PPPs: An article in Cato Institute’s Regulation magazine serves as a cautionary tale about public-private partnerships, also called P3s, PPPs and concessions. PPPs have seen massive infrastructure spending in over the last 30 years – 203 billion euros ($240 billion) in Europe and $535 billion in developing countries. While interest has been minimal in the United States, you can expect growing interest in this post-pandemic world. Watch for politicians and policymakers to make a case for PPPs so they can “invest in infrastructure” without using tax dollars or incurring additional debt in a climate of tight fiscal budgets and large debt burdens.
But, the authors warn, this argument is flawed: A PPP might “save” in current spending and debt, but ultimately, taxpayers will pay that amount to fund the infrastructure, just as in a traditional project. “The only difference is that under traditional provision, future governments use revenue from taxes to pay the bondholders. In contrast, with a PPP they use tax revenues to pay the concessionaires.”
They maintain that the main efficiency gains of PPPs are improved life-cycle maintenance and early completion of projects. But “PPPs are routinely renegotiated,” and it’s no accident: Much like the notorious change order, these renegotiations are “sometimes due to poor project and contract design, and other times to opportunistic behavior by firms.” This undermines the potential efficiency gains.
A U.S. example the authors cite is the Chicago Skyway, a 7.8 mile toll road linking downtown Chicago to the Indiana state line. A 99-year lease operating lease in 2005 got the city $1.83 billion. The city retired the remaining Skyway bonds, saved some funds for the future and devoted almost all of the remaining $475 million to increase current spending. The efficiency gains: $1 million a year reduction in operating costs.
Finally, with many PPPs funded with user fees, a fixed-term contract puts greater pressure on concessionaires – even more so in the post-pandemic era. Toll lanes are one example, given the changing mobility patterns, work trends and social interactions.
The authors offer an interesting alternative to encourage PPP investment and reduce the risk: a “present value of revenue” contract, in which the contract lasts until the concessionaire collects its bid in the auction:
Chile modified its PPP law in 2010, introducing an independent panel to review contract renegotiations and excluding concessionaires from participating in additions to projects. Moreover, since 2007 Chile has used PVR contracts routinely, shielding concessionaires from uncontrollable demand risk.
Just whose fault is it? A recent email from the Atlanta Regional Commission shared a “fact sheet” about the Midtown Connector Transportation Improvement Project (wait for it), “a unique public private partnership” that would deck part of the Connector at a cost of up to $1.2 billion. It states, “The growing population of Atlanta has increased traffic on the Connector and local street network, which creates more congestion, delays and automobile crashes, and contributes to environmental hazards such as poor water and air quality, significant noise, and lack of public greenspace. Additionally, the increased traffic makes traveling around, to and through Midtown more difficult.”
No mention, of course, how “road diets” have deliberately reduced mobility and increased congestion on the local street network, by including raised medians, wider sidewalks, “traffic calming” devices, bicycle lanes and fewer auto lanes. And in case you’re optimistic about the “improvement” in the proposed project (still undergoing a feasibility study), consider what is included here:
- Tunnel structure with emergency egress stairways, emergency ventilation system, and fire suppression system.
- New street, bicycle and pedestrian connections across and along the Connector.
- Approximately 25 acres of park, greenspace, and tree canopy.
Bailing out of tolls: Bob Poole’s excellent Surface Transportation News makes one long for greater enforcement on toll lanes, especially when drivers break the law by zipping in and out of the I-85 north toll lane to bypass slower vehicles in the toll lanes and in the adjacent regular lane:
Enforcement has two dimensions. Toll enforcement is generally well in hand, since those who avoid paying tolls via no or invalid transponder can be identified by the vehicle license plate number and billed. But those who steal service by pretending to be legally toll-exempt HOVs are a much larger problem. … People using switchable transponders to indicate the number of occupants are very difficult to identify if they lie; this is basically an honor system, and estimates of cheating are 30 percent or higher on many priced [managed lanes]. Again, this kind of cheating, besides being seen as unfair, also undercuts the system’s pricing power.
Reciprocity: Poole’s newsletter also shares some good news about interstate interoperability of toll transponders. In July, Florida’s Turnpike (operator of the statewide SunPass system) and Georgia’s State Road and Tollway Authority announced that they were joining the E-Zpass system, which includes most of the toll roads and bridges east of the Mississippi. The Central Florida Expressway Authority (which has its own electronic tolling system) had previously joined E-Zpass, and last month the Tampa Hillsborough Expressway Authority announced that it, too, was joining E-Zpass. Last month, Minnesota’s MnPASS system announced it was also joining E-Zpass, the first tolling system west of the Mississippi to do so. Service provider Bestpass has already made a single-transponder network a reality for trucks.
You can read Poole’s newsletter at Reason Foundation’s website, www.reason.org.
COVID and Harvard: Planning to fly for the holidays? A 187-page study by Harvard scientists released today concludes air travel “is as safe as or substantially safer than the routine activities people undertake during these times.” The study points to the ventilation systems on planes that refresh the air every two to three minutes, and new measures including heavy-duty disinfecting, strict face mask enforcement and social distancing during boarding and deplaning. The Harvard researchers said the ventilation system in the cabin “effectively counters the proximity travelers are subject to during flights.” Source: USA Today
“It’s incredibly easy to get sucked into hype. We love to see progress, technological advances and just cool things in general come to life. The idea of a car taking over the most tedious and boring parts of driving is highly appealing, but we need to always make sure we’re making progress with safety in mind.” – Sean Szymkowski
Compiled by Benita Dodd