LegiStorm

Summary:

Public private partnerships (P3s) in transportation are contractual relationships typically between a state or local government, who are the owners of most transportation infrastructure, and a private company. P3s provide a mechanism for greater private-sector participation in all phases of the development, operation, and financing of transportation projects. Although there are many different forms P3s can take, this report focuses on the two types of agreements that generate the most interest and discussion: (1) design-build-finance-operate-maintain (DBFOM); and (2) longterm lease. P3s have emerged, in part, because of the growing demands on the transportation system and constraints on public resources. To date, however, the number of transportation P3s in the United States is relatively small, as is the amount of long-term private financing provided. Among the reasons for this are the availability to state and local governments of tax-preferred municipal bonds; the need for some kind of revenue stream, such as a toll, fare, or tax, to provide funding; and the fact that many states have very limited experience with P3s. Most transportation P3s to date have been in highways or marine cargo terminals; only a few have involved public transportation, intercity passenger rail, or airports. There are three main potential benefits of P3s: (1) P3s are a way to attract private capital to invest in transportation infrastructure; (2) P3s may be able to build and operate transportation facilities more efficiently than the public sector through better management and innovation in construction, maintenance, and operation; and (3) the public sector can transfer to the private-sector partner many of the risks of building, maintaining, and operating transportation infrastructure. Concerns with P3s include the types of projects involved, the risks retained by the public sector, and transportation planning. P3s that are reliant on tolls or other user fees are unlikely to address transportation issues in rural areas or on lightly traveled routes. However, P3s in these areas may be viable if based on state and local government availability payments. Although some risks are typically transferred to the private sector in a P3, the public sector may retain significant risk. P3s may have longer-term effects on the transportation system because they influence decisions about what to build and where, and can limit what other projects the government can pursue. The federal government exerts influence over the prevalence and structure of P3s through its transportation programs, funding, and regulatory oversight, but is usually not a party to a P3 agreement. The current federal role in P3s includes project loans through the Transportation Infrastructure Finance and Innovation Act (TIFIA) Program, the authorization of private activity bonds (PABs), certain tax provisions such as depreciation schedules, state infrastructure banks, and the provision of technical advice through the U.S. Department of Transportation (DOT). Limiting the formation of P3s would predominantly entail restricting federal benefits to such projects. Two broad policy options for expanding use of P3s would be to actively encourage P3s with program incentives, but with regulatory controls to protect the public interest, or to aggressively encourage the use of P3s through program incentives and deregulation. This report discusses several possible issues and policy options that Congress may want to consider. These include P3 project evaluation and transparency, asset recycling, incentive grants, a national infrastructure bank, equity investment tax credits, and deregulation of Interstate highway tolling. The report also discusses changes to the existing TIFIA and PABs programs.