Highway Public-Private Partnerships:

More Rigorous Up-front Analysis Could Better Secure Potential Benefits and Protect the Public Interest

GAO-08-44: Published: Feb 8, 2008. Publicly Released: Feb 8, 2008.

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The United States is at a critical juncture in addressing the demands on its transportation system, including highway infrastructure. State and local governments are looking for alternatives, including increased private sector participation. GAO was asked to review (1) the benefits, costs, and trade-offs of public-private partnerships; (2) how public officials have identified and acted to protect the public interest in these arrangements; and (3) the federal role in public-private partnerships and potential changes in this role. GAO reviewed federal legislation, interviewed federal, state, and other officials, and reviewed the experience of Australia, Canada, and Spain. GAO's work focused on highway-related public-private partnerships and did not review all forms of public-private partnerships.

Highway public-private partnerships have resulted in advantages for state and local governments, such as obtaining new facilities and value from existing facilities without using public funding. The public can potentially obtain other benefits, such as sharing risks with the private sector, more efficient operations and management of facilities, and, through the use of tolling, increased mobility and more cost effective investment decisions. There are also potential costs and trade-offs--there is no "free" money in public-private partnerships and it is likely that tolls on a privately operated highway will increase to a greater extent than they would on a publicly operated toll road. There is also the risk of tolls being set that exceed the costs of the facility, including a reasonable rate of return, should a private concessionaire gain market power because of the lack of viable travel alternatives. Highway public-private partnerships are also potentially more costly to the public than traditional procurement methods and the public sector gives up a measure of control, such as the ability to influence toll rates. Finally, as with any highway project, there are multiple stakeholders and trade-offs in protecting the public interest. Highway public-private partnerships we reviewed protected the public interest largely through concession agreement terms prescribing performance and other standards. Governments in other countries, such as Australia, have developed systematic approaches to identifying and evaluating public interest and require their use when considering private investments in public infrastructure. While similar tools have been used to some extent in the United States, their use has been more limited. Using up-front public interest evaluation tools can assist in determining expected benefits and costs of projects; not using such tools may lead to aspects of protecting the public interest being overlooked. For example, while projects in Australia require consideration of local and regional interests, concerns by local governments in Texas that they were being excluded resulted in state legislation requiring their involvement. While direct federal involvement has been limited to where federal investment exists, and while the Department of Transportation has actively promoted them, highway public-private partnerships may pose national public interest implications such as interstate commerce that transcend whether there is direct federal investment in a project. However, given the minimal federal funding in highway public-private partnerships to date, little consideration has been given to potential national public interests in them. GAO has called for a fundamental reexamination of federal programs to address emerging needs and test the relevance of existing policies. This reexamination provides an opportunity to identify and protect potential national public interests in highway public-private partnerships.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: In 2008, GAO reported that highway public-private partnerships provide advantages for state and local governments, but that potential costs and trade-offs exist. GAO concluded that while the Department of Transportation (DOT) had done much to promote the benefits of public-private partnerships, it had done comparatively little to either help states and localities weigh the potential costs and trade-offs, or to assess how national and public interests might be protected in these arrangements. GAO recommended that Congress direct the Secretary of Transportation to identify national and public interests in highway public-private partnerships and to develop, as appropriate, guidance or assessment tools as needed to assist states and localities weigh potential costs and trade-offs and ensure public interests are protected. On July 6, 2012, President Obama signed into law P.L. 112-141, the Moving Ahead for Progress in the 21st Century Act. The Act directed the Secretary to (a) compile and make available on its website best practices on how states and localities can work with the private sector on transportation projects, (b) provide technical assistance to states and localities regarding proposed public-private partnership agreements, and (c) develop standard public-private partnership transaction model contracts for the most popular types of transportation public-private partnerships. GAO's work helped to bring about congressional action to compel DOT to take steps to better ensure that public interests are protected in public-private partnerships. .

    Matter: A reexamination of federal transportation programs provides an opportunity to determine how highway public-private partnerships fit in with national programs as well as an opportunity to identify the national interests associated with highway public-private partnerships. In order to balance the potential benefits of highway public-private partnerships with protecting key national interests, Congress may wish to consider directing the Secretary of Transportation to consult with them and other stakeholders to develop and submit objective criteria for identifying national public interests in highway public-private partnerships. In developing these criteria, the Secretary should identify any additional legal authority, guidance, or assessment tools required, as appropriate and needed, to ensure national public interests are protected in future highway public-private partnerships. The criteria should be crafted to allow the department to play a targeted role in ensuring that national interests are considered in highway public-private partnerships, as appropriate.

Recommendation for Executive Action

  1. Status: Closed - Not Implemented

    Comments: According to DOT officials, the Department does not plan to imitate regulatory action to clarify the methodology for determining excess toll revenue, including the reasonable rate of return to private investors.

    Recommendation: To ensure that future highway public-private partnerships meet federal requirements concerning the use of excess revenues for federally eligible transportation purposes, the Secretary of Transportation should direct the Federal Highway Administrator to clarify federal-aid highway regulations on the methodology for determining excess toll revenue, including the reasonable rate of return to private investors in highway public-private partnerships that involve federal investment.

    Agency Affected: Department of Transportation


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