It often takes more than 13 years to advance a major project from concept to completion.129 The New York Times recently highlighted this problem by reporting that a project to widen a congestion-burdened bridge in New Haven, Connecticut, will take 14 years to complete and that after six years of work the first pilings for the bridge improvements have yet to be sunk.130 Project delays increase overall costs and project sponsors are forced to either spend more money to complete the project or to abandon the project. Delays are only made worse by the precipitous increase in construction costs that the United States has experienced over the last few years. From 2003 to 2006, the Federal Highway Administration Bid Price Index increased 47.7 percent and the Bureau of Labor Statistics bridge and highway producer price index increased 35.3 percent, in each case more than 3 times greater than the largest increase over any other 3-year span since 1990. During the same period, CPI increased by only 9.6 percent and the producer price index for all commodities increased by 19.3 percent.131 In this cost environment speed of delivery is critical. The total cost of the Louisville/Southern Indiana Ohio River Bridges Project, for example, increased from approximately $2.5 billion in 2003 to $4.1 billion in 2007, in large part because the costs of construction increased from approximately $2.0 billion to $3.6 billion during this time period.
While lengthy development cycles are caused by multiple factors, not just funding gaps, PPPs can help accelerate project delivery. As noted in Section III, the efficiencies created by combining multiple project elements in one private partner accelerate project delivery. PPPs can also speed up a project by providing upfront capital to cover all of a project's costs. Fuel taxes and other traditional sources of revenue are spent on a pay as you go basis as they are collected and allocated. This process can cause delays if funds aren't available as needed. Tax-exempt government debt allows the public sector to borrow the full cost of a project upfront, but states and local entities typically have limited capacity to issue debt and can only leverage so many projects at one time. PPPs enable the private sector to issue project debt and assume the financing risks, which allows the public sector to reap the benefits of a leveraged project without burdening its balance sheets.
The problem of lengthy project schedules is especially acute for large, expensive projects that will require several years to complete even if all of the funding is available upfront. These projects can be difficult to finance with public debt because they chew up too much of the public sector's debt capacity. These projects are also difficult to undertake on a pay as you go basis because of concerns about cost and schedule overruns. While the private sector can help make these projects viable by providing upfront capital and assuming the debt, the private sector also facilitates these projects by assuming the risk of cost and schedule overruns. Outside of certain circumstances (such as design changes requested by the public agency) the private sector typically assumes the risks of cost and schedule overruns in a PPP. Price and schedule predictability gives the public sector comfort that it will not need to contribute more funding to an expensive project that is experiencing cost overruns or delays, and also allows the public sector to use other resources more effectively.
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129 Evaluating the Performance of Environmental Streamlining: Development of a NEPA Baseline for Measuring Continuous Performance, Federal Highway Administration, 5.1 Conclusions. According to this study prepared for FHWA, in a sample of projects over the course of 30 years the mean length of time it took to get a road from planning stages to completion was 13.1 years.
130 Private Cash Sets Agenda for Urban Infrastructure, The New York Times, January 6, 2008, by Louis Uchitelle.
131 Growth in Highway Construction and Maintenance Costs, Federal Highway Administration, Report Number CR-2007-079, September 26, 2007, Figure 5. See also, the GAO Congestion Report, pg. 8, which states that rising diesel and asphalt prices have caused the significant increase in the price of construction materials over the last few years.