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States should look to private sector for help building, maintaining infrastructure
By Shirley Ybarra
In order to save the federal transportation funding program from bankruptcy, Congress has passed an $8 billion stopgap measure. Congress hopes the money will keep the funding mechanism (called the transportation trust fund) alive until September 30, 2009, when the next long-term transportation funding bill is scheduled to be passed. However, not everyone is certain that the infusion of cash will last until next September. And if history is any indicator, the money might need to last even longer because Congress won't pass the transportation reauthorization bill on time - it has never passed one on time before.
State transportation trust funds are under severe pressure as well. Almost every state's transportation trust fund is predominantly financed with gas tax revenues, which have been declining due to higher gas prices, less driving and people driving more fuel efficient vehicles. In the face of financial uncertainty at both the federal and state levels, it is no wonder that most state transportation departments will be forced to make cautious decisions about their future projects. They simply don't know how much money they'll have.
In addition, many states are facing budget deficits. California's deficit is $15 billion, for example. As governors prepare budgets, they should propose budget cuts and cost-saving measures. States will also likely "borrow" money from their transportation trust funds in order to make ends meet elsewhere. "Borrowing" is effectively an additional transportation budget cut that will cause major infrastructure projects to be further delayed.
With the ongoing shortage of transportation money about 20 states have embraced public-private partnerships. Secretary of Transportation Mary Peters says $400 billion in private sector capital is available for states. Of these 20 states with laws on the books, only five or six actually have real, working public-private-partnership legislation. The others have confused the process with legislative-approval complications and other red tape that scares away private sector partners.
States that take advantage of private sector resources will continue to provide improvements for the travelling public, despite budget woes. For example, the $1.4 billion high-occupancy toll (HOT) lanes project on Virginia Beltway was funded and the deal was finalized less than a year ago will continue on schedule. The Chicago Skyway and the Indiana Toll Road long-term lease deals, both public-private partnerships, will continue to accomplish their goals to deliver more service to the roads. The Pocahontas Parkway near Richmond, Virginia, which was completed 18 years ahead of schedule and is about to be extended to the Richmond Airport, needs no further state revenue support. Numerous projects in California, Florida and Texas provide further instances in which the private sector has taken the risk, built the project and will continue construction, operation and maintenance without turning to the states for additional monies.
While public-private partnerships are clearly useful for constructing and operating new transportation infrastructure, performance-based contracts are particularly useful in the area of maintenance and can save states millions. Over 10 years ago, Virginia signed the first performance-based turnkey (single contract) asset management maintenance contract in the country. Virginia pioneered this program by securing a fixed-price long term contract for Interstate highway maintenance. Numerous studies tried to quantify the savings and found Virginia is saving 15 to 20 percent on maintenance costs.
Beginning in 2000, the Florida Department of Transportation (FDOT) followed Virginia's lead and embraced asset management maintenance contracts, initiating an aggressive program of securing long-term performance-based contracts for routine maintenance. They viewed the benefits of the program accurately.
- Fixed long-term price (no change orders, beats inflation)
- Performance-based results
- Cost savings
- Reduction and transfer of risks
- Fewer contracts to administer
- Savings in administrative staff and resources
- Program stability
By August of 2005, Florida had executed 17 contracts totaling $517 million, or $69 million annually. FDOT estimated the savings to be $105 million, or 17 percent for the life of the contracts. In FY 2003-4, FDOT even reduced its request for highway maintenance funding by $9.1 million. Their plan envisions 28 contracts by 2008, totaling $929 million ($121 annually,) and they are on target. Moving away from administering numerous contracts to getting competitive bids for long-term contracts has saved taxpayers money. The number of contracts has gone from 980 to 28; the number of invoices processed annually has gone from 11,760 to 336; and the number of contract advertisements out for bid has fallen from 950 to 4.
The advantages of bringing the private sector into the transportation mix cannot be overstated, especially during a troubled time for state budgets. No one is suggesting that the private sector solves all of the nation's infrastructure problems, but this innovative approach is certainly better than the failed status quo.
Shirley Ybarra, former Secretary of Transportation of Virginia, is a senior transportation policy analyst at Reason Foundation. An archive of her work is here. Reason Foundation's transportation research and commentary is here.
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