Colorado Governor Correct to Veto Anti-P3 Legislation

Earlier this month, Colorado Governor, John Hickenlooper, broke ranks with his Democratic colleagues in the state Assembly when he vetoed SB 14-197. The June 4th veto expressed the governor’s discomfort with several provisions of the transportation bill that would constrain the state’s ability to enter into public-private partnerships (PPPs).

Debate on the merits of Colorado PPPs has centered on the pro’s and con’s of the US 36 reconstruction project. At $497 million over 50 years, it represents the largest transportation initiative in the state. The concession deal was finalized in July of 2013 when Plenary Group emerged as the winning bidder. In the hopes of increasing mobility on the US 36 corridor that connects Denver and Boulder, concession terms require Plenary to design, build and operate two variably-priced managed lanes in addition to reconstructing the existing general purpose lanes and improving transit options.

Beyond calling for increased transparency and public oversight of the bidding process, the vetoed “Transportation Enterprise Transparency Act” contains three harmful anti-PPP provisos. First, it would limit all PPP concessions to 35 years. Second, it would it would prohibit “non-compete clauses” (a hyperbolic term in this context) that compensate private partners for expected revenues diverted to competing roads constructed during the concession. Third, it would require PPP projects to spend a minimum of 10% of net user fee revenues on transit in the project corridors.

Limiting leases of public facilities to 35 years would diminish investor interest in financing infrastructure projects. While the appropriate length of PPPs varies by context, longer leases afford private partners more time to recoup initial expenses and a more predictable basis for modeling future revenues. Like the prices of major stock market indices, traffic volume fluctuations even out with expanding time-horizons. Investors can predict with far more confidence that a given investment will net “x” percent returns over 70 years compared with 20. This confidence allows toll concessionaires to keep the portion of tolls needed to service concessionaire debt (rather than effectively ration road space) more stable during periodic traffic spikes or droughts.

Similarly, prohibiting public compensation for diverted revenue both discourages investment and creates unintended consequences for state policymakers. Most contracts governing PPPs mitigate the danger that “free” public roads pose to private partner compensation. Concessionaires reasonably worry that if the state decides to construct competing roads parallel to lessee toll facilities, much of the traffic upon which their financing models were based will simply disappear. If SB 14-197 had taken a moderate approach by banning only actual non-compete clauses forbidding the mere construction of alternate roads, it might have fulfilled its purpose of keeping future transportation policy flexible. But by forbidding the use of conditional subsidies, SB 14-197 would have virtually eliminated PPPs as a realistic policy option and, in doing so, wedded state planners to inflexible gas tax increases.

Alternatively, the 10% minimum clause would have caused problems not so much for negotiations between private and public partners, but for justifying future projects to the general public. One of the greatest impediments to PPPs is the public’s concern that the state will use toll collections to subsidize other modes of transportation and that, by consequence, tolls will cease to be user fees and become taxes. It’s a hard sell to car commuters that the tolls they pay must be increased to cover the cost of a system they never use. Indeed, SB 14-197 would have exacerbated the PR consequences of this provision by mandating town hall meetings at nearly every stage of the PPP decision-making process. A more effective measure would set a maximum of 10% of toll revenues available for transit investment.

While increasing transparency, limiting cronyism and soliciting public input are vital to ensuring fair and beneficial PPP concessions, Governor Hickenlooper made the right choice in vetoing Colorado’s most recent transportation bill. SB 14-197’s commitment to truncating leases, limiting conditional compensation options and turning toll user fees into quasi-taxes were both counterproductive and fundamentally unfair.