I think that this question assumes that the only infrastructure projects in question are major projects.  There are thousands of smaller scale projects across the country that can, and do, benefit from private investment but that are ignored in the larger conversation around infrastructure financing.

Transit Oriented Development (or TOD) is one example of what could be considered private investment in infrastructure, especially where it is a private developer that is financing the construction project for the commercial revenues and the transit service and amenities are built into the project.  These projects are working across the country to increase the availability of transit while supporting local development.

Another example would be the inclusion of business contributions, directly or through Transportation Management Associations, to local projects where there are mitigation or other traffic reduction activities that allow projects to be completed for less time or lower cost.  While it is a nearly impossible exercise to try and quantify those contributions across the country, ACT members are contributing to these projects to allow them to be completed and potentially for other projects to then be able to move forward.  This activity is one of the reasons why ACT supports HR 3517, The Commute LESS ACT, introduced by Rep. Sires (D-NJ) to encourage more of these joint efforts.

We need to be mindful of the different scales on different needs.  It's one thing to try and handle the financing on major new construction or reconstruction projects.  It's quite another to handle the financing on smaller, local projects.  And there are both public and private interests that can be served by respecting the different investment opportunities based on the scale of the project.

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Successful public-private partnerships, by their very nature, have to adequately incorporate and serve the public interest.  The current debate is less about the need to use P3s to serve the public interest and more about who is best positioned to determine what the public interest is.  In considering the public interest, it is critical to keep in mind the backdrop against which P3 transactions are being considered, i.e. traditional government-funded and government-procured projects.  Too often P3 transacions are compared against the ideal instead of against the most probable alternative (see Steve Sandherr and Gabriel Roth's comments referencing the politicization of the highway procurement process).   Secretary Peters does a fine job of laying out the parameters of a balanced P3 procurement.  Greg Cohen adds to those requirements but in a manner that is wholely unworkable because it allows Congress, USDOT, or interest groups to veto a project in the days of the procurement.  Years of effort and millions of dollars are spent developing and executing P3 procurements on large assets.  It is highly unlikely that the public or private sector would be very interested in a procurement process that could be derailed at the last minute.  Such a policy would effectively eliminate P3s as a delivery model for highway procurement.  Bob Poole presents a reasonable middle ground for avoiding potential misuse of P3s.   Bill Graves and Lisa Mullings express concerns about the private sector running critical elments of our national infrastructure even in light of the fact that large sections of our nation's critical national infrastructure  is already in private hands and seems to be well maintained, e.g. telecommunications and pipelines.  As a side note, neither of these infrastructure classes appears on the ASCE report card, presumably because their private owners adequately expand and maintain them as demand warrants.    In the end, P3s will only be successful to the extent they serve the public interest.  The challenge is to reconcile competing public interests and to have public oversight implemented in a comprehensive, yet efficient, manner.    

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 For Professor Ellen Dannin:

No! Your generalization is not correct.

You seem to have forgotten about the PFI (“Private Finance Initiative”)  contracts executed in the UK in the 1980s and 1990s. The private providers assumed all traffic risks, and all cost risks.

You and your students can read about them in Chapter 17, by Neil Roden, “Development of Highway Concessions on Trunk Roads in the United Kingdom”, in the award winning Street Smart — Competition, Entrepreneurship and the Future of Roads published in 2006 by Transaction Publishers for the Independent Institute and edited by

Gabriel Roth

To Ellen Dannin: Yes, it seems like these contracts are very complicated. Indeed, state and local governments ought to read very carefully any contract they sign to ensure that they are protecting themselves and their constituents against negative outcomes. I am not a lawyer, but I imagine that an agency of government has the same ability to negotiate alternative contract provisions as a private concessionaire does. However, the government also needs to accept that certain contract provisions may reduce the willingness of the private concessionaire to contribute as much money as the government wants. All contract provisions have a price tag, whether it is the headache you get from reading them or the reduced revenues you receive from agreeing to provisions that you didn’t read thoroughly. 

You said, “These little-read contracts give far reaching power with effects that will continue long after the contracts end.” This prompts my question: What powerful effects will the contract have after the contract ends?

The following post was submitted byEllen Dannin, the Fannie Weiss Distinguished Faculty Scholar and Professor of Law at Penn State Dickinson School of Law:

Claims that infrastructure privatization shifts future financial risk from the public to the private contractor are not correct. That the claims are not correct is apparent to anyone who reads the contracts.

