Pennsylvania finalizes public-private partnership deal to rebuild nine highway bridges
Photo 122145940 © Paul Brady |


Pennsylvania finalizes public-private partnership deal to rebuild nine highway bridges

The Major Bridges P3 deal is the state's latest use of public-private partnerships to repair, rebuild and modernize bridges.

The Pennsylvania Department of Transportation just reached financial close on the state’s Major Bridges P3 project to rebuild nine Interstate highway bridges. Phase one of the two-part public-private partnership rebuilds six Interstate bridges in rural areas of the state, while phase two rebuilds three Interstate bridges in urban areas.

The Major Bridges P3 deal is the state’s latest use of public-private partnerships to modernize and rebuild bridges. Pennsylvania’s Rapid Bridge Replacement Project used public-private partnerships to rebuild over 550 bridges on collectors and local roads in the northeastern and southwestern parts of the state over the last decade.

Initially, the Major Bridges project was conceived as an availability payment public-private partnership (P3) with tolling. However, the courts ruled that Pennsylvania’s public-private partnership law did not allow existing capacity to be tolled. As a result, the state decided to use a pure availability payment P3 model (with fuel taxes, general funds, or sales taxes as the revenue sources).

This project was split into two phases for environmental permitting reasons. The $2.3 billion first phase includes $1.8 billion in private activity bonds (PABs), the highest dollar value of PABs for any U.S. P3 project. It also includes $200 million in equity from the private partner–Macquarie, a $140 million mobilization and milestone payment, and $150 million in interest.

Unlike many public-private partnership projects, the first phase of the Major Bridges P3 project does not include a Transportation Infrastructure Finance and Innovation Act (TIFIA) loan because the project financing schedule was too compressed. However, the state and concessionaire are examining a TIFIA loan for the second phase. PennDOT wanted to complete the project by the end of Gov. Tom Wolfe’s administration. While incoming Gov.-elect Josh Shapiro’s administration supports the project—Shapiro approved the project as Pennsylvania attorney general—delays lead to additional costs, which must be priced into the project. It took only three weeks for phase one to move from commercial close at the end of November to financial close in December.

This Major Bridges project helps Pennsylvania and provides four essential takeaways for other states considering public-private partnerships.

First, PennDOT included a major provision to build support among the local contractor community in the state. The P3 requires 70% of project construction to be subcontracted to local firms. Most P3s are able to subcontract a majority of the construction. While a local work requirement can increase costs by barring cheaper external contractors, it typically increases support from smaller construction firms that might otherwise be political obstacles to P3s. Given that much of the work will be completed locally, the trade-offs involved in this provision can be politically savvy overall.

Second, bundling works. The state combined nine projects into two by bundling multiple projects (either multiple bridges or roadways). That minimizes the number of project managers and the administrative support required for each project, and it also reduces the per-project costs to taxpayers. Bundling is not advantageous just for transportation projects. For example, Prince George’s County, Maryland, has bundled school renovation projects. Many jurisdictions could bundle services like fire stations and libraries.

Yet, few state transportation departments have chosen to bundle bridges. Besides Pennsylvania’s bundling, Georgia, Massachusetts, Missouri, Nebraska, New York, Ohio, Oregon, and Rhode Island are the only states with bundled bridge contracts for maintenance. And none of those states has used a public-private partnership in those bundles, even though several have strong P3 laws.

Third, state transportation departments can complete projects quickly if they prioritize and use best practices for public-private partnerships. Pennsylvania reached financial close on the Major Bridges P3 less than five months after the pre-development contract was restarted (a court struck down the original P3 tolling law in early July, requiring changes to the project). The expeditious closing was aided by a detailed pre-development agreement (PDA) that spelled out different contingencies.

Contrast that with the slow-moving I-270/I-495 managed lanes P3 project in Maryland, which was first unveiled in 2017. That project adopted a progressive design-build model (somewhat like a PDA) in early 2022. In fairness, Maryland had to be more deliberate with that project due to the challenges with its much-delayed and costly Purple Line light-rail P3 project. However, Maryland’s initial approach to the I-270/I-495 public-private partnership also led to many of the project’s delays.

Finally, while this availability payment P3 reached financial close, Pennsylvania still has a long-term highway and bridge funding challenge. Since Pennsylvania cannot toll the bridges, it will need to take revenue from other projects, likely other highways that need to be widened and/or maintained. The gas tax, the primary revenue source for PennDOT and other state transportation departments, is losing its purchasing power and mileage-based user fees, the likely successor to fuel taxes, are still in the testing phase in the state.

Pennsylvania could use tolling to help rebuild and expand its Interstate highways today, but tolling is not allowed under the state’s P3 statute, so the state legislature should revise the P3 law to allow tolls. PennDOT clearly understands how to enter a P3 and finance long-term infrastructure. But until the state has a reliable revenue source, its capacity will be limited.