PPP legislation aims to both protect public agencies and taxpayers while promoting environments that attract private investment in public roadways. While federal legislation has set the stage to make PPPs possible, their desirability is very much dependent upon the legislative setting in individual states. As such, effective state legislation strikes a balance that allows private agents to profit, protects taxpayers, and allows public agencies a reasonable amount of control over public-private projects over time. Legislation thus sets the basis for PPPs and has to be in place before they can go forward. Having carefully crafted legislation in place has been shown to limit problematic projects that require renegotiations or abandonment that can cost taxpayers dearly.
The research finds that the legislative landscape for PPPs varies widely from state to state. In many cases, states are divided in whether they allow or prohibit certain aspects in the PPP process. For example, 13 states have legislation limiting the mode of transportation eligible for PPPs, while 10 states have no restrictions. In many cases, most states take a similar position on legislative specifics. For example, no state prohibits Design-Build projects, nor does any state prevent a public agency from hiring its own consultants or from entering into a long-term lease. Similarly, all states that have statutes requiring application fees, and all existing legislation allows state and federal funding, as well as TIFIA funds, to be used on projects.
In contrast, some provisions have not been widely addressed in legislation at all. For example, only five states-California, Colorado, Delaware, Florida, and Minnesota-address HOT Lane projects (all of which permit them). In addition, there are policies on which most state legislation is congruent, but on which a few states differ. For example, all states with legislation addressing unsolicited proposals allow them, except for Indiana and North Carolina. Nevada, in fact, requires unsolicited proposals. Of the 21 states with legislation regarding local vetoes, only Arizona, Delaware, and Minnesota require that proposals be subject to a local plebiscite. Of twelve states with legislation addressing proposal confidentiality, only Arkansas and California protect confidentiality. Georgia is the only state to disallow the public sector from issuing revenue bonds. Only Mississippi disallows outsourcing of operations and management, and only Arizona and North Carolina require the public to maintain comparable non-toll routes. Only North Carolina and Tennessee require that tolls be removed once the financing debt has been paid. These exceptions to the rule likely reflect each state's general philosophy toward PPPs, which we would characterize as follows:
1. Aggressive (Indiana, Texas, and Virginia),
2. Positive, but cautious (Arkansas and Minnesota), and
3. Wary (Alabama, Missouri, and Tennessee).
That we observe so many examples of individual states going against the grain in promulgating PPP legislation perhaps reflects the current period of experimentation with PPPs. As the experience with PPPs grows over time, it's possible that we will see some convergence in PPP enabling legislation as a consensus on best practices emerges. In the meantime, variety is the rule. For example, requiring non-toll alternatives or the removal of tolls are ways to appease taxpayers. In this report, we have discussed many ways in which states have attempted to use legislation to finance projects through PPPs; some have proven successful, others less so. For example, Virginia's use of the IRS 63-20 ruling allowing states to form non-profits and issue tax-exempt bonds is one method to skirt traditional public financing; it's likely that other states will consider using this ruling to their advantage. By stipulating toll-removal requirements in PPP projects, North Carolina and Tennessee are foreclosing the possibility of generating transportation revenues from tolls in the years ahead. Likewise, the extraordinarily long-term deals, such as a 99-year lease on the Chicago Skyway and a 75-year lease on the Indiana Toll Road, limit the ability of future public officials to negotiate with private firms over the operation of a critical piece of transportation infrastructure. These examples suggest that PPPs offer significant potential benefits to government agencies, but present significant risk and uncertainty as well. As to whether PPPs for highway projects are a good idea, the devil, as they say, is in the details.