Infrastructure privatization contracts are filled with terms that mean money flows from the public to the private contractor when there are lower than anticipated revenues. In fact, these contracts tend to run on for over 100 pages because of all the provisions that mean the public, rather than private contractors, bears risks associated with infrastructure privatization. The proposed Pennsylvania Turnpike Agreement was close to 700 pages when its appendices and attachments are included.

These claims can only be accepted because so few people actually read these contracts. Who can blame them? Reading - and understanding - such very long contracts is no easy task. It requires checking every word against the definitions section to determine the words' actual meaning. It means stopping multiple times to read other sections that are incorporated by reference. It means understanding what appear to be ordinary words but that actually have special legal significance. It means holding all that in your head to understand the significance of that one paragraph. And finally, it means repeating that exercise for page after page.

Tedious, painstaking work, indeed. But what it reveals is that infrastructure privatization contracts give private contractors a quasi-governmental status. Here are some common examples found almost verbatim in contract after contract.

"Adverse Action" provisions are found, for example, in contracts for the California's South Bay Expressway (SR 125), the proposed Pennsylvania Turnpike, and the Northwest Parkway. They give private contractors direct and indirect power to object to new laws, judicial decisions, propositions voted on by the public, and other government actions that the contractor claims would decrease tolls and revenues.

For example, Virginia's Pocahontas Parkway contract entitles the contractor to compensation for failure of the state to "exercise all discretionary authority available to it under Laws, Regulations and Ordinances to prevent any other governmental or private entity from developing Competitive Transportation Facilities, including but not limited to connections to State Highways." On Sept. 28, 2009, Crain's Chicago Business reported that Chicago developers and businesses and the public "could be on the hook for millions of dollars" if they displace a metered parking space under "Mayor Richard M. Daley's controversial $1.16-billion deal to privatize the city's parking meters".

These terms will force governments to vet all laws and decisions for any effect on private infrastructure contractors and then decide whether the new law or action is worth the cost.

Noncompete provisions, which are also common, alter the relationship between government and the public interest. First, public officials lose options for serving the public's need for high quality transportation when they must either ensure that the toll road is the only alternative. Second, and far worse, the agreements constrain options for dealing with congestion, pollution, and climate change for the generations that these contracts will run. Because solutions to these problems will likely mean decreased highway traffic and thus tolls, mitigating each of these problems will mean reimbursing the contractor for lost revenue - or deciding that it costs too much to mitigate the problems.

So far there has been no public consideration or discussion as to the wisdom of giving private contractors this degree of power over decisions that affect the public interest and that are normally made by public officials or citizens. Before we proceed farther down this path of subcontracting democracy to private interests we must know about and have a public discussion on the true costs of financing public infrastructure. These little-read contracts give far reaching power with effects that will continue long after the contracts end.

The public deserves to know how these very long contracts affect vital national infrastructure, how these contracts hand power over basic public policy decisions to private interests, and how they let private profit trump democratic processes and the public welfare.

If you think these costs are merely theoretical, in September 2008, it was the State of Indiana that bore the risk of an Act of Nature when it reimbursed a private contractor $447,000 for tolls lost during emergency evacuations due to severe flooding.

 

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As we design and build the transportation system of the future, our financing options are going to have to evolve as well. That’s why ASCE supports the use of Public Private Partnerships (PPPs). They may not be feasible for every project, but PPPs have the potential to fill some of the gaps in our financing system.

The surface transportation authorization should expand the opportunities to use PPPs, but steps must be taken to ensure that public interest is protected in these deals and that the financing methods augment, not replace, revenues from user fees. Among the criteria PPPs should address are: input from affected individuals and communities, effectiveness, accountability, transparency, equity, public access, consumer rights, safety and security, sustainability, long-term ownership and reasonable rates of return.

We cannot forget that not all PPPs are created equal. A lack of guidance/regulation can lead the public to question their usefulness and credibility. States that sell or lease valuable infrastructure assets may be tempted by the investors’ lump sum payouts, only to find that in a few years the budget hole the sale plugged is there once again, but now the state can no longer count on the once reliable revenues from that project. That’s why it is important that the federal government help states and localities better understand PPPs and the best ways to utilize them while still protecting the public interest.

