Virginia’s landmark 20-year old transportation public-private partnership (P3) law has been a boon to the state. It has helped bring in additional financing sources and shift risk from the public sector to the private sector.
Across the country, the state is seen as a model of leveraging private resources to improve the public good. Further, with limited public funds and public opinion against any tax increase, P3s will be even more important in the next 20 years that they have been over the last 20 years.
However, P3s were never intended to be a cure for everything that ails the state. P3s provide significant financing to megaprojects (those over $500 million) but they are not a funding source. P3s require a funding source, typically tolling or gas taxes. And they are appropriate for approximately 12% of total projects. Put simply P3s are an important tool but only a tool.
In 2010 Under Virginia’s P3 law, Elizabeth River Tunnels made an unsolicited offer to Virginia Department of Transportation to improve two tunnels and an expressway in the Norfolk area. Virginia DOT examined the offer and after agreeing that it was a good deal for taxpayers, invited other parties to submit proposals and qualifications. In the end the state moved forward with an agreement with Elizabeth River Tunnels to rebuild the Downtown tunnel, add a second bore to the midtown tunnel and extend Martin Luther King Jr. Blvd from London Blvd to I-264.
The Elizabeth River Tunnels that are under construction have received a lot of criticism. Yet the problems with the project trace to three issues that have nothing to do with P3s: poor communication from the state, a need to find a funding source and politics.
Virginia DOT could have had better communication with the public. While the specifics of the deal must remain confidential, the state could have provided more timely project updates.
Tolling was the only realistic funding source, which many area residents disliked. But in reality, tolling is the best users-pay/users-benefit funding source since only those who use the bridge pay for it. And public opinion shows that tolls are preferred over the gas tax.
Under the original terms of the deal, tolling was not supposed to start until after the project was completed. However, under pressure from local politicians, the state decided to lower the toll rate, but begin tolling when construction started. This further angered area residents, but resulted directly from the political process not because this deal was a P3.
Fortunately, state lawmakers made some changes to the P3 legislation to avoid these issues in the future. The process has been made more open; the unsolicited bid process has been changed and lawmakers are allowed more input into project selection. Yet thanks to misinformation campaigns by public employee unions, anti-tolling advocates and environmental groups opposed to new roadways, P3 skeptics remain.
Most troubling, a recent Washington Post article brought up two previously debunked claims. It claims that the private parties are entitled to government payouts if Virginia expands other bridges or tunnels. In reality, the region may build any project in its transportation improvement plan. The Patriots Crossing project is not in the region’s TIP. The region does not have the funding to build the project. However, if the region decides to move forward with that project, the private party must demonstrate that its revenue will be lower than it would have been without the competition. So the actual chance of the state having to pay anything to a competing project is very low.
The article cites the Indiana toll road’s bankruptcy as a negative for taxpayers, but the bankruptcy shows that P3s work as intended. In 2006, the Indiana Toll Road was in poor shape. Road pavement was in poor condition and the highway had congestion and safety problems. Indiana leased the deal to Indiana Toll Road Concession Company for $3.8 billion. The state used the funds to improve transportation infrastructure throughout the state. In exchange, the private concessionaire agreed to modernize and widen the facility. As a result of the recession, the road did not generate as much traffic volume as expected, and the company went bankrupt. But the company completed all of the improvements specified in the contract. Taxpayers have a new modernized, safer road as well as statewide transportation improvements. The road is still open and operating and a different private company will take control. And the state did not have to spend one dime of taxpayer money on the project.
Contrast this situation with construction of this roadway using taxpayer funds. With limited traffic volume, the state and thus taxpayers would have been on the hook for the project cost. The state would not have had the funds to complete other statewide transportation improvements. How would state funding have been an improvement.
Used correctly, Virginia’s P3 tool is crucial to meeting infrastructure demands of the future.
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