Memorandum

Between 2004 and 2006, two toll roads built in the 1950's-a 157-mile road in Indiana and a shorter road in Illinois known as the Chicago Skyway-were leased to Cintra/Macquaire, a private consortium. These leases were established through unique financing mechanisms known as Public Private Partnerships (PPPs). Under these agreements, Cintra/Macquarie made multibillion dollar payments to the State of Indiana and the City of Chicago, and obtained control of the Indiana Toll Road and the Chicago Skyway for 75 and 99 years, respectively.

In general, PPPs create contractual arrangements between public agencies and private companies, and lead to greater private-sector participation in the financing and delivery of public projects than traditional public financing arrangements. These arrangements have spurred debate among stakeholders. Some question whether PPPs serve the public interest, while others point to PPPs as a means to address the nation's infrastructure funding problems. In February 2009, the National Surface Transportation Infrastructure Financing Commission reported that the nation's surface transportation system is in "physical and financial crisis" due to shortfalls in Government infrastructure spending, and estimated that the annual average shortfall, or funding gap, from 2008-2035 would be approximately $138 billion.¹

This report presents the results of our financial analyses of transportation-related PPPs. Our objectives were to: (1) identify financial disadvantages to the public sector of PPP transactions compared to more traditional public financing methods; (2) identify factors that allow the public sector to derive financial value from PPP transactions; and (3) assess the extent to which PPPs can close the infrastructure funding gap.

To conduct our analyses, we worked with a team of contractors led by Charles River Associates International and financial consultants, Scott Balice Strategies. We based our analyses on representative examples of projects that illustrate features of typical transportation infrastructure projects. We patterned these examples after, but did not exactly replicate, seven proposed or implemented PPP highway projects-six in the United States and one in Europe. We compared the cost of financing our example projects through PPPs and traditional financing. We conducted our analysis from the perspective of a state or local government decision maker selecting a financing alternative However, our analyses did not consider the impacts of factors such as risk sharing arrangements or the ability of the private sector to deliver a project more expeditiously, which can be significant, and are necessary to arrive at an effective financing decision. We also developed a flowchart of our analysis for decision makers to consider in choosing between PPP financing and traditional financing. Exhibit A describes our scope and methodology in more detail.

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1 This represents the total funding necessary to both maintain and improve the highway and transit systems, expressed in 2008 dollars, under the Commission's baseline revenue forecast.