The bottom line is this: Current funding sources cannot fully support the system we need. So, while they aren’t the Swiss Army Knife of funding methods, PPPs are, and need to be, an important tool.

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One only needs to look to the successes of the Alameda Corridor in California and the CREATE Program in Chicago to see that the use of public-private partnerships for rail infrastructure projects has been enormously successful in relieving congestion, reducing emissions, jumpstarting economic development and creating a more efficient transportation system. 

Demand for both freight and passenger rail service will only increase in the coming years and successful partnerships between government and private companies will be critical to meeting this challenge.

The FRA Preliminary National Rail Plan released last week was a step in the right direction; recognizing the critical role that freight railroads play in our nation’s economic health. The plan urges states to develop ways to address the modal inequity that exists in the nation's surface transportation program noting that all railroad infrastructure is privately owned and maintained unlike other modes of freight transportation.

The reauthorization of SAFETEA-LU provides an excellent opportunity for policymakers to start leveling the playing field when it comes to modal equity.  To the extent that general funds are used to shore up highway trust fund revenues, rail infrastructure investment projects should be made eligible for funding.  This would give States the option to invest in projects that produce the greatest public benefits and help meet national goals such as improved safety, economic competitiveness, energy efficiency and reduced consumption.

Public-private partnerships with the nation’s freight railroads make sense and will provide a more balanced transportation system for our country.  

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Bill Graves says, “The United States cannot maintain a national highway network if key segments are owned by Wall Street investment firms or foreign consortia. The only private investment projects that should be considered are those that create new roads, adding greater capacity and mobility as an alternative to already-existing options.” 

Let’s assume for a minute that we follow Bill’s advice. We allow Wall Street investment firms and foreign consortia to create new roads as an alternative to already-existing options. Let’s also assume that these new roads – which must be toll roads if the Wall Street firms and foreign consortia are to recoup their investment – are so productive, avoid so much congestion, and provide such high mobility benefits that they really catch on. Let’s assume that 10 or 20 years from now, we have 75,000 miles of new roads created by Wall Street investment firms and foreign consortia. And these 75,000 miles of new roads are so much safer and more efficient than existing roads and so attractive to motorists and truckers that Americans abandon the existing Interstate Highway System…and the federal highway trust fund that supports it. 

Bill, you may be on to something here. I thought we were far apart on the issue of toll roads. I think we see eye to eye on this one.

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Thank you, Geoff Yarema, for putting your finger on THE CRITICAL QUESTION in this whole debate: “At the same time the federal government is denying sufficient funding to right the ship, should Congress be limiting options available outside the Beltway? Should they be finding an overriding federal interest in objecting to how Sacramento, Austin, Richmond or Tallahassee elects to solve their difficult problems, despite the responsiveness to their electorate?” Amen. Don’t let the Feds stand in the way of state and local innovation that supports the federal goal of increased mobility and accessibility. 

All of the highway authorization laws in the last two decades – ISTEA, TEA-21, and SAFETEA-LU – have provided states with increased flexibility to use tolling not only to manage congestion but also to finance infrastructure improvements.  The Surface Transportation Authorization Act of 2009 (STAA 2009) unfortunately goes in the opposite direction by making it harder for states to use tolling.  States need more funding flexibility today, not less. 

At first glance, the Office of Public Benefit (OPB) seems innocuous.  In reality, this office would pose huge obstacles to state and local governments that might wish to create financially self-sustaining transportation assets that could be brought into service much more quickly than a federally funded project. 

While promoters and detractors of major concession agreements may disagree about the merits of deals in Illinois, Indiana, Virginia, and Texas, each transaction was a product of, and subject to, intense local and statewide scrutiny and debate. Mary Peters has already expressed very clearly the range of opportunities and protections that states can build into P3 agreements. 

I don’t believe the House bill is intentionally antagonistic towards tolling and pricing.  But the likely consequence of OPB language is to force state and local governments that wish to use tolling to do so without seeking any federal funding rather than subject themselves to an office whose apparent job is to think differently about the merits of a local transaction, has the power to judge those merits, and whose simple existence would damage their ability to issue bonds. 

