• Public-Private Partnerships are a significant tool to help address the state's large and growing highway funding gaps. It is extremely important to keep the PPP option open to both TxDOT and local toll agencies alike.
The simple fact is that due to our growing infrastructure funding requirements, Texas cannot afford to be without every funding option going forward. Texas should not seek to limit any particular financing method, but instead should retain the maximum flexibility possible - preserving the option to use the best matched and most cost effective method.
The recent chaotic financial environment makes maintaining such flexibility even more important, given the uncertainty and the limitations of traditional financing options. Numerous well established infrastructure investment funds and engineering providers will able to bring both financial strength and a solid track record for quality construction and performance, providing qualified expertise and an important source of additional capital for Texas highways.
• Texas can draw on the wealth of experience gained by other jurisdictions, and should create a centralized entity (examples such as Partnerships Victoria or Partnerships BC) to provide technical and process expertise to TxDOT, MPOs and RMAs/Toll Authorities.
Though private capital offers important advantages, the public sector needs to ensure that when partnering with private enterprises, it has strong oversight and contractual controls that clearly spell out performance requirements, incentives and penalties, as well as defining significant parameters - such as allowable toll rate increases and the target rate of return on the private sector's investment.
To achieve this objective, Texas should establish a foundational independent structure and resource for managing PPPs. This will not only protect the public interest, but will also serve as a repository of knowledge, experience and best practices that RMAs or local toll authorities can draw upon to better manage their own projects.
• Texas should replace the current Market Valuation process of SB792 with the Public Sector Comparator model and process - with the focus on establishing the threshold level of value for private participants to meet or exceed.
Unlike the current Market Valuation process - the focus of which has been on generating the maximum up-front payment to apply to a region's other transportation projects, the Public Sector Comparator (PSC) model offers a simple test: does the private investment proposal offer better value for money in comparison to the most efficient form of public procurement? In addition, the PSC model seeks to normalize, to the extent possible, some of the inherent differences between public and private procurement.
The mechanics and process of conducting a PSC analysis are well established in other jurisdictions and do not vary in any meaningful way across the developed world. Texas can thus draw upon a wealth of experience gained by others to set up a PSC model here.
• Revenue sharing is the best way to limit a private company's potential windfall profits, and should replace upfront concession payments.
The focus on upfront concession payments distorts the various parties' incentives and can not only cause public sector attention to be focused excessively on the short term, but also increase the overall risk of a project's failure by burdening the project with additional debt not related to the construction of the highway itself.
The better approach - and a conclusion drawn by other jurisdictions with longer experience managing PPPs - is to implement revenue sharing provisions over the life of the contract to align incentives, ensuring the long-term performance and success of the project.