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Prospectus Blog Private Capital Eyed For Transit, Roads

Drawing from $19.9 billion in Prop. 1B voter-appproved bonding authority, a California commission has allocated $3 billion to help fund 79 road, rail, bridge, transit and other transportation projects. The bottom line of this summary shows the projects will cost $8 billion to complete, necessitating the usual cost-sharing with other jurisdictions. Included are more High Occupancy and Toll (HOT) lanes on 1-15 in San Diego, arterial lane additions in Yuba City, various rehab projects for crumbling roads statewide, replacement of an unsafe bridge at Fort Bragg, crossovers between mainline freight train tracks, enhanced grade separation for Los Angeles-region commuter rail, rehab and addition of inter-city train tracks at L.A’s downtown station, second-phase seismic upgrade work on the San Francisco-Oakland Bay Bridge, and microwave vehicle detection systems at 20 locations around Bakersfield to analyze traffic patterns and develop computer models to assess current and future highway system needs.
With the state’s broader transportation needs in mind, officials say the $3 billion California Transportation Commission allocation is a step in the right direction but that there remain another 121 high-priority projects identified in the state’s Goods Movement Action Plan, requiring another $47 billion. That’s more than double the Prop 1B kitty, and the Goods Movement Action Plan only represents a portion of needed infrastructure projects. In their announcement (second link, above) officials say private capital will need to be part of the transportation funding mix.
California’s transportation network is indeed vast. But the state’s need for private partners to finance, fix and build roads, bridges and transit isn’t unique. Many others are in the same situation. The federal gas tax trust fund is expected to go bankrupt next year. Political impetus for hiking federal or state gas taxes is nearly zero, thanks to rising gas prices and the economic slowdown. Gas tax revenues are levelling off anyway, as cars get better and better mileage. In many metro regions, tax fatigue is widespread. Yet the squeeze comes from the other end, too. Officeholders know they can’t shirk responsibility for worn-out, overburdened roadways and in metro regions, for major transit improvements. It’s all going to cost billions upon billions. New variable-rate tolling strategies are key to mananging traffic congestion, and the revenues will help fund roads, bridges, and transit. But there’ll still be big funding gaps. Simply going hat in hand to the feds, the statehouse and the voters won’t cut it anymore.
Fortunately, private resources for transportation investment are vast. U.S. Department of Transportation Sec. Mary Peters estimates there’s $400 billion in private investment to be tapped by states and regions for road, bridge and transit projects. But to do so will require that states lay out the welcome mat. That’s beginning to happen around the U.S., including the West Coast, where from Baja to British Columbia a slew of mobility improvements are urgently needed to support the economy and maintain quality of life. These should be paired with “Green Highways” improvements that Cascadia Center and others have championed.
Democratic California Assembly Member Anna Caballero (pictured, right) writes in the San Jose Mercury News that private partners can provide $100 billion of the state’s $500 billion in overall infrastructure needs (transportation, utilities, public facilities) in the next 20 years.

As Gov. Arnold Schwarzenegger has recognized, California should be building bridges, roads, rail transit – or schools, libraries and fire stations – the way they are built in many places around the world. Using public-private partnerships, governments join with businesses to finance, design, construct, and sometimes operate and maintain, public facilities. It pays off in lower costs, better design, faster construction and better performance…..(officials) could employ partnerships on a (grand) scale: the proposed $4.7 billion extension of BART to San Jose; the realignment of the treacherous Highway 152 east of Gilroy; or making Caltrain an electric railway.

Los Angeles Mayor Antonio Villaraigosa, who also serves on the Metropolitan Transportation Authority (MTA) of Los Angeles County board, details in this recent press release the gathering impetus for private partners on LA transit projects. The backdrop: The MTA board has identified 23 transit projects that would increase ridership by 122,000 each year and cost up to $30 billion. The city council has adopted a motion commissioning a report on potential private finance options for the incomplete Purple Line Subway to the Sea, and other light rail and bus rapid transit projects. The MTA recently approved a motion of its own, sponsored by its vice-chair, Villaraigosa, requesting preliminary proposals for private finance plans on specific transit projects. This will lead to an MTA board decision this July on proceeding with formal requests for proposals (RFPs). More here from KNBC-TV. Under the plan, the MTA and its labor unions would continue to handle maintenance and operations of transit, while private partners would be eligible to head finance, design, construction and construction management of transit extenstions and additions.
How it will all shake out in LA remains to be seen, but it’s significant that the mayor, city council and Metro board acknowledge private capital can help meet the region’s bracing transportation needs. There’s ample precedent, according to the mayor’s office.

The Mayor’s motion is partially based on successful private efforts to revamp public transit throughout the United States and around the world. In London, a public-private partnership increased the capacity of the city’s transportation system by 20 percent and reduced costs by 17 percent. A similar model in Vancouver boosted rapid transit capacity by 33 percent — the equivalent of ten 11-mile lanes on city streets. In the US, public-private partnerships are being explored as a potential way to fund and build a new three-mile connection between Oakland International Airport to the Bay Area Rapid Transit system; a 5.4-mile extension of Houston’s rail service; and operational improvements to Denver’s commuter rail and bus stations.

In Metro’s draft long-range transportation plan, agency CEO Roger Snoble (right) neatly ties together growth, mobility challenges, and private investment in transportation.

…The job of Metro is to make sure that mobility is maintained and improved in the face of growth in population and in the number of cars and trucks in the County. Population is expected to increase by another 2.4 million by 2030, while the number of vehicles has surpassed 7 million a day….No single solution works.
It is a multi-pronged approach that includes the Metro Freeway Service Patrol, traffc
signalization, freeway ramp metering, carpool lanes, intersection improvements and
expanding public transit and other rideshare options that have staved off gridlock.
It is the right approach, but we have to do more. A lot more. We are falling short of the resources necessary to fund many of the critical projects needed for congestion relief and air quality improvements. And neither Sacramento nor Washington can be counted on to plug the shortfall…..we need to look to new ways of increasing transportation revenues. Public-private partnerships can stretch limited public funds. Joint development in transit corridors, congestion pricing, and developer mitigation fees are just some of the other options Metro is exploring with a renewed sense of urgency.

The new breed of private funding partners are a varied cast with which state and regional governments are becoming more familiar. Each state and region can pick and choose which players to deal with. Governments can and should retain ownership and fee/fare authority over their roads, bridges and transit systems. But those tolls and fares are a steady source of revenue with which to pay back private investors – who, unlike taxpayers these days – are ready to ante up, again and again.
There are a few different types of dance partners. Sovereign investment funds? Ah….thanks but no thanks. Privately held infrastructure funds, like, say, Macquarie, or Goldman Sachs? Yeah, maybe. Especially if on transportation projects they can partner with public employee union and construction trade union pension funds. This last group is attracting growing attention for investments made in transportation projects around the world, either directly, or through private infrastructure funds.
We’ll have more on that in coming posts.
RELATED:
Report On The Transportation Innovative Partnership Program,” Washington State Transportation Commission, 1/07;
Strategic Growth Plan: Performance-Based Infrastructure,” Office of Gov. Arnold Schwarzenegger, CA, 1/9/08;
Residents Agree — Public Infrastructure Projects Need Boost From Public Private Partnerships, Bay Area Council Poll Shows,” PublicWorks.com, 4/16/08;
Train Builders Meet To Seek Private Investment For California Groundbreaking Plan For High-Speed Trains,” Business Wire, 3/26/08;
High Speed Rail Bonds Heading For Ballot,” SF Chronicle, 4/20/08.