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By Jim Reed

A comprehensive, recently released study by the nonpartisan think-tank Eno Center for Transportation entitled "Partnership Financing: Improving Transportation Infrastructure Through Public Private Partnerships,"  makes several useful recommendations for those states and localities that may want to explore the possibility of adding public-private partnerships (P3s) to their infrastructure financing tool box.

A baseline assumption is that new approaches are needed to more optimally deliver high quality transportation infrastructure given diminishing traditional funding sources such as the gas tax. P3s, though not appropriate for many transportation projects, “can help leverage resources and align interests to create value.”

Well-executed P3s, according to the study, can control costs, allocate risks properly, accelerate project construction, and develop essential infrastructure that might otherwise not have been built. While many P3 approaches have been used over the years, this report states that the model that offers the “largest potential gains in terms of risk sharing and efficiency is one that includes a private role in all phases of a project: design, build, finance, operate and maintain, commonly referred to a DBFOM.”

Developed by a working group of industry, government and academic experts and chaired by a bipartisan team of two former U.S. secretaries of transportation, the analysis identifies the common challenges to successful use of P3s (in the form of DBFOM) to develop infrastructure that are faced by states and local governments.

The key barriers fall into five categories: limitations in federal programs and regulation; political and public opposition; limitations in implementing legislation; flaws in contract provisions; and shortcomings in institutional development and management.

State legislatures may benefit from the Eno Center's recommendations for states and localities, which include the following:

  1. Develop effective and broad enabling legislation to “balance public and private interests in a way that adequately protects the public, while still allowing opportunities for private benefit.” Key provisions should address project eligibility, project selection, funding, approval and review, and contract elements.
  2. Establish appropriate institutional structures and management policies to support P3 development since it is a departure from traditional public sector procurement processes.
  3. Promote public engagement by engaging the pubic early and substantially, before opposition grows, and by responding to legitimate concerns, and seeking opportunities to increase public benefits. Public opposition often centers on tolling proposals and knowledge of past “uniquely problematic projects.”

 

As well, the federal government is asked to consider five recommendations to strengthen the federal transportation program concerning P3s and better incentivize new revenue sources for states and localities.

The report nicely addresses the widely held misconception that somehow the private sector provides “free money” in a P3. In fact, private partners do not provide funding, but they can help assemble financing packages that include a variety of public sources and often a private equity stake. The report is helpful in clearly delineating the public and private interests and the ways they can coincide. The private interest seeks opportunities for a steady return on investment, while the public seeks societal goals such as increased mobility and economic development.

Case studies illuminate projects in Florida, Colorado, Virginia, California, Texas and the Ohio River Bridge connecting Indiana and Kentucky. A helpful list of past and current DBFOM P3 projects by state is also included.

The study draws on NCSL research in several places and includes NCSL maps of state P3 enabling statutes and legislative review and approval requirements. For further information, see the NCSL toolkit with guidance for state legislatures considering transportation P3s.

A new NCSL LegisBrief  summarizes in two pages the growing use of transportation public-private partnerships in the states, including short overviews of recent legislation in Maryland and Florida.

Jim Reed is group director of NCSL's Environment, Energy and Transportation Program.

Email Jim.

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About the NCSL Blog

This blog offers updates on the National Conference of State Legislatures' research and training, the latest on federalism and the state legislative institution, and posts about state legislators and legislative staff. The blog is edited by NCSL staff and written primarily by NCSL's experts on public policy and the state legislative institution.

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