DALLAS — The growing interest by state and local governments in public-private partnerships for transportation infrastructure is due in part to their $3.6 trillion of outstanding tax-exempt debt, the Brookings Institution said in a new
"This legacy debt increases borrowing costs, makes new issuances unappealing to policymakers and the public, and, in some cases, precludes the issuance of new bonds because of statutory debt limits," analysts said in the report. "P3s can be structured to allow the public sector to avoid adding to their long-term debt obligations by using private sector capital to finance a project."
The United States is slowly catching up to the rest of the world with the P3 model of delivering roads, transit systems and other public infrastructure that has been popular for decades in Europe, Asia, and Australia, said Brookings analysts Patrick Sabol and Robert Puentes in the "Private Capital, Public Good" report.
Factors including years of under-investment in public infrastructure, political dysfunction, and a challenging economic environment are pushing political leaders to seek private investments in highways and transit systems, the analysts said.
Partnering with the private sector on large, complex projects means the costs of financing, building, and maintaining its transportation infrastructure are no longer a government's direct responsibility, Sabol and Puentes said.
"This does not mean that the users of the system may not bear higher costs, or that the public sector avoids additional budgetary outlays," they noted.
"P3s are not free money," Sabol and Puentes said. "Just like other public sector projects, they fail or succeed based on access to long-term revenue streams."
Some proponents say P3s are the cure-all for America's infrastructure problems, while opponents often see them as a give-away of taxpayer-financed roadways. But both contentions are wrong, Sabol said.
"P3s are neither a solution to all America's infrastructure challenges nor are they a corporate takeover of public assets," he said. "Instead, a well-executed P3 is simply a tool for procuring or managing infrastructure."
P3 projects make smoother progress with a strong legal framework at the state level, they said.
Comprehensive but flexible state P3 laws on each sector's responsibilities and obligations are necessary to provide the certainties that will allow the P3 market to thrive in the U.S., Puentes and Sabol said.
"While 33 states have some form of P3 authorizing legislation in place, most are focused exclusively on transportation and even fewer states actually pursue deals with any frequency," they said.
Projects of more than $100 million are attractive to private investors because they provide the best return on their time and money, the analysts said.
Sabol and Puentes said states with a steady supply of P3 projects in the pipeline can expect more favorable bids because private investors want to spread the risk around rather than concentrate it in a few ventures.
The analysts cited Maryland's P3 law adopted in 2013 as a model for other states that begin a P3 program or update their existing regulations.
Availability payments, in which the private partner receives regular payments for keeping infrastructure in good working order rather than toll or fee revenues, are being used more often in P3s, they said.
The structured payments can mitigate upfront borrowing costs but also can limit the public partner's budget flexibility down the road, Sabol and Puentes said. A poorly structured project can cost taxpayers more over the long term than would conventional toll revenue-sharing agreements.
"Availability payments, for example, could be considered to be a form of debt since they require an ongoing public expenditure and a binding budgetary obligation," they said.
