In 2009, an agreement was finalized to construct the Port of Miami Tunnel, a pair of two 4,200-foot tunnels to improve traffic flow around the port. At a projected cost of $667 million, the project is expected to provide a significant boost to jobs and economic output at the port.
How was such an ambitious project set in motion in the midst of a debilitating national recession? Through a public-private partnership (P3) between state government and the private sector.
With a sluggish economy and pinched budgets, P3s represent an innovative collaborative approach to ensure construction of roads, bridges and other critical transportation assets. And they may be the solution to meeting the nation’s infrastructure demands while providing a much-needed economic boost, experts say.
“Our infrastructure challenges cannot be solved by traditional, government-based solutions,” Mike Beland, a former Department of Homeland Security official who now teaches at the University of Maryland School of Law, writes in The Baltimore Sun. “Merging private investment with smart government expenditures will make for a foundational 21st century public-private partnership that builds American competitiveness in the long term while creating jobs and boosting the economy in the near term.”
The need for such innovative solutions is particularly acute given the dysfunctional state of affairs in Washington.
Against a backdrop of a Congress paralyzed by gridlock and a White House growing increasingly disengaged from the policy process, the federal highway trust fund, long a source of funds for state and local projects, is nearing depletion.
With consumers embracing more fuel-efficient vehicles and cutting back on travel due to the slow economy, that means fewer gas tax revenues flowing into federal coffers. The Department of Transportation projects the federal highway trust fund balance will fall to about $1 billion by September, the end of the fiscal year, if Washington fails to act.
Given the currently uncertain outlook for federal highway funding, many state and local governments are exploring P3s to work around the potential shortfall. States like California, Colorado, Florida, Texas and Virginia, among others, have been leaders in pursuing P3 projects, and others are studying their experiences closely.
A typical P3 works as a contract between a private entity and a state or local government to help finance and build a specified infrastructure project; the private partner may also take on responsibility for managing and maintaining the project. In return, the private entity is paid back through tolls, gas tax revenues or any associated fees.
And it’s a trend that shows no signs of stopping: according to a recent briefing report from the National Conference of State Legislatures (NCSL). In 2013, the NCSL finds, 33 states and Puerto Rico have passed enabling legislation to allow P3 arrangements for road and bridge construction—a 43% increase from 2006—and more are expected to follow. The NCSL estimates that $61 billion has been committed to P3 projects since 1989, with half of that having been approved in just the last five years.
Meanwhile, the private sector shows increasing interest in financing such partnerships. On June 16, members of the House Transportation Committee conducted a roundtable discussion in New York with financial sector experts who indicated a growing appetite for private investment in infrastructure projects, Roll Call reports.
“We are very keen to see more public-private partnerships develop,” said Tom Osborne, executive director of infrastructure at IFM Investors. “We think it’s a constructive solution to the legacy of underinvestment in infrastructure and to frankly undercharging relative to the true cost of services in many instances.”
The arrangements have their share of skeptics, who argue that P3s may lack adequate taxpayer protections and proper accountability measures, and that they can lead to unanticipated costs (if tolls are waived during a public emergency, for example, the government may have to reimburse the private concessionaire for lost revenue). Another complaint is that given the decades-long nature of the contracts, the arrangements may constrain the decision-making of future lawmakers.
But most of those potential vulnerabilities can be addressed on the front end, to ensure that the public interest is protected. The National Council on Public-Private Partnerships, for example, offers seven key guidelines for a successful P3 to help policymakers chart the course. Likewise, the Federal Highway Administration offers a P3 toolkit to assist with navigating the partnership process.
And by properly constructing the partnerships, Christopher H. Lee and Sean Medcalf, both of the investment firm Highstar Capital explained in Politico last year, both the public and private sectors can realize significant benefits.
“Successful P3s around the world show that private investment in infrastructure, if done properly, can have positive results for governments, investors and ordinary citizens,” Lee and Medcalf say. “It is time for government at all levels in the United States to partner with the private sector to bring our transportation back to world-class levels.”