Public-Private Partnerships

Twenty-six states and Puerto Rico have laws allowing public-private partnerships in transportation. While they can have significant benefits for states, questions remain about their suitability in some cases and the availability of private capital.

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Executive Summary:

  • Public-private partnerships, commonly known as P3s, are contractual arrangements between the public sector and a private entity in which the private entity is responsible and financially liable for performing functions in connection with a public infrastructure project. Twenty-six states and one U.S. territory have laws allowing them.
  • The types of P3s vary according to the scope of responsibility and degree of risk assumed by the private partner. Some partnerships involve the creation of a new transportation asset and some seek to monetize an existing asset.
  • Two of the best-known examples of P3s are the Chicago Skyway and the Indiana Toll Road. A private consortium of Spanish and Australian toll  road developers paid the city of Chicago $1.8 billion in 2005 to operate and maintain the Skyway for 99 years. The same developers also won a bidding process to operate the Indiana Toll Road for 75 years with an upfront fee of $3.8 billion.
  • The partnerships may save significant costs, shorten project delivery times and shift risk to the party best able to manage it. P3s can also encourage innovations and incorporate life-cycle costs into the design and construction of the transportation projects.
  • P3s may also have disadvantages in the eyes of some, including higher tolls on roads under private operation, provisions preventing the state from investing in competing roads therefore ceding control, foreign ownership of private toll road companies and the length of long-term lease agreements.
  • Some have expressed concern that if a private company fails to manage a transportation asset, the state would be forced to step in, sticking taxpayers with the bill. However, that isn’t the case with the failures of P3s in California, Colorado, Texas and Virginia.
  • Texas, once one of the states most aggressively pursuing P3s, has set a moratorium on new  private sector toll projects.
  • Concerns about protecting the public interest in P3 contracts can be managed by including contract termination or buyout clauses, limiting toll rate increases and incorporating benchmarks for the private sector entity.
  • P3s may not be the right choice in all situations and for all states. Some view tolls as double taxation. Tolls hit lower-income groups harder and they appear to work best in congested areas with enough traffic to generate toll profits, according to the Government Accountability Office.
  • Between $340 billion and $600 billion in private capital is available for investment in infrastructure around the world, according to Congressional Research Service estimates.
  • The recent credit crunch lessened the enthusiasm for P3s, especially long-term leases of existing transportation assets, USA Today reported. The enthusiasm and the availability of private capital may return as the economy improves, according to Scott Pattison, executive director of the National Association of State Budget Officers.