Public-Private Partnerships in Transportation: A Few Updates

Next week I’ll be in New York City for a conference on public-private partnerships (P3s for short) in transportation hosted by InfraAmericas, a news-gathering organization that provides in-depth analysis of P3s. I wrote about the conference for a recent issue of our Capitol Ideas E-Newsletter. CSG is a supporting organization for the InfraAmericas U.S. P3 Infrastructure Forum and many state officials from around the country will be among the more than 400 delegates on hand to discuss how they’re partnering or hoping to partner with private companies on important infrastructure projects. I expect to have plenty to write about when I return. But before I leave, I wanted to provide a few updates on recent developments in the world of P3s and a few links to recent reports.

Virginia DOT Creates New P3 Office

Virginia Transportation Secretary Sean Connaughton is among those scheduled to speak at the New York conference. Virginia is a state looking to greatly expand its use of P3s and this week Connaughton announced the opening of the Virginia Office of Transportation Public/Private Partnerships. The office, which will work with all six Virginia transportation agencies, will be responsible for developing and implementing a statewide program for transportation project delivery originally planned for under 1995 legislation. It will focus on the development of P3 projects across all modes of transportation.

According to the office’s official website, Secretary Connaughton has established these objectives for the new agency:

  • Facilitating timely delivery of projects, within established laws and regulations;
  • Developing multimodal and intermodal solutions consistent with state, regional and local transportation policies, plans and programs;
  • Encouraging competition for innovation and private sector investment creating value-for-money for the commonwealth;
  • Promoting transparency, accountability, informed and timely decision making;
  • Establishing reliable and uniform processes and procedures to encourage private sector investment;
  • Seeking efficiencies by standardizing processes;
  • Fostering efficient management of commonwealth financial and organizational resources;
  • Achieving lifecycle cost efficiencies through appropriate risk transfer; and
  • Promoting economic growth and job creation.

The website goes on to say projects selected for procurement will be consistent with the commonwealth’s transportation goals of:

  • Improving safety and security
  • Reducing congestion
  • System maintenance and preservation
  • Mobility
  • Connectivity
  • Accessibility
  • Environmental stewardship
  • Economic vitality
  • Coordination of transportation and land use and program delivery

More States Taking the P3 Plunge

In his Surface Transportation Innovations newsletter this month, Robert Poole of the Reason Foundation provides an update on three states where public-private partnership enabling legislation has passed this year:

  • In Illinois, lawmakers approved legislation to give P3 authority to both the Illinois Department of Transportation and the State Toll Highway Authority.
  • Nevada legislation grants the authority to the Regional Transportation Commission of Southern Nevada to enter into a partnership with a company or individual who wants to finance a $400 million bypass around Boulder City and establish what would be the state’s only toll road. Nevada’s Assembly reversed itself twice during the last hour of the legislative session to approve the bill, the Las Vegas Sun reported Tuesday.
  • In Texas, where a partial moratorium on new toll road projects has been in effect since 2007, lawmakers in Austin approved legislation reinstating the state department of transportation’s ability to enter into long-term toll concessions. But the authority is only for about a dozen already identified projects and that authority will sunset in August 2015. The Texas Department of Transportation today issued requests for information (RFIs) on two of the projects: SH 99 Grand Parkway (a proposed 180-mile circumferential highway traversing seven counties in the Greater Houston Area) and the project to add managed toll lanes to I-35E from Dallas to Denton. There is more information here about other projects in the Lone Star State where P3s (or Comprehensive Development Agreements as they are known there) have been employed and more about the legislature’s approval of the I-35E project here. Texas officials will also speak at the conference in New York next week.

Georgia Toll Project on Hold

The Atlanta Journal-Constitution reported last week that Georgia’s project to build optional toll lanes alongside I-75 and I-575 in Cobb and Cherokee counties is not going out to bid this month as planned. Gov. Nathan Deal and state department of transportation officials have decided to wait and see whether the state wins a federally subsidized TIFIA loan for the project, which is seen as a critical test of Georgia’s public-private toll program. Even though the lanes would be built by private investors and tolled, it’s feared that those funds would not be enough to cover the entire cost of the road

Understanding the Tradeoffs with Public-Private Partnerships

The Eno Transportation Foundation, a Washington, D.C. and Massachusetts based non-profit transportation advocacy organization has an interesting article in the May issue of its monthly newsletter called “Public-Private Partnerships: Understanding the Tradeoffs.” In it, the foundation’s President and CEO Joshua Schank (who previously directed the National Transportation Policy Project at the Bipartisan Policy Center and who spoke at the Transportation Research Board meeting I reported on in a February article for the Capitol Ideas E-Newsletter) writes that “when considering a P3, the public sector must carefully consider the tradeoffs of avoiding the initial capital outlay and possibly the operation obligations of the investment versus the creation of a revenue source that will flow directly to the private sector.”

