Public-Sector Decision Making for Public-Private Partnerships (2009)

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

interest was protected in PPP transactions and how these con- cerns were addressed by decision makers, project sponsors, and other stakeholders. The literature review included docu- ments suggested by the review panel, in addition to papers and studies previously compiled by the authors. Some of the information sources reviewed included: • A Cambridge Systematics’s report on long-term lease agreements and public concerns prepared for the Uni- versity of Southern California, Keston Institute; • Studies by states, regions, and toll road authorities inves- tigating PPP options; • U.S. House of Representatives—Testimonies on PPPs before the House Transportation and Infrastructure Committee; • Several GAO studies, including a recent report about protecting the public interest in PPPs; • FHWA: – PPP website; – International Scan Report on Asset Management; – PPP User Guidebook and Case Studies; and – PPP legislation survey prepared by Nossaman, Guthner, Knox & Elliot, LLP. • Publications from the Organization for Economic Coop- eration and Development (OECD), the European Union, and the World Bank; • TRB papers presented at its annual meetings in recent years; • Academic and industry papers; • Books on PPPs: Nuevos Sistemas de Gestión y Finan- ciación de Infratructuras de Transporte (New Systems of Management and Financing for Transportation Infra- structure), by Izquierdo and Vassallo (2004); and • Newspapers and Internet newsletters/blogs on PPPs and toll roads. Survey of U.S. State and Canadian Provincial Departments of Transportation A web-based survey was sent to all U.S. state DOTs (includ- ing the District of Columbia and Puerto Rico) and to their 13 Canadian provincial counterparts to assess various aspects of PPP decision making, covering: • Criteria used to select PPP projects; • Measures and/or strategies used to protect the public interest; • Level of importance of public concerns related to PPPs; 6 • Tools used by state DOTs to evaluate PPP proposals; and • Information provided to decision makers, including who provides the information. The survey was developed as a collaborative effort among AASHTO, NCHRP, and FHWA, to avoid duplication and to limit the potential burden on DOTs for responding to multiple surveys on a similar subject. In 2005, FHWA and AASHTO conducted a survey that investigated state DOT experience with, their readiness to undertake and professional capacity needs related to PPPs, and it was scheduled to be updated dur- ing the spring 2008. The full survey included 15 questions, of which 9 were specifically related to this NCHRP synthesis. Overall, 65 surveys were distributed and 49 responses were received for a 78% response rate. Forty-four state responses were received, a response rate of 85%, and five Canadian provinces responded. Appendices A and B contain the survey questionnaire and the results summaries, including separate summaries for U.S. and Canadian transportation departments. Survey of Other Individuals and Organizations A second survey about public concerns related to PPPs was distributed to individuals and organizations that are known to have an interest in the subject. The distribution list was developed by the principal investigators in collaboration with NCHRP staff and Topic Panel members. The survey was also publicized at the January 2008 TRB 87th Annual Meeting. This survey was qualitative, and sought to specifi- cally find the perceived benefits of PPPs, the most common concerns, and how these concerns might be mitigated. A total of 24 individuals responded to the survey, representing sev- eral groups including legislature, state DOTs, transportation consultants, financial advisors, investment banks, interest groups, and academia. The full questionnaire can be found in Appendix C, and a summary of the responses is provided in Appendix D. REPORT ORGANIZATION Chapter two of this synthesis provides an overview of the dif- ferent ways that PPPs are defined, some history about PPPs in the United States, and addresses some common miscon- ceptions about PPPs. Chapter three addresses a broad range of topics of concern related to PPPs, and chapter four has con- clusions and suggestions for further research.