Private Sector Role doesn’t mean Streets Paved with ‘Sold’

April 20th, 2006 by Leave a Comment

Benita M. Dodd

Georgia faces a $7.7 billion transportation funding shortfall over the next six years, the state Department of Transportation reminds us on its new Web site, www.whatsthebigidea.us. Bridging that significant gap requires policy-makers to adopt a combined approach involving taxpayers, transportation users and the private sector.

Cynics and supporters of big government portray private investment as greedy capitalist pigs controlling our roads and redirecting traffic to “their” streets based on a profit motive. They propose using federal or state funds for projects – as if it’s other people’s money, not our own paychecks involved. They wonder why government can’t simply raise the gas tax to fund the needed maintenance and enhancements to transportation. Bear in mind that these people are usually the same group supporting fuel efficiency standards and development of alternatively fueled vehicles, which further reduce revenues.

Taxes, as unpopular as they are in Georgia political circles, do need to be part of the transportation equation. But those who make use of the transportation infrastructure must fund its upkeep and necessary upgrades. And that isn’t going to be through a gas tax. In fact, the April edition of Popular Science magazine’s Popsci.com Web site, which focuses on “The Future of the Car,” predicts that gasoline-only vehicles will retain just 35 percent of the U.S. market in 2027, because of technology developments, energy policy, consumer demand and international politics. That projection may be optimistic, but even if gasoline-only vehicles hold 50 percent of the market then, it doesn’t bode well for a gas tax-financed transportation infrastructure.

The private sector, on the other hand, can provide the innovation, capital and efficiency to help make up the shortfall in a cash-strapped, congested state. In Georgia, the discussion on reducing congestion includes a high-occupancy toll road network, toll tunnels and truck-only toll lanes. The growing shortfall makes them a distant reality without private investors and road users to repay their investment.

The benefits of public-private investment are listed in a new Deloitte Research analysis, “Closing America’s Infrastructure Gap: The Role of Public-Private Partnerships:

  • Investment costs can be spread over the lifetime of an asset and thus allow projects to be brought forward by years compared to typical pay-as-you-go financing.
  • They have a record of on-time, on-budget delivery.
  • They transfer certain risks to the private sector.
  • They provide incentives for asset maintenance.
  • They lower the cost of infrastructure.
  • They encourage a customer-service orientation.
  • They enable government to focus on outcome-based public value.

Deloitte notes that an important challenge is improving government capacity to execute and manage these partnerships. Effective public-private partnerships involve government’s ability to embrace innovative funding options, a long-term commitment to cooperation, and focusing on outcome-based standards versus cost-plus pricing – on value, not just price.

The government’s job is not hands-off. It has a responsibility to ensure that the process is transparent, the partnership is based on realistic expectations and the public isn’t ripped off. Government is agreeing to a long-term concession, not washing its hands and selling off public roads/assets. Fortunately, unlike Boston’s disastrous “Big Dig,” private partners depend on tolls to recoup their investment, giving them a vested interest in expediting projects and ensuring quality construction, thereby benefiting taxpayers. And should the concessionaire default (if traffic projections are overestimated, for example) the government takes back its public asset. Until that remote possibility – and even after – the public benefits from expedited delivery, added capacity, better quality and smoother traffic flow.

Toll roads don’t leave commuters without an alternate route. A motorist decides between paying a fee to use the speedier, limited-access road and taking a less convenient, alternate route at no extra charge. When they involve time-of-day pricing, tolls reduce congestion by encouraging commuters to choose routes based on the value of their trip and time. To borrow the analogy of one transportation expert, if stores priced filet mignon and ground beef the same, imagine the run on filet mignon.

Tolls are not paid just by locals, either. Imagine the benefits of avoiding Atlanta congestion on a toll road taking you from Nashville to DisneyWorld, or even Chattanooga to Panama City?

Of course, the private sector is no charity. It has a profit motive and approaches projects accordingly. That encourages efficiency and cost-effectiveness, benefiting taxpayers, and ensures quality that attracts users. But policy-makers must bear in mind that public-private partnerships are a valuable tool, not the answer to every transportation challenge. The process will lose credibility with an already-cynical public if it continues to be proposed at every turn and for every project.

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Benita M. Dodd is vice president of the Georgia Public Policy Foundation, an independent think tank that proposes practical, market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.

© Georgia Public Policy Foundation (April 20, 2006). Permission to reprint in whole or in part is hereby granted, provided the author and her affiliations are cited.

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