What part of the public will benefit from a provision in law that restricts the ability of states to charge tolls on their own highways to improve transportation within their own borders?  Part of the mission of the OPB is to weigh “reasonable” costs and tolls; but who is measuring the costs of our currently broken funding system? What is reasonable about the current strangled highway funding system that results in reduced safety, higher emissions, and billions of dollars in lost time due to congestion? What is reasonable about a system that creates huge opportunity costs in projects that are delayed for years, decades, or even generations because of slow and inadequate levels of federal funding? 

I can think of only one constituency that will benefit from the Office of Public Benefit: people who want crappy congested highways.  In other words, no one.  It’s a constituency that doesn’t exist. 

 

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The question of protecting the public interest while attracting private capital for public-private partnerships is an important question. I recommend looking at the issue from the perspective of a state or regional policymaker, those people in this country primarily charged with infrastructure stewardship and faced with increasingly difficult decisions.

In the midst of a serious recession, compounded by an uncertain federal reauthorization, is it in the public interest for state and regional officials to continue to forego much needed maintenance in order to fund for new capacity? Is it in the public interest to continue deferring new capacity projects with the attendant costs to economic growth and mobility? Is it in the public interest to pay additional regional taxes to fill at least a few holes in capital programs?

These very tough state and regional policy decisions are the context into which Congress will wade with the next reauthorization. Would the federal government best protect the public interest by making the difficult jobs of local officials harder or easier? At the same time the federal government is denying sufficient funding to right the ship, should Congress be limiting options available outside the Beltway? Should they be finding an overriding federal interest in objecting to how Sacramento, Austin, Richmond or Tallahassee elects to solve their difficult problems, despite the responsiveness to their electorate?

As Mary Peters notes in her response below, public-private partnerships are viable and valuable niche tools that provide unique advantages in certain categories of circumstances. These tools are becoming increasingly sophisticated in response to the ever changing circumstances affecting project delivery and finance. States across the nation, just like provinces across Canada, are offering crucibles of experimentation, developing and implementing PPPs tailored for their specific needs. This flexibility has been one of the great hallmarks of our federalist form of government, allowing the states to learn lessons for the benefit of others to follow later.

The potential for mistakes with innovative approaches exists, just as it exists if we continue to rely on conventional, past approaches. I think it was Bill Gates who said that if we are not failing occasionally we are not progressing enough.

Yet as Bob Poole notes, best practices for protecting the public interest in PPP deals already exist. The National Surface Transportation Infrastructure Financing Commission detailed how the federal government can protect the public interest without getting in the way of the states and their ability to attract private interest to deliver critical infrastructure. Specifically the Commission addressed these issues:

   • Planning
   • Value-for-money (cost effectiveness) Assessment
   • Conflict of Interest
   • Transparency: Procurement Process and Proposals
   • Transparency: Agreements
   • Treatment of Unsolicited Proposals
   • Concession Term
   • Early Termination for Convenience
   • Environmental Approvals
   • Performance and Handback Standards
   • Facility Access
   • Competing Facilities
   • Toll Rate Setting
   • Revenue Allocation
   • Financial Reporting 

After a bipartisan debate, the Commission unanimously concluded that P3s can and should be an important tool in the toolbox and that the public interest can be protected largely through a best practices approach, not a heavy handed federal intrusion into state procurement and finance.

 

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 Mary Peters is correct to identify private investment as

“not just a way to fund projects”, but also “as a program delivery strategy deployed on the right projects.”

But she is too polite to challenge the premise of this week’s question, that “the public interest” needs to be protected from “private investment”.

While private investment can be misguided, even corrupt, the more urgent need today is to protect the public from errors in public investment, which can also be misguided and corrupt.

Private investment in transport projects is generally preferable because it has to respond to customers’ willingness to pay. Public investment, on the other hand, responds to politicians’ preferences, and to their ability to tax and regulate. As federal politicians can tax and regulate more than others, it is their preferences that merit the most scrutiny.

What is the best way for “policymakers” to “ensure that the public gets a fair deal”? How about getting all of transport infrastructure provided privately, like regulated public utilities? Mary Peters knows that we take them for granted in essential services such as electricity, telecommunications and water supply.

By 2020, ATA expects that overall freight tonnage will increase by more than 26 percent with the modal share moved by truck increasing to 71 percent. It’s no secret that our nation needs a tremendous investment in infrastructure to handle the increased demands that will be placed on our highways. As we work toward the next highway authorization bill, it’s important that we protect American taxpayers by ensuring that they get the greatest value from their investment as our nation moves forward with long-term transportation plans. I share Chairman Oberstar’s sentiments and believe that that we must be very wary of private funding schemes on federal roads.

