GAO Report Warns of Risks in Public-Private Partnerships
By Eric Miller, Staff Reporter
This story appears in the Feb. 18 print edition of Transport Topics.
Risks associated with public-private highway partnership agreements range from higher tolls and traffic diversion to stiff political opposition and potential tax losses, according to a new government study.
“Highway public-private partnership agreements are not ‘risk free,’ and concerns have been raised about how well the public interest has been evaluated and protected,” the Feb. 8 study by the Government Accountability Office said.
“Highway public-private partnerships have resulted in advantages for state and local governments, such as obtaining new facilities and value from existing facilities without using public funding,” the study said. “. . . There are also potential costs and trade-offs — there is no ‘free’ money in public-private partnerships, and it is likely that tolls on a privately operated highway will increase to a greater extent than they would on a publicly operated toll road.”
The GAO reached its conclusions after it studied several high profile public-private agreements, including the 99-year lease of the Chicago Skyway and the 75-year lease of the 157-mile Indiana Toll Road.
Rep. Peter DeFazio (D-Ore.) and Sens. James Inhofe (R-Okla.) and Richard Durbin (D-Ill.) requested the GAO study.
The Bush administration and the Department of Transportation have touted public-private partnerships as one solution to federal highway funding shortfalls.
After a separate two-year study, the bipartisan National Surface Transportation Policy and Revenue Study Commission estimated in its January report to Congress that the federal government should be investing $225 billion to $340 billion annually in all modes of transportation.
The federal government is currently investing only $85 billion annually, less than 40% of the needed amount, according to the commission. Though the commission supported public-private partnerships, it said that, without substantial commitment on the federal level, the U.S. transportation infrastructure will fail to keep pace with increasing numbers of trucks and automobiles on the nation’s highways.
Transportation Secretary Mary Peters, who chaired the study commission but disavowed its proposals (1-21, p. 1), testified at a House committee meeting on Jan. 13 that she believes in private investment in the nation’s transportation infrastructure but that the states should make such critical decisions.
“Thanks to robust competition and increased public sector expertise, most, if not all, of the public policy issues raised in the report have already been addressed in the marketplace,” Nancy Singer, a spokeswoman for the Federal Highway Administration, said in reaction to the GAO study. “The timing has never been better for public agencies to reduce congestion, rebuild infrastructure and improve the environment through creative partnerships with the private sector.”
American Trucking Associations, which opposes the lease or sale of existing toll roads, said the study backed its views.
“Schemes such as the privatization and tolling of existing highway infrastructure will result in Americans’ paying a significantly higher price to access our highway system while receiving less in the form of safe, efficient and reliable roadways,” said Bill Graves, president of American Trucking Associations.
Though the GAO study noted several positive benefits of public-private highway partnerships, it concluded that there is great potential for private operators to increase tolls at a faster rate than if the highways were publicly owned.
“The concession agreements for both the Chicago Skyway and Indiana Toll Road permit toll rates to increase each year, based on a minimum of 2% and a maximum of the annual change of either the consumer price index or per capital U.S. nominal gross domestic product,” the study said.
By contrast, the period when the Chicago Skyway was publicly managed, from 1989 to 2004, tolls changed infrequently and actually decreased by about 25% in real dollar terms.
GAO said another major problem public-private partnerships face is obtaining public and political support. The agency’s interviews with 49 state departments of transportation revealed that opposition to tolling stems from the contention that fuel taxes and other dedicated funding sources are used to pay for roads, and “thus tolling is seen as a form of double taxation.”
Because such agreements fashioned by the states can affect the federal highway system, GAO called on Congress and DOT to “develop objective criteria for identifying potential national public interests in highway public-private partnerships.”
GAO said although DOT agreed to reexamine its regulations regarding excessive tolls, DOT disagreed that it should develop a legislative proposal containing objective criteria for identifying the national public interests in highway public-private partnerships.
Because DOT objected, GAO said it removed the recommendation from its report and instead advised Congress to direct DOT to undertake the action.
