The Public-Private Partnerships
Debate Takes a New Turn
By C. Kenneth Orski
The latest chapter in the continuing debate about the role of public-private partnerships (PPPs) featured some uncharacteristically blunt congressional criticism and some equally pointed rejoinders.
In a May 10 letter sent to governors, state legislators, and state transportation officials, House T&I Committee Chairmen James Oberstar (D-MN) and Highway and Transit Subcommittee chairman Representative Peter DeFazio (D-OR) warned the recipients against "rushing" into public-private partnerships that do not fully protect the public interest. "The Committee will work to undo any state PPP agreements that do not fully protect the public interest and the integrity of the national system." The bluntly-phrased warning stunned people and caused an uproar among state officials and within the transportation community.
The letter was followed on June 4 by a position paper intended to clarify and expand on the points made in the Congressmen's May 10th letter. The paper took the form of a series of recommendations addressed to state transportation agencies and state legislatures. They dealt with such oft-expressed concerns of the two Congressmen as protecting the public from "unreasonably high toll rates and excessive profits;" prohibiting non-compete clauses; avoiding excessively long terms of PPP concessions, providing relief from high tolls to low-income drivers; and prohibiting unsolicited PPP proposals. Although the two lawmakers conceded that "under the right circumstances and conditions, public-private partnerships (PPPs) can lead to more efficient and effective construction, management, operation, and maintenance of transportation facilities," they hastened to add that "where private financing is involved, PPPs can supplement - but not provide a substitute for - public investments in transportation improvements." The paper offered no suggestions as to where the needed additional public funds might come from.
Reaction was quick in coming. "Mr. Oberstar had good intentions, but I disagree with his letter on two major points," said Virginia Secretary Pierce Homer. "First, we need tolling to generate critically needed revenue for transportation. Second, we need tolling to help us manage congestion. There seems to be no recognition by Mr. Oberstar of the need for congestion management, and we will engage him in a debate on this issue."
Others were less restrained in their criticism. Calling the Congressional letter "nothing but Congressional posturing," Indiana's Governor Mitch Daniels expressed doubt that Congress could overturn existing concession agreements. Texas Governor Rick Perry, in a forceful four-page letter, spoke for many fellow governors. "I encourage you to examine the fundamental question of why the states are looking to engage the private sector in the first place. I will tell you that the answer in Texas is that we could no longer wait for anyone else to solve our problems." The Governor went on to question whether an increase in the federal gas tax would address his state's needs. "Forcing it through a system that has no meaningful congestion relief goal, pigeonholes money into inflexible categories, and than dilutes what is left through earmarks, simply does not make sense..." The Governor continued, "It should be clear to you that I am not in favor of sending more of Texas' gas tax dollars to an unfocused federal program...I am not sending my fellow citizens' hard earned money to Washington D.C., to have it redistributed, earmarked and locked into programs that do little to relieve congestion... In the absence of radical changes to the size, scope and dependability of the federal government’s support for the national transportation system, Texas and other states will have no choice but to seek new solutions to their transportation problems, including working with the private sector... My observation of my fellow governors is that they are not making these decisions lightly or haphazardly either. Congress should look to help their efforts, not hinder them."
The National Governors Association weighs in
Ordinarily the National Governors Association (NGA) does not take a public position on statements made by individual congressional lawmakers. The NGA broke that rule to respond to Representatives Oberstar's and DeFazio's May 10 letter. "We believe Congress must work with states to advance our national transportation needs in a way that respects federalism and the states' role as the primary steward of our national transportation network," the NGA stated in a June 15 letter to the two Congressmen. The bipartisan response was signed by NGA chair, Governor Napolitano (D-AZ), NGA Vice Chair, Governor Tim Pawlenty (R-MN), and Governors Dave Heineman (R-NE), and Jennifer Granholm (D-MI), chair and vice chair respectively, of NGA's Economic Development and Commerce Committee.
"Fiscal pressures confronting the nation's transportation system have prompted governors to look beyond traditional funding mechanisms such as bonding and state tolling to help finance and deliver on transportation," the letter continued. "Burgeoning capacity needs and escalating operating and maintenance costs are driving states to pursue innovative financing options to complement traditional financing tools." The letter went on to say," While some governors may choose not to partner with the private sector ... we are concerned that your position on PPP agreements may have already hardened against them, which could make it more difficult for states to use this tool for transportation improvements."
Behind the governors' decision to take the unusual step of responding collectively to the Oberstar/DeFazio letter was a sentiment that the challenge to the principles of federalism must not remain unanswered. Couched in polite terms was an unmistakable message: "Do not meddle in what properly is the states' business. Let us be the judge of what is in our states' best public interest." But by inviting the Congressmen "to engage constructively with the states" in a dialogue how to improve the state-federal partnership, the governors left the door open to less confrontational exchanges.
As Governor Perry and Representative John Mica (R-FL), the committee's ranking member, observed, Congress has failed to come up with adequate resources to help states meet their infrastructure funding needs, so states are moving on their own to fill the vacuum. For many states, this means resorting to tolls to supplement existing sources of transportation revenue and soliciting private sector help to finance future highway capacity. States have come to this conclusion not because they are ideologically committed to "privatization" but because, pragmatically, they view the prospects for significant increases in the fuel tax - both at the state and federal level - as remote in these times of record high fuel prices. (indeed, Connecticut's governor has called for a suspension of the state's 25-cent/gallon tax for the duration of the Summer, and the Texas House of Representatives recently voted 122-19 to defeat any attempt to even index the state gas tax for inflation.) Given these circumstances, the search for alternative funding sources will continue, with tolls and public-private partnerships figuring importantly in the equation - notwithstanding the two Congressmen's skepticism. If there are other ways out of the fiscal quandary, state officials assure us, they will be more than happy to explore them with the Congressional lawmakers.
One of the recommendations in Representatives Oberstar and DeFazio's position paper, entitled "Preserving an Integrated National Surface Transportation System," revealed, perhaps inadvertently, what many observers think is the principal reason for the two Congressmen's negative view of public-private partnerships. The recommendation states that PPPs should be pursued "with vigorous federal oversight." "Unless appropriate planning and public interest protections are incorporated into the procedures of implementing PPPs, these transactions could stimulate and accelerate the devolution of the federal program to the states." This suggests that behind all the lofty sentiments about "preserving the public interest" lies congressional fear of losing control, influence and leverage over the highway program, including the power to earmark funds for local pork barrel projects. For if states, using public-private partnerships, assume a dominant role in funding new highway infrastructure, federal-aid funds and Mr. Oberstar's committee will surely become less relevant.
A recent editorial in the Wall Street Journal reached a similar conclusion: "The biggest problem with the Interstate Highway System today" the editorial stated," is not connecting one city to the next; it's accommodating suburbanites forced to commute to a downtown area in bumper-to-bumper traffic. Hence, PPPs have become an attractive alternative for financing new capacity projects, and that's what worries Mr. Oberstar. If this continues, he knows PPPs will make his committee less relevant in the transportation debate... If local policy makers can involve the private sector in paying for highway projects, there's less incentive to raise taxes to fund new roads. No wonder Mr. Oberstar is against PPPs." ("Road Blockhead," WSJ, June 26, 2007; Page A14)
C. Kenneth Orski is the Editor/Publisher of
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