEO, NATSO

The mistruths and tactics used to discredit the federal law on commercialization distract us from the real issues. Let’s right some of the distortions.

Mr. Yarema, whose firm has represented clients seeking to privatize public assets, dismisses federal commercialization policy. He implies that it is some anachronism that’s gone unnoticed for 50 years until someone dusted off the statute books. Yes, it was drafted and originally passed in 1956 — but Congress has revisited and reaffirmed this policy on many occasions, most recently last year. The law continues to survive because it encourages the growth of businesses, jobs and communities all across the nation.

This law protects competition, not individual competitors. Unlike the few companies with an exclusive right to sell in rest areas, my members do not want any elite protection. They simply want to continue competing with other businesses on the basis of offerings, service and price.

Commercialized rest areas, which have existed before the Interstate system in a dozen or so states, were considered and rejected by the visionaries who created the Interstate Highway System. Reversing this law in favor of a model discarded by Congress in the 1950s hardly offers an innovative, bold vision for the future that our nation’s infrastructure challenges demand.

Renewed efforts to commercialize rest areas involve aligning the issue with environmentalism. However, rest area commercialization might slow business investment in alternative fuels infrastructure, but in no case would it encourage it.Mr. Yarema says California and others want to commercialize to lead the way for businesses to sell alternative fuel. Private businesses are loathe to make the needed investments, he says, because there are few customers who want this fuel. If so, isn’t it logical to say that demand will take far longer to reach a critical mass for the private sector if states siphon it off?

Posing the reversal of this law as a means of promoting cleaner vehicles only deflects the real issues. Don’t want to see your state get into the travel plaza business? What, don’t you care about the environment and cutting pollution?” It’s a sustainable red herring. The fact is, officials in California have a long history of attempts to commercialize rest areas using various tactics.

In fact, an application submitted to the U.S. Department of Transportation (with assistance from Mr. Yarema’s firm) in the final months of the Bush administration sought an exemption to federal law for this West Coast project. Far from a “balanced approach,” this request was made with no public discussion or even public notice. Our requests to review the submission were denied until we submitted a Freedom of Information Act request.

Privatization is more often a land-grab than the best way of delivering public services. As we’ve seen with the opening of privatized toll roads, the process often provides a license to overcharge Interstate travelers without the motivation to provide a level of service to justify the arbitrary price. The power of a state monopoly allows short-sighted profit plays that distort the natural dynamics of supply and demand.