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May 22, 2007

Federal Interference in State Highway Public-Private

Partnerships Is Unwarranted
A Response to Oberstar and DeFazio

by Robert W. Poole, Jr. and advanced - Texas, Georgia and Virginia knowledge on this topic than resides in
Peter Samuel - now have a carefully evolved legislative Congress, do not need warnings or threats
and regulatory framework for PPPs and from Washington, D.C.

R ep. James Oberstar (D-MN) and Rep. considerable expertise based on experi-
Peter DeFazio (D-OR), chairmen of ence in handling them.
the top transportation committees of the
Oberstar and DeFazio also threaten
that their committee will “work to undo”
Other states like Illinois, New Jer- any state public-private partnership
U.S. House of Representatives, recently sey, and Pennsylvania are newer to the agreements which they judge deficient.
sent a misleading and most unhelpful process, but they are approaching it in This is an outrageous threat and abuse of
letter to state governors, legislators and the same deliberative fashion, hiring power.
public officials. In their May 10 missive, expertise where it isn’t available in-house, Federal legislators’ role is to legislate,
Oberstar and DeFazio “strongly discour- learning from the experience of others, not to attempt to undo state contracts
age” states from entering into public-pri- seeking legislative support, and analyz- legitimately entered into. If there are
vate partnerships “that are not in the long ing how concession agreements can be disputes over contracts, the courts will
term public interest.” detailed in order to protect the public adjudicate them, though concession con-
State officials do not need to be interest. tracts have carefully crafted provisions for
warned by U.S. congressmen against In every state and in every project, con- negotiation, conciliation, and arbitration
signing agreements that are not in the cession companies have to pass an initial before litigation. Congressional com-
public interest. State officials make their screening that weeds out those lacking mittees have no business interfering in
own judgments of what agreements are adequate financial backing or experi- contracts entered into by state authorities.
in the best interests of their publics. In ence. Unsolicited proposals are subject to The chairmen express various specific
all the recent transportation public-pri- competitive bids. Proposals are assessed concerns about toll concessions in gen-
vate partnership agreements of which by panels of experts, and final selections eral, concerns that on detailed examina-
we are aware, the state and local officials are subject to negotiation on every last tion have little grounding in reality. One
concerned have followed a rigorous ap- detail. Agreements are only finalized after major complaint they have is that private
proval process and been advised by both top officials have signed off. concessions “threaten to undermine
in-house and outside experts, specialist the integrity of the national (highway)

attorneys and financial analysts. he Oberstar-DeFazio letter is system.”
The letter repeatedly alleges states are purely negative and complete- Except in national parks, national for-
in a “rush” to sign public-private partner- ly overlooks the benefits of public- ests, on Indian reservations, and on mili-
ship deals. There is no rush. The states private partnership concessions.” tary bases, the federal government has
have each taken time to consider and pass never been directly involved in planning
public-private partnership legislation, The only “rush” here is Oberstar and or managing highways. The Interstate
moving carefully to make amendments DeFazio’s misguided rush to condemn system and the National Highway System
where problems have arisen. For example, this useful, vital infrastructure tool. have always been under diverse control of
Texas is currently updating its public-pri- States with collectively many more years the 50 state DOTs, metropolitan planning
vate partnership law to address taxpayer of close involvement in the public-pri- organizations, counties, cities, public toll
concerns. The states that are furthest vate partnership process, and far more
Continued on back page
authorities, bi-state agencies, and a few Oberstar and DeFazio also claim that ter is purely negative and completely
private facilities. The federal role has only public-private partnerships that overlooks the benefits of public-private
been limited to overall network plan- immediately provide new capacity are partnership concessions:
ning, setting standards, and providing in the public interest. This is quite a n Providing access to large new pools

partial funding. Interconnections be- turnaround for self-styled progressives. of capital, at a time of huge highway
tween states have been managed through Not long ago their mantra was that “we funding shortfalls;
ad-hoc bilateral arrangements, corridor can’t build our way out of congestion” n Bringing true business management
associations, and other avenues of give and should just use our existing high- into toll roads in place of political ap-
and take. There is no detailed central ways more efficiently. Now they appar- pointees;
planning as assumed by the chairmen’s ently dismiss the benefits of businesslike n Making use of value pricing for traffic
notion of a national system under threat. management to use the existing road-
management to prevent overloading
Public-private partnerships fit easily ways more efficiently (e.g., with value
of facilities and a breakdown in traffic
into the existing ad-hoc framework, just pricing) in favor of the test of how much
as state toll authority roads have done new capacity they add. In truth both are
n Insulating road pricing from short-
for over 50 years. Concessionaires have needed, but the mix of more efficient
term political expediency and allow-
a strong self-interest in cooperating to management and extra capacity will vary
ing prices to be set at realistic levels
provide connectivity since the more con- from project to project.
reflecting underlying costs and the
nections they have with the larger road

“P ublic-private partnerships value of free-flow travel.

system, the more toll-paying traffic they
will have. certainly offer states, taxpay- The chairmen offer no alternative
The letter also targets so-called non- ers, and commuters a lot more than to public-private partnerships. The
compete clauses, which it claims will two congressmen butting into state revenues from traditional fuel taxes,
prevent capacity additions and safety business.” licensing, and registration fees are fully
improvements. Only one concession committed to maintenance and minor
agreement - for California’s 91 Express Existing toll roads may not need improvements to the existing free sys-
Lanes (written in 1991) - banned extra much additional capacity at first, but tem. Concessions offer access to tens and
capacity. That provision was drafted at concessions can still be a good idea. By ultimately hundreds of billions of dollars
a time when environmentalists wanted, keeping tolls in line with inflation, they to finance much-needed improvements
and got, promises that additional ensure proper maintenance and repair to our highway system.
roadways would not be added. The 91 and additions of the latest technology. The federal government should be
Express Lanes non-compete clause was Concession agreements can provide trying to help states improve mobility
a mistake, as all subsequently realized. congestion trigger points that require the for their citizens and keep local and
Since then there has never been a ban companies to make capacity additions. state economies growing. Instead of
on adding capacity to parallel free routes The Indiana Toll Road concession is a threatening to “undo” much-needed state
near toll roads. Some concession agree- model in this regard. It requires immedi- projects, Oberstar and DeFazio would
ments contain provisions for compensa- ate lane additions in the busiest stretch be well-served to ask states, “How can
tion for toll revenues lost if free capacity plus a deadline for electronic toll collec- we help?” Public-private partnerships
is expanded beyond an amount agreed tion implementation, promising major certainly offer states, taxpayers, and com-
to in the concession – and if the private improvements in travel times and safety. muters a lot more than two congressman
companies can prove the new roads are For the longer term it requires capacity butting into state business.
causing financial losses. This is usually a additions so as to maintain a minimum n Robert Poole is director of trans-

sensible measure to reduce uncertainty Level of Service C in rural stretches and portation studies at Reason Founda-
in selling toll revenue bonds and to Level of Service D in urban stretches. tion, where he has advised the last
improve the value of concession bids, It is foolish to judge concessions solely four presidential administrations.
though obviously there are matters of by how much extra pavement they lay n Peter Samuel is a senior fellow

judgment in the trade-offs. This much down, when other measures such as at Reason Foundation and publisher
is clear: states do not need, or want, removal of bottlenecks or interchange of
one-size-fits-all policy on non-compete ramps or toll plaza automation may be n Reason’s transportation re-

compensation imposed by the federal more cost effective in the near term. search and commentary is available
government. In short, the Oberstar-DeFazio let- at