While P3s are not a substitute for funding, Schank says, they have the potential to generate substantial public benefits. Those benefits can be assessed based on the answers to three questions about a given P3 projects:

  • What are the alternatives to a P3? – According to Schank: “In the case of projects that could potentially provide substantial economic benefits, it may be worth using a P3 when there is no other viable alternative and delay could be costly.”
  • Is there an opportunity for true competition? – Schank says how Requests for Proposals are structured is key to encouraging competition. But also, it helps to have a large number of firms that could bid on and reasonably perform the P3 project. “If there are multiple firms, and they are forced to be competitive with each other, there could be substantial benefits from a P3 in terms of efficiency and innovation,” he writes.
  • How will users be charged? – Schank writes that while the public sector model for constructing transportation relies on regressive and unreliable sales or fuel taxes, the private sector model seeks to extract more accurate user fees from a given transportation project. “The more accurate price signal not only generates more revenue for maintenance, but also keeps the facility free-flowing, getting more people to their destination faster and with less fuel consumption,” he writes.

Schank believes the success or failure of P3s often hinges on how the contracts for projects are structured. In particular, he cites clauses establishing the length of the lease or ownership of a given facility and clauses that seek to prevent competition to private sector-run roads from parallel government-owned ones. Of the latter, he writes: “Government cannot and should not provide such a clause, not only because of … changing needs and priorities… but because the government should not be in the position of ensuring maximum profits for a transportation facility. It is in the government’s interest to maximize public benefits.”

Discussion on Private Investment Outlook

The law firm Chadbourne & Parke LLP hosted a roundtable discussion in March at its office in New York on the trends in the use of public-private partnerships. Taking part were officials from Goldman Sachs, the U.S. Department of Transportation, the New Jersey Department of Transportation, and the infrastructure investment firms Meridiam Infrastructure North America, VINCI Concessions and Lazard Freres. There’s an edited transcript of the forum which is worth a read. It’s on the Association of Corporate Counsel website. Several of the participants will also be at the P3 conference in New York next week.

Heritage’s Utt Examines Using Market Processes to Reform Government Transportation Programs

Ronald Utt who is a Senior Research Fellow at the Heritage Foundation and who took part in a CSG webinar this spring as part of our Growth & Prosperity Virtual Summit of the States, has a new report out called “Using Market Processes to Reform Government Transportation Programs.” It’s the first in a series that will present, Utt writes, “ways in which market processes can be integrated into the current transportation system to help offset diminished budget resources and poor investment and spending choices of the past.” The first report looks at what Utt says are two basic problems with public ownership of the transportation system: the politicization of transportation and the fact that transportation ranks low on America’s list of budget priorities.

“Most Americans want to drive their cars on congestion-free roads, yet most federal, state, and local elected officials and department employees intervene by mandating the provision of non-road transportation projects that most transportation consumers do not want,” Utt writes.

No Free Lunch from Privatization?

An opinion piece in Politico this week offers a slightly different perspective on P3s. Matt Stoller, who worked on financial reform legislation as a staffer to former U.S. Rep. Alan Grayson (D-FL) and who is now a fellow at the Roosevelt Institute, writes that the public pays a price for privatization and that most privatization deals of core public assets have the same essential structure as Fannie Mae and Freddie Mac.

“The real allure of privatization is that it offers what looks like a free lunch,” Stoller writes. “The public receives revenue, but privatization keeps the costs hidden by deferring them to the future. Political actors get to close deficits without raising taxes on wealthy interests. And the political muscle is provided by the people who ultimately benefit from the deal—the same way that Countrywide, Fannie Mae and allied private bankers brutalized their political critics in the name of homeownership.”