Despite the historical roots of these limitations, the federal government has taken a number of steps over the last 15 years that can facilitate the use of PPPs in the highway sector. In 1991, Congress enacted the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA).100 Section 1012 of ISTEA authorized the use of federal funds allocated to the states from the Highway Trust Fund to be commingled with private funds for purposes of highway development and construction. In addition, with the enactment of new toll exceptions in Section 1012, ISTEA authorized the use of such allocated federal funds to repay debt from the construction of new toll roads (if authorized by federal law).101 These changes gave state governments more flexibility in arranging financing for their highway projects.
ISTEA also established the first significant exceptions to the general prohibition against using federal funds on Interstate toll facilities. Specifically, Congress established a congestion Pricing Pilot102 that provides grant funds and other support for the costs of implementing up to 15 variable pricing pilot programs to manage congestion on highways (which could include tolls on Interstate highways). The Congress established a Congestion Pricing Pilot103 that, as later amended, provides grant funds and other support for the costs of implementing up to 15 variable pricing pilot programs to manage congestion on highways (which could include tolls on Interstate highways). These changes offered further flexibility to state highway officials responsible for maintaining the National Highway System and alleviating capacity constraints.
Congress further facilitated the potential use of PPPs by enacting federal highway legislation in 1998 as part of the Transportation Equity Act for the 21st Century (TEA-21).104 TEA-21 provided specific statutory authority for states to use D/B contracting on federal-aid highway projects up to certain dollar thresholds and upon FHWA's issuance of a final rule describing the approval criteria and procedures for using D/B ap-proaches.105 Section 1307 of TEA-21 defined qualified D/B projects as those with estimated total costs of over $5 million for intelligent transportation system (ITS) projects and over $50 million for other federal-aid highway projects.
Most recently, with the enactment of SAFETEA-LU in August 2005,106 Congress created or amended a number of statutory provisions in an effort to further facilitate PPPs through the use of innovative contracting or innovative financing techniques. SAFETEA-LU eliminated the dollar thresholds on D/B contracting that were established in TEA-21. Thus, any federal-aid highway project (regardless of estimated total costs) is now potentially eligible for D/B contracting under the FHWA regulations. Moreover, Section 1503 of SAFETEA-LU required FHWA to issue a rulemaking that allows states to issue requests for proposals (RFPs), award D/B contracts, and issue notices-to-proceed for preliminary design work prior to the conclusion of the NEPA process. Section 1503 did not, however, amend the existing prohibition against D/B contractors undertaking final design work or construction prior to completion of the NEPA process. The rationale for this restriction is that final design or construction work on a particular alignment cannot start until the locally preferred alternative has been approved under the NEPA process.
FHWA issued a notice of proposed rulemaking to implement the Section 1503 statutory requirement on May 5, 2006.107 FHWA's final rule on D/B contracting expands the types of preliminary design activities that D/B contractors may undertake prior to the completion of the NEPA environmental review process for highway projects, as required by SAFETEA-LU Section 1503, and amends definitions of "preliminary design" and "final design" that many commentators believed were too restrictive in the proposed rule.108
In the final rule, FHWA specifies that "preliminary design defines the general project location and design concepts" and may include a range of activities including environmental assessments, topographic surveys, geotechnical investigations, utility engineering, traffic studies, financial plans, revenue estimates, and other work needed to establish parameters for final design. All such preliminary engineering and other activities and analysis which "do not materially affect the objective consideration of alternatives in the NEPA process" are permitted prior to the completion of the NEPA process under the FHWA final rule. Under the final rule, "final design" is defined as "any design activities following preliminary design and expressly includes the preparation of final construction plans and detailed specifications for the performance of construction work."109
In contrast to the proposed rule, the FHWA final rule does not include any requirement for FHWA to approve the issuance of a request for qualifications (RFQ), although federal law still requires the contracting agency to obtain FHWA authorization before proceeding with preliminary design. The FHWA final rule also provides that a D/B contractor may finance the preparation of NEPA documents but the contractor and its team members may not have any decision-making responsibility in the NEPA process. This is designed to safeguard the objectivity of the alternatives analysis after the environmental review is complete. In addition, the FHWA final rule states that FHWA plans to consider whether a separate rulemaking proceeding should be implemented with respect to PPP procurement requirements.
Through SAFETEA-LU, Congress also continued efforts to create pilot and demonstration programs under which states can obtain specific authority to use tolling and variable pricing on federal-aid Interstate highways. SAFETEA-LU amended 23 U.S.C. § 166 to permit the conversion of HOV lanes into HOT lanes. Section 1604(b) of SAFETEA-LU created the Express Lanes Demonstration Program, which will allow up to 15 demonstration projects through 2009 to involve tolling to manage high levels of congestion, reduce emissions, or finance added Interstate lanes for purposes of reducing congestion. A state, public authority, or private entity designated by a state may apply for participation in the program, and eligible toll facilities include existing toll facilities, existing HOV facilities, and newly created toll lanes (including facilities and lanes on the Inter-state system). Automatic toll collection is required, and tolls charged on HOV facilities must use variable pricing.
Section 1604(c) of SAFETEA-LU also created the Interstate System Construction Toll Pilot Program, pursuant to which FHWA may authorize a state or a compact of states to collect tolls for the purpose of constructing new Interstate highways. The pilot pro-gram is limited to three projects, and public authorities are prohibited under the program from entering into a noncompete agreement with the private sector that would preclude the improvement of adjacent public roads to accommodate diverted traffic. Section 1604(a) of SAFETEA-LU also amended and modified the Congestion Pricing Pilot established in ISTEA by renaming it the Value Pricing Pilot Program and authorizing up to $59 million in available funds through 2009 to sup-port the implementation of the 15 variable pricing pilot programs.
