Few disagree that America’s crumbling highway infrastructure needs fixing but there’s no consensus on coming up with the funds to fix the roads. And a solution being touted far and wide to solve the funding problem is generating plenty of controversy on its own.
At issue is the use of public-private partnerships-- PPPs for short-- to maintain and construct new roads and bridges. At the recent Deloitte Global Forum, which gathered more than 140 business and government leaders to discuss rising funding deficits for public infrastructure projects, PPPs were viewed as the best fix..
“Closing the infrastructure gap is necessary to achieve a sustainable business environment and public-private partnerships are critical to enable this,” said Dr. Otmar Thoemmes, global managing partner-clients & markets, for consulting firm Deloitte Touche Tohmatsu.
“Every country needs to operate at a minimum threshold of infrastructure development to enable and sustain cross-border business transactions,” he said. “For example, India's economic development and prosperity could be threatened by its weak infrastructure, because local and foreign companies question their investment in a country where just 2% of the roads are highways. In the case of Latin America, the productivity and competitiveness of many companies with an exporting capacity has been lowered because inadequate transport infrastructure has increased logistic costs.”
In the U.S., things aren’t much better. According to the longest-running study of traffic congestion in America – the Urban Mobility Study, conducted annually for 19 years by the Texas Transportation Institute (TTI) – each person traveling in peak traffic periods wastes, on average, 62 hours a year or nearly eight full working days in congestion delays. Urban travelers can now expect to encounter congested roadways during seven hours of the day, the report continued, with congestion experienced by nearly 60% of urban roadways in 2005.
“The traffic in the U.S. is so bad that when people get behind the wheel, a single vision grips their mind: Traffic Armageddon,” said Norman Mineta, former U.S. Secretary of Transportation, addressing the Deloitte conference. “Our productivity is being compromised by a nightmare of slow-motion, stop-and-go traffic, even on weekends.”
On top of that, while all levels of government are spending $11.2 billion annually to preserve the physical condition of urban roads and highways, DOT estimates that the annual investment needed to maintain urban roads and highways in their current condition is $15.6 billion annually – with a yearly investment of $19.3 billion on top of that needed just to improve the condition of urban roads and highways.
Furthermore, the current $10.2 billion balance in the highway account of the Federal Highway Trust Fund, which funds numerous road, bridge and highway improvements, is expected to decrease to $2.4 billion by the year 2008 and will have a $2.3 billion deficit in 2009, based on revenue projections by the U.S. Treasury.
“Increased transportation investment will be needed to keep the U.S. competitive in the global economy,” explained John Horsely, executive director of the American Association of State Highway and Transportation Officials (AASHTO). “Because of skyrocketing construction costs, additional revenues will be needed to enable states, cities and counties to deliver the congestion relief and capacity needed in communities all over America.”
Yet turning to PPPs to bridge the funding gap isn’t highly regarded in many corners—including the trucking industry-- as the best solution.
“The sale or lease of existing toll facilities generates revenue at great expense to taxpayers and the trucking industry and carries potential negative impacts on highway safety, security and the motoring public,” said Gov. Bill Graves, president and CEO of the American Trucking Assns. “We must consider the long-term impact privatization will have on our nation’s transportation system and explore all available financing options to ensure that the government is motivated by public good and transportation purposes.”
ATA has helped forged an unusual coalition, made up of the American Automobile Assn., the American Highway Users Alliance, NATSO (National Association of Truck Stop Operators), the Recreation Vehicle Industry Assn, and the Owner-Operator Independent Drivers Assn. (OOIDA) and dubbed “Americans for a Strong National Highway Network” to fight the creation of PPPs to fund highway infrastructure improvements.
“We want to maintain a robust national network of safe, reliable public roads for private travel, freight, and military needs while holding governments accountable for highway funding that is transparent and dedicated solely for transportation purposes,” added ATA’s Graves.
However, those who’ve dealt first-hand with finding funds for roadway repair and construction contend there is no better way to solve this problem than with PPPs.
“We're seeing massive growth in PPPs globally,” noted Bill Owens, former Governor of Colorado and now vice chairman of RBS Greenwich Capital. “That’s because governments are confronting massive deficits in public infrastructure, and long-term solvency requires these partnerships across industries.”
Owens said that by entering into a contract with a private sector partner-- and holding that partner accountable to measurable outcomes-- governments are finding it easier to generate positive results for improving infrastructure. “When there is a private-sector partner willing to share the financial risks of a proposed project, government decision-makers are sometimes more inclined to approve the proposed project,” he added.