U.S. Experience with PPPs

The PPP experience in the United States is relatively limited. The 95 PPP projects account for only about 9 percent of the global total number of projects and 5 percent of their total dollar value.8 The 22-year cumulative value of the projects, $24.3 billion, should be seen in the context of the estimated $281 billion spent annually by the public sector on infrastructure in the United States.9

Mirroring international trends, PPP activity in the United States has been prevalent in water systems and transportation projects. About half of all projects are for water or wastewater treatment facilities. The prevalence of these water projects may reflect a comfort with privatizing water operations stemming from past U.S. local experience with transferring responsibility for construction or operation of water facilities from the primary government to a public authority or separate water board. Despite their number, these projects are worth only $4.6 billion in total. Most of these contracts have a value below $100 million and have shorter contract terms, typically for 20 years or less.

The most valuable contracts tend to be for transportation projects, which represent 70 percent of the total value of U. S. projects. In fact, transportation projects, particularly toll roads and bridges and light rail lines, account for 12 of the largest 20 PPP contracts. All four U.S. rail PPPs make the list of top projects. Three of these are operating in the tri-state area - the Hudson-Bergen Light Rail, the Camden-Trenton River Line, and the JFK Airtrain - and vary in length from 5 to 20 years.

The large toll road projects are linked to recent federal policy changes that have lifted restrictions on the tolling of roads and attempted to leverage private investment in public infrastructure. The 2005 federal transportation act eliminated some federal restrictions for design-build contracts, created pilot programs to allow states to convert free Interstate highways into toll roads, and authorized variable pricing and tolled express lane construction to ease congestion.10 In addition, it offered two forms of financing for transportation infrastructure improvements.

The first was an expansion of eligibility and funding for an existing program (the Transportation Infrastructure Finance and Innovation Act, or TIFIA) that offers secured loans, loan guarantees or supplemental lines of credit to nationally or regionally significant projects.11 For the period from 2005 to 2009, $610 million in such financing has been authorized; this can support more than $2 billion of average annual credit assistance.12 The Central Texas Turnpike, the South Bay Expressway and the Pocahontas Parkway have all received such funding.13

The act also authorized the U.S. Department of Transportation to issue up to $15 billion in private activity bonds (PABs), tax exempt bonds for private projects with a public purpose, for highway and freight transfer facilities. As of January 15, 2008, $3.3 billion of these bonds had been allocated to a total of five projects, including the Miami Port Tunnel, the Missouri Bridge Improvement Project and the Virginia Capital Beltway HOT lanes.14

In other areas of transportation, there has been less activity. Though common in other areas of the world, there are no PPPs for U.S. seaports. Many airports make use of the private sector through management contracts and cooperation with airlines to construct or operate facilities, but PPPs for airport facilities are rare. A few airports, such as Denver International Airport, have entered into PPPs for cargo facilities, and the Port Authority of New York and New Jersey has entered into a partnership for one airport terminal. The City of Chicago recently became the first government to strike a partnership agreement for an airport with a 99-year concession lease of Midway Airport. As of this writing, the deal is pending the approval of the Federal Aviation Administration and the Transportation Security Administration.

Finally, about one-third of all U.S. PPPs are for buildings, mostly prisons, and tend to have a relatively small contract value. The few high-value PPPs for buildings are for a series of buildings or for a new sports stadium or arena.15

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8 Data from International Major Projects Survey, October 2007 edition, published by Public Works Financing. CBC analysis of data excludes contracts characterized as DBs, asset sales, joint development agreements and management contracts. For most projects, values recorded in the database represent project capital costs as estimated in the year the contracts were signed, except for select entries updated by CBC.

9 In 2004 dollars. See Congressional Budget Office Supplemental Tables to "Investing in Infrastructure," Testimony before the Committee on Finance, United States Senate, May 2008.

10 Federal Highway Administration. " Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users or SAFETEA-LU. " Accessed 8 Sept. 2008. Available online at http://www.fhwa.dot.gov/safetealu/index.htm .

11 Federal Highway Administration. " SAFETEA-LU - Fact Sheets: Transportation Infrastructure Finance and Innovation Act. " Accessed 8 Sept. 2008. Available online at http://www.fhwa.dot.gov/safetealu/factsheets/tifia.htm .

12 Transportation Infrastructure Finance. " Fact Sheet: Transportation Infrastructure Finance and Innovation Act. " U.S. Department of Transportation. Accessed 8 September 2008. Available online at http://tifia.fhwa.dot.gov/about/background/docs/tifia_prog_fact_sheet.pdf .

13 Transportation Infrastructure Finance. "TIFIA Approved Projects." U.S. Department of Transportation. Accessed 8 September 2008. Available online at http://tifia.fhwa.dot.gov/projects/approved.cfm.

14 Federal Highway Administration. "Private Activity Bonds - Public-Private Partnerships - FHWA." Accessed 11 August 2008. Available online at http://www.fhwa.dot.gov/ppp/private_activity_bonds.htm.

15 The two new baseball stadiums in New York City do not conform to the model of a PPP applied here. The old stadiums were built and owned by the City of New York, and they were leased to the teams in exchange for rental payments. The City is responsible for maintenance, but credit is given to the teams for expenditures they make for maintenance. In contrast, the new stadiums will not be owned by the City; they are being built and will be maintained and controlled by the teams. Financing for the facilities is provided largely through tax exempt bonds issued by the City's Industrial Development Authority with debt service covered through payments in lieu of taxes from the teams. The City leases the land on which the stadiums are being built to the IDA, which then leases it to the teams, and the City is making investments in related infrastructure such as roads and parking lots to promote access to the stadiums.