There seems to be no lack of strong opinions about public-private partnerships among my fellow bloggers. My own view is that it’s too early to judge PPPs on their substantive merit. There are only a few of them in existence so far, and the few that have been entered into are only in an early stage of implementation. It will take several more years before the effectiveness of recently negotiated concessions (such as the Indiana Toll Road, the Chicago Skyway and the SH-130 in Texas) can be properly evaluated. Hence, any judgments expressed today are merely opinions and speculations, often colored by the individual’s ideology or political philosophy. What we can do, however, is to assess the prospects for this still evolving concept. We can do so by observing the signals sent by congressional leaders, state-level policy-makers, the Obama administration, the transportation community and the private sector. Their actions and attitudes should be a reliable predictor of PPPs’ likely future. Noting and interpreting these signals is what we have tried to do in our recent NewsBrief, "The Prospects for Public-Private Partnerships in a Changing Political/Market Environment" (referenced in an April 6 Wall Street Journal article). Here are the facts as we reported them:

1. Transportation Secretary LaHood Comes Out in Favor of PPPs

In a March 3 interview with the Wall Street Journal, Secretary LaHood made it clear that public-private partnerships will be among the "principles" that he will be recommending to Congress as a foundation for the next surface transportation authorization. Mr. LaHood’s willingness to "think outside the box," as he put it, has been reinforced by the White House’s emphatic opposition to raising taxes in a recession— leaving only a limited set of other funding options on the table. Among them is the use of private capital and long term concession-based PPPs.

The appointment of Roy Kienitz to the No. 3 position in the Department of Transportation as Undersecretary for Policy, strengthens the likelihood of a positive federal posture on private sector involvement in transportation. As Gov. Ed Rendell’s deputy chief of staff and principal adviser on transportation, Kienitz was intimately involved in developing Gov. Rendell’s plan for a concession of the Pennsylvania Turnpike to a private consortium (the plan was subsequently aborted because of opposition in the state legislature). He will presumably continue to be well disposed toward the approaches championed by his former boss.

2. Congressional Attitudes Have Become More Accepting of PPPs

Congressional attitudes also are becoming more accepting of private sector involvement. While Rep. James Oberstar still believes that the fuel tax remains, in his words "the cornerstone of federal transportation system financing," he acknowledges that private capital must be part of the infrastructure funding equation. Support for public-private partnerships also has been publicly expressed by other congressional leaders such as Speaker Nancy Pelosi (D-CA); Sen. Barbara Boxer (D-CA), Chairman of the Environment and Public Works Committee; Sen. Max Baucus (D-MT), Chairman of the Finance Committee; Sen. Chris Dodd (D-CT), Chairman of the Banking Committee; Rep. John Mica (R-FL), Ranking Member of the House T&I Committee; Rep. Peter DeFazio (D-OR), chairman of the House Highways and Transit Subcommittee and Rep. Earl Blumenauer (D-OR), member of the House Ways & Means Committee.

3. The Stimulus Bill May Help to Leverage Private Investment

Even the stimulus bill had some good news for PPP advocates. It authorized the Secretary of Transportation to allocate up to $200 million of the $1.5 billion set aside for discretionary transportation grants to support the Transportation Infrastructure Finance and Innovation Act (TIFIA) program. TIFIA often has been critical to making PPP projects financially viable by leveraging private capital contributions. A $200 million allocation to TIFIA would provide approximately $2 billion worth in additional lending capacity.

4. The Financing Commission Has Given a Big Boost to PPPs

In its recently released report, the National Transportation Infrastructure Financing Commission has recommended a series of measures to expand the ability of states and localities to fund infrastructure investments. Prominent among the recommended options is facilitation of public-private partnerships. While the Commission was careful to note that public-private partnerships should be pursued "with appropriate protections for the public interest," it recommended that primary oversight responsibility should reside with the states.

5. Florida’s I-595 project pioneers a New PPP Approach

In a project that Secretary LaHood called "part of the Obama Administration’s commitment to reviving the economy and putting Americans back to work," the Florida Department of Transportation (FDOT) has entered into a $1.8 billion 35-year private concession to build and operate high-occupancy toll lanes in the median of I-595. Florida DOT will set toll rates, retain all revenues and make "availability payments" to the private concessionaire annually out of the toll proceeds.

