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5 CHAPTER ONE INTRODUCTION Across the country, public sector agencies are seeking creative Such asset monetization agreements are only one type solutions to closing an increasing gap between transportation of PPP that can be used for highways, but they have inspired infrastructure costs and funding. Publicprivate partnerships great excitement and debate over the merits and pitfalls of (PPPs) have the potential to provide part of this needed invest- PPPs. One of the primary areas of concern is how are public ment. In addition, there are those who believe that PPPs can interests protected and what information is available to deci- bring cost savings and efficiencies on project delivery and sion makers such that the public interests are protected. A operations, although there is not much evidence to confirm recent report from the Government Accountability Office this belief. One recent study commissioned by Infrastructure (GAO) concluded that although PPPs appear to be a viable Partnership Australia (2007) evaluated the efficiency of PPPs alternative to support transportation investments, "it is diffi- relative to traditional procurement, and found that they were cult to be confident that [the public] interests are being pro- more cost-efficient and more frequently completed within tected when formal identification and consideration of public schedule. Given the right incentives, private investors have and national interests has been lacking, and where limited shown a willingness to invest heavily in new and existing upfront analysis of public interest issues using established transportation infrastructure, and properly structured contracts criteria has been conducted" (GAO 2000b). can result in cost savings. Much of the information promoting or criticizing PPPs comes from those who have a direct stake This synthesis examines the information available in the in the outcome of the debate. United States and internationally in decision making related to PPPs. Note that a PPP can be used for all manner of trans- In recent years, interest in PPPs for highway infrastructure portation projects: highways, transit, freight, air, and water- projects has surged in the United States as a result of a con- ways. This research focuses on the use of PPPs for highway fluence of several trends (Brown 2007; Zhang 2008): projects, but sometimes uses examples from other modes, where appropriate. 1. Automobile travel demand is high and is expected to PPPs in the United States are evolving, and there are no set continue growing; rules that prescribe specifically when and how these partner- 2. Inflation has outpaced the rate of motor fuel tax ships should be pursued and implemented. States are learning increases, thus decreasing available revenue for trans- and adapting as they acquire experience and gain more expo- portation investment, and significant existing state sure to the various PPP mechanisms. There is no "one-size fits municipal debts have limited public agencies' abili- all," and the ultimate decision of what type of PPP is appro- ties to obtain more money from the tax-exempt bond priate for a particular project will depend on many factors, market; making each arrangement unique. Nevertheless, governments 3. Transportation infrastructure costs are rising as a result can draw lessons from United States and international experi- of construction cost inflation and the aging of existing ence that will help craft an arrangement that achieves the trans- infrastructure; and portation goals and needs, while protecting the public interest. 4. Pension funds and insurance companies, both domes- tic and international, have enormous amounts of cash to invest in steady, predictable, long-term cash flows. METHODOLOGY It was the high-profile asset monetization deals of existing This synthesis is based on information obtained through a lit- facilities (referred to as brownfields) on the Chicago Skyway-- erature review and two web-based surveys, one to all U.S. $1.83 billion in up-front payments, and the Indiana Toll state and Canadian provincial departments of transportation Road--$3.8 billion in up-front payments, that really caught the (DOTs), and the other to individuals and organizations known attention of elected officials. Some saw such deals, referred to to the authors and panel to have an interest in PPPs. now generically as publicprivate partnerships, as a way to tap value from existing infrastructure. Others saw these contracts Literature Review as relinquishing control over decision making on public assets to the profit-motivated private sector without adequate public The literature review was designed to locate U.S. and inter- oversight. national experience related to concerns about how the public