Toll collection, even when it is automated and electronic, requires a large and extremely expensive bureaucracy. On major toll roads, collection costs are as high as one-quarter to one-third of revenue and are essentially nothing but an inequitable and inefficient tax. In contrast, administrative costs represent only 1 percent to 2 percent of revenue generated from a fuel tax. Fuel taxes are the least expensive, most efficient source of highway funding available today. Other systems such as tolling cannot come close to offering taxpayers that efficiency. That’s why the trucking industry is willing to pay more in fuel taxes, as long as the added revenue is dedicated to highway infrastructure.

The increasing attempts to privatize various modes of transportation should raise red flags about the one-sided nature of these investments. Auctioning off our highways to the highest bidder is billed as a way to increase state funding for transportation, but it’s really just a quick fix for struggling state governments. Leasing roadways simply postpones budget problems without ignoring long-term implications. While states receive significant compensation, those funds may not be spent on transportation infrastructure. And taxpayers always end up paying higher tolls to the private operator.

The United States cannot maintain a national highway network if key segments are owned by Wall Street investment firms or foreign consortia. The only private investment projects that should be considered are those that create new roads, adding greater capacity and mobility as an alternative to already-existing options.

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Given the substantial gap between the need for transportation investment and current (and even future) revenues, there is no question the private sector will play a significant role in helping us meet our funding needs.  However, it is critical that officials at the federal, state and local levels focus on the impact any public-private partnership has on all stakeholders. Chairman Oberstar’s proposal to establish an Office of Public Benefit within the Department of Transportation is a step in the right direction.

Currently, there are few mechanisms in place to ensure the public interest is protected when the government enters into a public-private partnership.  In the absence of a concrete set of criteria, the focus of the agreement largely centers on the financing of the deal and little else. While state governments generally try to mitigate the costs of a new project for the public, without a framework to guide the decision process, many other issues are overlooked. For example, state governments must take a strong look at how a public-private partnership will impact not only the users of a proposed infrastructure project, but also businesses that may find themselves operating under conditions imposed by a private businesses with less public accountability than a government entity. 

Chairmen Oberstar and DeFazio recognize the deficiencies in how public-private partnerships are evaluated. The Office of Public Benefit created in their surface transportation reauthorization proposal would give a voice to all stakeholders regarding a proposed private-sector investment. 

In turning over critical elements of our nation’s infrastructure to private companies, it is essential that the public sector carefully evaluate the costs and benefits of a proposed transaction, both in terms of monetary impacts as well as quality of life issues. 

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There's no doubt public private partnerships must, and will, play a significant role in financing vital transportation projects.  Especially is densely populated urban and suburban areas with the potential for sustainable toll revenues, we need to make it easier for privately funded projects to supplement existing sources of transportation revenue.  

That is why our construction industry recovery plan, "Build Now for the Future,", calls on Congress and the Administration to eliminate barriers to public private partnerships by giving states greater flexibility to allow for tolling.  Municipalities also should be able to more easily privatize airports and accept private investments in transit.  And we need to find creative new ways to expand eligibility for private investments in public buildings.  (A good example being the privately-funded U.S. Transportation Department headquarters building.)

Because one of the central characteristics of public private partnerships is that they allow the needs of commuters and shippers to prioritize transportation investments, instead of politically powerful special interests, some in Washington have resisted this potential source of revenue.  Under the guise of "protecting the public interest" there are even efforts underway to erect insurmountable regulatory obstacles to these kinds of transactions.  Given the level of sophistication most state transportation departments have in writing contracts (traditional or otherwise) that protect the public's interest, these new regulatory hurdles are likely to do more harm than good, however.  After all, while the private operators of Indiana's toll road suffer, the state's taxpayers are enjoying the benefits of one of the country's fewlly-funded ten year transportation plan.

That being said, we also need to be realistic about the limits of public private partnerships.  They represent a great opportunity to supplement the federal transportation program, not replace it.  There are too many vital shipping corridors that are essential to goods movement that don't generate the kind of traffic needed to interest private investors - think long stretches of I-10 or I-81.  The stark reality is our needs are so great that we also must restore the gas tax to the purchasing power it had in 1993 while beginning the multi-year process it will require to transition to a vehicle-miles traveled method of financing transportation projects.

