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april 2009 U r b a n La n D 37

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38 U r b a n
UL April 09 AFeature 4-2.indd 38
In public/private partnerships in transportation, the
private sector extends its role beyond its traditional
involvement as a designer or contractor. In its emerg-
ing use, a PPP is defined as a private entity taking a
large ownership or concession stake in a public proj-
ect, thus accepting responsibility and financial liability
for all or a significant portion of its construction and/
or operation. The terms public/private partnership and
privatization are sometimes used interchangeably, but
privatization technically occurs only when the sale or
transfer of an asset is involved.
For private firms, the main benefit of a transporta-
tion PPP is its steady, long-term investment return.
For governments, the main benefit is usually a large
upfront payment by the private partner that can be
used for other pressing transportation needs. In
exchange, the government or public agency gives
up control over some ongoing revenues for decades.
Because these deals require revenue streams, trans-
portation PPPs in the United States have focused
primarily on highway toll roads.
A couple of high-profile deals in 2005 and 2006
ignited renewed interest in PPPs. First, a consortium of
Spanish and Australian road developers paid Chicago
$1.8 billion in a concession agreement to operate and
maintain the 7.8-mile (12.8-km) Chicago Skyway toll
road for 99 years. The same private consortium paid
Indiana $3.8 billion for control of the 157-mile (253-
km) Indiana Toll Road for 75 years. Since then, there
has been a flurry of deals. In the past year alone, PPP
transactions have included the following:
l Texas’s first closed deal—a 50-year concession
worth $1.3 billion for a new state Highway 130
between San Antonio and Austin, a project that is
expected to be begin construction this summer.
l Florida’s first major PPP—a 35-year design/build/
operate agreement worth $1.8 billion for new toll
lanes on Interstate 595 in Broward County, home of
Fort Lauderdale.
l Another historic Chicago deal—a $2.5 billion,
99-year lease of Midway Airport, making it the first
major U.S. airport to be privately run.
In all, the DOT identified 33 PPP deals that were
developed, underway, or completed between Janu-
ary 2005 and May 2008. That compares with a total
of six projects during the previous 15 years, 1989
to 2004, according to a compilation by the Govern-
La N D april 2009
ment Accountability Office (GAO). This growth trend
is expected to accelerate. Public Works Financing,
a New Jersey–based newsletter that tracks public/
private partnerships, last fall tallied 53 road projects
in the United States worth $82 billion being planned
or considered for private participation.
According to these reports, Virginia, Texas, Flor-
ida, and Georgia are the most active states in pursu-
ing PPPs, while projects are also moving forward in
California, Maryland, Mississippi, and South Carolina.
In addition, several more states have begun to show
interest in PPPs. The North Carolina Turnpike Author-
ity turned to a foreign firm to construct and operate a
new toll bridge, and separate Michigan and New York
transportation funding commissions have recom-
mended exploring PPPs. “Budget gaps are starting to
increase the viability of public/private partnerships,”
former U.S. transportation secretary Norman Mineta
told the New York Times last August; Mineta is now
a senior adviser for such deals at the Credit Suisse
investment firm. These investments firms are more
interested in doing such deals now, too. In January, a
coalition of private equity firms such as Merrill Lynch,
UBS, and Credit Suisse reported that $180 billion in
private capital was now dedicated and available for
U.S. infrastructure projects.
However, some PPP plans have been scrapped
in recent months, victimized by the credit crunch
and a political backlash against private control of
public assets. Florida delayed a deadline for inves-
tor proposals to lease the existing State Road 84
toll road because of the global financial uncertainty,
according to a state transportation department press
release. Missouri’s attempt to use private contractors
for bridge repairs fell through for a similar reason—
higher-than-expected borrowing costs. Missouri is
going ahead with bridge repair bonding on its own,
at a cost close to $25 million per year less than the
private sector deal.
Meanwhile, political and public relations concerns
over PPPs led state lawmakers in Texas, Georgia,
and Pennsylvania to cancel agreements with private
firms. Pennsylvania legislators refused to endorse a
$12.8 billion, 75-year lease of the Pennsylvania Turn-
pike because it amounted to “selling one of our most
valuable assets for a bargain-basement price,” in
the words of state Representative Joseph Markosek.
4/3/09 10:05:26 AM
 Infrastructure
Ventures

Texas switched the development of state Highway
121 toll road in the Dallas–Fort Worth area from a
private consortium to a public toll agency. Texas also
put a temporary moratorium on new PPPs, then ear-
lier this year scrapped the entire concept of a Trans-
Texas Corridor, a 4,000-mile (6,400-km) network
of roadways, railways, and utility rights-of-way that
would have included PPP-developed highways.
Nevertheless, PPPs have proved to be the pre-
ferred method of highway construction in other
parts of the world. According to Public Works
Financing, between 1985 and fall 2008, Europe
funded $136 billion of road and rail PPPs—almost
ten times more than was funded in the United
States. Even Latin America funded more transporta-
tion PPPs than did the United States during that
period. Overall, annual PPP road investments out-
side the United States reached a record $15 billion
chicagoskyway.org
in 2007, according to the World Bank’s Private Par- A consortium of Spanish
and Australian road
ticipation in Infrastructure Projects Database.
developers paid Chicago
Over time, the U.S. government has become $1.8 billion in a concession
more receptive to private investment in highways. agreement in 2005 to
For instance, a federal program called Special Experi- operate and maintain the
Chicago Skyway, a 7.8-mile
mental Project 15 (SEP-15) gives PPPs the advantage (12.8-km) toll road. Soon
of a streamlined federal review for projects involving after taking control of
federal roads such as interstate highways. Also, the the skyway, the private
concession company
Federal Highway Administration recently created a new invested in electronic
Office of Innovative Program Delivery to help states tolling technologies to
explore alternative financing opportunities like PPPs. improve mobility and
reduce labor costs.
The federal government and states are finding
that PPPs provide many benefits. Among them are
the following:
l Large upfront payments. Payments of $1 billion or
more can help offset the multibillion-dollar shortfalls
that states increasingly have in their road construc-
tion and maintenance plans. PPPs not only provide

