Governor Rendell’s recent announcement that the state would seek “expressions of interest” on a lease of the Pennsylvania Turnpike is a recognition of the potential benefits of public-private partnerships (P3s) in transportation. Policymakers are looking to P3s as an alternative to raising taxes or fees in order to plug a $1.7 Billion transportation funding gap identified by the Pennsylvania Transportation Funding and Reform Commission.
Although public-private partnerships are a relatively new concept to Pennsylvania, the utilization of P3s in other states and countries is expanding. The experience with transportation P3s demonstrates their potential for success in Pennsylvania. Public-private partnerships include contracting the management of services; construction and operation of new roads, bridges, and highway lanes; and—as the Governor’s announcement suggests—leasing of existing assets like the Pennsylvania Turnpike.
Preliminary estimates suggest that a long-term lease (75-99 years) of the Pennsylvania Turnpike could yield between $2 billion and $30 billion in a one-time, upfront payment. Such a sum should be deposited in an interest-bearing account that is strictly limited for use in supporting transportation infrastructure needs. Recent leases of toll roads in the United States include the $1.8 billion lease of the Chicago Skyway and the $3.85 billion lease of the Indiana Toll Road. Despite the potential benefits of leasing the Pennsylvania Turnpike, there are some concerns.
Many fear that a private company would dramatically increase tolls to increase their own bottom line. Although the argument that government does a better job of keeping prices lower than the private sector is dubious at best, there is legitimate concern about granting a monopoly (because the turnpike has not competitors) to a private contractor. But much of this concern can be mitigated through the leasing contract. In exchange for the rights to manage the turnpike (the “public” portion of the partnership), the private company would agree to a service contract which outlines the parameters within which the company must operate. This should include specific language about toll increases, as well as specify service requirements. However, each requirement that hinders the company from accurately pricing the cost of operating the turnpike will reduce the lease amount.
Some critics, including Senator Vincent Fumo (who, coincidently, has strong ties to the Turnpike Commission) have suggested that a private company’s profit motive would result in a poor quality of service. While Mr. Fumo may believe that government bureaucracies provide better services than private firms, economic history belies this assertion. It is the inefficiency, waste, and patronage within government and its agencies which are in large part responsible for the transportation crisis the Commonwealth now faces. Private firms have far greater incentive to provide efficient and high-quality services than government agencies. Partnering with the private sector to manage and fund our transportation infrastructure is no different than trusting the free market to operate grocery stores or develop computer software.
To be sure, there will be some losers. The Pennsylvania Turnpike Commission—an appointed board which governs turnpike operations, and a rich source of patronage jobs—will become virtually obsolete, as will functions that can be more efficiently and effectively delivered because of innovations and technology. The risk to private investors is substantial as well; yet many have expressed the willingness to take on this risk. This is a benefit to taxpayers as public-private partnerships shift the risk from them to the private sector company.
There are very legitimate concerns with public-private partnerships. First, the bidding process must be open and transparent. This ensures that the public asset and the public interest are protected. Second, the private management company must be granted the flexibility to make contractual and personnel decisions once existing turnpike agreements expire. Finally and foremost, the billions of dollars generated from a lease must be dedicated to transportation investments only. Too many people will be tempted to divert such a windfall to fund various pet projects and programs. Only by creating a dedicated fund—protected by a constitutional amendment—can we ensure that the money will be used only for transportation.
Done right, public-private partnerships are a viable solution to Pennsylvania’s transportation problems. Instead of higher taxes and fees, Pennsylvania policymakers should look first to public-private partnerships and free-market alternatives to fill our transportation funding needs.
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Nathan A. Benefield is a policy analyst with the Commonwealth Foundation (www.CommonwealthFoundation.org), an independent, nonprofit public policy research and educational institute based in Harrisburg.