News | August 12, 2015

Word on the Street: The promise and perils of public-private partnerships

SELC’s Land and Community Program tackles the growth challenges and decisions shaping the Southeast. This series of posts runs every other week and highlights the broader issues driving this work—transportation and land use developments, alternatives, and progress in our region.

At SELC we’ve been keeping a close eye on the growing number of public-private partnerships, or P3s, used to deliver major highway projects in the Southeast. This approach is increasingly popular with politicians and transportation agencies facing challenging fiscal times. But states’ experiences, and a closer examination, reveal that P3s can generate their own set of problems.

In the most common form of P3s to date, a private company or team of companies negotiates to provide cash up front to build a new toll road in exchange for all or a portion of the revenues for decades to come. This often leaves people thinking of P3s as a new source of revenue for transportation projects – private dollars filling in the gap in public funds. Yet, the reality typically has been that the private sector puts up relatively little money, with taxpayer-subsidized loans and state funds covering most project costs, while states surrender the ability to recoup those expenditures through toll revenues.

Too often P3s may be used to short-circuit important aspects of transportation project planning and approval. And agreements often include provisions that benefit private companies at the public’s expense, such as “non-compete” clauses. These prevent states from building other beneficial improvements that might draw drivers away from the toll roads and thereby decrease the private companies’ profit.

Just this year, Virginia had to cancel a hastily-approved P3 contract to build an unnecessary and environmentally damaging highway parallel to Route 460 in southeast Virginia. The deal was able to escape some of the scrutiny that would have otherwise applied, and taxpayers are out over $260 million as a result.

All this is not to say P3s cannot work. In Virginia, P3s have been successful overall in delivering important projects like the High-Occupancy Toll (HOT) lanes on I-495 and I-95 near D.C. But the bumpy track record led the governor and legislature to revise Virginia’s P3 statute earlier this year. SELC helped ensure several provisions were included in the reforms that will better protect taxpayers and make it harder to use P3s to build destructive and unnecessary projects. Some key aspects of successful P3s include:

  • A transparent process that facilitates informed public input
  • A thorough environmental review and an independent cost-benefit analysis before bidding a project
  • Regulation of toll increases and revenue sharing
  • Restrictions on the use of non-compete provisions.

As more Southeastern states consider the risks and rewards of P3s, SELC will continue emphasizing the importance of making sure that agreements put public interests and sound environmental management first.  

Read Senior Attorney Trip Pollard’s recent piece for the Brookings Institution on P3s. Pollard leads SELC’s Land & Community Program.

Read previous Word on the Street posts: