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n today’s road- and bridge-building industry, which answer is most cor- rect? A public-private partnership I(P3) is:

A. A paradigm for private investment in public highways. B. A fi nancial necessity—a political reality—given the lack of governmental investment in infrastructure today. C. A new term for an old-style joint venture between private-sector enterprises and governmental agencies. D. An oxymoron that might be more moronic than oxy as the world falls deeper into fi nancial crisis. E. All the above.

In the current climate of infrastructure building, or, depending on your viewpoint, a lack of building, some believe P3s are a takeover of vital public assets and a possible hindrance to commerce. In this school of thought the word “private” in the P3s acronym is synonymous with “foreign.” On the opposite side of the issue, others see P3s as having arrived just in time to rescue state road and bridge programs that are unable to keep pace with building and maintaining their roads and bridges. Centrists see P3s as neither good nor bad, just necessary given the lack of public funding. Perhaps this makes the most correct answer to the multiple-choice question “all the above.” The tollway train Taking extreme measures, the states of Illinois and Indiana entered into P3s, choosing to fold rather than hold their nearly 50-year-old tollway operations. The result: The Chicago Skyway became the fi rst, and the Indiana Toll Road the second, public-toll-road operations in the U.S. to relinquish their tolling and concession operations. Leasing their state tollways to private-sector companies has brought about a one-time infusion of cash to underfunded transporta- tion programs. Today, ’s Gov. Ed Rendell is trying to convince the state’s legislature to become the third state to pitch its tollway tent. Ready to acquire the tolling rights to 500 miles of the Pennsylvania Turnpike is a Spanish investment fi rm. Barcelona-based Abertis, a company that has already purchased airport concession contracts in the U.S., is offering a cash payment of $12.8 billion for guaranteed control of the “Granddaddy of Turnpikes” for three-quarters of a century, longer than the fi rst and legendary superhighway has existed. One U.S. investment bank states that the bid is at least $5 billion lower than what the market is willing to pay. The Pennsylvania Turnpike is a cash cow by any standard, kicking more than $600 million a year into state coffers.

34 • DECEMBER 2008 • ROADS & BRIDGES WWW.ROADSBRIDGES.COM Gov. Rendell has had a challenge in lion for its infrastructure fund. Citi- the Department of Latin American convincing key legislators to put the group Inc. is raising their own capi- & Iberian Studies at the University pike into private hands. State Repre- tal, and plans show them outpacing of Richmond, explained the conse- sentative and Majority Chairman of expectations with their subscriber- quences of P3s on the citizens of the Pennsylvania House of Transpor- ship. Going a step further, : “The changes began in the tation Committee Joe Markosek said is teaming up with the Spanish fi rm ’80s and have accelerated in the ’90s. that the iconic highway “is a huge Abertis to purchase tolling rights on They’ve brought highway death rates contributor to our transportation in- the Pennsylvania Turnpike. Seeking way down as compared to the typical frastructure. To get an up-front cash out the wealthy private and large in- old nondivided, two-lane rural high- payment and give away control for stitutional investors, U.S. companies ways. But they’re very expensive 75 years would be detrimental.” are emerging as a powerful force in by U.S. standards. For example, the Foreign interests, such as Cintra- Seville-Cádiz toll road costs about 6 Macquarie, the joint venture that Euros for a 60-mile stretch.” purchased the rights to own and Wherever in the world transporta- operate Illinois’s and Indiana’s pub- The failure of banks, tion P3s are found, they all depend lic rights-of-way, are eager to lease even governments, on public-sector land uses and li- other tracts of vital U.S. highways. censing privileges. These rights are Existing tolling operations, such as has changed the offered to private organizations in roads, bridges and tunnels, are on economic viability return for lump-sum cash payments. their short list of infrastructure to of P3s—certainly Civic authorities negotiate long-term purchase. Simply, they are prepack- for now, perhaps for contracts with one or more private- aged assets ready for a sale with sector businesses offering them en- tolling plazas and a paying clientele good. titlements in return for revenue that already in place. Current tolling op- may also come in the form of lease erations offer the shortest sale cycles payments. Highways, as well as hos- and the quickest routes to profi tabil- pitals and high schools, have been ity for prepared foreign investors. the world of P3s. Still, they remain successfully built and managed by Behind the global curve, invest- decades behind their sophisticated P3s. In the road-building communi- ment fi rms in the U.S. are only now foreign owner-operators. ty, however, P3s have existed longer beginning to analyze the potential than the popular term has been ap- profi tability of leasing pubic infra- Evolution of P3s plied to them. structure. Foreign interests are de- Starting in Europe, the term P3 cades ahead in valuing and buying came into vogue over 30 years ago. Early version U.S. infrastructure. Before the stock Transportation P3s took root in Private ownership has been viewed market crashed, domestic fi rms and southern Europe in the early 1990s with skepticism by federal offi cials their investors were scrambling to and then quickly spread around the of the past. The Federal Highway join the race to the purchasing par- world. P3s are well established and Administration’s own book Amer- ty. This past spring Morgan Stanley successfully substituting for govern- ica’s Highways: 1776-1976 states, successfully raised $4 billion, nearly mental planning and investment in “As interstate roads were completed doubling expectations, in part by infrastructure in Europe, Australia, and connected with each other, the placing advertisements on the front Asia and the Middle East, and now growing stream of traffi c attracted page of the Wall Street Journal. With in the Americas. Not only have they another class of highway parasite— a picture of the famous Bixby Bridge launched highway projects that might the private toll bridge promoter. By along California’s Pacifi c Coast High- never have been built, but P3s have 1928, private bridges were becoming way, an April 16, 2008, ad read, “The done for Spain and other countries a serious threat to the free use of the U.S. received a ‘D’ grade for its infra- what the building of the interstate highways. In 1928 alone, Congress structure conditions. Morgan Stanley system did for the U.S. by facilitating granted 75 franchises for private toll can help determine how your portfo- commerce and saving lives. bridges over interstate waters and lio might take part in the $1.6 trillion In Spain today over 30 tollway the states issued many others. Most needed to improve that grade.” The companies operate more than 2,173 of these were stock promotion proj- company plans to invest 40% of its miles of toll road. According to the ects, giving favored cliques a stran- funds in the U.S. and the rest in Eu- Trade Commission of Spain, that gle hold for years on key sites on rope and the Middle East. puts more than 25% of Spain’s su- the main highway arteries on terms Goldman Sachs outperformed perhighways under private control. inadequate to protect the public in- Morgan Stanley by raising $6.5 bil- Prof. Edward Peebles, a director in terest.”

