Accountable Strategies blog

A blog about accountability issues in the public, private, and nonprofit sectors

Getting a handle on highway public-private partnerships

Posted by David Kassel on February 11, 2008

Given the critical demands on the nation’s transporation system, including its highway infrastructure, state and local governments are increasingly turning to the private sector for help.

The U.S. Government Accountability Office has some concerns about the growing use by state and local governments of “public-private partnerships (P-PPs)” to plan, design, build, maintain, and even finance public highways.  In a new report, the GAO notes that  there are a number of advantages to the public in P-PPs, such as more efficient operation and management of facilities, but there are also tradeoffs.  “There is no free money” in P-PPs, the report states, and it is likely that tolls on a privately operated highway will increase to a greater extent than they would on a publicly operated toll road.

As has been noted here, many P-PPs are long-term arrangements, which can pose financial risks to the public.  In some of the highway P-PPs, the arrangements can be as long as 99 years.

 The GAO reported that highway P-PPs that it had reviewed, protected the public interest primarily through concession agreement terms that included performance and other standards.  But the GAO found that governments in other countries, such as Australia, have gone further than governments in the U.S. in requiring that the public interest be identified when considering private investments in public infrastructure.  In general, consideration of highway P-PPs “could benefit from more consistent, rigorous, systematic, up-front analysis,” the report recommends.

An example of the toll-rate risks that P-PPs can pose can be seen in the Chicago Skyway, a 7.8-mile elevated toll road in Chicago, which was originally built in 1958 and was operated and maintained by the City of Chicago until 2004.  That year it was leased to a private concessionaire under a 99-year lease for about $1.8 billion.

The GAO reports that during the time the Chicago Skyway was publicly managed, tolls changed infrequently and actually decreased by about 25 percent in 2007 dollars between 1989 and 2004.  Historically, the tolls had not been increased unless required by law, and the Skyway had been operating at a loss and had outstanding debt.

In contrast, the concession agreements for both the Chicago Skyway and the Indiana Toll Road, to which the Skyway connects, permit toll rates to rise each year, based on a minimum of 2 percent and a maximum of the annual change either of the CPI or the per capita U.S. nominal gross domestic product (GDP), whichever is higher.  The GAO calculated that based on projected increases in the GDP and the population, the tolls on the Chicago Skyway will be allowed to increase by nearly 97 percent in real terms between 2007 and 2047.  That translates into an increase from $2.50 to $4.91 in 2007 dollars.

According to the report, some governments have required that elements of the public interest be explicitly considered when entering into P-PPs.  The state of Victoria in Australia, for instance, requires that eight public interest factors be evaluated at the outset of the process.  Those factors include such questions as whether those affected by the projects have been able to effectively contribute during the planning stages, whether there are safeguards to ensure public access to the infrastructure, and whether there are assurances of community safety and security.

A number of countries also require analyses of life-cycle project costs—known as public-sector comparators or PSCs—which include initial construction costs, maintenance and operation costs, additional capital improvement costs over the course of the concession term, and levels of risk transfer to the private sector.

These types of analyses appear to be needed in one of the largest highway P-PPs under consideration in U.S. history—the Trans-Texas Corridor, which envisions a 4,000-mile network of new toll roads to bypass congested cities in Texas and speed freight to and from Mexico.  Accordng to The New York Times,  the project has been met by unprecedented public opposition.  As one opponent put it: “The only person who loses is the citizen.  We’re paying everyone’s profit.”

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