Top 10 benefits of P3s for tolling projects

Kevin Longenbach | 22 Jun 2017 | Comments

With Public-Private Partnerships taking center stage as part of the Trump Administration's proposed Infrastructure Program, it is an appropriate time to revisit the benefits that they can bring to state and local transportation entities in delivering properly vetted highway, transit, and other public infrastructure projects.

Recent years have seen a shift from public to private funded tolling projects—helping to fill both federal and state funding gaps. Increased levels of responsibility and risk are placed on private firms to design, build, operate, and maintain these projects. This shift begs the question: are Public-Private Partnerships (P3s) in the public interest? And if so, just what are the benefits of using P3s for tolling projects?

Most proposed P3 tolling and managed lane projects invariably inspire a sense of public anxiety and distrust—why should we force users to pay for a public service? Isn’t it unfair and inequitable to do so? Beyond the reluctance to pay a toll, there’s the question of how to financially structure a project—should it be completed on the public’s dime with public resources, or should private firms be allowed to take the lead (and the risk)?

Properly structured, P3s can be an attractive procurement option—shifting both the risk and the management to a more experienced partner. They can provide both short-term and long-term benefits to the public by providing funding to accelerate the delivery of service improvements, allowing for on-time completion, first cost savings, and also budget certainty on both capital and long-term maintenance costs. When performance standards aren’t consistently met, the facility owner can enforce contract default provisions and require new management. Although rarely invoked, this and other concession agreement provisions create a win-win scenario for the public providing protection in cases of mismanagement.

Understandably, the public can have hesitations about private entities managing public resources. There is worry about being overcharged and under-delivered, or deprived of access to public resources. Tolling reflects a balancing of supply and demand factors. If rates are set too high, travelers won’t pay. If rates are set too low, or aren’t adjusted in response to increased traffic congestion (e.g., in a managed lane), the promised benefit isn’t delivered, thereby diminishing (if not eliminating) the rationale for choosing a managed lane facility in the first place. These economic facts clearly influence toll pricing levels and ultimately limit what a private entity may charge above and beyond any statutory or contractual restraints.

So without further ado, here are the top 10 benefits that P3s contribute to tolling projects and their communities:

Top 10 benefits of P3s

  1. P3s provide the ability to leverage private investment capital to enable major roadway projects.
  2. P3s shift costs and key risks to the private sector and away from taxpayers.
  3. P3s typically deliver broad and complex projects on time and on budget.
  4. The use of private financing can accelerate delivery of major transportation improvements to provide congestion relief and needed infrastructure renewal.
  5. P3s offer and allow for greater innovation in the design and construction process by accessing private-sector ideas, skills, and talent.
  6. P3s can shift both current and long-term operations, and maintenance responsibilities—avoiding the use of tax dollars for this purpose.
  7. P3s can hold private firms to roadway performance and long-term maintenance standards under properly structured concession agreements.
  8. In the absence of available state or federal funding, P3s can create jobs and boost the economy now.
  9. The public retains the benefit of the P3 project even if the concessionaire defaults.
  10. P3s have a proven global reputation for managing mega projects efficiently and effectively—this is significant, as the need and demand for major highway and public infrastructure projects are expanding in the U.S.

Often Public-Private Partnerships (P3s) get a bad rap—particularly, when it comes to tolling projects; the public questions the need for tolling, and expresses concern about the motives and interests of a private entity when it comes to serving the public good. However, when properly structured, a P3 can deliver good value to each side of the transaction, be consistent with broad-based public transportation plans and policies, and ensure the fair protection of the public’s interest.

It is important to note that P3s are not the panacea for all transportation problems. The P3 model is an effective, value-for-money procurement method but only for the right projects. Tolling and P3s are not a means of delivering non-feasible projects. When the proper factors are found to exist, allowing private companies to take the lead (and the risk) through P3s can provide solid financial savings and benefits to the public by delivering well designed, constructed, maintained, and operated, state-of-the-art highway and transit related facilities.