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Prospectus Blog Steve Heminger, Robert Poole: Context Trumps Ideology On Transportation Public-Private Partnerships

The National Journal’s transportation blog asks what’s the proper role, if any, for public-private partnerships? Among the replies from their expert panel, two stand out. Steve Heminger, executive director of the nine-county (Bay Area) Metropolitan Transportation Commission, writes:

The debate about the wisdom of greater private investment in our surface transportation system is almost always contested on theoretical or ideological grounds, and that may be enjoyable for the debaters but it is completely unenlightening for the rest of us. I suggest instead that we try to answer the following practical question: what part of our investment shortfall are PPPs most likely to address? It is probably not deferred maintenance (about 50% of our total shortfall), because there’s not much money to be made in that unglamorous activity. It is also probably not many public transit extensions, which tend to require operating subsidy, not generate operating profit. Nor is it new road capacity that may be needed for overall national system connectivity, but may be located in areas with slower population growth (and less income potential).
So, that probably leaves the sweet spot for “greenfield” PPP’s in extremely congested, high growth areas, where new highway or freight capacity can not only pay for itself but generate additional income through tolls or other fees to pay back investors. This category of investments is critical to the nation’s future economic well-being, but it probably represents less than 20% of our total investment shortfall.
We do not face an “either/or” choice between PPP’s and traditional forms of public funding such as gas taxes and municipal debt. We need both of these tools (plus others) if we are to climb out of the huge investment hole we’ve dug for ourselves. And we need to deploy these funding tools in the right proportions to address the functional and modal investment needs we face.

Another noteworthy response comes from Robert Poole, Director of Transportation Studies for The Reason Foundation. Poole is a leading advocate of transportation P3s, and automated variable-rate tolling to control metro-region traffic congestion. Poole rebuts a new study by the Public Interest Research Group critical of transportation P3s, to make a few essential points about how P3s should be structured to protect the public interest and draw participation from private investors so important metro-region projects that states and regions cannot fully fund on their own can actually get built.

….their report blurs the distinction between leasing existing toll roads (“brownfields”) and creating new toll roads via PPP mechanisms (“greenfields”). Reporting the total amount committed to various PPP projects (including relatively uncontroversial design-build projects), the report says that $21 billion was “paid for 43 highway facilities” between 1994 and 2006. The context and the wording make it appear that 43 existing highways have been long-term leased during this period. In fact, a grand total of four toll roads have been leased in the United States. All the rest of the PPP activity has involved the financing of much-needed new capacity.
PIRG’s report also makes it sound as if most of these projects involved 75 to 99-year leases, such as those involved in the four brownfield projects. In fact, most new PPP toll roads are being developed under 35 to 50-year concessions. And large up-front payments, another PIRG target, are relatively uncommon on the growing number of greenfield projects. Why? Because these projects are challenging to finance solely based on their projected toll revenues. In the event that traffic and revenues turn out to be more than originally forecast, the trend now is to include revenue-sharing provisions in the concession agreements.
….the public-interest recommendations of the PIRG report are either platitudes (“the public should retain control over decisions about transportation planning and management”) or unrealistic. Two examples of the latter: 1) No deal should last longer than 30 years. 2) The legislature must approve each negotiated PPP agreement.
The first would rule out many projects that would pencil out at 40 or 50 years, thereby reducing the scope for the private sector to help close the funding gap. And the second is a proven deal-killer. The few states that have included such a provision in their enabling legislation have received exactly zero proposals. Why? Because the cost and time involved in winning a competition for a billion-dollar project and then negotiating a 300-page concession agreement are too large to be risked on the whim of a legislative vote. The workable approach, which both California and Florida figured out after trying the PIRG way, is to enact legislation spelling out the parameters within which deals can be negotiated, and leaving the details to their state DOT or transportation commission.