Are we serious about public-private partnerships in the US?

The US is at an important crossroads in terms of private investment in infrastructure and public-private partnerships. For much of the last half-century, the US enjoyed adequate funding for federal highway and transit programmes. The gas tax, initially increased to build the Interstate Highway System, was a somewhat accurate proxy to meet our needs. But unlike many other countries around the world that took advantage of private investment in transport infrastructure, the US did not for many years see the need to engage in public-private partnerships.  

Mary Peters

In the last decade it became increasingly clear that this traditional method of funding was both inadequate and unsustainable. Fuel taxes have not been increased since 1993, and vehicles are becoming increasingly fuel efficient in response to air quality mandates, resulting in declining tax receipts and reduced buying power of the dollars that are collected. As we explored other options, we discovered what our colleagues in the UK, Australia, Canada, Mexico, Europe and Asia had learned: partnerships with the private sector bring experience, expertise and funding to help finance, build, operate and maintain critical transport infrastructure.

In the early 1990s, several states began experimenting with public-private partnerships (P3s). These early efforts provided valuable lessons and helped shape the 1998 six-year surface transportation programme, the Transportation Equity Act for the 21st Century (TEA-21). The legislation authorised states, under limited circumstances, to continue to explore private investment and pricing on the National Highway System.

The Safe, Accountable, Flexible Transportation Efficient Act-a Legacy for Users (SAFTEA-LU), the successor legislation to TEA-21, was not authorised by Congress until 22 months after TEA-21 expired. Most of that delay resulted from the inability to reach agreement on how to finance the bill without increasing fuel taxes. The $284.7 billion bill, which ultimately passed and was signed into law in August 2005, continued programmes allowing private investment and pricing under limited circumstances and allowed for the issuance of up to $15 billion in Private Activity Bonds (PABs). 

Insufficient revenue

By the summer of 2008, it became apparent that the 18.4 cent federal fuel tax was not providing sufficient revenue to meet obligations made on the basis of the SAFETEA-LU legislation. High gas and diesel costs, and what we now know was the beginning of a recession, resulted in Americans driving significantly less. In the ensuing 18 months, Congress would have to provide $34.5 billion in general fund revenues just to keep the Highway Trust Fund solvent.

The American Recovery and Reinvestment Act (ARRA) of 2009 provided some modest additional funding for transportation infrastructure, and the TIGER (Transportation Investment Generating Economic Recovery) programme among others have also allocated some funding to highways, transit and high-speed passenger rail. On Labor Day 2010, the President announced an initiative that proposes to allocate $50 billion to roadways, railways and runways, including establishing a National Infrastructure Bank. While helpful in the short-term, these infusions are not seen by the transport industry as a substitute for a long-term bill to support surface transportation.

SAFETEA-LU expired last September, and the same issues that delayed the prior legislation were again evident. Even though the Chairman of the House Transportation and Infrastructure Committee drafted a six-year, $500 billion bill ($450 billion for highways and transit, and $50 billion for high-speed passenger rail), current fuel taxes would only provide approximately $264 billion over the six-year period.  Congress and the White House had no interest in increasing the fuel taxes at all, let alone enough to close the nearly $236 billion gap identified by the Chairman’s proposed legislation. Short-term extensions of SAFETEA-LU have kept the programmes on life support to date.

Chilling effect

A number of state P3 programmes have now evolved from the early asset monetisation P3s, such as the Chicago Skyway and Indiana Toll Road, to using the agreements for capacity enhancement/expansion, and others using a programmatic approach to identifying the most viable projects for private investment. Unfortunately, some in Congress were skeptical that these agreements were being developed in the public’s best interest. This led to provisions in the proposed House bill that would have a chilling effect on the ability of states to further advance the use of P3s.

The current extension of SAFETEA-LU expires on December 31 of this year. Mid-term elections in November may result in a change of leadership in the House. We continue to experience high unemployment and a very slow, if not stagnant, recovery from what some term the “Great Recession”. None of this bodes well for a near-term agreement on the next six-year surface transportation bill.

In my opinion, we in the US have for too long failed to truly face up to the fact that the old ways of funding our surface transportation programmes are simply not going to work for the future. We now need to decide if we are serious about making private investment and P3s part of the solution to meeting our transport requirements, or see that private capital go to our neighbours in the Americas, such as Canada, Mexico and Brazil. The US P3 process is often seen as costly, politically risky, complicated and unpredictable by would-be investors.

We need to foster federal programmes that encourage P3s as opposed to those that are hostile to private investment. Other factors that would communicate that we are open for business in terms of attracting private investment include:

• An open, accountable and transparent process;
• Timelines for procurement, clearly identified and committed to;
• Demonstrated political will to support P3s, and a commitment to follow through;
• Appropriately identifying and allocating risk to both public and private partners;
• A sustained pipeline of projects now and in the future;
• Building broader public and political support for P3s (a poll sponsored by investment banking firm Lazard has shown that nearly 60 percent of US voters support private investment in infrastructure, especially when contrasted with tax increases or budget cuts); and
• Funding credit assistance through the Transportation Infrastructure Finance and Innovation Act (TIFIA) programme at higher levels and removing the $15 billion cap on PABs (there is up to $15 in demand for every $1 of TIFIA funding currently available).

There are currently only five or six major P3 projects under development in the US. Canada is expected to close 30 projects this year, and 50 percent of the infrastructure in Chile is funded by the private sector. Infrastructure remains an attractive asset class, and the US market can represent a significant emerging market to private sector funds if we create a more welcoming environment for private investment. 

I have said in the past that US P3 efforts are at the “toddler” stage, struggling and learning to walk and run just like a young child. I now believe it’s time for the US to get beyond that stage and get serious about attracting and retaining private investment in transport. If we fail to do so, other countries will benefit from our lack of commitment, and we will become increasingly less competitive in the global market as our transport infrastructure continues to deteriorate.

Mary E. Peters was US Secretary of Transportation from 2006 to 2009 overseeing all US aviation, surface and maritime policy programmes and negotiating transportation agreements with foreign governments. From 2001 to 2005 she served as Federal Highway Administrator for the US Department of Transportation. She now runs her own infrastructure consultancy, the Mary E. Peters Consulting Group (www.marypetersconsulting.com).