With state and local budgets stretched to the bone the focus is unfortunately not on investments to boost the economy but, rather, on fiscal retrenchment. States like Arizona and California are contending with massive cyclical and structural shortfalls that amount to 33 and 21 percent of annual stable expenditures, respectively. These constraints should open up possibilities—and argue for the need—for public/private partnerships in transportation.

Most of the action is going to come from the ground up. That is, starting with forward-thinking mayors that are focused on solving problems and delivering results. Whether it’s high-speed trains in Chicago, or critical transit and highway projects in Los Angeles, or a rail extension in Denver, these elected officials are not waiting around; they are in action-mode.

Yet it is important to understand that while a lot is happening, there is still much more to do. A poll by the financial advisory firm Lazard shows strong willingness for states to consider private investments rather than increasing taxes, cutting budgets, or taking on more debt. But too often deals get mired in political muck. So the private sector is now seeking more legislative certainty prior to bidding on projects and has little appetite for negotiating transactions that are subject to legislation or other major political approvals.

So states can help broker the often complex infrastructure partnerships between the public and private sectors. While half of the states have enacted enabling statutes for public/private partnerships, the wide differences between them makes it time consuming and costly for private partners wishing to engage in PPPs in multiple states to handle the different procurement and management processes. States should therefore move to enact comprehensive PPP legislation that is accountable, transparent, and permanent.

They should also push the federal government to play a helpful role with its state and metropolitan partners by creating standards and providing technical advice to be considered in PPPs. A model to consider is a type of PPP Unit, such that exists in about than 25 countries worldwide, to perform important functions such as quality control, policy formulation and coordination, technical advice, standardization and dissemination, and promotion of PPPs. In the U.S., the primary purpose of such an entity would be to provide technical, non‐binding information, assistance and advice to states and metropolitan entities.

Another way to shake loose some of this private capital is through the oft-mentioned National Infrastructure Bank. One of the eligibility criteria should be the extent to which the infrastructure project maximizes the level of private investment. So the private sector would be involved both on the borrowing side, being able to apply for NIB funding alone or in partnership with public entities and add its own private equity to the projects, and on the lending side, through purchase of NIB bonds.

That brings up the last point that while there are clear needs in the U.S., the competition around the world for this capital is intense. Europe has been able to take advantage of private interest in infrastructure because of the European Investment Bank which has been functioning successfully for the last 50 years, playing a major role in connecting the European Union across national borders. The EIB raises funds from capital markets and lends them at higher rates to both public and private entities, keeping its operations financially sustainable.

This is the kind of thinking that puts in place a policy framework that connects transportation to the elements of the post-recession economy in a pragmatic manner.

Under a new House budget rule, federal highway and transit spending will be limited to the amount brought in each year by highway user taxes. The purpose of this rule change is to eliminate recent general-fund subsidies for the Highway Trust Fund. This week’s issue of Transportation Weekly shows that under this rule, during the next 10 years, highway outlays will be relatively flat at around $38 billion per year—a large change from the significant annual increases during the SAFETEA-LU period.

To help states cope with this significant change, the appropriate thing for Congress to do is to give them more “tools in their toolbox.” That means making it easier for them to increase their use of tolling and public-private partnerships (P3s). Ever since ISTEA back in the Reagan era, each reauthorization bill has incrementally reduced what was once a virtual ban on any use of tolling on federal-aid highways (except for toll roads that were grandfathered into the Interstate system, like the Pennsylvania Turnpike). Various federal pilot programs allow the conversion of HOV lanes to HOT lanes and permit a handful of states to build or reconstruct Interstates using toll finance. Congress has also provided important tools to assist in the financing of P3 projects: subordinated loans under TIFIA and tax-exempt toll revenue bonds (PABs).

Under the draft reauthorization bill crafted by now-departed Rep. Jim Oberstar, this permissive environment would have been replaced by a federal “Office of Public Benefit,” with the power to withhold approval of tolling and P3 projects and an open door for litigants to challenge such projects in federal court. That chilling threat to tolling and P3s is now, thankfully, gone. But the federal status quo is not good enough.

To enable all states to take greater advantage of tolling and P3s, the new reauthorization bill should include the following:

1. Expand the size of the TIFIA program;
2. Remove the cap on PAB issuance;
3. Remove the limits on the number of Interstate highways that can be reconstructed with toll finance;
4. Remove the limits on the number of new Interstates that can be built using toll finance;
5. Charge the FHWA’s Office of Innovative Program Delivery with becoming a resource on best practices for tolling and P3s, making it easier for states to benefit from experiences in other states and other countries.

