“P3” backers push appeal for higher transport, infrastructure spending—but with higher costs
By John D. Schulz, Contributing Editor -- Logistics Management, 6/1/2008
WASHINGTON — As the nation struggles with an aging and outdated transportation infrastructure, private capital and increased reliance on toll revenue will play a major role in funding future projects.
That’s the word from experts surveyed in support of a background paper for Infocast’s Conference on Transportation Infrastructure that was held in Washington, D.C. on May 15.
“The issue concerning our continued underinvestment in infrastructure in the United States is increasingly important,” said David Narefsky, a partner with Mayer Brown, a Chicago law firm that works on public-private partnership (P3) projects such as the Chicago Skyway and the proposed sale of the Pennsylvania Turnpike. “The current funding mechanism just isn’t working. It isn’t addressing the country’s needs for economic viability.”
The issue is sure to percolate in Washington next year, the final year of the five-year federal highway bill. In light of such high-profile tragedies such as the I-35 bridge collapse in Minneapolis, one thing is certain: more money will be spent. It’s only a question of how much more.
Some major players in Washington are already on the infrastructure bandwagon. U.S. Chamber of Commerce President Thomas J. Donohue recently called higher infrastructure investment “critical” for America’s economic future.
“If we fail to invest in our infrastructure, America’s pre-eminence as an economic superpower will begin to wane,” said Donohue, a former head of the American Trucking Associations. The Chamber has begun a coalition called “Let’s Rebuild America” designed to do exactly that. It’s spending millions to get the country to spend billions on highways, bridges, and other critical, if not sexy, economic underpinnings.
The current highway bill is $286 billion over five years. Rep. James Oberstar, D-Minn., chairman of the House Transportation and Infrastructure Committee, has floated the idea of a $500 billion bill over five years starting next year. Some legislators have talked of a bill as much as $1.5 trillion, which would include $500 billion in “creative financing” and another $500 billion in public private partnerships.
The difference this time around may be where that money comes from. In the past, most federal-aid highway projects were funded by the Highway Trust Fund, which gets the majority of its funds from the federal tax on fuel (18.4 cents on gasoline, 23.4 cents on diesel) and has gone unchanged since 1993. That Highway Trust Fund, which ran a surplus of over $12 billion in the 1990s, is projected to run a deficit next year because of politicians’ distaste for raising the fuel tax.
There are signs in Washington and elsewhere that reliance on the federal government for the majority of highway funding may be ebbing. Total reliance on public funding and the fuel taxes to fund investments in transport infrastructure “is no longer a realistic option,” according to the Infocast survey of state and federal legislators, transportation officials, trade associations, and members of the financial and investment community.
The word from these officials is that P3s are coming of age. Some state officials say they are embracing such private sector financing and tolling not out of any ideological commitment to privatization, but rather out of necessity.
That’s because most governors cannot legally run deficits, like the federal government can. Increasingly, state DOTs are obliged to commit a major part of their tax-supported transportation budgets to preserving and modernizing existing infrastructure, leaving little money for new construction.
Still, P3s are hardly a slam-dunk politically. Texas recently enacted a two-year moratorium on P3s. The California legislature recently rejected a plan to establish an Office of Public-Private Partnerships to promote P3s in that state. “I don’t think public-private partnerships are a panacea,” says Jay Gonzalez, undersecretary, executive office for administration and finance in Massachusetts. “There is also a perception problem.”
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