Beyond dedicated PPP units, states have different agencies procuring projects through a PPP framework. As shown in Table 1, three states have dedicated PPP units and four others have offices in charge of PPPs in their departments of transportation. Others have tolling authorities contracting and implementing the state PPP road projects. Further, some transit agencies have the authority to bundle design, construction, finance, operations and maintenance into a single contract without special enabling legislation. For example, New Jersey Transit concluded its contracts based on the agency's existing authority, not through state legislation.94
These state agencies face numerous barriers in developing PPP projects: institutional, legislative, political, and financial.
First and foremost, there is little expertise with respect to PPPs in most state agencies, legislatures and the public. Often, state legislatures and executive bodies look at PPPs only from diametrically opposed two points of view: as a funding source, to plug in budget holes or as asset striping of the state. PPPs should instead be considered a risk and revenue sharing arrangement between the public and private sector in developing a project. Further, PPPs are a business for the private entity; there-fore it should be expected that the private entity seeks out profit from the PPP venture.
Many state agencies do not have the institutional mindset and the organizational framework to pursue PPPs. They will need to change their procurement culture towards a more transparent and outcome-based selection of projects.95 The PPP process, with its Value for Money evaluation and the estimation of the Public Sector Comparator is part of this new type of procurement. While state transportation agencies have well-developed engineering teams, they often lack the financial expertise, which is essential for developing PPP projects. Internal policies and project prioritization should reflect this outcome-based procurement system.
Existing statutes or regulations may preclude state agencies from fully developing the PPP potential of their projects. State fiscal rules may not be fully applicable for PPP projects which are often more complex than projects purchased through traditional procurement. While designed to support PPPs, PPP statutes are not necessarily enabling PPP contracts. Sometimes, PPP legislation may become the largest hindrance to the development of PPP projects. Minnesota is a case in point. The state has had PPP legislation since mid 1990s, which allows a private entity to partner with a transportation authority to develop, finance, design, construct, improve, rehabilitate, own and/or operate toll facilities.96 In 2008, in the wake of the long term leases of Chicago Skyway and Indiana Toll Road, the Minnesota legislation passed a new PPP statute that limits severely private involvement in toll facilities, the object of the existing PPP legislation.97 As a result, new PPP-enabling legislation would be required for any significant PPP road project to take place in Minnesota.98
The absence of state PPP legislation hampers the ability to function of dedicated PPP units. While both California and Virginia have PPP enabling legislation, Michigan lacks a PPP statute. Without PPP legislation, Michigan Department of Transportation cannot procure projects through the PPP process.99 Therefore, the ability of the state to fulfill its functions in the transportation sector is limited.
Support from the legislature and governor's office is essential in developing PPPs. Given all the controversies around PPPs and the lack of education of policymakers on the subject of PPPs, state agencies need to provide well-developed business cases for the projects proposed for procurement through PPPs. A governor's support alone is not sufficient; legislatures are indispensable, because they authorize and appropriate the state's transportation funding, including funds that would go towards PPPs.
States need to better connect with the lower levels of government to ensure a broader understanding of the benefits and drawbacks of PPP projects. As seen from the example of the failed Minnesota Trunk Highway 212 project, local governments can have a major role in the approval of a PPP. In addition, most of the current transportation PPP projects are in large metropolitan areas. While states have the capacity to develop PPP projects, these projects happen in the jurisdiction of cities and counties.
Finally, states often lack the funding to participate in a PPP project. Any PPP project, with private financing or not, requires a revenue source for paying the private partner. This may take the form of availability payments, pass-through tolls, regular tolls, local or federal funding, or fees from land value capture. Each has its benefits and drawbacks. For example, availability payments are a solution when it is not feasible to introduce user fees and the state is willing to provide general funding over several years. However, availability payments are a long term public subsidy, obligating a certain part of the state budget over a certain period of time.
With all the barriers ahead, states should learn from other states' experiences with building PPP capacity. Best practices can be transferred through connections with public officials in cities and states that have numerous experiences with PPP projects, and hold the bulk of future potential for PPPs. Some states have managed to develop a significant number or amount of PPP projects, such as Texas and Florida, others have created very supportive PPP legislation, such as Arizona; and several like Virginia, Michigan and California created their own PPP units. Creating better coordination among these states and others that are in the initial learning stages will pass on lessons across different regions.
Other states should start incrementally by educating policy makers about PPPs and building support around this new type of procurement. For example, the Minnesota Department of Transportation, together with the University of Minnesota's Humphrey School created a P3 taskforce in 2011. It consists of approximately 30 high level stakeholders, including legislators, local elected officials, transportation executives, union, business and environmental representatives. The goal is to build understanding and support for PPPs among the group, and to develop shared principles to guide future PPP legislation, evaluation and implementation. This taskforce approach is modeled after a successful 2004 taskforce created to evaluate the conversion of the first High Occupancy Vehicle lane in Minnesota into a High Occupancy Toll lane facility.100 Since 2008, the National Conference of State Legislatures (NCSL) Working Group on Transportation PPPs has undertaken education efforts and created guiding principles for state legislatures to use when considering PPPs for transportation.101