Fleet Management

Transportation Legislators Study Public Private Partnerships

April 09, 2014

By Oliver Patton

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Public Private Partnerships will be part of the funding mix in the next highway program but the precise role they will play is not clear.

Transportation legislators got a range of views from partnership experts in a Tuesday session before members of the House Transportation and Infrastructure Committee.

The message from the lead witness, Rep. John Delaney, D-Md., was that his proposal, the Partnership to Build America Act, is a model for how partnerships can work in the U.S.

His bill, which has bipartisan support in the House and Senate, would create a tax incentive for private interests to invest $50 billion in infrastructure projects. Under the terms of his deal, businesses would buy bonds in return for getting tax-free repatriation of a certain amount of their overseas earnings. The $50 billion could be leveraged up to $750 billion in infrastructure financing, Delaney said.

This approach “fuses two concepts,” he said. “It increases investment in infrastructure and it creates incentives to bring dollars home.”

Rep. John Duncan, R-Tenn., chairman of the committee’s Panel on Public-Private Partnerships, told Delaney that his idea has great appeal to members of the committee.

Partnership experts from Canada, where these financing mechanisms are more widely used than in the U.S., had mixed advice for the panel. They said partnerships can work but cautioned that they require careful design and management.

Matti Siemiatycki, an associate professor at the University of Toronto who studies Canadian partnerships, pointed out that these are financing tools rather than funding sources. The money to pay for the partnerships comes from taxpayers through the general revenue stream, he said.

Rep. Peter DeFazio, D-Ore., underscored the point by noting that Canadian motorists pay about 37 cents a gallon in gas taxes, compared to 18.4 cents a gallon in the U.S.

“Our problem is we don’t have the guts to raise the money,” DeFazio said.

Rep. Scott Perry, R-Pa., illustrated the partisan divide over highway funding by responding that the problem is not a lack of guts but of getting value for the public’s investment.

Siemiatycki said that the true value of partnerships is that they help manage construction risk.

“They are not a cheap way to deliver infrastructure,” he said. “The strength of Canadian model is in setting up skilled partnerships (that manage risk).”

Partnerships can work as a tool for delivering large projects, if they are well designed and used appropriately, he said. He cautioned that partnerships require rigorous data on risks as well as transparency, community involvement and flexibility.

Larry Blain, chairman of Partnerships British Columbia, said Canada’s experience with more than 200 partnerships shows that this approach can breed strong management.

Done properly, partnerships promote planning discipline and preparation, which leads to projects being done on time and on budget – with the private partners taking on the risk. The approach works best with new, “greenfield,” projects rather than conversions of existing infrastructure, he said.

David Morely, vice president of business and government strategy at Infrastructure Ontario, agreed that one of the key benefits of partnerships is that they promote rigorous budgeting on the front end.

The result can be more value for the public’s money when using a partnership, compared to the traditional approach to infrastructure funding, he said.

Cherian George, a managing director of infrastructure and project finance for Fitch Ratings, offered a note of caution.

The challenge is to transfer the risk of financing, construction, maintenance and operation to a private entity without losing flexibility, he said.

“The public sector makes the rules but sometimes it has trouble living by those very rules,” he said.

These projects require expertise in a wide range of business, legal and public policy skills, and even then they face the difficult task of forecasting demand accurately, he said.

“Failure is generally due to bad design,” he said.

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