Guest Column

Trip Pollard

Reality Check

Public-private "partnerships" for transportation projects raise little private equity capital and undermine normal planning processes. The enabling legislation desperately needs to be updated.

Virginians need and deserve innovative solutions to their transportation problems. A more balanced and efficient approach is required to address gridlock and longer commutes, as well as the heavy toll that road-building and accompanying sprawl takes on our pocketbooks, health, farmland, and environment.

One solution receiving a lot of attention is to tap into the creativity and financial resources of the private sector through public-private partnerships to build highways and other projects. While this approach holds some promise, the Virginia law allowing such projects is flawed, and its track record raises serious concerns. 

First, instead of attracting new private capital for projects, proposed public-private partnerships have relied almost exclusively on the public’s money, using taxpayer dollars and/or tolls.

Second, these projects circumvent normal planning processes, limiting public input and consideration of alternatives, and they have tended to foster sprawl development.

And third, the costs and potential liability to taxpayers for projects are often understated.

The Promise

The 1995 Virginia Public-Private Transportation Act, or PPTA, allows private companies to build, maintain, and operate highways and other transportation facilities. Some 15 state construction projects have been proposed or explored under the Act, including the Pocahontas Parkway, Route 288, I-495 and I-95 High Occupancy Toll (HOT) Lanes, widening I-81, and the Hampton Roads Third Crossing.

There has been an explosion of PPTA proposals in the past few years, and recent proposals by Gov. Mark R. Warner and House Republicans would earmark millions of taxpayer dollars to encourage more of these projects. Meanwhile, measures pending before the General Assembly would relax the requirements PPTA proposals must meet.

Public-private partnerships can be an innovative tool to speed and improve building projects. But it is a limited tool, and the PPTA’s performance falls short of proponents’ promises.  

The Southern Environmental Law Center has released the first comprehensive analysis of the law. The report – prepared by Jim Regimbal, a consultant with Fiscal Analytics, Ltd. who has over 20 years of experience in state policy analysis--provides a dose of reality and suggests some sensible reforms to lawmakers and others steering our transportation future.

Hold On To Your Wallet

There is no free lunch with public-private projects. The PPTA has failed to live up to its promise of attracting significant private equity risk capital to fund increasingly expensive projects. Instead, large construction consortiums are proposing projects that primarily use taxpayer subsidized revenue bonds backed by tolls or local taxes, and supplemented with whatever traditional government transportation revenues are available. 

Taxpayers are on the line for many public-private project costs, and the public typically is paying the rest of the costs through tolls. In addition, taxpayers subsidize these projects in various ways, including picking up the tab for project maintenance and reducing the cost of capital since bonds floated to pay for many projects are tax-free.

There is also potential public liability if a company were to default on bonds. Consider the Pocahontas Parkway. Tax free bonds financed much of the construction costs, an $18 million state loan has not been repaid, the state is paying to maintain the highway, and the bonds have been downgraded to junk status by at least one rating agency. Or consider Route 288, paid for entirely with taxpayer dollars.

Whose Priorities?

The law also enables public-private proposals to jump to the front of the line for consideration and funding. Projects the state and localities have agreed upon may languish with insufficient funding, bypassed by proposals that have not gone through the typical planning process.

This can put profits ahead of sound transportation planning. The PPTA is intended to be a procurement statute, harnessing market forces to speed and improve transportation projects, but it has increasingly been used as a planning statute to determine which projects should be built. The danger is that our limited transportation dollars will be used on projects that will benefit companies’ bottom line but do little to relieve traffic congestion or provide other public benefits.

Undermining Planning and Competition

The PPTA circumvents normal transportation planning processes. It shifts authority away from the Commonwealth Transportation Board--Virginia’s official transportation policymaking body00to VDOT and other agencies. In addition, it can short-circuit citizen participation since the law does not require public input. 

Moreover, the PPTA can undermine processes designed to consider alternatives to a particular proposal and to evaluate impacts on communities and the environment. It thus can result in putting the cart before the horse, with the state deciding to enter into an agreement with companies to build a project before it has decided what project, if any, should be built. For example, STAR Solutions, which proposes a $13 billion plan to double the size of I-81 from one end of the state to the other, is negotiating with VDOT to improve I-81 even though the study to determine the best solution to the highway’s traffic and safety problems has not been completed. This “ready, shoot, aim” approach is not a sensible way to choose which projects to pursue.

And, although the law’s most attractive feature is the potential to harness market forces, it actually threatens to undermine competition by making it more difficult for smaller contractors to get work. Companies submitting proposals also insist that the state limit improvements to other roads or rail lines that could provide alternative routes that would not require paying the tolls they seek to impose.

Finally, most PPTA projects proposed thus far would contribute to sprawl. Quite simply, project proponents have a vested interest in promoting rapid growth and greater driving to increase facility use and toll collections.

A Better Approach

Here are a number of improvements that can begin to address these problems:

·         Provide for additional public input;

·         Require that proposals be part of normal planning processes;

·         Give the Commonwealth Transportation Board greater authority over proposals;

·         Require private entities proposing a project to invest a certain amount of capital to reduce the burden and risk that taxpayers and citizens bear;

·         Require proposers to pay for independent verification of traffic and cost estimates.

Although public-private partnerships can be beneficial, we must do more to ensure that we are making smart transportation investments that are in the public’s interest. The Public-Private Transportation Act and guidelines should be improved before millions of additional taxpayer dollars are earmarked for these projects, and before further projects are authorized or accelerated.

-- January 31, 2005