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New at Reason: Maryland Announces $456m PPP to Redevelop and Operate I-95 Travel Plazas

Leonard Gilroy
January 27, 2012, 2:16pm

In my new Reason.org article today, I explore Maryland's newly announced public-private partnership (PPP) for the redevelopment and operation of two I-95 travel plazas. Here's a snippet:

Earlier this week, the Maryland Transportation Authority (MDTA) announced that it had approved a 35-year public-private partnership (PPP) for the redevelopment and operation of two I-95 travel plazas. A consortium led by the Areas USA—a domestic subsidiary of the Spanish firm Grupo Areas SA, a major food concessionaire in European and Latin American airports, toll plazas and the like that is currently engaged in similar concessions across the U.S.—will finance the $56 million redevelopment of the state's Maryland House and Chesapeake House travel plazas along Interstate 95, and upon completion will operate them for 35 years, sharing an estimated $400 million in revenues with the state over that period.

[...] The deal looks like a win-win for the state, taxpayers and private enterprise:

• The state will benefit from the replacement of two aging travel plazas without having to spend public dollars to do so, and it will retain ownership and control of these assets while benefitting from professional management by a private operator who knows this business. Running travel plaza businesses is hardly a core competency of government and is a better fit for private firms who do this sort of thing for a living.

• The state—and ultimately taxpayers—will benefit from a revenue sharing plan from day 1 that is expected to bring hundreds of millions to state coffers over the life of the deal. For the privilege of being allowed to operate these plazas, the concessionaire is going to share a 9-15% cut of its various revenue streams every year, with the state's share increasing as revenues increase. In short, the higher the concessionaire's revenues, the higher the state's share. It's not dissimilar from the way lodging concessions in national parks like Yosemite and the Grand Canyon work, as well as many other types of commercial concessions associated with public assets.

• The state is sending a strong signal to the PPP market that it is open for business and that there is a political commitment to see initiatives like this through to completion. Interestingly, the MDTA cancelled an earlier procurement for this project last year after vendors offered a tepid response to the original solicitation in late 2010, which was so overly prescriptive that the request for proposals itself totaled over 700 pages. Instead of abandoning the concept, MDTA did the sensible thing by reevaluating and streamlining its procurement approach and using a lesson learned from the first attempt to create a workable, attractive project when it was rebooted.

For more details and other thoughts on this initiative, read the whole article here. And be sure to visit our transportation PPP research archive here for more of Reason Foundation's long-running work on this valuable concept.


Leonard Gilroy is Director of Government Reform


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