ivate lic/Pr Pub
nsp Tra l
u r b a n la n D
S. with sufficient toll not generating truction to pay off cons revenues entered debt.s. op crosses the complete a lped in 2002 and he d. state op et political increasingly p lternatives. rable period re compa ited States a n during any ent in the Un ere done tha w vernm l ll levels of go the traditiona ys to reform T reported. y re funding a inning to for infrastructu ncial credit crunch are beg Last summer. ound Richmon freeway ring ar traffic volumes In 2006. history record pace. m 5 and . an g for innovati lookin ding and pro n fun ed. the Between 200 in U. “A DO ve wa d PPPs ve and creati curement.S. fears and the at ence of this fi T) reported th ect the emerg aff ortation (DO sp
-mile (14-km) Virginia’s nine which ntas Parkway. concession
n ta rtment of Tra ing formed a the U.” it conclud approaches to ed alternativ singly preferr are an increa
april 2009 u r b a n la n D
. transportatio e. long in transportati oming partnerships c ublic/private world.urbanland
tion rta o
Pivak Jeffrey s
iPs in nersh Part
on. fina nancing tool. Depa PPs) were be s (P ls te partnership ore such dea public/priva early 2008. are be P er parts of the s and cities searching th prevalent in o ular in u. Pocaho ened James River. the state anagement into a private m agreement.
PPP transactions have included the following: l Texas’s first closed deal—a 50-year concession worth $1. the government or public agency gives up control over some ongoing revenues for decades. but privatization technically occurs only when the sale or transfer of an asset is involved. according to a compilation by the Govern38
u r b a n la n D april 2009
ment Accountability Office (GAO). However. l Another historic Chicago deal—a $2.In public/private partnerships in transportation.8 billion for control of the 157-mile (253km) Indiana Toll Road for 75 years.” in the words of state Representative Joseph Markosek. 75-year lease of the Pennsylvania Turnpike because it amounted to “selling one of our most valuable assets for a bargain-basement price.8 billion for new toll lanes on Interstate 595 in Broward County. a New Jersey–based newsletter that tracks public/ private partnerships.8 billion. making it the first major U. The terms public/private partnership and privatization are sometimes used interchangeably. according to a state transportation department press release. transportation PPPs in the United States have focused primarily on highway toll roads. 1989 to 2004.S. In exchange. victimized by the credit crunch and a political backlash against private control of public assets. Missouri is going ahead with bridge repair bonding on its own. For governments. Florida delayed a deadline for investor proposals to lease the existing State Road 84 toll road because of the global financial uncertainty. Georgia. too. These investments firms are more interested in doing such deals now. “Budget gaps are starting to increase the viability of public/private partnerships. or completed between January 2005 and May 2008. In the past year alone. The same private consortium paid Indiana $3. and Pennsylvania to cancel agreements with private firms. Because these deals require revenue streams. The North Carolina Turnpike Authority turned to a foreign firm to construct and operate a new toll bridge. Since then. and South Carolina. This growth trend is expected to accelerate. Meanwhile. a PPP is defined as a private entity taking a large ownership or concession stake in a public project.5 billion. Pennsylvania legislators refused to endorse a $12.8 billion in a concession agreement to operate and maintain the 7. the private sector extends its role beyond its traditional involvement as a designer or contractor. UBS. In its emerging use. Texas. Florida. Mineta is now a senior adviser for such deals at the Credit Suisse investment firm. long-term investment return. and separate Michigan and New York transportation funding commissions have recommended exploring PPPs. a consortium of Spanish and Australian road developers paid Chicago $1. According to these reports.8-mile (12.8-km) Chicago Skyway toll road for 99 years. a coalition of private equity firms such as Merrill Lynch. In all. transportation secretary Norman Mineta told the New York Times last August. at a cost close to $25 million per year less than the private sector deal. In addition. infrastructure projects.” former U. while projects are also moving forward in California. First. For private firms. last fall tallied 53 road projects in the United States worth $82 billion being planned or considered for private participation. and Georgia are the most active states in pursuing PPPs. thus accepting responsibility and financial liability for all or a significant portion of its construction and/ or operation.
. and Credit Suisse reported that $180 billion in private capital was now dedicated and available for U.S. Virginia. A couple of high-profile deals in 2005 and 2006 ignited renewed interest in PPPs.S. the main benefit of a transportation PPP is its steady. a project that is expected to be begin construction this summer. Missouri’s attempt to use private contractors for bridge repairs fell through for a similar reason— higher-than-expected borrowing costs. 99-year lease of Midway Airport. the main benefit is usually a large upfront payment by the private partner that can be used for other pressing transportation needs. the DOT identified 33 PPP deals that were developed. airport to be privately run. political and public relations concerns over PPPs led state lawmakers in Texas. underway.3 billion for a new state Highway 130 between San Antonio and Austin. Maryland. l Florida’s first major PPP—a 35-year design/build/ operate agreement worth $1. Public Works Financing. home of Fort Lauderdale. some PPP plans have been scrapped in recent months. That compares with a total of six projects during the previous 15 years. there has been a flurry of deals. Mississippi. In January. several more states have begun to show interest in PPPs.
and utility rights-of-way that would have included PPP-developed highways. government has become more receptive to private investment in highways. The federal government and states are finding that PPPs provide many benefits.000-mile (6. Among them are the following: l Large upfront payments. Texas also put a temporary moratorium on new PPPs. Payments of $1 billion or more can help offset the multibillion-dollar shortfalls that states increasingly have in their road construction and maintenance plans. the Federal Highway Administration recently created a new Office of Innovative Program Delivery to help states explore alternative financing opportunities like PPPs. a 4.ventures
Texas switched the development of state Highway 121 toll road in the Dallas–Fort Worth area from a private consortium to a public toll agency. annual PPP road investments outside the United States reached a record $15 billion
in 2007. the private concession company invested in electronic tolling technologies to improve mobility and reduce labor costs. according to the World Bank’s Private Participation in Infrastructure Projects Database. Even Latin America funded more transportation PPPs than did the United States during that period. Overall. Also. a 7. Nevertheless. the U.
