Ready to try public-private partnerships yet?

With state transportation agencies too strapped to fix bridges and roads, and union pension funds looking for investments, the P3 idea is spreading. Maybe even to a wary West Coast?
On the left, the new Tacoma Narrows Bridge.

On the left, the new Tacoma Narrows Bridge. None

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.

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    Comments:

    Posted Wed, Apr 1, 1:09 p.m. Inappropriate

    P3s are a throw back to enclosure movement that forces the people to move into the cities and be confined by fees that only the favored can afford.
    These are "necessary" only because the politicians are not only bought and paid for by the corporations and the wealthy, but they know that the other option(s) are the income-wealth taxes that are progressive, the so-called "third rail" of politics.

    Posted Wed, Apr 1, 3:40 p.m. Inappropriate

    Great article Mr. Rosenberg.

    I think a compelling case is made for P3s, particularly in this state. "Hefty economic and social benefits of getting something built years sooner" are cited. The benefits are more than that --- how about saving lives?

    It's been over 8 years since the Nisqually Earthquake, yet not a shovel has turned in the replacement of the Alaskan Way Viaduct. The 520 Bridge is years and years beyond the end of its planned life, yet the state is not even close to funding its replacement.

    The political leadership in this state (I'll say it --- largely Democrat, but Republicans are not blameless) will be to blame if either of these structures collapses and lives are lost. No, they won't be criminally liable, but their mismanagement and inaction are immoral at best. If P3s enable faster action, then that by itself is almost enough to support them.

    PJS

    Posted Wed, Apr 1, 4:28 p.m. Inappropriate

    There's nothing magical about "public private partnerships". These projects still cost money and keep in mind that privately funded projects cost the same as publicly funded projects + profit margin + nonperformance bonuses for the executives.

    A very recent transporatation project in Washington that was a public private partnership? The Seattle Monorail Project.

    Posted Wed, Apr 1, 4:47 p.m. Inappropriate

    Europe and Canada have extensive experience with public-private partnerships in transportation. Australia, also. I suspect P3s would help Washington and other West Coast states pay for a number of the big-ticket road and rail projects that will otherwise face real difficulties being completed.

    Can there be some concerted enquiry? Each proposal should be examined very carefully, but the real trick, as the writer indicates, is to look at the long term and figure the total costs and benefits.

    What's unfortunate is the amount of posturing around public-private tie-ups. Both from Republicans who think they are THE silver bullet in every instance (they are not), and Democrats with their populist rhetoric and stasis.

    I am left to wonder - Why is it that for all the taxes collected for transportation, the metropolitan system is still such a mess? (Pick a sizeable region in the United States, it is true nearly everywhere).

    Posted Wed, Apr 1, 9:18 p.m. Inappropriate

    Privatizing infrastructure, even partially, is a bad idea, whether it's water, power or roadways. We had an attempt to create a private/public roadway running down HWY 9 from Sumas to Snohomish, pushed by state Rep. Doug Erickson (R-Trucking Industry). This project, known as the Commerce Corridor, would have been a 10 lane, 700 foot wide toll freeway for commercial trucks and would have included powerlines, pipeline and freight rail, all run smack down one of the last rural lowland areas left in the state. The industry shills pushing it said that the Commerce Corridor would do for western Washington what the Owens valley project did for Los Angeles. If you're not familiar with that piece of injustice and unanticipated consequences, google it or read Mark Reisner's book "Cadillac Desert".
    The whole idea of building more freeways is so 20th century. We need more bike lanes, more busses, more trains for goods and passengers, but we also need to start producing more locally, because the peak of global oil production is going to make 3000 mile salads and 9000 mile sneakers obsolete, and sooner than you may think.

    dhal9000

    Posted Wed, Apr 1, 11 p.m. Inappropriate

    This sounds like the broken record that played in the Bush administration for eight years.

    It would be nice if Discovery were required to disclose any financial contributions it might be receiving to promote this and other topics.

    That way we'd know who is really behind this idea, and others. Dollars to doughnuts it is being paid for by people wanting to cash in.

    Jan

    Posted Thu, Apr 2, 10:05 a.m. Inappropriate

    Hopefully the public officials of Washington State will proceed more cautiously than the Discovery Institute, with its unbridled promotion of public private partnerships.

    Transportation in Washington State is like the movie 'Groundhog Day'. Huge boondoggles caused by flawed projects get forgotten, only to be promoted for future boondoggles. Has everyone forgotten one of the main lessons of the Seattle Monorail Project whose key feature was the public private partnership?

    Read this Op-Ed piece from Tom Carr, published in 1998, "A Privately Funded Monorail Is Possible"

    http://archives.seattletimes.nwsource.com/cgi-bin/texis.cgi/web/vortex/display?slug=2777178&date;=19981012&query;=himma+and+monorail

    In it he states so clearly:
    This was one of the central premises of the monorail initiative. That measure directed the ETC to build and operate a monorail throughout much of the city and asked it to seek private funding for construction costs, instead of automatically turning to the taxpayer. We now know that such a funding program may be possible.

