A Senate Finance subcommittee turned a critical eye to the current tax code and public-private partnerships as a solution for infrastructure funding woes during a hearing last week, which came on the heels of a Department of Transportation report that announced record-breaking highs in the number of P3 deals for surface transportation.

"I personally am open to a role for the private sector, but I have real concerns about this headlong rush into public-private partnerships" and about the DOT's "promotion of these partnerships as the new paradigm for highway infrastructure financing," Sen. Jeff Bingaman, D-N.M., said during Thursday's hearing.

"There has been virtually no consideration given to the tax and financing aspects of these transactions," he said, noting that Congress has looked at the pros and cons of P3s largely from a transportation, not budgetary, policy angle.

Bingaman, chair of the subcommittee on energy, natural resources, and infrastructure, is considering legislation to change the current tax code and how it affects public-private partnerships, his office said Friday. The details of that legislation are not known.

Bingaman is concerned that the current tax law encourages exceptionally long-term highway leases, some as long as 99 years. He also questioned non-compete clauses that may prevent local and state governments from building roads in the future, and few tollable roads in some states.

Highway P3s could be advantageous and effective at fixing highway infrastructure, but that they "could benefit from more consistent, rigorous, systematic, up-front analysis," testified JayEtta Z. Hecker, physical infrastructure issues director for the Government Accountability Office.

She added that private-sector use of tax-exempt bonds could result in millions of dollars in lost federal revenue. The Pocohontas Parkway outside of Richmond, Va., the Southern Connector in South Carolina, and Las Vegas Monorail were three such projects suffering lost revenue, Hecker said in her prepared testimony. The projects carried a combined total foregone tax revenue of $25 million to $35 million, she said.

Dennis J. Enright of NW Financial added in his testimony that "a public sector funding model would produce a value at least 30% greater than a private ownership model."

Meanwhile, as the Senate and House are weighing several pieces of legislation to repair deteriorating bridges and highways - with bills being considered on bridge inspections and maintenance, an $8 billion patch for the highway trust fund, and a second economic stimulus package with billions for transportation - P3s are growing in popularity.

Since 2005, the private and public sectors have closed more P3 deals for surface transportation facilities than during "any comparable period in U.S. history," according to a July 22 announcement by Transportation Secretary Mary E. Peters.

The report described the Pocahontas Parkway P3 not as representing lost tax revenue, but as a momentum-builder, along with the $1.8 billion Chicago Skyway, $3.8 billion Indiana Toll Road and other large projects, for public-private partnerships throughout the country.

Twenty-five P3s closed or entered various procurement stages between January 2005 through May 2008, and eight states passed laws during that time to authorize transportation P3s, according to the report.

"Where there are risks that the public sector needs to be aware of in PPPs, there is no evidence that PPPs are inherently more risky than traditional procurement approaches," the report said. Moreover, private investment in transportation projects can save 6% to 40% in construction costs, the report said.

The federal government has been encouraging P3s through federal programs, including credit assistance and mechanisms such as private activity bonds that were written into the Safe, Accountable, Flexible, Efficient Transportation Equity Act: a Legacy for Users, or SAFETEA-LU, law passed in 2005.

About one-third of the $15 billion in PABs that can be allocated by the federal government have been allocated as of June, according to the report. The largest share of the $5.34 billion allocated so far was $2 billion to the Pennsylvania Turnpike Capital Improvements project.

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