PPPs establish contractual arrangements between a public agency and a private entity. However, each agreement may assign responsibility and allocate risk differently. A PPP may assign the private sector responsibility for the design and construction of a highway link or only require the private sector to operate and maintain the link. Risks that may require allocation include potential construction cost overruns and insufficient toll receipts to pay for operations and maintenance (O&M). Contracts under which the private sector assumes responsibility for both the design and construction of a transportation facility, often along with the risk of associated cost overruns, have become fairly common in the U.S. Apart from these contracts, at least 30 surface transportation PPPs have been negotiated in the U.S. in the last decade.
States and localities currently fund over 55 percent of the investments in surface transportation infrastructure, either by constructing facilities on their own or by providing matching shares for Federal investments. Under traditional financing methods, state and local governments typically fund transportation investments with municipal bonds, which are repaid through tolls and state taxes. The Federal shares of highway and transit investments are paid out of the Highway Trust Fund, which is supported primarily by Federal fuel and related excise taxes. Large surface transportation facilities are frequently financed, built, maintained, and operated by facility-specific public entities, such as turnpike authorities, which have access to municipal bond markets and collect tolls.
Our analyses compared PPPs to traditional financing and operating methods by performing financial valuations of representative projects under alternative scenarios. Specifically, we compared the value of each project when implemented with a PPP to its value when implemented through a public, facility-specific agency. Our vantage point during these calculations was that of a state or local government seeking to determine which financing option to use. While our general approach could be applied to a variety of transportation projects, we focused on highway infrastructure projects. We performed our analyses on example projects that illustrate different aspects of actual highway infrastructure projects, such as contract length and patterns of revenues and costs. The examples include both greenfield projects, which involve the construction of new facilities, and brownfield projects, which involve existing facilities. All examples resemble implemented or proposed PPP highway projects, but do not replicate them exactly. We did not analyze specific detailed proposals, or render judgment on them. Our example projects are as follows:
1. A 40-year greenfield toll road project modeled after a proposed two billion dollar toll road of about 30 miles in length near Austin, Texas;
2. A 50-year brownfield toll road project of about 550 miles in length, patterned after the Pennsylvania Turnpike;
3. A 90-year brownfield toll road project under 10 miles in length, patterned after the Chicago Skyway;
4. A 75-year brownfield toll road project, involving 157 miles of roadway and patterned after the Indiana Toll Road;
5. A 25-year brownfield toll road project involving a 1,370-mile network of highways in eastern France, modeled after the French highway known as the Autoroutes Paris Rhin-Rhone;
6. A 50-year greenfield project involving multiple segments, and patterned after a proposed toll road in the Houston area; and
7. An 80-year greenfield highway expansion project, patterned after Virginia's I-495 Capital Beltway and involving the addition of variably priced HOT lanes.