Public/private partnerships get mixed reviews from GAO
Feb 14, 2008 10:18 AM
Highway public-private partnerships have resulted in advantages for state and local governments, such as obtaining new facilities and value from existing facilities without using public funding, according to a February 8 report from the Government Accountability Office (GAO).
The public can potentially obtain other benefits, such as sharing risks with the private sector, more efficient operations and management of facilities, and, through the use of tolling, increased mobility and more cost effective investment decisions.
However, the study indicated there also are potential costs and trade-offs--there is no "free" money in public-private partnerships and it is likely that tolls on a privately operated highway will increase to a greater extent than they would on a publicly operated toll road. There also is the risk of tolls being set that exceed the costs of the facility, including a reasonable rate of return, should a private concessionaire gain market power because of the lack of viable travel alternatives.
Highway public-private partnerships are also potentially more costly to the public than traditional procurement methods and the public sector gives up a measure of control, such as the ability to influence toll rates. Finally, as with any highway project, there are multiple stakeholders and trade-offs in protecting the public interest.
The American Trucking Associations (ATA) issued a response to the report saying that the report reinforced ATA's position that utilizing public-private partnerships to fund highway infrastructure can be more costly to the motoring public than traditional funding solutions and may not sufficiently consider the public good.
“Schemes such as the privatization and tolling of existing highway infrastructure will result in Americans paying a significantly higher price to access our highway system while receiving less in the form of safe, efficient, and reliable roadways,” said ATA President Bill Graves. “It’s an important development to have the GAO acknowledge that such funding mechanisms are not in the best interest of the American taxpayers.”
ATA said it opposes the lease or sale of existing toll roads, bridges, or tunnels to private entities and has called on government to abandon these financing techniques. The trucking industry supports a toll-free national highway system where funds to finance highway improvement primarily come from fuel taxes. ATA believes privatization permits operators to increase tolls to prohibitive levels. Under such lease agreements, the public loses a degree of control over the road, and there are no guarantees that service and safety levels will be maintained.
According to the GAO report, highway public-private partnerships GAO reviewed protected the public interest largely through concession agreement terms prescribing performance and other standards. "Governments in other countries, such as Australia, have developed systematic approaches to identifying and evaluating public interest and require their use when considering private investments in public infrastructure," the report stated. "While similar tools have been used to some extent in the United States, their use has been more limited. Using up-front public interest evaluation tools can assist in determining expected benefits and costs of projects; not using such tools may lead to aspects of protecting the public interest being overlooked.
"For example, while projects in Australia require consideration of local and regional interests, concerns by local governments in Texas that they were being excluded resulted in state legislation requiring their involvement.'
While direct federal involvement has been limited to where federal investment exists, and while the Department of Transportation has actively promoted them, highway public-private partnerships may pose national public interest implications such as interstate commerce that transcend whether there is direct federal investment in a project.
However, given the minimal federal funding in highway public-private partnerships to date, little consideration has been given to potential national public interests in them. GAO has called for a 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.
GAO was asked to review the benefits, costs, and trade-offs of public-private partnerships; how public officials have identified and acted to protect the public interest in these arrangements; and the federal role in public-private partnerships and potential changes in this role. GAO reviewed federal legislation, interviewed federal, state, and other officials, and reviewed the experience of Australia, Canada, and Spain. GAO's work focused on highway-related public-private partnerships and did not review all forms of public-private partnerships.
The GAO report is online at gao.gov on its reports and testimonies page.
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