Revenue-financed design-build-finance-operate-maintain public-private partnerships are still relatively rare in the United States. Still, you’d think once a state’s transportation department had succeeded in doing one, the second project would be easier to get approved. But a recent hearing in Louisiana should serve as a wake-up call for transportation insiders and policymakers on the need for increased informational and educational efforts on the benefits and logistics of tolling and long-term public-private partnerships.
Louisiana’s first such public-private partnership (P3) is replacing the obsolete Belle Chasse bridge and tunnel with a new toll-financed P3 bridge. The $148 million public-private partnership project was financed in 2019, and construction is progressing.
Louisiana’s second P3 project is to replace the 71-year-old, four-lane Calcasieu Bridge on the six-lane I-10 in Lake Charles. Besides being far past its design life, the bridge is a traffic bottleneck. As a major bridge on the Interstate, the cost of the new bridge and adjacent road projects is $2.1 billion. The Louisiana Department of Transportation and Development (DOTD) completed its P3 procurement, and the project is awaiting a go-ahead from the state legislature.
As part of the process, the state legislature’s Joint Transportation Committee held a public hearing on Aug. 22. My Reason Foundation colleague Jay Derr attended and took detailed notes. Despite the Belle Chasse project on its way toward completion, some questions for DOTD showed how much information still needs to be shared and explained about how tolling and P3s work, who pays for them, the benefits of using them, and the trade-offs of trying to fund projects in other ways. To make matters worse, comments from the Louisiana Motor Trucking Association about tolling and P3s were very misleading.
As a follow-up to that hearing, my Reason transportation colleagues and I had a 45-minute meeting to gain more insight into members’ concerns and knowledge of this project from a transportation committee member who would prefer not to be named here but favors the project. Here are some of the key points that came up in that conversation.
First, the pro-P3 legislator was unaware that using toll financing to replace a bridge or tunnel on the Interstate system is entirely legal today. Transportation wonks like myself and readers of Public Works Financing have been following Congress’ several-decade liberalization of the original federal “no Interstate tolls” policy, but we should not take it for granted that transportation committee legislators or all policymakers are up-to-date on issues we follow closely, but they do not.
Second, it is evident that the design-build-finance-operate-maintain (DBFOM) public-private partnership model is not well understood, even by bureaucrats and legislators who work on transportation projects.
We stressed the transfer of significant financial risks from taxpayers to the P3 companies, such as cost overruns during construction, delays and late completion that increase costs, and traffic coming in lower than forecast, causing revenue shortfalls. Another P3 benefit is that 50 years of guaranteed project maintenance, as would be the case for the Louisiana bridge, ensures ongoing maintenance to keep the bridge in good repair.
In addition to highway maintenance, which states often defer to shift money to urgent needs, yet another point to make to officials is that a single toll-financed megaproject like the I-10 bridge frees up the state transportation department’s budget and allows them to fund other projects across the state.
Several other concerns were raised by legislators and people from the Lake Charles area. A big question was, since the lead company in the P3, Plenary, in this case, is based out of state, would they avoid using local Louisiana subcontractors? I cited the recent Reason Foundation study on P3s and contractors to point out that U.S. design-build-finance-operate-maintain highway and bridge projects average 54% of the construction budget spent on subcontractors, most of them local.
Another common concern was that a 50-year term is “too long for the state to be tied to a single corporate entity.” My explanation about long-term P3 agreements, including early-termination provisions that allow states to exit the deal if the private companies fail to live up to the contract, does not seem to be widely known information amongst policymakers.
The Louisiana Motor Trucking Association followed its usual playbook, drawing on the American Trucking Association’s Alliance for Toll-Free Interstates. Their spokesperson started with double taxation claims that truckers would pay the new bridge tolls in addition to the state and federal diesel taxes they pay. In fact, state and federal grants, using fuel taxes, are planned to cover 38% of the I-10 bridge’s $2.1 billion capital cost.
Major one-time projects like replacing a major bridge cannot be funded out of annual fuel-tax cash flows. The DOTD director was very clear about the state’s successful efforts to obtain federal grants and the legislature already providing some state highway funds for this project.
The Trucking Association also claimed it would be unfair and unprecedented for truckers to pay bridge tolls as if this were the only U.S. bridge replacement financed based on new toll revenues. We pointed out the planned I-10 tolled bridge in Mobile, Alabama, the planned I-5 bridge replacement on the Oregon-Washington border, the operational Ohio River Bridges P3 project in Indiana and Kentucky, and the under-construction Gordie Howe bridge between Detroit and Windsor, Ontario. There is also the planned I-10 bridge across the Mississippi in Baton Rouge, Louisiana.
Another trucking industry assertion was that ‘P3 bankruptcies are common, which is why Texas no longer uses P3s.’ Out of 21 U.S. revenue-based DBFOM P3s financed and built since 1993, there have been only two bankruptcies—the South Bay Expressway near San Diego and State Highway 130 (segments 5 and 6) in Texas. Neither bankruptcy involved a taxpayer bailout. The Republican-controlled Texas legislature stopped authorizing new public-private partnerships in that state about a decade ago due to a populist backlash against tolling. But the five operational P3s in Texas are popular and have investment-grade bond ratings.
The lesson I draw from all this is that the transportation community and state transportation departments need to put a lot more emphasis on basic education about how tolling and P3s can help shift financial risks from taxpayers to private companies investing in infrastructure modernization, repair and replacement while allowing states to fund more projects than they’d otherwise have the money for.
The massive expansion of federal infrastructure and stimulus spending in recent years is not likely to be renewed once that money is spent. When that federal money has all been spent, most states will need to expand their use of DBFOM P3s to deal with what will still be an enormous backlog of aging Interstates that need reconstruction and obsolete bridges that must be replaced.
Using revenue-financed public-private partnerships for transportation megaprojects would enable states to spend remaining federal and state fuel-tax funds on numerous smaller projects that cannot be done as P3s.
A version of this column first appeared in Public Works Financing.