U.S. highways are facing a perfect storm of infrastructure nearing the end of its design life, growing travel demand, and an increasingly unreliable revenue stream. By tapping into private capital, public-private partnerships (P3s) provide one tool to stretch existing state department of transportation (DOT) resources further.
Public-private partnerships provide many additional advantages. They help shift risk from taxpayers to the private sector. In the current inflationary environment, speeding up project delivery could reduce costs as well as bring innovation and new ideas to roadway construction. Finally, P3s provide long-term asset management and performance.
This how-to guide for implementing a highway public-private partnership is designed both for states that have appropriate enabling legislation but have implemented few P3s (most states) as well as states that lack enabling legislation.
This guide has the following components:
- An explanation of P3s, detailing what P3s are and what they are not, as well as why transportation agencies would want to use them;
- How to set up a dedicated transportation P3 program in a state, including enabling legislation, a P3 Office, and a P3 steering committee. States with dedicated P3 Offices have more robust and successful P3 programs;
- How to differentiate between solicited and unsolicited proposals, and to prioritize projects and implement screening;
- Project stage development, including analyzing value for money;
- An explanatory roadmap and useful checklist for a project procurement process;
- An examination of a state’s responsibilities after a project reaches financial close but before it opens to the public; and
- A P3 state review and audit process for ensuring the private party meets the terms of the contract.
Since the first U.S. highway P3 was implemented in 1995, 11 states have entered into more than two dozen design-build-finance-operate-maintain (DBFOM) P3s. While that number is not overwhelming, P3s tend to be used for the largest, most complicated projects valued at more than $500 million (termed mega-projects).
However, compared to other countries, the U.S. lags in public-private partnerships. Most of the P3 activities have occurred in a handful of states because those states have better, clearer legislation and less political interference. While overall population is a factor (with more populous states entering into more P3s), Virginia (the 12th most populous state as of this writing) has entered into more P3s than any other state. New York (the 4th most populous state) has not entered into any P3s.
With declining fuel tax revenue, growing miles traveled, and aging infrastructure, the U.S. can no longer depend on government funding alone. Similar to other countries and other types of infrastructure, the U.S. must finance highways over the long term. Public-private partnerships provide an appropriate financing vehicle for large projects, along with innovative funding sources such as tolling and financing tools, including Transportation Infrastructure Finance and Innovation Act (TIFIA) loans and private activity bonds. These tools allow DOTs to stretch existing resources further.
It can be challenging for a state to enter into its first P3. But it can also be very rewarding. States that use this how-to guide can be rewarded with infrastructure that is built sooner and remains in good condition during the life of the infrastructure.