In 2005, Congress authorized FTA to establish the Public-Private  Partnership Pilot Program to demonstrate (1) the advantages and  disadvantages of transit projects that use alternative approaches for new  fixed-guideway capital projects and (2) how FTA’s New Starts program  can be modified or streamlined for these alternative approaches. The  pilot program allows FTA to study projects that incorporate greater  private sector involvement through alternative project delivery and  financing approaches; integrate a sharing of project risk; and streamline  design, construction, and operations and maintenance. FTA can designate  up to three project sponsors for the pilot program. Private Sector Roles in the Delivery and Financing of U.S. Project sponsors we interviewed cited a  range of potential benefits, such as achieving cost and time savings, as  well as potential advantages to the public sector, such as increased  financing flexibility (see table 3). By transferring these project risks, the project  sponsor creates incentives for the private sector to keep the project on  schedule and on budget as, for example, the private sector would be  responsible for any excess costs incurred from design errors. FTA New Starts Project Approval Process Is a Barrier to a Greater Private Sector Role in Transit

While we have previously identified FTA’s New Starts grant program— which funds new, large-scale transit projects—as a model for other federal  transportation programs because of its use of a rigorous and systematic  evaluation process to distinguish among proposed investments, the New  Starts project approval process is not entirely compatible with transit  projects that use alternative approaches in that the process is sequential  and phased with approvals granted separately and at certain decision  points. While it may be too early for FTA to grant major streamlining  modifications with the other two pilot projects, FTA still has the ability as  part of its pilot program to further experiment with the use of existing  tools that could encourage a greater private sector role while continuing to  balance the need to protect the public interest. In addition to not yet granting project sponsors any major streamlining  modifications to the New Starts process, FTA does not have an evaluation  plan to accurately and reliably assess the pilot program’s results, including  the effect of its efforts to streamline the New Starts projects for pilot  project sponsors. Although Limited in the United States, Some Other Countries Further Protect the Public Interest by Providing Guidance and Technical Assistance

Some countries have further protected the public interest in transit  projects that use alternative approaches by establishing quasi- governmental entities to assist project sponsors in implementing these  arrangements. Project sponsors are looking to transit projects that use alternative  approaches to deliver and finance new transit projects, along with federal  funds. Quasi- governmental entities established by foreign governments have better  equipped project sponsors to implement alternative approaches, including  public-private partnerships, by creating a uniform method to considering  the implications of alternative approaches, reducing transaction costs,  ensuring consistency in contracts, and serving as a repository of  institutional knowledge. In particular,  we focused on (1) the role of the private sector in the delivering and  financing of U.S. transit projects compared with other countries; (2) the  benefits and limitations of and the barriers, if any, to greater private sector  involvement in transit projects and how these barriers are addressed in the  Department of Transportation’s (DOT) Public-Private Partnership Pilot  Program; and (3) how project sponsors and DOT can protect the public  interest in transit projects that use alternative approaches.
Why GAO Did This Study

As demand for transit and competition for available federal funding increases, transit project sponsors are increasingly looking to alternative approaches, such as public-private partnerships, to deliver and finance new, large-scale public transit projects more quickly and at reduced costs. GAO reviewed (1) the role of the private sector in U.S. public transit projects as compared to international projects; (2) the benefits and limitations of and barriers, if any, to greater private sector involvement in transit projects and how these barriers are addressed in the Department of Transportation's (DOT) pilot program; and (3) how project sponsors and DOT can protect the public interest when these approaches are used. GAO reviewed regulations, studies, and contracts and interviewed U.S., Canadian, and United Kingdom officials (identified by experts in the use of these approaches).

What GAO Found

In the United States, the private sector role in delivering and financing transit projects through alternative approaches, such as public-private partnerships, has been more limited than in international projects. The private sector role in U.S. projects has focused more on how they are delivered rather than how they are financed, while the private sector role in international projects has focused on both project delivery and financing. Since 2000, seven new large- scale construction projects funded through FTA's Fixed Guideway Capital Investment Program--New Starts program--have been completed using one of two alternative project delivery approaches, and none of these projects included private sector financing. In 2005, Congress authorized FTA to establish a pilot program to demonstrate the advantages and disadvantages of these alternative approaches and how the New Starts Program could better allow for them. Alternative approaches can offer potential benefits such as a greater likelihood of completing projects on time and on budget, but also involve limitations such as less project sponsor control over operations. The sequential and phased New Starts process is a barrier because it is incompatible with alternative approaches and thus does not allow for work to be completed concurrently, which can lead to delays and increased costs. Under its pilot program, FTA can grant major streamlining modifications to the New Starts process for up to three project sponsors, but has not yet granted any such modifications because FTA has found that none of the projects has transferred enough risk, in particular financial responsibilities, to the private sector. FTA has the ability within its pilot program to further experiment with the use of long-standing existing tools that could encourage a greater private sector role while continuing to balance the need to protect the public interest. This includes forms of conditional funding approvals used by other DOT agencies and international governments. FTA also lacks an evaluation plan to accurately and reliably assess the pilot program's results, including the effect of its efforts to streamline the New Starts process for pilot project sponsors. Without such a plan, agencies and Congress will be limited in their decision making regarding the pilot program. Transit project sponsors protect the public interest in alternative approaches through, for example, the use of performance standards and financial assessments to evaluate the costs and benefits of proposed approaches. Other governments have established entities to assist project sponsors in protecting the public interest. These entities have better equipped project sponsors to implement alternative approaches by creating a uniform approach to developing project agreements and serving as a repository of institutional knowledge. DOT can serve as a valuable resource for transit project sponsors by broadening its current efforts, including providing technical assistance and encouraging the use of additional financial assessments, among other measures.