A colleague pointed me to a recent article
in the Virginian-Pilot
that inadvertently demonstrates the power of public-private partnerships (PPPs) in delivering new transportation capacity and why cash-strapped states are increasingly embracing them. First, the context:
Virginia highway department officials on Thursday announced a $1.3 billion reduction in construction funds that would cause the delay of some new road, rail and transit projects and the cancellation of others. Those affected would include the U.S. 17 Steel Bridge in Chesapeake, improvements to the Interstate 64 and Interstate 264 interchange in Norfolk, and the Interstate 64 widening in Newport News.
On its face, the revelations are a stark reminder of the economic crisis sweeping Virginia and the nation.
But the downward revision, which follows a $1.1 billion reduction to the $9.3 billion six-year construction plan in June, actually sends another signal: Virginia's highway department plans to dramatically change its function. [...]
Historically, the state highway department has taken the lead on building new roads and fixing old ones. Going forward, state transportation officials said, new major road projects will be "episodic" and maintenance will take priority.
That harsh reality is because of dwindling state and federal money for road projects - both funding sources are fueled by gas taxes, a declining revenue source - which leaves Virginia with an overall $2.6 billion reduction in transportation revenue. [...]
From interstates to city streets, many road and rail projects will be stalled or scrapped outright under the revised state highway department construction plan. Other savings would come from the elimination of about 1,000 jobs at the department. [...]
Now the punch line—buried at the end of the article is something extremely significant:
For the moment, officials said, funds for the development of the Martin Luther King Freeway extension and the Midtown Tunnel projects will be preserved.
For many readers, this may have been a throwaway line. But those of us closely watching the rapidly-evolving world of PPPs saw something very significant—the reason funding remains for the Midtown Tunnel/MLK Freeway Extension project
is precisely because this is a PPP project
for which the state is pursuing 100% private sector financing. To clarify, the "funds" for the MT/MLK project mentioned in the article are likely allocated towards project planning activities or related environmental work. It's not referring to new construction-related monies for the project (roughly $2 billion alone for MT/MLK), as the state's PPP policy dictates that any PPP procurement be pursued with the explicit goal of delivering projects where the construction is 100% privately financed.
Translated into plain English—if this $2 billion project ultimately gets built, it will only be because private companies brought the money to the table.
When fiscal conditions deteriorate in a recessionary period like we're seeing today, the first thing to go is new construction projects. Virginia's already cut over 20 percent from its already meager near-term construction program over the last few months—much to the chagrin of congestion-choked Northern Virginia and Tidewater commuters and businesses that rely on the efficient movement of goods and services. Though we now live in a "just in time" economy, there's nothing "just in time" about getting around in those areas.
Given that sort of context, it's more critical than ever to embrace PPPs to expand the transportation funding pie, as Virginia's doing. The Commonwealth has had a long and successful track record in PPPs, positioning it well in the marketplace. Its dozen-year-old Public-Private Transportation Act (PPTA) has survived changing administrations and numerous Assembly sessions largely untouched, indicating to the private sector that the Commonwealth is a safe, stable and attractive place to do business.
However, as I argue here
, Virginia's problem is not creating the right legal framework for PPPs or moving up the learning curve in implementation—unlike many states, Virginia's already done those—but rather getting enough projects to the table. Once you get past the NoVa HOT lanes projects and the MT/MLK project, there's not a whole lot left
» Reason's Annual Privatization Report 2008
» Reason's Transportation Research and Commentary