Specifying party with rate-setting control.

In principle, taking into account that operating environment and future demand significantly vary for different facilities, the toll rate should be negotiated and determined in a contract for each case. Most of the existing PPP agreements actually include rate of return caps to ensure that the private firms do not gain too much profit at the expense of roadway maintenance, construction quality, or reasonable user fees (Iseki, Uchida, and Taylor Under review). Agreements typically require any profits beyond the cap to be returned to the state highway fund (Federal Highway Administration 1992). Only when the state government has a concern regarding the capability of a public entity in charge of this negotiation and procurement of services should it specify the maximum rate. Alternatively, the state government can also set the maximum rate for profit for contractors in order to avoid the public's resistance toward PPP projects. At the same time, these maximum rates should not be so low that they discourage private firms from bidding for projects.

These agreements should also authorize the PPP project to utilize many different types of toll collection, from traditional tollbooths to video-based collection processes. In six states, the public entity directly controls the toll rate that can be collected. Fifteen other states provide for

the rate to be set by contract, and some of these also provide for a maximum rate of toll increase. In Minnesota, one of the fifteen allowing the agreement to determine toll increases, by statute a toll facility development agreement must establish a reasonable rate of return on investment, which essentially requires that toll increases be built into an agreement. In Florida, toll rates must be indexed to the Consumer Price Index or another inflation-based index and private entities can request to increase the rates by more (Florida Department of Transportation 2008).9

The public and private partners should have the ability to agree to a sensible rate of return in a PPP agreement, weighing the public interest in having a stable toll rate against the financial interests of the private entities. At the same time, these agreements must be carefully crafted, as embedded toll increases in Illinois and Indiana projects have led to windfall profits for leaseholders (AECOM Consult 2007). Another provision in these laws might provide for actions to take in the event of windfall profits caused by high facility demand.

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9 http://www.dot.state.fl.us/publicinformationoffice/pdf/2008%20Final%20Summary%20vetoes.pdf (Last accessed on June 19, 2009.)