No Toll Czar: States, Not Feds, Should Protect the Public Interest in Public-Private Partnership Deals

At the National Journal Transportation Experts blog, Lisa Caruso writes:

Supporters of public-private partnerships, from conservative former Transportation Secretary Mary Peters to Democratic Pennsylvania Gov. Edward Rendell, insist that the next surface transportation bill make it significantly easier for the private sector to invest in infrastructure projects. At the other end of the spectrum, House Transportation and Infrastructure Chairman James Oberstar, D-Minn., wants to create an Office of Public Benefit and tough new requirements for tolling and public-private partnerships involving federal roads to make sure that the public interest is protected in deals with private investors.

How can policymakers strike the best balance between ensuring that the public gets a fair deal and making investment in infrastructure projects attractive to private capital? And how much funding for transportation projects is it realistic to expect from the private sector?

While I am largely in agreement with both Mary Peters and Greg Cohen on the importance of public-private partnerships and protecting the public interest, neither adequately addressed the key question as we move into debating surface transportation reauthorization: What is the appropriate role of the federal government on this question?

Chairman Oberstar’s bill, with its creation of an Office of Public Benefit, would greatly expand the federal government’s role, not only in public-private partnerships (PPPs) but also in tolling, by creating what amounts to a tolling-and-PPP czar at US DOT. This position would have to approve any and all toll agreements and PPP agreements anywhere on the federal-aid highway system. Not only would this be a major expansion of federal control over what would normally be state-level decisions; it would also turn back the clock to the pre-ISTEA days when federal law banned the use of tolling anywhere on the federal-aid system.

ISTEA began the process of liberalization, keeping federal limits on tolling solely on the Interstate system. Subsequent reauthorizations further liberalized the federal role, by permitting exemptions for various kinds of toll pilot projects on Interstates: high-occupancy toll (HOT) lanes, express toll lanes, rebuilding three Interstates with toll finance, and constructing up to three new Interstates with toll finance. Oberstar’s bill would scrap all these pilot programs in the name of streamlining and consolidation—but at the price of greatly expanded federal control.

Creating a federal toll czar is the wrong way to go. Micro-managing tolling and PPP agreements that need to be tailored to the specifics of each project would create impediments to the timely and cost-effective use of these important tools by state DOTs. And if states were required to submit negotiated PPP agreements to the federal czar for a yes-or-no decision, the uncertainty created by that requirement would very likely kill the private sector’s interest in spending millions of dollars preparing proposals and negotiating complex deals that could be killed by the stroke of a pen at the 11th hour. We’ve seen the equivalent occur in those states whose PPP enabling acts required legislative approval of negotiated deals: no such deals were ever proposed.

In February the National Surface Transportation Infrastructure Financing Commission released its report. Chapter 7 of this report addresses protection of the public interest in PPP deals. One of its principal recommendations is that “Congress should generally support the states’ primary role in overseeing private-sector arrangements and, to this end, should encourage the development of appropriate technical assistance and dissemination of best practices information.” I agree with that recommendation, and so does the National Governors Association, based on recent statements.

A consensus is emerging on best practices for protecting the public interest in public-private partnership agreements. The Finance Commission report includes a summary in its Box 7-7. The Transportation Research Board has also released an excellent synthesis report, NCHRP synthesis 391, “Public Sector Decision Making for Public-Private Partnerships.” Recent toll concession agreements are generally in line with these recommendations.

All fast-growing states are woefully short of transportation funding, measured against the need for rebuilding and expanding our highway system to keep pace with growth and improve its often-dismal performance. Tolling and PPPs are essential tools for their toolboxes. Heavy-handed federal regulation could, de-facto, remove these tools at the very time when states need them more than ever.

Originally posted at National Journal.