ROADS & BRIDGES • DECEMBER 2008 • 35 a

More recently, just 50 years ago, the advantages of limited access by nancial successes. Americans wanting to buy cars and driving the fl owing, curving four- In the 1950s, six states connected drive far and fast were pushing for lane highways. Travel time was re- their tolling operations by linking highways to be built. Absent a seri- duced. Oncoming traffi c was safely their roads and bridges together, ous federal program to provide the separated, all the while avoiding the making a chain of tollways between necessary funding to build them, heavily congested U.S. routes that and Chicago—an ap- state and local government offi cials the new toll roads typically ran par- proximately 1,000-mile stretch of su- and eager private-sector partners allel to. perhighway. This system of turnpikes formed working P3s to build toll Superior in design and mainte- formed the greatest unbroken stretch roads. Turning to Wall Street for fi - nance to the U.S. routes, the only of semipublic-semiprivate highways nancing, large design fi rms for plan- interstate highways of the day, these in the world. ning and oil companies and restau- modern turnpikes raised the public’s Steering their huge and heavily rant chains for the management of standards for roads. Later still, the chromed autos and sitting high in their concessions, the states moved turnpikes became a working model their trucks, the fi rst superhighway ahead without much federal govern- of the future U.S. Interstate System. interstate travelers leaving New York ment help. More public than private, By the end of the decade, high-speed City crossed the Hudson River on the the early turnpike authorities were neophytes were traveling at previ- George Washington Bridge. Enter- an early form of P3. ously unimagined speeds between ing the swamps of New Jersey, they The fi rst modern tollways took the East and Midwest. To the sur- crossed the Delaware River before on the appearance of linear botani- prise of many, drivers of sedans and speeding into the Allegheny Moun- cal gardens complete with art deco commercial vehicles paid to avoid tains. From the Pennsylvania peaks, bridges and stylish rest stops. Travel- the “free” buy of heavily congested these early drivers plunged into the ing down the early tollways, drivers public roads. The early tolling part- plains of the Buckeye State, rolled learned by doing. They experienced nerships for the most part were fi - along “the Main Street of the Mid- connect to solutions

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36 • DECEMBER 2008 • ROADS & BRIDGES WWW.ROADSBRIDGES.COM a

west” in Indiana, fi nally crossing the ed with the very public signs of the The city, it was discovered, could 8-mile-long bridge called the Chicago U.S. Interstate System, the largest build bridges spanning the city lim- Skyway that landed the intrepid into public project in the history of the its—the catch being there were no the Windy City. world. Today, half of those tolling limits to the length of the said bridg- “We built a bunch of the rest stops structures have been or are in seri- es. As a result, designs were drawn along the turnpike system before ous negotiations to be “sold off” in for a bridge into the city, complete they became part of the interstate the form of 75-99-year leases. Some with a 6-mile-long “access ramp.” In system,” said Mal Middlesworth, a are not happy. Others see it as the other words, the highway was tech- former Pure Oil executive, who as a future. nically a bridge and the portion of U.S. Marine survived Pearl Harbor bridge outside the city’s jurisdiction and brutal amphibious landings in The fi rst to go was legally an approach to the legiti- the South Pacifi c before joining the The Chicago Skyway was born mate bridge. To comply, no off- or oil giant in 1950. “It was a highly into this world of political high jinx. on-ramps were built between the toll functioning public-private partner- In the late 1950s, when the road was plaza that sat inside the city limits ship we had going with turnpike being planned, the city of Chicago, and the Indiana Toll Road’s toll plaza authorities. We leased their land wanting a highway to improve its ac- eight miles away. and then built and operated our ser- cess to and from the city’s east side At fi rst, the bridge was called the vice stations along their highways. to connect the city with the steel Calumet Expressway, but eventually We had excellent relations with the mills in Indiana, pushed to build it was renamed the Chicago Skyway. authorities. Oh sure, they loved us; an 8-mile expressway. Legally chal- The toll bridge was not a fi nancial they knew we’d deliver.” lenged to construct highways outside success at fi rst—too many nearby Paradoxically, soon after their rib- of the city’s limits, city offi cials drove highways offered drivers a free ride. bon cuttings, these quasi public-pri- a semitruck through a loophole in or- Desperate to unload the Skyway, vate roads were and still are placard- der to broaden its jurisdiction. the city tried giving it away. City