On the question of what is the best method for meeting our future transportation needs, the simple answer is "all of the above."

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The most pressing issues concerning private investment in infrastructure aren't about how easy it should be, but how much the public should give up in return.

While the business models for private investment in high speed rail and transit oriented development are still emerging, most private money has gone to toll road concessions. As our research has shown, the public has tended to give up far too much.

The public has lost out in four ways: (1) The cost of tolls promised to private investors tends to exceed the costs of public borrowing due to companies’ higher capital costs and their hefty fees and profit margins; (2) compromised public control because investors demand compensation for any future policies that might reduce the volume of toll-paying traffic; (3) reduced public transparency because private companies declare their deal-making information to be proprietary, and (4) subsidized financing and special tax breaks, including federal TIFIA subsidies and special tax rules that allow concession owners to write off the value of toll roads decades before they wear out.

The risks of privatizing transportation finance become steeper when combined with reduced federal oversight. As the GAO has noted, states generally lack the capacity to analyze, monitor, and enforce these deals. Cash-strapped local officials can be enticed by large up-front payouts, overlooking the likely problems that will likely emerge years later. Unsolicited bids for privately operated roads similarly subvert the long-term planning process. And it’s no accident that most states touting private toll concessions choose routes that disproportionately carry out-of-state travelers. Beggar-thy-neighbor financing is exactly the wrong circumstances to start devolving oversight away from the federal authorities.

In the wake of the mortgage and banking meltdown, T&I Committee Chairman Oberstar’s approach reflects an awareness of the dangers of “innovative” finance and the dangers of devolving responsibility for systematic long term risks. Federal oversight is needed to responsibly direct private capital while reining in problems like TxDOT’s hugely unpopular deals with hard-lobbying private toll companies – including Zachry that currently employs Ms. Peters. Likewise, the Chicago City Council has the right idea to introduce an ordinance that would increase transparency and accountability on future private infrastructure (see case study ).

The only thing America’s transportation system needs more than money is a better focus on advancing long-term goals. At the very moment when America most needs to follow national transportation objectives, Congress should not undermine its capacity to do so.

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States, not the Feds, Should Protect the Public Interest in PPPs

While I am largely in agreement with both Mary Peters and Greg Cohen on the importance of PPPs and protecting the public interest, neither adequately addressed the key question as we move into debating surface transportation reauthorization: What is the appropriate role of the federal government on this question?

Chairman Oberstar’s bill, with its creation of an Office of Public Benefit, would greatly expand the federal government’s role, not only in PPPs but also in tolling, by creating what amounts to a tolling-and-PPP czar at US DOT. This position would have to approve any and all toll agreements and PPP agreements anywhere on the federal-aid highway system. Not only would this be a major expansion of federal control over what would normally be state-level decisions; it would also turn back the clock to the pre-ISTEA days when federal law banned the use of tolling anywhere on the federal-aid system.

ISTEA began the process of liberalization, keeping federal limits on tolling solely on the Interstate system. Subsequent reauthorizations further liberalized the federal role, by permitting exemptions for various kinds of toll pilot projects on Interstates: HOT lanes, express toll lanes, rebuilding three Interstates with toll finance, and constructing up to three new Interstates with toll finance. The Chairman’s bill would scrap all these pilot programs in the name of streamlining and consolidation—but at the price of greatly expanded federal control.

Creating a federal toll czar is the wrong way to go. Micro-managing tolling and PPP agreements that need to be tailored to the specifics of each project would create impediments to the timely and cost-effective use of these important tools by state DOTs. And if states were required to submit negotiated PPP agreements to the federal czar for a yes-or-no decision, the uncertainty created by that requirement would very likely kill the private sector’s interest in spending millions of dollars preparing proposals and negotiating complex deals that could be killed by the stroke of a pen at the 11th hour. We’ve seen the equivalent occur in those states whose PPP enabling acts required legislative approval of negotiated deals: no such deals were ever proposed.

In February the National Surface Transportation Infrastructure Financing Commission released its report. Chapter 7 of this report addresses protection of the public interest in PPP deals. One of its principal recommendations is that “Congress should generally support the states’ primary role in overseeing private-sector arrangements and, to this end, should encourage the development of appropriate technical assistance and dissemination of best practices information.” I agree with that recommendation, and so does the National Governors Association, based on recent statements.

