Highway Public-Private Partnerships Have Been Used to Provide New Infrastructure and Funding for Transportation and Other Needs and Have the Potential to Provide Other Benefits

Highway public-private partnerships have resulted in advantages from the  perspective of state and local governments, such as the construction of  new facilities without the use of public funding and extracting value—in  the form of up-front payments—from existing facilities for reinvestment in  transportation and other public programs. Tolling can also potentially lead to targeted, rational, and efficient  investment decisions. Finally, the private sector can potentially benefit through gains achieved in  refinancing their investments. Potential Financial Costs and Trade-offs

Although highway public-private partnerships can be used to obtain  financing for highway infrastructure without the use of public sector  funding, there is no “free money” in highway public-private partnerships. Though concession agreements can limit the  extent to which a concessionaire can raise tolls, it is likely that tolls will  increase on a privately operated highway to a greater extent than they  would on a publicly run toll road. However, also as discussed earlier, there are costs  and trade-offs involved, including loss of public-sector control of toll  setting and potentially more expensive project costs than publicly  procured projects. Highway Public-Private Partnerships We Reviewed Have Used Concession Terms to Protect the Public Interest

The highway public-private partnerships we reviewed have used various  mechanisms to protect the public interest by holding concessionaires to  requirements related to such things as performance of an asset, financial  aspects of agreements, the public sector’s ability to remain accountable as  a provider of public goods and services, workforce protections, and  concession oversight. Evolution of tools has occurred in other countries as well. Change in public interest evaluation  tools has also occurred elsewhere. Use of Formal Public Interest Processes and Tools in the United States Are More Limited

We found a more limited use of systematic, formal processes and  approaches to the identification and assessment of public interest issues in  the United States. This lack of consideration of local and  regional interests and concerns led to opposition by local and regional  governments. As a result, given the minimal federal funding in highway  public-private partnerships we reviewed, little consideration has been  given to potential national public interests in these partnerships. A fundamental  reexamination of federal surface transportation programs, including the  highway program, presents the opportunity to address emerging needs,  test the relevance of existing policies, and modernize programs for the  twenty-first century. DOT stated that  many federal and state laws govern how transportation projects are  selected and delivered, including highway public-private partnerships, and  that the draft report did not explain why highway projects delivered  through public-private partnerships pose additional challenges to  protecting the public interest, or why there should be a greater interest in  such projects than in highways built and operated by state and local  governments. In particular, we focused  on (1) the benefits, costs, and trade-offs associated with highway public- private partnerships; (2) how public officials have identified, evaluated,  and acted to protect the public interest in public-private partnership  arrangements; and (3) the federal role in highway public-private  partnerships and potential changes needed in this role. Discussions with FHWA included clarifying how it  determines such things as reasonable rates of return on highway projects  where there is private investment and the use of proceeds when there is  federal investment in a highway facility that is leased to the private sector.
Why GAO Did This Study

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.

What GAO Found

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.