Federal Level

While the federal government in recent years has aggressively promoted road privatization through new regulations, it has done little to develop or disseminate public interest protections for such deals. This has particularly profound consequences when private funding replaces federal grants that would have required public interest safeguards and reviews.

The Bush administration Department of Transportation actively promoted privatization agreements through various policies and practices, including programs that waive federal regulations and grant tax subsidies for privatization projects. For example, the federal government waived regulations for projects in Texas and Oregon that prevent private investors from being involved in a highway project until federally mandated environmental review has been completed. The U.S. Department of Transportation and the Federal High-way Administration have also promoted privatization agreements to state officials through activities such as drafting model legislation and creating a promotional website and newsletter.116

Despite these efforts at promotion, the administration and U.S. DOT did not seek to regulate privatization agreements, even when national interests were affected. When federal funds are used in highway construction, the projects are constrained by numerous federal regulations. These regulations relate to issues such as prevailing wages (Davis-Bacon), assistance for small and minority-owned businesses (disadvantaged business enterprises), environmental review (National Environmental Policy Act), air quality improvement (clean air conformity), environmental mitigation (wetlands), resource conservation (Endangered Species Act), domestic job and industrial base protection (Buy America), and accommodation for the disabled (Americans with Disabilities Act).117 Regulations similarly require that transportation plans be developed in a transparent manner and reflect the collective views of the com-munity.118 However, when federal funds are not used, no federal guidelines exist to regulate the projects. States can even avoid public protections by separating out the specific portions of a project that would not pass federal muster and funding these parts with private fnancing.119

Even when federal funds have been used for private projects, the federal government has avoided active involvement. As the GAO notes, the Federal Highway Administration has yet to develop federal definitions of the "public interest," and officials have failed to provide guidance on identifying and evaluating public interest considerations.120 This creates the potential for national interests, such as interstate commerce issues, to be neglected. For ex-ample, federal officials did not review the terms of the concession agreement for the Indiana Toll Road, even though 60 percent of the traffic on the highway is interstate in nature.121 Such review was not required, according to federal officials, because the federal funds used for the road had been repaid.122 Similarly, because the lease of the Chicago Skyway did not include any new expenditure of federal funds, there was no requirement that the Federal Highway Administration approve the lease. The law did require the FHWA to ensure that the toll rates under the agreement represented a reasonable rate of return. However, because federal officials had no standard definition of a "reasonable rate of return," they deferred to the state's discretion.123

Furthermore, though the federal government has the authority to oversee any project receiving federal aid, it does so only rarely. Following the passage of the Intermodal Surface Transportation Equity Act in 1991, the federal government has increasingly delegated oversight responsibility to state departments of transporta-tion.124 Unfortunately, many states lack the ability to properly oversee projects.

Ultimately, a lack of federal involvement in important transportation projects can be detrimental for interstate transportation. States may agree, for example, to long-term concessions that include non-compete or concession clauses, which may hamper the nation's ability to respond properly to new transportation needs. Additionally, many of the transportation projects being considered include facilities in more than one state, or projects that are located in one area but benefit larger regions. If states act in complete independence of each other, without federal oversight, they are likely to produce an uncoordinated and inefficient transportation system.125 Thus it is essential for the federal government to take a more active role in regulating and overseeing privatization agreements.