Public Works Financing

Do We Need a House Public-Private Partnership Panel?

Congress announced the creation of a special panel to advise the House Transportation & Infrastructure Committee on public-private partnerships

On January 16th, Chairman Bill Shuster (R, PA) and Ranking Member Nick Rahall (D, WV) announced the creation of a special panel to advise the House Transportation & Infrastructure Committee on public-private partnerships. Its announced purpose is to examine the role currently played by P3s in transportation and infrastructure in this country and address “how to balance the needs of the public and private sectors when considering, developing, and implementing P3 projects.”

Reactions in the P3 community ranged from mildly positive (“Congress is finally taking our issue seriously!”) to considerably skeptical (“The last thing we need is Congress mucking around with P3s, which are implemented by state DOTs!”) While I’m more inclined toward the latter view, with reauthorization of MAP-21 on tap for this year we need to pay attention to this new panel.

One of my earliest lessons in real-world policymaking was the adage that “people are policy.” So the makeup of this 11-member panel provides clues as to what it may consider. It is chaired by Rep. John Duncan (R, TN), before whom I’ve testified on several occasions. Duncan is generally pro-P3s, though at a February 2007 hearing he expressed some concerns over large up-front payments (as in brownfield toll road leases) and foreign ownership of concession companies.

Of greater concern is the inclusion of Rep. Peter DeFazio (D, OR). At that same 2007 hearing, he trashed model P3 legislation being drafted at the time by U.S. DOT under then-Secretary Mary Peters, insinuated that protection of proprietary data in P3 proposals meant “secret deals,” and expressed all-out opposition to brownfield leases of existing toll roads. In May of that year, he and then-Chairman of the T&I Committee James Oberstar (D, MN) sent a letter to all 50 governors and state DOT secretaries warning them of the dangers of long-term P3 concessions, and even threatening to “undo any state PPP agreements that do not fully protect the public interest and the integrity of the national system.”

But at the annual ARTBA P3 conference that September, DeFazio gave a breakfast talk indicating that his views had moderated, following a summer visit to P3 projects in France and Spain. He spoke favorably of what he called the European “public utility model” for protecting the public interest, and while he still opposed brownfield leases, he seemed very open to P3 concessions that would add capacity to the highway system. He also disavowed intending to create a federal tolling regulatory agency, but supported the idea of federal P3 public interest principles that states would be expected to follow.

Although he is not the Democratic co-chair of the P3 panel (Rep. Michael Capuano of Massachusetts is co-chair), DeFazio is likely to exert more influence than a random member due to his long experience and being a former chair of the Highways & Transit subcommittee of T&I. So I would not be surprised to see DeFazio pushing for federal standards for P3 concession agreements, which might be a requirement for any federal financial assistance, such as tax-exempt private activity bonds (PABs) and/or TIFIA loans. And if he persuades the rest of the panel that brownfield leases of existing Interstates are a bad idea—even for the purpose of financing needed reconstruction—that could undercut support for what would be a massive expansion of the scope for P3 concessions.

That said, MAP-21 needs to be reauthorized, and it provides a vehicle for expanding the market space for transportation P3 projects. This panel’s report, presumably due by the end of its six-month life, could provide a blueprint for changes in federal policy that would remove current barriers and open the door to much greater use of transportation P3s. What would such a blueprint consist of? There are three obvious provisions.

First, as noted recently in this newsletter, the existing $15 billion cap on PABs is likely to be used up by the time a successor to MAP-21 is enacted. Removing that cap, or at least doubling or tripling it, would help compensate for Congress’s inability to provide increased federal grant funding for highways. A strong recommendation from the bipartisan P3 panel could only help.

Second, TIFIA has been even more crucially important in transportation P3 financing than PABs, and this vital tool needs not only to be reauthorized but streamlined so that it fulfills congressional intent by reducing administrative discretion in project selection. (And I will note again that reducing the maximum amount of a TIFIA loan to the former 33% of project budget would enable the amount authorized to support a larger number of projects, while reinforcing the original intent of the program to provide debt subordinated to the project’s primary investment-grade debt.)

Third, the panel could add major value by educating the rest of Congress on the difference between “existing” lanes and “reconstructed” lanes when it comes to Interstate tolling. Removing the federal ban on tolling for reconstruction would open the door for all states to be able to use toll finance to rebuild and modernize their aging Interstates. Those projects would be prime opportunities for P3 reconstruction toll concessions. Since they would begin with known traffic histories, such projects would be much lower-risk than greenfield toll roads but would be consistent with DeFazio’s (and ARTBA’s) interest in projects involving major construction.

For these reasons, the P3 special panel, despite posing some risks, should be looked on as an opportunity for the P3 community to make our case for federal policies that would mainstream the use of this procurement and financing mechanism by state DOTs. The panel’s first consideration, of course, should be to do no harm to this emerging trend. But it also has the potential to do some real good.

Robert W. Poole Jr. is the Searle Freedom Trust Transportation Fellow and Director of Transportation Policy at the Reason Foundation. This article first appeared in Public Works Financing.

Robert Poole is Searle Freedom Trust Transportation Fellow and Director of Transportation Policy





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