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Public/private partnership
deals involve potential
tradeoffs for governments,
such as the long-term loss of
control over a public asset.
In the case of the lease
agreement between Indiana
and private partners in 2006
governing the 157-mile (252-
km) Indiana Toll Road, a
75-year agreement, there is
a provision that prevents the
state from building another
long highway within ten
miles (16 km) of the toll road.
40 U r b a n La N D april 2009
UL April 09 AFeature 4-2.indd 40
Indiana Toll Road
Indiana Toll Road
a way to build roads, but also offer a way to fund
future road projects. Indiana used the proceeds from
the sale of its toll road to fund the state’s ten-year
transportation plan, becoming the only state to fully
fund its long-range transportation plan. “If priority
projects can be completed with private funds, then
the agency’s limited public funds can be allocated to
important projects that are not as attractive to private
investors,” Malcolm Kerley and Thomas Pelnik of
the Virginia Department of Transportation wrote in a
transportation trends magazine Transportation Point,
published by HNTB Cos., an architecture/engineer-
ing/design firm in Kansas City, Missouri.
l Quicker and more efficient project development.
State government highway projects typically go
through a years-long process of being prioritized,
budgeted, and finally awarded. Private participation
can speed up that process. For instance, Florida
officials estimate that using the private sector for its
I-595 toll road will get the project completed in one-
third the time. “We’re getting it done in five years,”
Florida DOT project manager Joseph Borello told the
Miami Herald last fall. “If we had to do it the tradi-
tional way, it would take us 15 to 20 years.” In addi-
tion, studies in Australia and the U.K. have shown
that private involvement significantly improves the
time and cost efficiency of new road construction.
l Transfer of future cost obligations. This element
encompasses such issues as construction cost
overruns, maintenance and modernization needs,
and uncertainties of long-term toll revenues. When
reviewing the benefits of PPPs last year, the GAO
determined that shifting the construction cost risk
to the private sector was “especially important and
valuable, given the incidence of cost and schedule
overruns on public projects.” In addition, while gov-
ernments traditionally have not kept up with infra-
structure maintenance, it is believed that the private
sector can better afford the necessary improvements.
Soon after taking control of the Chicago Skyway, for
instance, the private concession company invested
in electronic tolling technologies to improve mobility
and reduce labor costs. The city had not been willing
to make that same investment.
However, as the GAO has also pointed out, there
is no such thing as “free money” in public/private
partnerships; such deals involve potential tradeoffs
for governments. Among these is the long-term loss
of control over a public asset, sometimes stretch-
ing 75 to 99 years—a loss that can even include
infrastructure development rights. For instance, the
Indiana Toll Road agreement includes a provision
that prevents the state from building another long
highway within ten miles (16 km) of the toll road. In
addition, participation of foreigners in U.S. PPP deals
has raised some political fears. Florida state Sena-
tor Dave Aronberg, for one, announced in a press
release last fall that he intends to fight the state’s
attempt to lease the State Road 84 toll road because
“the state is allowing private, foreign-financed com-
panies to take control over our roads.”
A second tradeoff is potentially higher tolls for the
driving public. Some PPP deals cap toll rate increases
for the first decade or more of private operation. But it
is expected that tolls will increase more under private
operation than they would under public agency con-
trol, because agencies traditionally have been slow to
4/3/09 10:05:31 AM

raise fees. Chicago, for instance, shunned increasing
tolls on the Chicago Skyway even when it was operat-
ing at a loss, according to the GAO.
Overall, though, transportation PPPs are considered
win-win deals for the public and private sectors. For
the private sector, profits are generally not realized in
the first ten to 15 years of concession agreements,
the GAO reported, but after that, the return is con-
sidered high. For the U.S. public sector, PPPs are
becoming an increasingly popular alternative to rais-
ing taxes or tapping strapped budget resources for
transportation projects. PPPs provide large upfront
payments that can be used for other pressing trans-
portation needs while also releasing a government
from future maintenance expenses.
But while the U.S. Department of Transportation
during the Bush Administration encouraged the
development of public/private partnerships, some
powerful congressional Democrats—notably Min-
nesota Representative James Oberstar, chairman of
the House Transportation and Infrastructure Com-
UL April 09 AFeature 4-2.indd 41
Infrastructure
Ventures
Florida Department of Transportation
mittee, and Oregon Representative Peter DeFazio, Florida’s first major public/
chairman of that committee’s Highways and Transit private partnership is a
35-year design/build/
Subcommittee—have cautioned that PPPs may not operate agreement worth
adequately protect public interests if deals drive up $1.8 billion for new toll
tolls. But new Transportation Secretary Ray LaHood lanes on Interstate 595 in
Broward County.
has signaled his support for PPPs as one funding
alternative to raising the federal gasoline tax. This
year, Congress will wrestle with these divergent gov-
ernment views as it crafts a new transportation fund-
ing bill with new rules for funding toll roads. UL
Jeffrey Sp ivak is a senior research analyst for HNTB Cos. in
Kansas City, Missouri, which works with states such as Texas on
public/private partnerships in transportation.
Infrastructure 2009: Pivot Point is available at www.uli.org/
bookstore, or call 800-321-5011.
april 2009 U r b a n La n D 41
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