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Public Works Financing

Feds Don't Need Bigger Role in Public-Private Partnerships

States can best determine what works for their own road projects

Shirley Ybarra
April 1, 2008

Several states are now considering legislation that would enable them to fund and build transportation infrastructure projects through public-private partnerships. Some of the state bills have flaws that will need to be worked out in the process; however the concept is a good one - state legislatures seeking to be part of the growing movement that is attracting additional capital for transportation projects.

States with bills in the legislature include Kentucky, Arizona, Alabama, Tennessee, Missouri as well as ongoing debate in Pennsylvania and New Jersey. They are all looking to take advantage of the partnership opportunities that have been enjoyed by several other states such as Virginia and Texas in the past.

In the late 1980's, California and Virginia authorized the first public-private road projects. Two are now completed in California, and the Dulles Greenway has been operating since 1995 in Virginia. Each state dealt with the issues facing the projects, and today these projects are bringing needed capacity and service to motorists. But while forward thinking at the time, today these statutes would be considered chiseled out of the "stone age."

In 1995, Virginia passed a new statute with a market-based approach to public-private ventures, permitting both solicited and unsolicited proposals for all modes of transportation construction, operation and maintenance. Since then, about half of the states across the country have passed some form of significant legislation to authorize some form of public-private ventures in transportation.

While many of the states patterned their legislation after the Virginia model, each state has tailored their statutes to suit their own needs and concerns. Billions of dollars worth of transportation projects now in the pipeline can be attributed to these partnership laws.

Two recent reports at the federal level also looked at the growing use of public-private partnerships. The first was from the National Surface Transportation Policy and Revenue Commission, and the second from Government Accountability Office.

Both reports looked cautiously at public-private partnership (PPP) opportunities and both suggested that there may be a need for a greater federal role. If anything could put a chill on the fledgling private capital market in the United States, it would be dumping the cold water of greater federal involvement into the pot.

The federal government already has a significant influence and oversight in virtually all of these major road and highway transactions. The U.S. Department of Transportation's (DOT) Federal Highway Administration must approve the procurement process used for the public-private partnerships. If the project involves a connection to an Interstate, or a project on the Interstate, or any project using Title 23 federal funds, the federal government is involved. If any federal funds are used, even Transportation Infrastructure Finance Innovation Act (TIFIA) loans, the federal government is involved. Then there is the environmental review, via the National Environmental Policy Act (NEPA) process.

As it stands, state governments struggle to jump through all of these hoops now.

Congress, via the Safe, Accountable, Flexible, Efficient Transportation Equity Act (SAFETEA-LU), provided some encouragement to public-private parterships by providing a number of provisions that encourage further experimentation by the states including private activity bonds, congestion pricing, and several tolling pilot programs.

DOT has also helped clear the way by streamlining processes for important public-private partnership projects with SEP-15 (which permits negotiated exemptions from certain regulations).

Under the Bush administration, DOT also continues to promote the public-private partnership process and supports the legislation being adopted by the states.

No two road deals or public-private partnership transactions are exactly alike. There are no cookie cutters available as we try to reduce the traffic and congestion crisis that threatens our economy. Congress cannot "standardize" a transaction method that will be effective in all states and to overlay yet another "federal" role for transportation projects using public-private partnerships makes no sense.


Shirley Ybarra is Senior Transportation Policy Analyst


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