President Obama’s announcement Thursday of an executive order that would facilitate public-private partnerships for transportation projects is the latest in a years-long series of efforts to coax more private sector funding for public goods. One benefit these deals offer is a way for politicians to dodge tough choices about how to pay for the transportation network the public uses. But they are no panacea.
That’s the hard lesson Texas is learning, and it’s fueling a populist rebellion against the ambitious plan by Gov. Rick Perry to have largely privately built and administered private toll roads crisscross the state, which would enable him to be true to his small government, anti-tax ideology.
The Texas Tribune recently reported that the state Republican Party, at its convention in June, passed a platform that included a reversal of its past support for Perry’s toll road network and, as the website reports, “particularly the use of public money to subsidize private entities.”
That is a reaction to seeing the dark side of public-private partnerships. The state’s flagship public-private toll road, the Trans-Texas Corridor (State Highway 130), is not meeting usage projections, and the private company that built the road and collects the tolls, Spain-based Cintra, just had its bond rating cut to junk status by Moody’s, raising fears of a default.
In part because of the emerging story in Texas, a hoped-for collaboration between Cintra and the state of North Carolina is in political trouble. The state’s governor, Pat McCrory, backed a plan to have Cintra build and administer toll lanes on a congested stretch of Interstate 77 north of Charlotte. A Republican state legislator, C. Robert Brawley, is leading an effort to halt approval of the project pending a voter referendum on tolling that he is working to get onto the November ballot.
Brawley argues that the state has enough money without relying on tolls to add a lane in each direction along most of what is currently a four-lane stretch of highway. He also raises concerns about being “strapped to a 50-year contract with a private, for-profit company” – and one headquartered outside the United States, to boot.
Another public-private toll road – a 14-mile set of “express lanes” on the Virginia portion of the Capital Beltway outside Washington – got off to a slow start last year. One reason is its automated variable pricing model, in which the cost of using the lanes rises as overall congestion on the Beltway increases – thus allowing tolls that soared over $11 during one recent rush hour, in keeping with the nickname “Lexus lanes.” The lanes are administered by the Australian company Transurban, a multibillion-dollar company that like Cintra manages other toll road projects around the world.
Despite the rocky beginnings for the Beltway toll lanes, Virginia is proceeding with a set of Transurban-managed toll lanes along a stretch of Interstate 95 in the Washington suburbs.
Meanwhile, the president of the American Road and Transportation Builders Association, Peter Ruane, warned attendees of the organization’s “Public Private Partnership (P3) Conference” this week that they should not take for granted support from Congress for public-private partnership funding. P3s, as they are sometimes called by transportation insiders, “are not the chosen one. You’re subject to the same kinds of attacks and criticism that all other programs are. … We’re going to be playing some defense in the coming weeks, in the coming months.”
One of the federal government’s major existing tools for public-private partnerships is the Transportation Infrastructure Finance and Innovation Act (TIFIA). It was one of the few transportation-related programs that received a significant boost two years ago, when Congress last acted on a surface transportation authorization bill. But a senior analyst for the U.S. Public Interest Research Group, Phineas Baxandall, said that changes in the legislation inserted a bias in favor of the kind of private sector toll projects that Cintra and Transurban build their business on, while making it harder for purely public projects, such as urban transit systems, to make a case for funding.
“There are downsides to converting TIFIA into a financing pool for the first applications that show they can generate a profit,” Baxandall warned. These private projects are likely to have public costs that aren’t accounted for – and thus would look more financially favorable. Meanwhile, “projects that include public benefits that can’t be monetized and transferred to creditors will be at a disadvantage. It is a win for the investment banks and law firms that lobbied for these provisions, but a loss for the public interest.”
One reason Gov. Perry in Texas doubled down on private-sector toll roads is his refusal, along with the state’s Republican legislative majority, to raise the state’s gasoline tax. While the federal gasoline tax hasn’t been raised since 1993, Texas hasn’t raised its state tax since 1991, opting instead to cobble together a set of fee increases and revenues from increased tolls. The combination hasn’t enabled the state to keep pace with the needs of a state whose population has increased 30 percent since 1995. What is unfolding in Texas – increased congestion amid underutilized and financially unstable toll roads – is a testimony to what happens in transportation policy when one mixes rigid anti-government ideology with political cowardice.
Department of Transportation Secretary Anthony Foxx said it best this week when he was quoted as saying, “Nothing should be a substitute for adequate public financing.” There is a role for smart public-private partnerships; progressives have long advocated infrastructure banks that would enable private investors to support public projects. The public would benefit from lower borrowing costs while investors would have a source of safe returns. But unless we are prepared for a future in which most of our major roads are profit centers for multinational corporations – where taxes that support public purposes are replaced by tolls that support private gain – there ought to be at least a big flashing yellow “caution” light on the road the Obama administration is widening.