There are various other state law restrictions that can impact the ability of state and local highway authorities to engage in PPP transactions. Some states (including Maryland and South Carolina) do not allow specific legislative authority for mixing public and private funds on a highway project.160 This type of uncertainty is a significant constraint on large or complex projects that may require funding from a range of sources. To increase the chances of privately financing all or part of a particular PPP project on favorable terms, state and local governments need to enact legislation that explicitly permits the public project sponsor to transfer or lend public monies to private-sector participants upon reasonable terms and conditions. Even if a jurisdiction prohibits the transfer of such public monies to a private-sector entity, the jurisdiction could allow the public monies to be used as a form of credit enhancement for the private sector (thus allowing the private sector to obtain financing at a lower overall rate). In recognition of this potential limitation arising out of state law, the USDOT Model Legislation specifically provides that federal, state, local, and private funds may be combined to finance a transportation facility. Several states (including Florida,161 Georgia,162 Oregon,163 Texas,164 and Virginia165) specifically permit federal, state, and local funds to be combined with private-sector funds on a transportation PPP project. However, it remains a state prerogative whether such mixing will be permitted.
In addition to potential uncertainty about mixing public- and private-sector financing, there are often state law restrictions on whether existing or partially constructed highways may be converted into toll roads. Such restrictions reduce the ability of state and local highway officials to implement innovative financing arrangements involving the private sector. In some jurisdictions, the conversion from toll-free to tolled status is permissible if the highway project will increase capacity.166 However, several states (including Georgia,167 Minnesota,168 North Carolina,169 Texas,170 and Virginia171) explicitly permit the conversion of existing or partially constructed state highways into toll roads. The USDOT Model Legislation specifically provides that a public- private agreement "may include the imposition and collection of user fees and the development or use of other revenue sources."172 This provision, standing alone, does not necessarily provide for tolling of toll-free state highways if other existing legislation precludes such action.
In some cases, a state or local jurisdiction may seek to require the removal of tolls after the complete repayment of project debt. The North Carolina legislation requires the North Carolina Turnpike Authority to remove tolls after all project debt has been repaid. Although this approach will be popular with the users of the facility, it imposes a limitation on the public-sector sponsor's ability to use excess revenues to fund other transportation projects. The Florida Turnpike Enterprise, which was established by a statute enacted in 1953 and is run like a private-sector business within FDOT, has used excess tolling revenues to develop additional highway projects.173
Another controversial issue is whether the public sector's revenues from a long-term concession arrangement should be dedicated to certain specific transportation purposes (such as transit improvements in the same corridor as the highway project) or should be available to the general fund. The Chicago Skyway and Indiana Toll Road transactions involved different approaches on this issue. The City of Chicago used its $1.83 billion lump-sum payment for nontransportation purposes. However, the State of Indiana limited the use of its $3 billion lump-sum payment to specific transportation purposes. In some circumstances, it may be helpful if the PPP enabling legislation specifies the permitted uses of the up-front revenue from a concession arrangement. Several states (including Florida,174 Indiana,175 North Carolina,176 Oregon,177 Texas,178 and Utah179) have enacted restrictions that prevent PPP project revenues from being diverted to the state general fund or for other unrelated uses.
In some cases, the provisions of a state's constitution can have a dramatic effect on the ability to structure a PPP transaction. In some states, legislation may be necessary to make it clear that highway and other public assets can be owned, leased, or controlled by private-sector entities pursuant to arrangements with the appropriate public authorities.
The State of Missouri had to deal with such a limitation as part of its analysis of an interstate toll bridge project. In Pohl v. State Highway Commission,180 the Missouri Supreme Court held that toll roads that are not owned and operated by the Missouri Highways and Transportation Commission (MHTC) are not contemplated as part of the state highway system, and, as a result, MHTC is prohibited from expending any of its constitutionally dedicated State Road Fund moneys on such roads. As a result of this decision, the Missouri General Assembly had to enact legislation181 that requires that ownership of the interstate toll bridge project authorized in the bill be vested in MHTC and the State of Illinois (or some other suitable public body of Illinois). The bill authorizes a lease of the facility to the private partner, but does not allow ownership to transfer out of public control.
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160 See Md. Transp. Code §§ 4-205 and 4-312. Maryland has very general authority to enter into transportation PPP agreements, supported by a Maryland Attorney General opinion that the Maryland Transportation Authority (MTA) has the authority to construct toll roads using certain forms of PPPs. See also KCI Technologies, Inc., Current Practices in Public-Private Partnerships for Highways, 2005, draft available at http://www.mdta.state.md.us/mdta/servlet/dispatchServlet?url =/About/currentpractise.pdf (Maryland Study). The South Carolina legislative body has passed a resolution for a study committee to determine the feasibility of public-private partnerships to maintain its roads and bridges. 2008 S.C. Acts 406, 2007 S.C.S.B. 1182, 2007 S.C.R. 313. See Public-Private Pacts on South Carolina Roads Considered: State Officials Look for a New Source for Maintaining Roads and Bridges, Roads & Bridges, Oct. 2, 2008, available at http://www.roadsbridges.com/Public-private-pacts-on-South-Carolina-roads-considered-newsPiece16768.
161 See Fla. Stat. Ann. §§ 334.30(7), 334.30(1)(B), 339.55.
162 Ga. Code. Ann. §§ 32-2-78-32-2-80.
163 Or. Rev. Stat. §§ 383.001-383.019.
164 Tex. Transp. Code Ann. chs. 91, 222, 223, 227, 228, 366, 370.
165 Va. Code Ann. §§ 56-556-56-575.
166 See Diana Burbules, Tx. DOT Considers Hwy 6 Toll Roads, The Battalion, Sept. 12, 2006, available at http://media.www.thebatt.com/media/storage/paper657/news/2006/09/12/News/College.Station.Txdot.Consider.Hwy.6.Toll.Roads-2267292.shtml?sourcedomain=www.thebatt.com?MIIHost=media.collegepublisher.com.
167 Ga. Code Ann. §§ 32-2-78-32-2-80.
168 Minn. Stat. Ann. §§ 65-43-1-65-43-13.
169 N.C. Gen. Stat. §§ 136-89, 180-136-89, 198.
170 Tex. Transp. Code Ann. chs. 91, 222, 223, 227, 228, 366, 370.
171 Va. Code Ann. §§ 56-556-56-575.
172 USDOT Model Legislation at § 1-104(b), available at http://www.apta.com/about/committees/public_private/documents/legis_model.pdf.
173 Fla. Stat. Ann. §§ 338.22-338.251.
174 Id.
175 Ind. Code §§ 8-15; 8-15.5, 8-15.7, 8-23-7-22-25.
176 N.C. Gen. Stat. §§ 136-89, 180-136-89, 198.
177 Or. Rev. Stat. §§ 383.001-383.019.
178 Tex. Transp. Code Ann. chs. 91, 222, 223, 227, 228, 366, 370.
179 Utah Code Ann. §§ 63-56-502.5; 72-6-118, 72-6-201-206.
180 431 S.W.2d 99 (Mo. 1968).
181 Mo. Code § 227.600.2(10).