This story appears in the Feb. 18 print edition of Transport Topics.
Risks associated with public-private highway partnership agreements range from higher tolls and traffic diversion to stiff political opposition and potential tax losses, according to a new government study.
“Highway public-private partnership agreements are not ‘risk free,’ and concerns have been raised about how well the public interest has been evaluated and protected,” the Feb. 8 study by the Government Accountability Office said.
“Highway public-private partnerships have resulted in advantages for state and local governments, such as obtaining new facilities and value from existing facilities without using public funding,” the study said. “. . . There are also potential costs and trade-offs — there is no ‘free’ money in public-private partnerships, and it is likely that tolls on a privately operated highway will increase to a greater extent than they would on a publicly operated toll road.”
The GAO reached its conclusions after it studied several high profile public-private agreements, including the 99-year lease of the Chicago Skyway and the 75-year lease of the 157-mile Indiana Toll Road.
Rep. Peter DeFazio (D-Ore.) and Sens. James Inhofe (R-Okla.) and Richard Durbin (D-Ill.) requested the GAO study.
The Bush administration and the Department of Transportation have touted public-private partnerships as one solution to federal highway funding shortfalls.
After a separate two-year study, the bipartisan National Surface Transportation Policy and Revenue Study Commission estimated in its January report to Congress that the federal government should be investing $225 billion to $340 billion annually in all modes of transportation.
The federal government is currently investing only $85 billion annually, less than 40% of the needed amount, according to the commission. Though the commission supported public-private partnerships, it said that, without substantial commitment on the federal level, the U.S. transportation infrastructure will fail to keep pace with increasing numbers of trucks and automobiles on the nation’s highways.
Transportation Secretary Mary Peters, who chaired the study commission but disavowed its proposals (1-21, p. 1), testified at a House committee meeting on Jan. 13 that she believes in private investment in the nation’s transportation infrastructure but that the states should make such critical decisions.
“Thanks to robust competition and increased public sector expertise, most, if not all, of the public policy issues raised in the report have already been addressed in the marketplace,” Nancy Singer, a spokeswoman for the Federal Highway Administration, said in reaction to the GAO study. “The timing has never been better for public agencies to reduce congestion, rebuild infrastructure and improve the environment through creative partnerships with the private sector.”
American Trucking Associations, which opposes the lease or sale of existing toll roads, said the study backed its views.
“Schemes such as the privatization and tolling of existing highway infrastructure will result in Americans’ paying a significantly higher price to access our highway system while receiving less in the form of safe, efficient and reliable roadways,” said Bill Graves, president of American Trucking Associations.
Though the GAO study noted several positive benefits of public-private highway partnerships, it concluded that there is great potential for private operators to increase tolls at a faster rate than if the highways were publicly owned.
“The concession agreements for both the Chicago Skyway and Indiana Toll Road permit toll rates to increase each year, based on a minimum of 2% and a maximum of the annual change of either the consumer price index or per capital U.S. nominal gross domestic product,” the study said.
By contrast, the period when the Chicago Skyway was publicly managed, from 1989 to 2004, tolls changed infrequently and actually decreased by about 25% in real dollar terms.
GAO said another major problem public-private partnerships face is obtaining public and political support. The agency’s interviews with 49 state departments of transportation revealed that opposition to tolling stems from the contention that fuel taxes and other dedicated funding sources are used to pay for roads, and “thus tolling is seen as a form of double taxation.”
Because such agreements fashioned by the states can affect the federal highway system, GAO called on Congress and DOT to “develop objective criteria for identifying potential national public interests in highway public-private partnerships.”
GAO said although DOT agreed to reexamine its regulations regarding excessive tolls, DOT disagreed that it should develop a legislative proposal containing objective criteria for identifying the national public interests in highway public-private partnerships.
Because DOT objected, GAO said it removed the recommendation from its report and instead advised Congress to direct DOT to undertake the action.
