Vol. 18, No. 2; Mar/Apr 2007
How to supplement eroding tax revenues and develop "a new vision" of the surface transportation program continued to dominate the thinking of the transportation community as we entered the new year. Toll concessions, public-private partnerships, new approaches to asset management and congestion pricing are among the approaches being considered by state and federal officials as they wrestle with funding shortfalls, inadequate highway capacity and rising levels of congestion.
Thanks to the entrepreneurial spirit displayed by the political leadership of the State of Indiana and the City of Chicago, the public sector has discovered that publicly-owned income-producing transportation assets - especially those with a history of stable and predictable revenue generation and an expectation of future revenue growth-can be turned into a valuable source of capital. The present value of future returns from such assets can be "monetized" and the proceeds invested in infrastructure improvements that otherwise would have remained on the drawing board for years to come. It is precisely this approach that has enabled Indiana Governor Mitch Daniels to achieve what none of his fellow governors have been able to do: implement a fully-funded 10-year statewide program of transportation improvements without a penny of borrowing or a gas tax increase. Now, two other jurisdictions with serious shortfalls in their transportation budgets- the states of Pennsylvania and New Jersey- are contemplating whether they too should take the bold step and monetize their transportation assets. The following report offers a snapshot of the situation in which each state finds itself today.
As is the case in such debates, proponents of public-private partnerships emphasized the benefits of private sector involvement while critics focused on its negative aspects. To this observer it looked like both sides scored some valid points but the debate was inconclusive. On the one hand, it is true, as Chairman DeFazio pointed out, that private interests are primarily motivated by the profit motive and, in the absence of adequate safeguards, may not be the best guardians of the public interest. On the other hand, as several witnesses pointed out, the private sector can bring valuable contributions to the table that the public sector cannot provide. This includes access to vast amounts of capital in the form of bank loans and equity capital, assuming construction risks, introducing more innovation and delivering projects sooner and at a reduced cost. Despite some sharply expressed doubts by Chairman DeFazio, a measure of consensus emerged on several issues. Both sides agreed that the deals must be carefully structured to prevent private companies from dramatically increasing tolls or insisting on unreasonable non-compete clauses; both sides further agreed that long-term revenue sharing is more preferable to up-front lump sum payments. And Committee Chairman Oberstar (D-MN) conceded that the European approach to building longer lasting roads, with private companies guaranteeing their integrity through long term concessions, would be a welcome innovation in this country.
Left unexplored in the PPP debate so far have been three key issues. First, can Congress prevent individual states from going ahead with lease concessions or other forms of public-private partnerships? While Chairman DeFazio hinted in his concluding remarks that "the federal government may have to step in" in order to protect the public interest, it is not clear exactly what Congress can do, should the governors and legislatures of those states deem such transactions in their public interest. (Indeed, by the time of the next reauthorization, many of the current toll road concession candidates such as the Pennsylvania and New Jersey Turnpikes will likely have been already leased.)
Secondly, if use of private capital is not the answer, are Congress and the states prepared to raise fuel taxes enough (i.e.,collectively, up to 50 cents/gallon) to fund the huge backlog of needs for highway reconstruction and capacity expansion? If they are not ready to increase gas taxes, are there other means of raising public money (e.g. mileage fees) or is private capital the only recourse?
Thirdly, the trend toward public private partnerships means that responsibility for infrastructure expansion would devolve largely to the states and the private sector. How much of the opposition to the concept of public-private partnerships is due to a reluctance to see the federal (and congressional) role in surface transportation diminished?
The debate on these and other related issues has just begun. As if to underscore this point, the American Trucking Associations (ATA) and the American Automobile Association (AAA) have entered into the fray by announcing a new coalition "to combat the growing trend toward the privatization or leasing of existing toll facilities to private investors." In a clarifying statement, AAA stated that it does not categorically oppose the concept of public-private partnerships. "We believe they can be a useful tool in some instances if done right- but they are not appropriate...in all situations" said the statement, "in particular those involving the long-term lease or sale of existing roads".
True to the Newtonian principle that for every action there is an equal and opposite reaction, a broad-based, bipartisan coalition has been quietly taking shape over the past several months to champion the principle of public-private partnerships.
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