When California recently resolved its mammoth budget deficit, it also moved to ease restrictions on transportation public-private partnerships, a politically controversial idea that over the long run could help control costs to taxpayers of improving overloaded roads, rails, and freight facilities.
P3s, as the arrangements are called, draw from among construction, engineering, highway management, and infrastructure investment firms (often funded partly by public employee and building trades union pension funds) to form consortiums that get important transportation projects built more efficiently, and sooner versus later or never. A P3 consortium may provide consolidated services such as designing and building a toll bridge or highway section, and can also provide upfront capital if public funds are constricted, as is often the case, particularly now.
The private consortiums may not only design, build, and help finance variably-tolled facilities; they may operate and maintain them too, doing so for several decades under a lease agreement with their public partner, such as a state department of transportation. (The public agencies can retain ownership, control toll rates, and enforce contractual performance standards). Over the long haul, the private partners make back their investment and a profit, while the savings to taxpayers over a project's full life cycle accrue, compared with going it solely on the public's dime, and solely under public-sector management. P3s can also target transit, and crucial port and rail infrastructure. (Various types of P3 are described here by the Canadian Council For Public-Private Partnerships.)
Further, many of the P3 projects have a genuine green hue. Examples are "managed" lanes on highway sections, bridges, and tunnels where booth-less electronic tolls are set higher during peak hours and lower off-peak to maintain a steady traffic flow at speeds of 45 to 50 miles per hour while ride-share vehicles and transit go free. Increased telework at home, as well as off-site meetings, remote work centers and para-transit offer additional ways around the higher peak-hour tolls.
The P3 approach is still a politically hot topic, particularly in this state. Nonetheless, it is a tool increasingly being considered by elected officials. In a new report, the Pew Center On The States paints the backdrop:
In 2008, the federal Highway Trust Fund — one of the nation's primary sources of funding for highway renovation and construction — almost went broke. States, hurting from falling revenues of all kinds, including gas tax proceeds, lack the money to meet their own infrastructure needs. These funding problems have turned into a crisis. Every year the numbers worsen. Much-needed highway repairs are being neglected...The current trend is unsustainable. Congestion and pollution will continue to increase, public safety will be compromised, and states' economic growth and ability to attract and retain strong businesses will falter if the nation's transportation system fails to receive the investments it needs. Federal funding — through the stimulus package, a proposed infrastructure bank or both — will help. But the gap remains large, and as a result, state leaders are looking to partner with the private sector.
Senate Bill 4 is the game changer in California, signed into law in late February. Under restrictive 2005 pilot project legislation, California had allowed its state transportation department and regional transportation agencies to enter into only four P3 arrangements up until January 1, 2012. Under SB 4, unlimited transportation P3s are allowed between now and January 1, 2017.
Up the road a piece, Washington has unfunded transportation needs of $38 billion (in 2005 dollars) over the next 20 years, according to the state's transportation plan update issued in 2007, not counting local transit needs. The transportation commission in a 2007 report noted that:
A series of key state assessments have urged the P3 approach be more closely considered for major transportation projects. The Expert Review Panel on SR 99 Alaskan Way Viaduct Replacement and SR 520 bridge replacement stressed the value of regional tolling and P3s as finance tools, especially for the looming life-safety rebuild of the 520 bridge. The Regional Transportation Commission chaired by former Seattle Mayor Norm Rice and ex-Western Wireless CEO John Stanton recommended serious attention to possible long-term concessions and build-operate agreements with private partners. A report prepared for the legislature's Joint Transportation Committee stressed that P3s can attract new capital otherwise unavailable, accelerate project delivery, and offload government's construction cost overrun risk. P3s could prove especially helpful in getting built the new bridge across the Columbia River between Clark County, Wash. and Portland, Ore., extending SR 167 from South King County to the Port of Tacoma, constructing the SR 704 "Cross Base Highway" in Pierce County, in making improvements on Interstate 90 at Snoqualmie Pass, upgrading the state ferry system's big Colman Dock terminal in Seattle, and in financing additional ferry terminal, freight rail capacity, and "transloading" projects. State-issued bonds are required for all projects; that should be changed to allow comparison of alternative financing structures. State bonding timelines should be extended from 30 to 40 years to help finance mega-projects. No fewer than six entities can effectively stop a P3 project; clearer authority should be given to the transportation commission to make final decisions.
To its credit, the state used a design-build P3 approach for the newer, southbound tolled span of the Tacoma Narrows Bridge, and lately has been exploring P3 possibilities for ferry facilities, and alternative fuel stations in the I-5 corridor. But with as much as $6.6 billion now needed for the SR 520 bridge rebuild, and another $4 billion required to put right I-5 in Seattle and US 2 to the north, plus a slew of other unfunded, important projects, Washington needs to really open up to transportation P3s.
Recent news only underscores the paucity of funding. The Seattle Times reports that the state Senate's proposed transportation budget has would delay until 2016 some 31 highway projects that had been planned for sooner (the House proposal slices things a bit differently). At the same time, Sound Transit is warning that its voter-approved $18 billion second phase expansion plan, including light rail across Lake Washington to Bellevue and Redmond, may come up as much as $2.1 billion short due to the recession and declining tax revenues.
After the planned deep-bored tunnel to replace the Alaskan Way Viaduct (for which the primary pot of state funding is intact), the 520 bridge is the next Puget Sound roads mega-project on the horizon. The Seattle Times reports that the cost could rise to $6.6 billion but the state only has about $1.9 billion exclusive of tolls. The most aggressive tolling scenario identified by a state committee (with the earliest start on the old 520 bridge plus tolls on parallel I-90) would yield another $2.4 billion, for a total of $4.3 billion.
Credit has been tight lately, to say the least, dampening near-term enthusiasm for government borrowing, P3s, and activity by infrastructure investment firms. But a slew of recent deals foretell transportation P3s re-gaining traction as the economic recovery gradually unfolds.
In Florida, for example, a Spanish-based consortium, ACS Infrastructure Development, has closed a $1.6 billion-plus deal to design, build, finance, operate, and maintain a 10.5-mile reconstructed I-595 connector in Broward County, from near the Fort Lauderdale Airport and I-95, going west to the I-75/Sawgrass Expressway interchange. A central feature, right down the middle, is three reversible, electronic time-variable tolled lanes called 595 Express. The state will lease the center express lanes from the consortium and collect the tolls. If the tolls must be raised at some point in the future, that will be done by the state, not the private consortium.
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