6. The Texas I-635 Managed-Lanes Project is Continuing a Statewide Practice of Private Toll Road Concessions

In another fresh example of private sector involvement, the Texas Department of Transportation (TxDOT) has awarded a $2.7-billion 52-year private toll road concession ro construct and operate the I-635 high occupancy toll (HOT) lanes on the LBJ Freeway in north Dallas. This is the third private toll road concession to be awarded in Texas to a Cintra-led consortium.

7. The Dulles Rail Line — An Unusual Public-Private Financing Arrangement

On March 10, the U.S. Department of Transportation extended a formal $900 million commitment to the long-planned extension of Metrorail to Dulles Airport. The project has a unique financing arrangement that involves the federal government, the Commonwealth of Virginia, toll road users and the local business community. 56% of the total cost will come from tolls and the private sector.

8. California’s new PPP Law Sets Forth a New Model for Public-Private Cooperation

After several failed attempts, the California legislature has passed comprehensive PPP legislation (SB 4). Among its provisions is an independent Public Infrastructure Advisory Commission to advise state and local agencies on PPP best practices. There are some 10 toll projects on the drawing board that are possible candidates for public-private partnerships. In the past, California often has been a bellwether state for policy innovation. Its new PPP law may offer a legislative model for how the public and private sectors can work together at the state level to improve critical infrastructure.

9. Support for Private Sector Involvement at State Level is Growing

A number of governors—Mitch Daniels of Indiana, Ed Rendell of Pennsylvania, Rick Perry of Texas, Tim Kaine of Virginia, Charlie Crist of Florida, Arnold Schwarzenegger of California, and Jon Corzine of New Jersey, to mention only the most prominent—are well-known for their vigorous and steadfast promotion of private sector involvement in statewide transportation programs. The latest evidence of interest comes from the State of New York where a special 11-member Commission on State Asset Maximization set up by Governor Paterson last September, is about to release its recommendations on the potential uses of public-private partnerhips in the state's capital investments and asset management.

10. PPPs Are Receiving a Positive Assessment

As already noted, there have been several recent assessments of PPPs.. In addition to the Pew Center's report "Driven by Dollars;" and the U.S. PIRG Education Fund’s report, "Private Roads, Public Costs," they include GAO testimony before the Senate Committee on Finance (July 24, 2008, GAO-08-1052T); the National Governors Association’s report "An Infrastructure Vision for the 21 st Century;" a December 2008 report by a Texas Legislative Study Committee on Private Participation; and a Transportation Research Board report "Public Sector Decision making for Public-Private Partnerships," (NCHRP Synthesis Report 391); All but one (the PIRG report) have provided a generally favorable assessment of PPPs.

Conclusion

The preponderance of the available evidence thus suggests that public-private partnerships have been accepted as a legitimate financing tool and will play a growing role in future transportation infrastructure development. To be sure, the economic downturn and the financial crisis have introduced new uncertainties into the calculations. Toll road traffic and toll receipts have declined, the cost of borrowing has risen, and the days of highly leveraged deals are gone. This may render certain concession-based PPPs more problematical, as shown by the recently stalled negotiations concerning the long-term lease of Midway Airport. The nature of private concessions may also change as more future PPP projects adopt "availability payments." Huge upfront payments incident to long-term asset leases are probably a thing of the past.

But this does not mean that private capital is no longer interested in infrastructure development or that toll roads have ceased to be a sound long-term investment. The recent decline in toll road traffic is properly viewed as a temporary phenomenon linked closely to the current economic recession. In the long term, toll roads are still seen as a relatively safe investment with reasonable and predictable long-term returns. At the same time, investors’ earlier fears of excessive government regulation of PPPs are receding as congressional leaders and administration officials seek to reassure the investment community that they do not intend to impose draconian controls on private concessions. By our calculations, there is some $340-400 billion in private funds dedicated to infrastructure investments.

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