These tools would enable states to cope with reduced federal aid in the coming decade. They would also help to focus project selection on highway improvements that deliver high value, as demonstrated by their ability to persuade investors to fund them.

There has always been robust private-sector involvement in how states deliver transportation investments. A high proportion of design and engineering work in most states is done by private consulting engineering firms and an overwhelming majority of highway construction at the state level is done by private contractors.

Public-private partnership (PPP) efforts in this country are already in place and working well in states such as Indiana, Texas, Florida, Virginia, and California. These states and others have engaged with private companies in sharing project delivery risks such as ensuring adequate toll revenues, making sure projects are built on time and on budget, and operating and maintaining facilities as efficiently as possible. These deals help states meet investment needs more quickly than would be possible under traditional procurement. With experience, states have grown increasingly effective in assuring that the agreements they enter into with these private partners thoroughly protect the public interest.

However, states around the country are facing increasing investment needs. According to two Congressionally appointed commissions, capital investment in highways and transit needs to increase to $225 billion, 60% higher than the case today. Expansion of the private sector into transportation finance can help to close this gap.

PPPs bring equity and capital to states struggling with significant infrastructure investment needs. Toll roads are most commonly used to explain how PPPs work. However, there are additional inventive applications of PPP, including availability payment arrangements that can finance projects beyond those that rely on tolling (such as transit) and the use of value capture strategies such as tax increment financing and joint development that flow revenues back to transportation.

Of course, while PPPs can leverage the resources and flexibility of the private sector, they do not work everywhere. Tolling agreements, for instance, work in high-density urban areas, but simply do not provide enough revenue in rural areas and rural states.

PPPs should not be seen as a substitute for tax-based revenues, but rather as an enhancement that can stretch each public dollar to go further. To this end, Federal policy should, as both the Obama Administration and Republicans in Congress say, embrace and encourage creative partnering between the public and private sectors by reducing regulatory barriers in a way that ensures protection of the public’s vested interest in the nation's infrastructure.

TEN and Gamaliel have real concerns about taking our nation’s largest public investment after defense and throwing it open to private developers like the doors to a candy store. That doesn’t mean there isn’t a place for responsible public-private partnerships (PPPs) in America’s transportation future. But we are in the throes of the worst economic crisis since the Great Depression in part because of policies and practices that socialized risks while privatizing gains. Transportation cannot go the same way.

When we put ourselves in a seller's mindset in a time of economic hardship, desperation thinking sets in. One dangerous outcome of this kind of thinking is the tax incentive war emerging between state governments to attract businesses. In the process, state coffers are bled dry, accountability for corporations is minimal, and the people who need essential services most are driven even deeper into crisis.

U.S. PIRG points out some of the drawbacks of existing transportation PPPs, especially evident in private road tolling. PPP contracts can provide financial incentives for bad transportation policy, exacerbate congestion, and stick states with huge losses if the private operator goes bankrupt.

As with all public investments, we need to think hard about the long-term consequences of privatizing transportation investments. Some organizations and grassroots leaders within TEN just say no to any form of privatization. Friends such as Rob Puentes at the Brookings Institute, on the other hand, point out that PPPs, done right, could inject new life into infrastructure projects as gas tax revenue continues to decline.

Our national transportation system, at its best, has always been about expanding access to opportunity and prosperity for all Americans. Only PPPs that serve that end should have a place in our transportation future.

As "business" has an impressive record of providing the infrastructure that users are prepared to pay for, and as the federal and many state governments have run out of other people's money to spend, a better question might be: "A role for Government in Infrastructure?"

In market economies, infrastructure is generally paid for by "business", which recovers its costs from the users. We take this for granted in the supply of food, water, electricity and other necessities. Cost recovery for road use was difficult until some twenty years ago, but modern electronics enable even this to be done, without having to stop vehicles or to invade the privacy of drivers.

"Business" can even supply facilities for which users are not prepared to pay. Firms bid to supply specified services at the lowest cost.

Governments have important roles in setting standards and in regulating suppliers to ensure they act in the public interest. And local governments supply most local access roads. But experience has shown the federal government to be generally ineffective at selecting high-priority investments, or at charging prices that cover costs. It cannot even raise the charges needed to replenish the Highway Trust Fund.

The main barriers to private investment should be removed by simply not reauthorizing federal infrastructure financing, a task for which the federal congress has proven itself to be unsuitable. Responsibility for transport infrastructure would then revert to the states, which, between them, would doubtless find the best ways to mobilize the private provision of public infrastructure.