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what should have been Indiana tax- payer money. Daniels sees it differ- ently, saying, “Government is the last monopoly. So competition is the key. That’s why I’m indifferent—public or private, as long as the benefi ts of competition are brought to bear.” Historical events, however, are more powerful than public opinion. One of the darkest economic times ever to descend upon the nation has brought about a new world order in short time. The failure of banks, even governments, has changed the economic viability of P3s—certainly for now, perhaps for good. The past With another lump-sum cash payment, Cintra-Macquarie took months have seen once-powerful fi - control of the 157-mile-long Indiana Toll Road. nancial institutions collapse, erased from the landscape, taking with them vital private-sector funding. and state offi cials asked the federal roads promises to make the deal a On Sept. 15, 2008, Lehman Broth- government to buy the bonds used profi table one. ers Holdings fi led for bankruptcy, to fund its construction so it could On June 29, 2006, the golden anni- triggering a chain reaction that even- declare the road a toll-free facility el- versary of the Dwight D. Eisenhower tually dried up funding on the Gold- igible for federal interstate highway System of Interstate and Defense en Ears Bridge, a six-lane bridge over funding. Regardless of the FHWA’s Highways, the Spanish-Australian the Fraser River in British Columbia. refusal to buy into the failed venture, joint venture closed the deal to own The $800 million project is to con- city offi cials placed I-90 signs on the the tolling rights to “The Main Street nect the city of Vancouver with high- Skyway anyway. When they were of the Midwest.” With another lump- ways in the U.S. It was only 80% questioned about the authenticity sum cash payment, this time for complete when Lehman failed. Now of the I-90 signs, they recanted and $3.8 billion, Cintra-Macquarie took the bridge’s fi nancier, an Irish com- replaced them with “To I-90” signs. control of the 157-mile-long Indiana pany by the name Depfa, is scram- Stranger still, the Skyway was under Toll Road. The largest-ever highway bling to secure the project’s once- the control of the city’s sanitation privatization deal in U.S. history, and sound fi nancials. Almost certainly, department for nearly half a century one of the largest in the world, gives the cost of borrowing money will before its tolling rights were leased Cintra-Macquarie, under the operat- rise, pushing the cost of the project out. ing name Indiana Toll Road Conces- ever higher. On the morning of Jan. 24, 2005, sion Co. (ITRCC), ownership rights If the nation—and the world with $1.8 billion was wired from the ac- of the entire stretch of Indiana’s I-90 it—sinks deeper into economic cri- counts of Cintra-Macquarie to a for the next 75 years. sis, the old model of the New Deal government account in Illinois. At 2 Pushing the historical public-pri- may get dusted off and put back into o’clock that afternoon, after the funds vate deal through to completion was play. The nation’s taxpayers, hun- were considered cleared, the Skyway the governor of Indiana, Mitch Dan- gry for jobs and good-old-fashioned Concessions Co. LLC took control of iels. Critics of Daniels nicknamed nation building, may demand that the Skyway. The 99-year lease gives him “Governor Privatize,” saying their tax dollars be invested in infra- control of the entire roadway to the he was going to privatize the entire structure projects that are planned, Skyway Concession Co., which in state, including thousands of pub- paid for and provided by their gov- turn is controlled by Concesiones de lic toilets. On a serious note, some ernment, giving renewed meaning to Infraestructuras de Transporte, based of those same critics claim that bil- the term P3. in Spain, and the Macquarie Infra- lions of dollars were “left on the structure Group, based in Australia. table” after the toll-road transaction McNichol is a freelance writer based in Boston. Popular riverboat casinos in Indiana was fi nalized. In other words, when as well as the ever-increasing fl ow of the 75-year lease expires, the Span- LearnMore! commuters willing to pay to bypass ish and Australian owners will have For more information related to this article, go increasingly congested free public earned tens of billions of dollars of to: www.roadsbridges.com/lm.cfm/rb120809

38 • DECEMBER 2008 • ROADS & BRIDGES WWW.ROADSBRIDGES.COM