DOT Urged to Create Office to Help Promote Use of P3s

This story appears in the Sept. 22 print edition of Transport Topics.

A report by a House transportation panel recommended establishing a new office at the U.S. Department of Transportation to help states and localities have better access to private capital to fund large-scale infrastructure projects.

In its final report released Sept. 17, the House Transportation and Infrastructure Committee’s panel on public-private partnerships recommended creating the office to work with state agencies and other grant recipients to implement P3 model contracts.

“Billions of dollars of infrastructure needs in the U.S. are in search of funding, and well-executed public-private partnerships can enhance the delivery and management of infrastructure,” said Rep. John Duncan (R-Tenn.), the panel’s chairman. “P3s cannot provide the sole solution to all of the nation’s infrastructure needs, but they can offer significant benefits, particularly for high-cost, technically complex projects that otherwise may risk dying on the vine.”

In order for DOT to adhere to the report’s recommendations, the report must be presented as legislation and eventually signed into law.

To address cost overruns and project delays, the panel recommends creating the new DOT procurement office to develop project-delivery performance standards. It also would require U.S. DOT and state departments of transportation to make publicly available annual reports detailing a project’s budget performance.

The panel also called on transportation officials to reform traditional procurement processes to advance P3s, increase transparency and accountability for P3s, and inform the public about upcoming projects to gain support. And it recommended that states form P3 alliances to advance major projects in a region, which would maximize support from taxpayers.

“Throughout this process, my focus has been on how to best invest limited federal transportation funds and what role public-private partnerships can play in stretching those dollars,” said Rep. Michael Capuano (D-Mass.), the panel’s ranking member.

To prepare the report, the panel spent six months interviewing experts who specialize in the delivery of infrastructure projects. House Transportation and Infrastructure Committee Chairman Bill Shuster (R-Pa.) said the report will be a resource when lawmakers take up transportation legislation in the coming months.

“We know the private sector has significant interest in investing in U.S. infrastructure, but the challenge has been how to make sure our federal policies allow this potential to be responsibly unlocked while also protecting the public interest,” Shuster said.

Typical P3 arrangements consist of investors putting up capital for large projects that pay them back over time in dedicated debt payments or tolls.

Officials in Texas and Florida have enacted legislation facilitating the use of P3s. In Virginia, officials approved a few years ago a major P3 agreement to open the express lanes on the Capital Beltway, which are known as “hot lanes.”

P3 supporters also note the partnership between Skyway Concession Co. and the city of Chicago that turned an existing public toll road into a private enterprise. The Chicago Skyway Toll Bridge System, a nearly 8-mile toll road, connects motorists from the city’s South Side to the Indiana border along Interstate 90.

But opponents of P3s argue private-sector involvement might hurt groups pushing for sustainable infrastructure projects. They also argue the alliances are not suitable for every project, such as bridges in rural areas vital to communities that lack enough traffic to draw interest from investors.

Several privately operated toll roads have failed to capture the traffic volume necessary to stay in business. In Indiana, for instance, local officials have indicated that the Indiana Toll Road Concession Co. is considering filing for bankruptcy this fall to cut its nearly $6 billion debt load, after failing to make an interest payment in June.

Other toll roads are struggling financially, as well. American Roads, a toll operator in Alabama and Michigan, restructured its debt in Chapter 11 protection in 2013.

American Trucking Associations spokesman Sean McNally said P3s’ potential is “very limited, and can address only a small proportion of infrastructure needs.”

“P3s have higher financing costs than traditionally funded projects, so better analysis and transparency is needed before determining whether a project should go forward,” he said.