u r b a n la n D
chicagoskyway. Over time.400-km) network of roadways.8-km) toll road.8-mile (12. between 1985 and fall 2008.8 billion in a concession agreement in 2005 to operate and maintain the Chicago Skyway. a federal program called Special Experimental Project 15 (SEP-15) gives PPPs the advantage of a streamlined federal review for projects involving federal roads such as interstate highways. railways. For instance. According to Public Works Financing.S. PPPs have proved to be the preferred method of highway construction in other parts of the world. Soon after taking control of the skyway. then earlier this year scrapped the entire concept of a TransTexas Corridor. Europe funded $136 billion of road and rail PPPs—almost ten times more than was funded in the United States. PPPs not only provide
A consortium of Spanish and Australian road developers paid Chicago $1.org
the private concession company invested in electronic tolling technologies to improve mobility and reduce labor costs. there is a provision that prevents the state from building another long highway within ten miles (16 km) of the toll road. PPP deals has raised some political fears.Public/private partnership deals involve potential tradeoffs for governments. given the incidence of cost and schedule overruns on public projects. for instance. and uncertainties of long-term toll revenues. the GAO determined that shifting the construction cost risk to the private sector was “especially important and valuable. the Indiana Toll Road agreement includes a provision that prevents the state from building another long highway within ten miles (16 km) of the toll road. while governments traditionally have not kept up with infrastructure maintenance.” A second tradeoff is potentially higher tolls for the driving public. l Transfer of future cost obligations. When reviewing the benefits of PPPs last year. In the case of the lease agreement between Indiana and private partners in 2006 governing the 157-mile (252km) Indiana Toll Road. foreign-financed companies to take control over our roads. have shown that private involvement significantly improves the time and cost efficiency of new road construction. published by HNTB Cos. there is no such thing as “free money” in public/private partnerships. budgeted. because agencies traditionally have been slow to
u r b a n la n D
indiana toll road
indiana toll road
. For instance. and finally awarded.. an architecture/engineering/design firm in Kansas City.” In addition.” In addition.
a way to build roads. This element encompasses such issues as construction cost overruns. Missouri.S. but also offer a way to fund future road projects. The city had not been willing to make that same investment. l Quicker and more efficient project development. Soon after taking control of the Chicago Skyway. State government highway projects typically go through a years-long process of being prioritized. Some PPP deals cap toll rate increases for the first decade or more of private operation. Florida officials estimate that using the private sector for its I-595 toll road will get the project completed in one-
third the time. “If priority projects can be completed with private funds. maintenance and modernization needs. such deals involve potential tradeoffs for governments. For instance. it would take us 15 to 20 years. studies in Australia and the U. However. as the GAO has also pointed out. Private participation can speed up that process.” Florida DOT project manager Joseph Borello told the Miami Herald last fall. it is believed that the private sector can better afford the necessary improvements. But it is expected that tolls will increase more under private operation than they would under public agency control. a 75-year agreement. announced in a press release last fall that he intends to fight the state’s attempt to lease the State Road 84 toll road because “the state is allowing private. Florida state Senator Dave Aronberg. for one.” Malcolm Kerley and Thomas Pelnik of the Virginia Department of Transportation wrote in a transportation trends magazine Transportation Point. “We’re getting it done in five years. “If we had to do it the traditional way. Among these is the long-term loss of control over a public asset.K. participation of foreigners in U. then the agency’s limited public funds can be allocated to important projects that are not as attractive to private investors. Indiana used the proceeds from the sale of its toll road to fund the state’s ten-year transportation plan. such as the long-term loss of control over a public asset. sometimes stretching 75 to 99 years—a loss that can even include infrastructure development rights. In addition. becoming the only state to fully fund its long-range transportation plan.
transportation PPPs are considered win-win deals for the public and private sectors. Missouri. shunned increasing tolls on the Chicago Skyway even when it was operating at a loss. and Oregon Representative Peter DeFazio. though. for instance. Overall. according to the GAO.
Florida’s first major public/ private partnership is a 35-year design/build/ operate agreement worth $1. PPPs provide large upfront payments that can be used for other pressing transportation needs while also releasing a government from future maintenance expenses. in Kansas City. chairman of the House Transportation and Infrastructure Com-
mittee.8 billion for new toll lanes on Interstate 595 in Broward County. For the private sector. UL
Jeffrey Sp ivak is a senior research analyst for HNTB Cos. PPPs are becoming an increasingly popular alternative to raising taxes or tapping strapped budget resources for transportation projects. Congress will wrestle with these divergent government views as it crafts a new transportation funding bill with new rules for funding toll roads. This year.S. But while the U. the GAO reported. Department of Transportation during the Bush Administration encouraged the development of public/private partnerships. or call 800-321-5011. For the U.S.org/ bookstore.ventures
raise fees. the return is considered high. profits are generally not realized in the first ten to 15 years of concession agreements. some powerful congressional Democrats—notably Minnesota Representative James Oberstar. which works with states such as Texas on public/private partnerships in transportation.
Infrastructure 2009: Pivot Point is available at www.uli. public sector. but after that. But new Transportation Secretary Ray LaHood has signaled his support for PPPs as one funding alternative to raising the federal gasoline tax. Chicago. chairman of that committee’s Highways and Transit Subcommittee—have cautioned that PPPs may not adequately protect public interests if deals drive up tolls.
u r b a n la n D
Florida dePartment oF transPortation