A consensus is emerging on best practices for protecting the public interest in PPP agreements. The Finance Commission report includes a summary in its Box 7-7. The Transportation Research Board has also released an excellent synthesis report, NCHRP synthesis 391, “Public Sector Decision Making for Public-Private Partnerships.” Recent toll concession agreements are generally in line with these recommendations.

All fast-growing states are woefully short of transportation funding, measured against the need for rebuilding and expanding our highway system to keep pace with growth and improve its often-dismal performance. Tolling and PPPs are essential tools for their toolboxes. Heavy-handed federal regulation could, de-facto, remove these tools at the very time when states need them more than ever.

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I am in complete agreement with Secretary Peters’ excellent post. 

From the motorists’ perspective, however, some additional public interest protections are important. It is logical that private investors would only consider spending capital on projects that are expected to have a good return. With most PPPs, highway users are expected to provide that return over time. So it is important that highway users’ such as the local AAA club, trucking association, local business group, and state highway users federation are well represented in PPP negotiations.

PPPs are diverse and some deserve the support of motorists – particularly when they enable a road to be built that could not be built otherwise. Among the many additional “public interest” questions worth asking are the following:

1. Is the main purpose of the PPP to build a new road or add new, privately operated lanes that will benefit the public? Or, is the primary goal to “monetize” existing capacity to raise state or local government funds?  
2. If the private investors offer the state or local government cash for the rights to privatize a road, how will that cash be spent? Will it benefit the users of that road or be diverted?
3. How will tolling be structured to ensure fairness? Will the tolls be reasonable for all modes and all types of travelers? Or will toll rates be designed to benefit some users and fleece others? (See I-80 "public-;ublic" partnership tolling plan, which will discriminate against long-distance motorists in Pennsylvania)
4. Will the PPP improve area highway safety or create new problems?  
5. What is the impact of the PPP on efficiently moving people and commerce over the national highway system? Will it enhance personal and freight mobility or create barriers to commerce?
6. What is the anticipated return to private investors?  In Europe, some PPPs have a cap on returns. When the cap is reached, the PPP is re-bid or road operations are returned to the public transport agency. 

Every PPP project is different and the motoring public should be deeply involved in PPP negotiations to ensure a fair deal.  One of the better PPPs are the local HOT lane projects along the Shirley Highway and Capital Beltway in Virginia.  The main purpose of these projects are to add capacity, provide alternatives, and generally benefit the users of those transportation corridors.

Congress, US DOT, and national organizations should also have an oversight role & veto power under certain circumstances when PPPs include non-compete agreements that affect public roads or involve changing the status of existing public highways that have received federal-aid. 

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Attracting private investment is crucial to help meet the significant and growing demand for transportation infrastructure in America, especially at a time when traditional methods of funding those requirements is no longer sufficient nor sustainable. Private investment is not just a way to fund projects, however, it should be seen as a program delivery strategy deployed on the right projects.

Policymakers can ensure the public gets a fair deal by taking steps to protect the public interest in the agreements. They can also ensure investment in infrastructure projects is attractive to private capital by appropriately defining and assigning risk in the public private partnerships (P3) agreements. The emphasis must be on the partnership between the public and private sectors.

In protecting public interest, the public sector will need to have the institutional capacity and expertise to perform due diligence in identifying appropriate P3 projects and conducting value for money analyses to determine if private investment is the best option. The procurement process for a P3 must be open, transparent from the onset, and information made broadly available to the public with the exception of truly proprietary information.

P3 agreements can and should contain key performance indicators such as travel time reduction, safety, condition, operation and hand-back condition, recognizing an asset management approach for the infrastructure project. Also the length of the agreement and the inclusion of any non-compete clauses should be openly discussed.

Risk should be appropriately defined and assigned to the party best able to manage the risk. The public sector is often better positioned to address risk associated with conducting environmental studies, acquiring rights of way, and obtaining permits from other public agencies. The private sector is most appropriate to manage risk associated with project development, financing, and overseeing construction, maintenance and operation.

The rate of return or profit earned by the private party should be related to the risk allocation, and recognizing the public benefit of building the project many years sooner than would otherwise have been possible.

Private investment through public private partnerships should be a key option in meeting our nation’s transportation system requirements. Public policy should encourage these important agreements - we can protect public interest and attract private capital.

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