Transcript Slide 1

Recent Developments in
Transportation Public-Private
Partnerships
in the United States
Rick Geddes
Associate Professor
Department of Policy Analysis & Management
Cornell University
June 24, 2009
Overview
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Current U.S. transportation financing crisis
Role of private investment (PPPs)
Stimulus bill
Challenges to using PPPs: the Pennsylvania
Turnpike example
Obama administration transportation policies
Please ask questions as we go!
Background: U.S. transportation financing
in turmoil
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Focus on transportation infrastructure:
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Roads, highways, bridges, tunnels, ports, intermodal connectors, airports
Main focus currently on highways, bridges and
tunnels
Also applies to dams, hospitals, schools, prisons
U.S. transportation financing
problems: fuel-tax revenue declines
Revenue Side
 About 53% of U.S. highway funding comes from pergallon fuel taxes (in addition to tolls, vehicle fees,
etc.):
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Gasoline tax (plus diesel tax) at both state and federal
level (18.4 cents federal, 28.6 cents state average)
Federal fuel tax goes into Highway Trust Fund
States have similar funds
How is transportation infrastructure currently
financed?
U.S. transportation financing
problems: fuel-tax revenue declines (con’t)
 State/local/federal transportation resources
depleted:
 State and federal fuel taxes usually on per-gallon
basis (not ad valorem)
 Revenue unstable
 Depends on vehicle use
 Purchasing power of tax revenue erodes with inflation
U.S. transportation financing
problems: fuel-tax revenue declines (con’t)
 Federal policy encourages fuel efficiency (e.g.,
CAFÉ, truck effic. standards) but relies on fuel
taxes for funding
 Vehicle Miles Traveled declining (U.S. Vehicle
Miles Traveled in April 2008 1.4 billion less than
April 2007, largest decline since 1942)
 VMT still declining (slower rate)
 U.S Transportation Secretary Mary Peters: “Policy
at war with itself”
U.S. transportation financing
problems: fuel-tax revenue declines (con’t)
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$8 bill. “bailout” of Highway Trust Fund in
Sept. 2008 from general fund
Larger bailout of HTF expect this year
No new Federal proceeds!
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Obama administration has ruled out:
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New federal fuel taxes (recommended by National
Surface Transportation Policy & Revenue Study
Commission)
VMT fee (recommended by the National Surface
Transportation Infrastructure Financing Commission)
States in Fiscal Distress
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Recall: State and local government funds
about 80% of system
Tax declines from sales, personal income,
and corporate taxes (more business-cycle
sensitive)
Rising health care and pension costs
States face budget shortfalls of $230 bill.
between 2009 and 2011
“Raiding” transportation budgets
Highway financing needs are very high
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U.S. highway system is old
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Interstate system started in 1956
Well beyond original design life of 25 years
Needs major refurbishment and expansion:
American Society of Civil Engineers rating
U.S. infrastructure overall as “D”
Estimates of highway “funding gap”: around
$200 billion over next 25 years
2009 “Stimulus” bill
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American Recovery and Reinvestment Act of
2009
Passed February 2009
$30 bill. in highway funding
Part of that goes to bike and pedestrian paths
New sources of infrastructure financing
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U. S. turning to private investors for financing
via Public-Private Partnerships (PPPs)
Estimated $400 billion of private
infrastructure investment available worldwide
Defining Transportation PPPs
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Highway PPPs refer to (General Accountability
Office):
“Highway-related projects in which the public
sector enters into a contract, lease, or
concession agreement with a private sector firm
or firms, and where the private sector provides
transportation services such as designing,
constructing, operating, and maintaining the
facility, usually for an extended period of time.”
Defining Transportation PPPs (con’t)
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Federal Highway Administration:
Public-private partnerships (PPPs) are contractual
agreements formed between a public agency
and a private sector entity that allow for greater
private sector participation in the delivery and
financing of transportation projects.
U.S. Transportation PPPs:
Two Main Types
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Brownfield PPPs:
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Long-term leases of existing transportation
facilities (mostly toll roads) by private
concessionaires
Usually team of investment bank and operator
Investors bid for right to collect tolls/operate
road on basis of size of up-front concession
fee
U.S. Transportation PPPs:
Two Main Types
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Greenfield PPP:
Private sector provides financing for
construction of new toll facility
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Usually a DBFO (design, build, finance, operate)
contract
Competitive bidding
Title remains with public sector
Operation may revert to public sector after
specified period (or can re-bid)
Example of Brownfield PPPs in United
States: Indiana Toll Road
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157-mile toll road along the northern border of
Indiana
Leased by Macquarie/Cintra group in 2006 for 75
years
Lease caps rate of toll increases to inflation
State of Indiana received $3.8 billion in concession
fee
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State used proceeds to fund a 10-year transportation plan
called Major Moves
Indiana only state with a fully funded transportation plan for
those 10 years
Example of Greenfield PPP: I-595
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I-595 in Florida (around Fort Lauderdale)
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About 17 miles, deal closed March 2009
ACS Infrastructure Development (ACSID) will
redevelop facility
Add new toll lanes, bus lanes and improved
interchanges
Cost of $1.8 billion
Example of Greenfield PPP: I-595 (con’t)
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DBFO contract for 35 years
Toll revenues go to State of Florida (state
takes on toll risk)
Investors paid using “availability payments”
Receive annual payments for providing,
maintaining and operating roadway to
specified standards
Some benefits of PPPs
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Creates competition in provision and
operation
Faster project delivery (13 year time lag!)
Risk transfer: Risks assumed by investors
instead of citizens (revenue, construction
risk)
Some benefits of PPPs (con’t)
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High-powered incentives (to maximize
throughput, safety, fast repair, etc.)
Facility built at little (or no) cost to the state
Some benefits of PPPs (con’t)
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Brownfields:
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Risk transfer (different types)
Set service standards via contract
Funds to maintain facility (i.e. cannot defer
maintenance)
Allows citizens to “monetize” value of facility
PPP Benefits for Investors
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PPPs offer opportunity to invest in tangible
assets
Long-term stable attractive returns (more so
that real estate)
Appealing to pension funds
Problems with PPPs:
Public Sector Agreement
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Proposed lease of Pennsylvania Turnpike
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537 mile toll road from New Jersey to the Ohio
border
May 2008: Abertis-Citigroup Infrastructure
Fund offered Pennsylvania up-front
concession fee of $12.8 billion
Plus $5.5 billion of investment in renovating
Turnpike
Problems with PPPs:
Public Sector Agreement (con’t)
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75-year lease; tolls capped at inflation rate
Gov. Rendell’s proposed use of proceeds:
 $2.3 billion to pay off Turnpike debt
 Remainder invested by State: yields
$1.1. billion in annual interest payments
(???)
 Interest would be used to fund
transportation in Pennsylvania
Problems with PPPs:
Public Sector Agreement (con’t)
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But, state legislature had already enacted Act
44 (which included tolling I-80)
Governor surprised legislature with PPP
proposal
Little input from legislature
Legislature did not act
Role of enabling legislation
Obama Administration and PPPs
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Indications are that Obama Administration
supports PPPs
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Retained FHWA website on PPPs
FHWA recently released Public-Private
Partnerships for Highway Infrastructure:
Capitalizing on International Experience
Secretary Ray LaHood has indicated support