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Key Lawmakers Warn States About P3 Deals

MAY 15, 2007 6:59pm ET
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WASHINGTON — States should resist the temptation to raise cash by leasing their existing roads to private firms for lengthy periods of time because the deals may not be in the public’s interest, two powerful federal lawmakers warned in letters sent to governors, state legislatures, and state transportation officials.

“We write to strongly discourage you from entering into public-private partnership agreements that are not in the long-term public interest in a safe, integrated national transportation system that can meet the needs of the 21st Century,” Reps. James L. Oberstar, D-Minn, and Peter DeFazio, D-Ore., said in the letters, which were dated May 10, but not publicly released until Monday night.

Oberstar is chairman of the House Transportation and Infrastructure Committee and DeFazio is chairman of the panel’s highways and transit subcommittee. Both lawmakers have been skeptical of the benefits to the public sector of using P3s to build transportation infrastructure and both have supported an increase in the federal gas tax as a way to improve the nation’s aging infrastructure.

“Many of the arrangements that have been proposed do not adequately protect the public interest,” the letter said. “The committee will work to undo any state [P3s] that do not fully protect the public interest and the integrity of the national system.”

Oberstar’s and DeFazio’s letters comes as the committee, which oversees transportation policy in the House, is beginning work on rewriting broad transportation legislation that expires Oct. 1, 2008. The new bill is expected to be the legislative vehicle for any P3 curbs that the committee decides to impose.

Dated May 10, the letter highlights P3 deals that include long-term leases to operate and maintain the road, similar to the deals struck in Indiana and Chicago — two of the more high-profile P3s. Under the Indiana deal, which closed last year, the state leased the Indiana Toll Road for 75 years to a private consortium in exchange for $3.8 billion. Chicago leased its 7.8-mile Chicago Skyway in a 99-year deal for $1.83 billion that closed in 2005. In both instances the private partner is responsible for operating and maintaining the roads over the life of the lease in exchange for collecting the tolls over the same period.

“These deals make good business sense to the companies that are investing in the projects, but we have serious concerns about whether these transactions offer a net balance of benefits to the American public,” the letter said.

Since these transactions, other states, including New Jersey and Pennsylvania, have been exploring the possibility of leasing their toll roads to the private sector for hefty payments.

One P3 supporter, who worked on both the Indiana and Chicago deals, strongly disagreed with the congressmen and argued that the benefits — such as relieving the state or city from the cost of operating a maintaining the road — are in the public interest, because the deals free up funds that can be spent on other priorities.

“Fundamentally, I think what happens in these transactions is that the public is able to recover capital that is no longer needed in assets like the Chicago Skyway or the Indiana Toll Road … and then use that capital for other things that are needed, said attorney John R. Schmidt, a partner with Mayer, Brown, Rowe & Maw LLP in Chicago.

Schmidt added that the fact that Chicago Mayor Richard M. Daily is currently pursuing a P3 deal for Midway Airport suggests that he thinks the deals are good public policy that delivers benefits to taxpayers.

Another P3 advocate, Sen. Raymond Lesniak, D-Union, sponsor of pending legislation that would authorize the state to lease out the operations of the New Jersey Turnpike and the Garden State Parkway to private companies, said the state is carefully exploring deals that will ensure public protection.

“I welcome Congressmen Oberstar and DeFazio to monitor our upcoming proceedings and to actually review my proposal as it is developed,” he said in statement yesterday. “If they simply issue one-size-fits-all statements with blanket negativity, they’ll just be meddling with the rights of states to manage their own assets.”

Other issues raised in the letter included concerns that the U.S. Department of Transportation has been too quick to embrace P3s and that their attempts to urge states to explore these deals is turning public opinion against P3s. The negativity raised by the U.S. DOT’s efforts could be detrimental because the use of P3s to build new roads that could not otherwise be a constructed may be “a good idea,” the letter said.

Officials from the agency could not be immediately reached for comment.

The lawmakers also told the state officials they plan to send them a discussion paper detailing what states should consider before entering into P3 deals.

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