The history of PPPs in the United States presented in this section comes from various sources including the U.S.DOT PPP "Report to Congress" (2004), the USC Keston Institute study on PPPs (2007), the FHWA PPP Guidebook (2007), and the recent GAO report on PPPs and the public interest (GAO 2000b). Modern PPP agreements are not new in the United States. In 1990, FHWA's Special Experimental Project Number 14 (SEP-14) authorized the use of innovative contracting techniques, including design-build and, as reported by the FHWA PPP Guidebook, 42 states, the District of Columbia, Puerto Rico, and the Virgin Islands have the ability to deliver transportation projects through design-build.
Private sector participation in road development dates back to the 1790s, with the development of the Philadelphia and Lancaster Turnpike in Pennsylvania. The private role in highway development, however, diminished over time. Toll facilities were developed by public turnpike authorities after World War II, mainly in the north and the east of the United States (U.S.DOT 2004). In addition, with the development of the Interstate Highway System and a higher reliance on gas taxes for road development, private sector involvement in highways was mainly through either design contracts between state DOTs and architectural/engineering firms or construction contracts.
In the late 1980s, states began to explore the potential for increased private sector participation in highway development. In Virginia, the Dulles Greenway was authorized by legislation in 1988, and developed under one of the first PPP agreements in the United States. This project was the precursor of the Virginia Public-Private Transportation Act of 1995 (PPTA), one of the first state PPP-enabling legislations. Some of the early PPPs for development of toll roads in the 1990s, such as the Pocahontas Parkway in Virginia and the Southern Connector in South Carolina, included the creation of 63-20 non-profit corporations to issue debt. California enacted PPP legislation in 1989, allowing for four pilot PPP projects. Two, the SR-91 Express Lanes and the South Bay Expressway, were developed under the Build-Transfer-Operate model with private finance.
On the federal side, SEP-14 was created in 1990, allowing states to experiment with innovative contracting options, such as cost-plus-time bidding, lane rental, and the use of warranties for certain project elements. Subsequent transportation acts, such as ISTEA, TEA-21, and SAFETEA-LU created pilot programs and innovative finance tools that added flexibility for implementation of tolling and also encouraged states to pursue private participation in transportation infrastructure.
For example, the Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA) was created to leverage federal resources and stimulate private capital investment by providing credit assistance for large transportation projects. The precursor to the creation of this credit assistance program was the Alameda Corridor. Recent PPPs that have been approved for TIFIA loan assistance include the refinancing and funding of the Pocahontas Parkway (for a future extension), SH130 Segments 5 and 6, SR125, and the I495 Capital Beltway highoccupancy toll (HOT) lanes. Interest in the TIFIA program has increased recently owing to relaxed rules emerging from SAFETEA-LU, coupled with the recent credit crunch that has raised significantly the cost of private debt, making TIFIA credit assistance more attractive.
SAFETEA-LU amended the Internal Revenue Service Code to allow tax-exempt Private Activity Bonds (PAB) for privately developed and operated highway and freight facilities, authorizing up to $15 billion through 2009. As of March 2008, $3.3 billion had been allocated to various projects, including the Port of Miami Tunnel in Florida (availability payment concession) and the I-495 Capital Beltway in Virginia (HOT lane concession), among other projects. FHWA created the Special Experimental Program 15 (SEP-15), which allows for experimentation on new PPP approaches to project delivery, focusing primarily on four major components including contracting, compliance with environmental requirements, right-of-way acquisition, and project finance.
Although many of the toll roads developed in the late 1990s included private participation, some, including the Pocahontas Parkway and Southern Connector, were financed through tax-exempt bonds, TIFIA assistance, and commercial debt, with no equity from the private sector. PPPs in recent years have involved private equity investment in DBFO (e.g., Texas' SH-130 Segments 5 and 6 and Virginia's I-495 Capital Belt-way HOT lanes) and long-term leases (e.g., Chicago Skyway and Indiana Toll Road), and some of the toll roads financed in the 1990s through non-profits have been refinanced in recent years through transfers to private investors (e.g., Pocahontas Parkway and Dulles Greenway, and the Northwest Parkway toll road outside Denver) after failing to meet traffic and revenue projections.