Controlling the states

In one of the odder presentations about US infrastructure, Illinois Republican Senator Mark Kirk, who has recently proposed legislation to encourage public-private partnerships (PPPs), asked in a promotional video: “What is the third-biggest thing President Abraham Lincoln’s administration is remembered for?”

The Emancipation Proclamation and the US Civil War victory claimed first and second places. And third place goes to…the Transcontinental Railway Act.

“As President Lincoln borrowed from everyone to expand the Union army, he also launched the largest infrastructure programme in history – and without an appropriation from Congress,” Kirk said, praising the former President for building 2,000 miles of railroad in six years, creating 7,000 new towns across the US.

“It was the ultimate public-private partnership,” Kirk concluded.

Kirk’s draft “Lincoln Legacy Development Act” aims to “mobilise” over $100 billion for roads, rail, ports and airport projects. It would remove the cap on airport privatisations (currently limited to only five under the Federal Aviation Administration’s Pilot Privatisation Programme) and eliminate other federal restrictions on PPPs, as a part of an attempt to “provide states greater flexibility to generate transportation revenues”, according to a statement.

States have increasingly been acting on proposals and legislation for PPPs, with recent weeks seeing a substantial increase in activity.

One side of the debate argues that Kirk’s approach – establish a broad federal framework permitting PPPs, while leaving the bulk of decision-making up to the states – is the right way to proceed.

But others – as shown in legislation introduced by Dick Durbin, Democratic Senator from Illinois –push for the federal government to step in and play an active role, possibly including preventing states from undertaking privatisations to fill short-term budget holes.

The outpouring

Here’s a short rundown of some of the state-level PPP developments in recent weeks: the Illinois legislature approved a bill permitting transportation PPPs; Texas passed a law allowing PPPs for 11 transportation projects; and Virginia’s Commonwealth Transportation Board adopted a six-year programme including $1.4 billion for PPPs.

Major PPPs have also advanced in procurement over the past month. The New York/New Jersey Port Authority shortlisted three bidders – Macquarie, Meridiam, and ACS – for the Goethals Bridge replacement project. In Puerto Rico, Goldman Sachs and Spanish developer Abertis won the territory’s first toll road PPP with a $1.4 billion bid, while Alaska is moving forward with its first PPP, the Knik Arm Crossing in Anchorage.

The increase in PPP-related bills may simply result from the end of the legislative session. But PPP advisors say they are seeing both a revitalisation of PPP programmes in states like Virginia and Texas, which previously had PPP laws, as well as growing interest from states new to PPPs.

Some say that as different states begin to adopt PPPs, neighbouring states will see the benefits and begin to adopt similar measures. (The flipside to this theory, of course, is that failed, unpopular PPPs will create a reverse effect).

The other side

Another bill, formally introduced in June by Kirk’s Democratic counterpart in Illinois, Senator Dick Durbin, implies that PPPs need to be regulated to protect US taxpayers from opaque or rushed decisions made at the state level.

Durbin said in a statement that “the federal government shouldn’t incentivize local and state governments to make rash, short-term decisions that lease transportation infrastructure for generations just to solve temporary budget shortfalls”.

The proposed legislation would mandate more public disclosure around potential privatisation deals and would require that the federal government be reimbursed for its investment in any infrastructure project that is privatised. Durbin gave Chicago’s Midway Airport as an example. Under the proposal, any privatisation deal would require Chicago to repay about $375 million to the federal government for money it had invested in Midway.

Durbin said private sector investment could play “an important role” in improving Illinois’ infrastructure, and increasing the state’s economic competitiveness. But he said that the “federal taxpayer is often left holding the bag” in long-term leases. “My bill will ensure that the interests of the federal taxpayer are protected when a private company seeks to operate a public asset for a profit,” he added.

As the differences between these two bills show, the US is still trying to find the appropriate balance between federal and state roles in pushing forward – and regulating – PPPs.