There are now at least four different tolling and pricing programs administered by FHWA for the Federal-Aid Highway Program. The nongrant programs were advertised for participation in the Federal Register notice dated January 6, 2006.110 The Value Pricing Pilot Program was advertised for fiscal year (FY) 2007-2009 participation on December 22, 2006.111 Eligibility for these various programs depends on the type of route (Interstate vs. non-Interstate), HOV lane status, past and current federal funding, and other factors. FHWA has a Tolling and Pricing Team that assists state and local highway agencies in matching proposed projects to the appropriate program. The availability of these various programs gives state and local highway officials additional flexibility and greater opportunities to use tolling and other strategies in connection with the private construction, operation, and maintenance of high-way facilities.
In addition to these legislative changes, the USDOT has undertaken a number of initiatives as part of a comprehensive plan to help state and local governments reduce transportation congestion. The National Strategy to Reduce Congestion on America's Transportation Network (often referred to as the "Congestion Initiative")112 includes several programs (including the Urban Partnership Program) that are designed in part to re-move barriers to private-sector participation in the development and operation of transportation infrastructure.113 Under the Urban Partnership Program, FHWA recently entered into agreements to provide funding available under the Value Pricing Program and an ITS grant program to five major metropolitan areas (Miami, Minneapolis, New York City, San Francisco, and Seattle) that have proposed to use some form of variable pricing to mitigate road congestion.114 Many of these proposals involve collaboration with the private sector on financing and implementing these variable pricing strategies. In January of 2007, USDOT issued model PPP legislation (USDOT Model Legislation) that is designed to provide a template for states interested in contracting with the private sector to invest in and manage transportation projects.115 The model legislation should be of interest to both states that have not yet enacted such PPP legislation and to states that are looking to expand their authority to implement PPP transactions in the transportation sector. The model legislation provides sample provisions dealing with many of the frequent legal requirements to transportation PPP projects arising out of state or local law, including several of the issues discussed in this report. Based on existing provisions in various state statutes, the sample provisions provide a "starting point" for states to consider as they explore ways to "reduce or remove barriers to private-sector investment in transportation infrastructure."116
In addition to FHWA initiatives discussed above, other modal administrations within USDOT have actively sought to encourage joint public-private development of public transportation facilities as a result of both legislative and administrative directives. These joint development laws allow the investment of private-sector funds and possibly grant money from other DOT agencies in highway facilities through various programs. Many state and local transportation agencies may see such joint development initiatives as a way for the public to capture or leverage the value of transportation improvements by giving developers access to adjacent land or other rights that will increase in value as a result of the improvement.
The Federal Transit Administration (FTA) administers a "joint development" program that encourages joint public-private investment in improvements (including residential or commercial developments) that enhance the effectiveness of a mass transit project, provided the private developer pays its reasonable share of the cost of the joint development improvement and all of the costs of any revenue-producing facility not related to mass transportation.117 Such joint development laws have facilitated projects involving park and ride lots, day-care centers, and other improvements that enhance access to public transit facilities. In a similar fashion, federal airport development laws encourage the development of revenue-producing facilities at airports, provided that the revenues are dedicated to operation and improvement of the airport.118
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100 Pub. L. No. 102-240, 105 Stat. 1914 (Jan. 3, 1991). See,e.g., § 1012.
101 23 U.S.C. § 122.
102 Section 1012(b), as later amended.
103 Section 1216(b) of the Transportation Equity Act for the 21st Century (TEA-21), 112 Pub. L. No. 178, 112 Stat. 107(1998).
104 Pub. L. No. 105-178, 112 Sat. 107 (June 9, 1998).
105 FHWA issued a final rule authorizing design-build contracting in Dec. 2002 (see 67 Fed. Reg. *75901, Dec. 10, 2002).This design-build contracting rule was recently amended following SAFETEA-LU, and its current requirements are discussed further below.
106 109 Pub. L. No. 59, 119 Stat. 1144 (2005).
107 Proposed Rule: Design-Build Contracting, 71 Fed. Reg.30,100, and final rule released on Aug. 14, 2007 (Final Rule:Design-Build Contracting, 72 Fed. Reg. 72,156).
108 Id.
109 Id.
110 See FHWA, SAFETEA-LU Opportunities for State and Other Qualifying Agencies to Gain Authority to Toll Facilities Constructed Using Federal Funds, 71 Fed. Reg. 965 (Jan. 6, 2006).
111 See FHWA, Value Pricing Pilot Program Participation,Fiscal Years 2007-2009, 71 Fed. Reg. 77084 (Dec. 22, 2006).
112 Statement of Norman Y. Mineta, U.S. Secretary of Transportation, May 2006, published on TRB Web site, available at http://www.joc.com/Whitepapers/DOT_Congestion_Plan051606. pdf.
113 See Statement of James D. Ray, Chief Counsel and Acting Deputy Administrator of FHWA, Before the House Subcommittee on Highways and Transit (Apr. 17, 2007).
114 See an overview of the program available at http://www.upa.dot.gov/.
115 The USDOT Model Legislation can be found at http://www.apta.com/about/committees/public_private/documents/legis_model.pdf.
116 "DOT Provides Model Legislation for Private-Sector Involvement in Transportation," USDOT Press Release 4-07 (Jan. 8, 2007).
117 See 49 U.S.C. § 5302(a)(1)(G).
118 See 49 U.S.C. § 47101(a).