United States Government Accountability Office Report to Congressional Requesters GAO February 2008 HIGHWAY PUBLIC-PRIVATE PARTNERSHIPS More Rigorous Up-front Analysis Could Better Secure Potential Benefits and Protect the Public Interest GAO-08-44 February 2008 HIGHWAY PUBLIC-PRIVATE PARTNERSHIPS Accountability Integrity Reliability Highlights More Rigorous Up-front Analysis Could Better Highlights of GAO-08-44, a report to Secure Potential Benefits and Protect the congressional requesters Public Interest Why GAO Did This Study What GAO Found The United States is at a critical Highway public-private partnerships have resulted in advantages for state and juncture in addressing the demands local governments, such as obtaining new facilities and value from existing on its transportation system, facilities without using public funding. The public can potentially obtain other including highway infrastructure. benefits, such as sharing risks with the private sector, more efficient State and local governments are operations and management of facilities, and, through the use of tolling, looking for alternatives, including increased private sector increased mobility and more cost effective investment decisions. There are participation. GAO was asked to also potential costs and trade-offs—there is no “free” money in public-private review (1) the benefits, costs, and partnerships and it is likely that tolls on a privately operated highway will trade-offs of public-private increase to a greater extent than they would on a publicly operated toll road. partnerships; (2) how public There is also the risk of tolls being set that exceed the costs of the facility, officials have identified and acted including a reasonable rate of return, should a private concessionaire gain to protect the public interest in market power because of the lack of viable travel alternatives. Highway these arrangements; and (3) the public-private partnerships are also potentially more costly to the public than federal role in public-private traditional procurement methods and the public sector gives up a measure of partnerships and potential changes control, such as the ability to influence toll rates. Finally, as with any highway in this role. GAO reviewed federal project, there are multiple stakeholders and trade-offs in protecting the public legislation, interviewed federal, state, and other officials, and interest. reviewed the experience of Australia, Canada, and Spain. Highway public-private partnerships we reviewed protected the public GAO’s work focused on highway- interest largely through concession agreement terms prescribing performance related public-private partnerships and other standards. Governments in other countries, such as Australia, have and did not review all forms of developed systematic approaches to identifying and evaluating public interest public-private partnerships. and require their use when considering private investments in public infrastructure. While similar tools have been used to some extent in the What GAO Recommends United States, their use has been more limited. Using up-front public interest Congress should consider directing evaluation tools can assist in determining expected benefits and costs of the Secretary of Transportation, in projects; not using such tools may lead to aspects of protecting the public consultation with Congress and interest being overlooked. For example, while projects in Australia require other stakeholders, to develop consideration of local and regional interests, concerns by local governments objective criteria for identifying in Texas that they were being excluded resulted in state legislation requiring potential national public interests their involvement. in highway public-private partnerships. The Department of While direct federal involvement has been limited to where federal investment Transportation raised concerns and exists, and while the Department of Transportation has actively promoted disagreed with several of the them, highway public-private partnerships may pose national public interest findings and conclusions, as well as implications such as interstate commerce that transcend whether there is one of the recommendations. GAO clarified the report and continues direct federal investment in a project. However, given the minimal federal to believe more rigorous up-front funding in highway public-private partnerships to date, little consideration has analysis could better protect public been given to potential national public interests in them. GAO has called for a interests. fundamental reexamination of federal programs to address emerging needs and test the relevance of existing policies. This reexamination provides an opportunity to identify and protect potential national public interests in highway public-private partnerships. To view the full product, including the scope and methodology, click on GAO-08-44. For more information, contact JayEtta Z. Hecker at (202) 512-2834 or [email protected]. United States Government Accountability Office Contents Letter 1 Results in Brief 7 Background 11 Highway Public-Private Partnerships Can Potentially Provide Benefits but also Entail Costs, Risks, and Trade-offs 18 Highway Public-Private Partnerships Have Sought to Protect Public Interest in Many Ways, but Use of Public Interest Criteria Is Mixed in the United States 41 Direct Federal Involvement with Highway Public-Private Partnerships Has Generally Been Limited, but Identification of National Interests in Highway Public-Private Partnerships Has Been Lacking 59 Conclusions 72 Matter for Congressional Consideration 73 Recommendation for Executive Action 74 Agency Comments and Our Evaluation 74 Appendix I Scope and Methodology 80 Appendix II Profile of GAO Public-Private Partnership Case Studies 84 Appendix III GAO Contact and Staff Acknowledgments 90 Tables Table 1: Description of U.S. Highway Public-Private Partnerships Reviewed by GAO 16 Table 2: Potential Benefits, Costs, and Trade-offs Associated with Highway Public-Private Partnerships 19 Table 3: Selected Performance Mechanisms to Protect the Public Interest 42 Table 4: Selected Financial Mechanisms to Protect the Public Interest 44 Table 5: Selected Noncompete Provisions 46 Table 6: Highway Public-Private Partnerships with SEP-15 Approval, as of June 2007 66 Page i GAO-08-44 Highway Public-Private Partnerships Figures Figure 1: Total Capital Spending on Highways, by Level of Government, Fiscal Year 2005 2 Figure 2: Evolution of Private Sector Involvement with Highway Projects 14 Figure 3: Private Equity Investments in Highway Public-Private Partnerships 15 Figure 4: Worldwide Highway Infrastructure Projects Funded and Completed Using Public-Private Partnerships, 1985 to October 2004, by Region 18 Figure 5: Change in Chicago Skyway Tolls, 1967 to 2047 32 Figure 6: Various Stakeholder Interests Associated with Highway Public-Private Partnerships 40 Page ii GAO-08-44 Highway Public-Private Partnerships Abbreviations CDA comprehensive development agreement CPI consumer price index DOT Department of Transportation ETR Express Toll Road FHWA Federal Highway Administration GDP gross domestic product ISTEA Intermodal Surface Transportation Efficiency Act of 1991 ITRCC Indiana Toll Road Concession Company LOS level of service NEPA National Environmental Policy Act OMB Office of Management and Budget OTIG Oregon Transportation Improvement Group PAB private activity bond PSC public sector comparator RFP request for proposals SAFETEA-LU Safe, Accountable, Flexible, Efficient Transportation Equity Act—A Legacy for Users SCC Skyway Concession Company SEP Special Experimental Project SR State Road TEA-21 Transportation Equity Act for the 21st Century TIFIA Transportation Infrastructure Finance and Innovation Act of 1998 TE-045 Innovative Finance Test and Evaluation Program TTC Trans-Texas Corridor U.S.C. United States Code VfM Value for Money This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. Page iii GAO-08-44 Highway Public-Private Partnerships United States Government Accountability Office Washington, DC 20548 February 8, 2008 Congressional Requesters America’s transportation system is the essential element that facilitates the movement of both people and freight within the country. Both economic activity and mobility are dependent upon an efficient transportation system. The United States is at a critical juncture regarding its ability to address demands on the transportation system. The Safe, Accountable, Flexible, Efficient Transportation Equity Act—A Legacy for Users (SAFETEA-LU) authorized about $286 billion for highway, transit, and other transportation system spending for the 6-year period ending in fiscal year 2009. However, the Highway Trust Fund, the principal mechanism for providing federal funds for highway programs, could have a negative balance as early as 2012.1 More specifically, under current law, the Highway Account, which makes up the majority of Highway Trust Fund receipts, is projected to have a negative balance by 2009 due to a growing difference between projected receipts—the federal excise tax on motor fuel and truck-related taxes are primary sources of revenue for the Highway Account—and