Although all construction projects are required to obtain environmental permits under State and Federal laws, environmental clearance constitutes a particular barrier to public-private partnerships.[255] Substantial time and financial resources are required to obtain the proper clearances and permits.[256] Much of this cost occurs during the financially volatile early stages of a project.[257] Uncertainties abound about how many permits are required, whether the private franchise must meet the varying requirements of numerous overlapping jurisdictions, and whether other State or Federal agencies may exert jurisdiction unexpectedly.[258]
The risk to private highway projects is greater because these private projects have no revenues until operations begin and usually cannot access the State's revenue flow from highway fees.[259] Environmental risk drives up the required rate of return, adding to the difficulty in securing financing.[260] There is substantial risk of failing to obtain environmental permits resulting in a loss of the entire investment.[261] State, local, or Federal agencies may veto the project on environmental grounds, after the private sector has expended large sums and extensive time for detailed environmental studies.[262] Judicial challenges to the NEPA process and other environmental requirements, the risk of injunction, and new application of law imposing added requirements also present significant barriers.[263]
The SR 125 South project in San Diego, California, is an example of how the environmental process can cause significant delays in the development of a public-private partnership project. Although the California Department of Transportation (Caltrans) and California Transportation Ventures entered into a partnership agreement in 1989, challenges from environmental interests delayed the start of construction on the project until July 2003.[264] It was not until March 2003 that litigation challenging the final record of decision on the environmental impact statement for the project was resolved in favor of Caltrans.[265]
This road was primarily designed to serve planned development in the Chula Vista area of southern California, and anticipated traffic needs due, at least in part, to the close proximity of a major border crossing point with Mexico. Opposition to the SR 125 South project came from local opponents of the planned development, public agencies concerned with increased urban sprawl, and concern about loss of wildlife habitat. The road developer was subject to repeated delays as these issues, many of which were also related to the surrounding development, were debated and resolved. Actions by the developer to protect additional habitat and make design modifications did much to move the project along. Nevertheless, the delays were expensive and ultimately were a significant contributing factor to a major restructuring of the investor interests before the project could proceed to construction.
To alleviate the uncertainty, the public sector could obtain the project's environmental permits before substantial private equity has been put at risk.[266] Some in the private sector suggest that the environmental barrier could be obviated or reduced by having the public sector assume the full responsibility, cost, and risk of securing environmental permits.[267] Once environmentally cleared, the private developer, as a condition of being awarded that project, would reimburse the State for all costs incurred in obtaining the permits.[268] In other words, the governmental costs are treated as a contingent loan and repaid with project revenues.[269] Alternatively, the public partner could reimburse the private partner for costs incurred for obtaining environmental permits, prior to the issuance of a record of decision (ROD). The environmental process, however, is not merely an analysis and documentation exercise. It is a phased decisionmaking process along the path of which key decisions must be made about the project. These decisions have significant impacts on costs, usage, and financial return. Thus, it is problematic to attempt to completely distance environmental review and decisionmaking from the interests of those with a financial stake in the process.