Principles to Ensure Any Deal Protects the Public Interest

Public officials considering privatization proposals must screen those proposals using public interest criteria and also compare the costs and benefits of those proposals with the cost and benefit of public financing and operation. For "green field" deals to build new roads, public officials should specify exactly how private entities might add value, and whether those more limited tasks might be outsourced while retaining broader public control and financing.

Basic public interest principles can protect against bad privatization deals. The following six guidelines can help public officials distinguish a lemon of a privatization deal from one that might provide real value to the public:

•  The public should retain control over decisions about transportation planning and management.

•  The public must receive fair value so future toll revenues won't be sold off at a discount.

•  No deal should last longer than 30 years because of uncertainty over future conditions and because the risks of a bad deal grow exponentially over time.

•  Contracts should require state-of-the-art maintenance and safety standards instead of statewide minimums.

•  There must be complete transparency to ensure proper public vetting of privatization proposals.

•  There must be full accountability in which the legislature must approve the terms of a final deal, not just approve that a deal be negotiated.

Transparency and accountability will force public officials to face difficult questions. Public officials will be less likely to embrace road sell-offs as an "easy out" if they are forced to evaluate the plans against these public interest principles. As the GAO notes, "there is no free money in public-private partnerships."126

Increased transparency can reduce the risk to the public of agreeing to a long-term private toll road deal. Other measures - such as requiring private toll road operators to share a portion of their profits if proceeds exceed anticipated levels - can also safeguard the public from risk.

By challenging privatization proposals to financially outperform what the public sector could produce with the same borrowing and toll increases, privatization proposals can be evaluated more pragmatically. Promised operational efficiencies can be evaluated on their own terms. And ideological claims that assert infrastructure privatization will "unlock the dormant value of public assets," can be understood as little different from taking out a second mortgage on one's home.

If it is established that the public toll road authority or other public special-purpose entities can deliver better financing than private bidders, this still does not mean that public "securitization" of future tolls is a good idea. It should be evaluated the way any bond issuance or other borrowing would be: by judging whether the benefits of upfront investments would outweigh the longer-term finance burden.

Similarly, when considering any potential privatization deal, it is important to spell out exactly where privatization would be expected to generate increased value. Government agencies may lack certain kinds of technical expertise - for example, the capacity to install or manage electronic toll collection systems or implement certain new bridge-building techniques. The government may even have less ability to contain construction costs. Once the specific public shortcomings have been identified, it will be possible to consider whether the government might outsource those activities separately or whether it would be cost efficient for the public sector to build those capacities in-house.

For existing toll roads, there simply are not enough potential efficiency gains for toll concession deals to advance the public interest. It is harder to make overall assessments of potential deals for new road construction through private companies that would claim future toll revenues. There is more potential for upsides, but also far more potential risks for the public. In either case, no private deal should go forward unless the government is certain that the identified benefits can not be purchased separately and that the benefits truly out-weigh the many associated downsides of road privatization.

Finally, the federal government must take a more active role in overseeing all privatization agreements that have national implications. Factors such as interstate commerce must be considered to ensure that we maintain a well-coordinated and logical interstate highway system.