    While a relatively new incarnation of an old concept, a number of public works and infrastructure projects across the nation are being financed and built through such private/public partnerships. In these places, taxpayers have reaped the benefit of projects built better, quicker and cheaper. Citizens have been able to use the strengths of the free-market private sector to serve the good of their communities.
    -----------

    Boy, didn't the taxpayers reap the benefits of this innovative monorail agency whose central promise was the public private partnership?

    Posted Thu, Apr 2, 10:59 a.m. Inappropriate

    i think i'm beginning to get it. the democratic-majority state legislature of california has passed a new law lifting limits on the number of transportation p3s, because of the state's dire fiscal situation. the democratic-controlled washington state senate transportation committee warns that the way we fund transportation in the country and state just doesn't work anymore and we'd better figure SOMETHING out, although they don't say exactly what. a study group co-chaired by the liberal ex-mayor of Seattle, in a state report, urges more public-private partnerships in transportation. so does the state's non-partisan transportation commission, and president obama's new transportation secretary. a pension fund of police and firemen is helping to fund p3 toll road projects in texas because they think these are good investments for their members. thousands of workers, many of them doubtless labor union members, are being hired to work on p3 projects in virginia, florida, texas and other places.

    and yet supposedly the whole idea is a plot of evil conservatives and big business.

    what newton minnow said of television seems true of seattle's public "dialog." it is a vast wasteland.

    sad, very sad.

    murray

    Posted Thu, Apr 2, 11:22 p.m. Inappropriate

    Because I am a full-network, Road Use Charging (RUC) advocate (pay every mile driven and end the fuel tax), I prefer to rush headlong into the user-pay world with the revenue split in some network-optimizing way between road and transit financing. So I have long thought that PPPs are simply an interim measure because slow-grinding governments are stuck with a failing (failed!) finance model. I have long assumed that if they could fix that (I am an optimist!) P3s would not be necessary.

    Matt’s first conclusion – better management offsets higher private debt costs and the extraction of profit – suggests P3 may be plainly a better model from a total-cost of ownership perspective. I accept that. His second conclusion – building sooner brings earlier congestion and emission reduction and earlier restoration of productivity – needs two caveats. First pricing has to be right and shadow-tolls must not be permitted. Second, state and federal programs to move toward full network pricing must continue, otherwise, congestion abatement due to P3 activities will be transient since improved congestion circumstances invites new demand. The Matt Rosenberg article at [http://crosscut.com/2008/10/21/transportation/18586/] “How to pay for the roads still traveled” makes that point between the lines.

    The real reason I prefer P3 investment is that this brings us tolled roads. These train the entitled motorist to see that roads are not free. The more tolled roads we have now, the easier the inevitable tax-shift from fuel-tax to VMT pricing will become.

    Long an admirer of past USDOT Secretary Mary Peters, I learned from her that tolled lanes are “…a stepping stone to get people acclimated to paying a fee for use of a section of roadway…” (She was talking about HOT lanes at Brookings in April 2008. Get the video and transcript links at http://grushhour.blogspot.com/2008/04/mary-peters-woman-with-vision.html.)

    So while the new roads that P3 programs give us may have immediate and visible motoring benefits, they are the training pants for the real surface transportation market of the 21st century.

    berngrush

    Posted Fri, Apr 3, 10:54 a.m. Inappropriate

    My first, gut-level reaction to P3s concerns why the private sector likes them so much -- they socialize the risk and privatize the profit.

    If there is another way to structure these deals to better balance risk and costs, I'd sure like to see it.

    And I remember Frank Chopp lecturing about why he put the kibosh on the Second Narrows Bridge P3 -- the interest cost savings to the public from using state financing instead of private financing.

    Posted Fri, Apr 3, 1:55 p.m. Inappropriate

    This whole article and the whole notion of public private partnerships is founded on a completely flawed assumption that the revenue model for roads is broken, and that a public-private partnership is some magical solution to the problem.

    Take this quote from the article:
    "States, hurting from falling revenues of all kinds, including gas tax proceeds, lack the money to meet their own infrastructure needs. "

    The reason gas taxes are falling is that people are driving less and the cars they drive get better mileage. Also, the Republican party has blocked any efforts to raise the federal gas tax to keep up with inflation. So it only stands to reason that there's not enough money to repair the roads.

    Let's assume that Metro Transit charged the same for bus fares as it did in 1985 as it does today. Would a 'public-private partnership' save the day and be some magical solution to save the transit agency? I think not. But that's basically what the Discovery Institute is suggesting it would do.

    A better, more fiscally responsible solution would be to raise the federal gas tax to keep up with inflation. Maybe they should just call it a gas 'users fee', to make the Republicans feel better. But the people in the Republican party who were fiscal conservatives are long gone.

    Posted Fri, Apr 10, 10:19 p.m. Inappropriate

    Matt;

    Are you crazy? This piece is so poor researched, so one-sided, and so full of myth and disinformation that it hurts my brain. Matt, exhale.

    Mike W

    Posted Wed, Apr 15, 3:35 p.m. Inappropriate

    This is an exceptionally well-researched piece of explanatory journalism, and it's well-suited to the online format, with the many informative links to various news stories and studies. I rarely see anything like this in the online versions of long-standing print newspapers.

    Congratulations to the author and to Crosscut. Would that more of the new "new journalism" were so well wrought.

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