Myths and Facts on Transportation Public-Private Partnerships

August 9, 2012

The Reason Foundation and Buckeye Institute recently copublished a study laying out the myths and facts on transportation and public-private partnerships (PPPs).

Myth: PPPs involve the "sale" of roads to private interests.

Fact: PPPs do not involve the sale of any facilities by governments to private sector interests. Some partnerships involve short-term contracts to design, build and finance a road or bridge. Others involve leasing existing government-run toll roads to private investor-operators. The long-term toll concession still involves only a long-term lease, not a sale. 

Myth: Private toll road operators can charge unlimited tolls in PPP deals.

Fact: Most concession agreements to date have incorporated annual caps on the amount that toll rates can be increased, using various inflation indices.

Myth: Government loses control of public assets in PPP deals.

Fact: The entire legal foundation for PPPs is a strong, performance-based contract that spells out all of the responsibilities and performance expectations that the government partner will require of the contractor. The failure to meet any of thousands of performance standards specified in the contract exposes the contractor to financial penalties, and in the worst-case scenario, termination of the contract (with government keeping any upfront payment the contractor may have paid).

Myth: PPP deals include "non-compete clauses" that prevent state and local officials from building nearby, competing roads.

Fact: The approach to this has changed from an outright ban on competing facilities to a wider definition of what the state may build -- generally, everything in its current long-range transportation plan -- without compensating the toll road developer/operator.

Myth: PPPs involve selling our roads to foreign companies.

Fact: The potential is high that a foreign company might win the bid, and the reason is simple: because foreign companies have the most experience with PPPs. However, a domestic market is rapidly emerging in America.

Myth: Government ends up holding the bag if a PPP project goes bankrupt.

Fact: In the event of a corporate bankruptcy on the part of a private sector investor-operator, the asset would revert to the project lenders who, with permission from the state, would select a new operator. The lenders have strong financial incentives to continue to properly operate and maintain the road, lest they risk losing the value of their investment.

Source: Leonard Gilroy and Robert Poole, "Ten Myths and Facts on Transportation Public-Private Partnerships," Reason Foundation and Buckeye Institute, July 2012.

 

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