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BBYY DDANAN MCNICHOLMCNICHOL CCORRESPONDENTORRESPONDENT UU.S..S. llooksooks ttoo eestablishstablish iitselftself iinn ppublic-privateublic-private ppartnershipsartnerships 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, Pennsylvania’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, Citigroup Spain: “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 New York City 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.

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