PPPs: A Look Back and a Look Ahead

Despite some signs of backlash, toll road PPPs had many great steps forward in 2007

It was the best of times, it was the worst of times . . . it was the spring of hope, it was the winter of despair . . . .
–Charles Dickens, A Tale of Two Cities

I was reminded of these classic lines as I read a summary of remarks by Royal Bank of Scotland’s Dana Levenson, at this year’s Texas Transportation Forum. According to Levenson, in 2007 U.S. PPP activity not only stopped but efforts regressed in Illinois, New Jersey, and Texas. Fears over foreign investment and loss of control cut strongly into the political will to more forward, “halting the progress” of infrastructure deals.

Were I to add to this “glass-half-empty” litany, I could cite the ongoing campaign against toll road PPPs by Reps. Peter DeFazio and Jim Oberstar, the two most powerful members of the House Transportation & Infrastructure Committee, and reported resistance to these ideas among members of the National Surface Transportation Policy and Revenue Study Commission.

But that negative assessment ignores a great many steps forward for toll road PPPs in 2007. My short list of notable developments includes the following:

  • Financial close for the Northern Virginia Beltway HOT Lanes concession deal. At $1.4 billion, this is by far the largest U.S. greenfield concession project to date, as well as being a huge leap in size and complexity for HOT lanes.
  • Next I would put two huge concession projects in Florida: the Miami Port Tunnel and the I-595 expansion/express lanes project. Though neither has been financed yet, both are long-term concessions, one with pure availability payments and the other with an interesting combination of value-priced tolling and availability payments; hence, both will be landmark deals that could provide models for many others.
  • In Georgia, the state’s PPP program is close to issuing its first RFP, for I-20 managed lanes, while continuing with two previously competed PPP projects.
  • California saw the much-awaited opening of the new SR 125 toll road, a concession deal that provides Gov. Schwarzenegger with a great example of what could be done by the private sector if the legislature heeds his renewed call in 2008 for a workable PPP law.
  • And in Texas, despite the two-year moratorium on concession projects, a goodly number of exempted toll concession projects continue moving forward.

Besides those encouraging projects, two other trends are very positive for PPP concessions going forward. One is the start of serious pension fund interest in infrastructure as an “alternative investment,” exemplified by the decision of CalPERS (the nation’s largest public employee pension fund) to allocate up to $2.5 billion for this purpose, as well as other pension funds participating in infrastructure funds of major players like Macquarie. This has huge implications, not only in dampening hysteria over “foreign” money but also making it more difficult for public employee unions to attack PPPs as bad policy.

The other development, as I’ve written previously, is the revolution in tolling policy that took place in 2007, as growing numbers of state and urban toll agencies adopted inflation-indexing of tolls, emulating routine practice among investor-owned toll concession companies. By thus killing off 20th-century flat-rate tolls, the state agencies have largely defused one major issue previously used to bash long-term concession deals.

To be sure, Levenson and others are right to be concerned about political backlash to PPPs in places like Congress, Pennsylvania, and Texas. But nobody should be surprised that such backlashes exist. What those of us who favor long-term toll concessions are talking about is, after all, a paradigm shift-a change in the basic concept of how limited-access highways will be provided in this country. And paradigm shifts are never easy; they are always resisted by those who are comfortable with and benefit from the status quo (e.g., a stodgy patronage-dispensing toll agency, a powerful state DOT engineers’ union, or members of Congress used to being dispensers of largesse).

Paradigm-change-resisters usually understand the new paradigm, but they rely on the genuine fears of others (elected officials, media commentators, the general public) based on lack of knowledge. In a general political climate of growing protectionism and opposition to globalization, it’s easy to take cheap shots against “foreign” companies and investment, or to attack long-term PPPs as if they were sales rather than leases, lacking serious provisions to protect the public interest.

In this context, I’m pleased that the new PPP coalition, Moving America Forward, is finally set for an early 2008 launch. Given the amount of misinformation, deliberate distortion, and genuine lack of knowledge about long-term PPPs, this kind of assertive information provision is very much needed (and is, in fact, overdue).

I would be remiss in this assessment if I did not point out what I consider two very disturbing trends, which I think genuine advocates of the paradigm shift I’m talking about should take seriously. Both involve turning tolling into a kind of tax on mobility, rather than a means of paying for more and better mobility for willing customers. In New Jersey, Gov. Jon Corzine is about to unveil his plan to use large-scale toll increases on the state-run toll roads to bail out the near-bankrupt state government. In nearby Connecticut and Pennsylvania, various legislators and other officials are trying to impose tolls on existing Interstates, not primarily to improve them for their users but to fund mass transit and other transportation needs in other parts of the state.

These moves have the trucking industry up in arms, and are likely to arouse the auto clubs and groups like the American Highway Users Alliance, too. As well they should. The last thing we need is to have the customers of the highway system opposing the new paradigm. A big part of our message is that the old centralized tax-and-grant paradigm has broken down and is not giving highway customers what they want and need. Our aim with toll concessions should be to empower highway customers to demand better highways whenever and wherever they are willing to pay for better services.

We’ve made some good progress in 2007, despite various signs of backlash. Building on this progress will require not only a lot of educational work about the true benefits of our new paradigm but also resisting the temptation to support any and all expansions of tolling, regardless of how the proceeds are used. That’s the path to war with the highway system’s customers, who should be our supporters, not our adversaries.