Public-Private Partnerships: Paying for Our Paving

Pennsylvania is facing a $1.7 billion annual shortfall in funding for roads, bridges and mass transit. The only thing worse than the deficit is the proposed “solution” to this shortfall: higher gas taxes, higher income taxes, higher sales taxes, higher realty taxes and higher vehicle fees. We’re told if taxes are not raised, Pennsylvania’s roads will only get more congested, less safe, and mobility will continue to suffer.

But are higher taxes and fees the only solution to Pennsylvania’s transportation funding crisis?

The best solution is the global trend of public-private partnerships, or P3s, which have gotten a lot of publicity recently due to the possible lease of the Pennsylvania Turnpike.

These partnerships aren’t new. Some two dozen states have passed legislation enabling P3s, where governments partner with private-sector companies to provide public goods and services. States like Indiana, Georgia and Texas have largely centered their transportation policy on the utilization of these partnerships.

The discussion over a possible turnpike lease is part of a larger trend beginning to sweep across the nation, as global capital markets discover the potential of investing in US highways and governments discover a revenue source that can finance neglected transportation needs. In 2005, two high-profile deals caught the attention of policymakers around the country: the City of Chicago leased the Chicago Skyway for almost $2 billion and the State of Indiana leased the Indiana Toll Road for $3.85 billion.

In each case, the company is responsible for maintaining and operating the road and facilities. The government, however, retains ownership, and a very detailed concession agreement, or contract, protects the public interest. The contract sets toll rates and possible increases, and establishes well-defined performance levels that the private companies are required to meet. If they fail to do so, the companies face penalties, fines, and the potential voiding of the contract. These agreements dictate everything from future maintenance and road condition expectations to the time it takes to remove road kill. In many cases, these standards far exceed the standards of government-run roads.

In Chicago, private management has reduced traffic congestion and improved customer service. Customer satisfaction levels have risen, and the contractor, Cintra-Macquarie, has added reversible lanes to accommodate peak demand during rush hours. Electronic toll collection was rolled out in record time—saving commuters time and relieving them of the hassle of searching for change.

While the Indiana lease agreement only closed in early 2006, state officials are ecstatic about earning $6 of interest per second. Those funds are dedicated to funding future transportation projects in the Hoosier State. In addition, the contractor has pledged to spend approximately $4.4 billion in road improvements over the term of the contract, with more than $200 million spent in the first three years of the deal. Perhaps the most important benefit will be the creation of at least 130,000 new jobs from the deal. The agreement mandates the contractor hire Hoosiers first and “Buy Indiana” for 90% of its purchases. Indiana officials are so happy with the deal that they are currently seeking two new P3s in the state.

Leasing assets like the Turnpike can revitalize the entire transportation system, if the proceeds are dedicated to transportation infrastructure. Indeed, Rep. Rick Geist (R-Blair) has rightly called for a constitutional amendment to protect any proceeds and guarantee that they are dedicated solely toward Pennsylvania’s transportation network—not the pet projects of a governor or legislator.

The Turnpike lease is only the beginning. P3s could finally get the Mon-Fayette Expressway built in Pittsburgh. Philadelphia residents could see dramatic efforts to ease their commute, perhaps including a second deck to the Skuykill Expressway, which would be a similar approach taken by Tampa, Florida’s Expressway.

The choice is clear. Business as usual results in more and higher taxes. Embracing P3s puts the Commonwealth on a new path. P3s will open up new sources of capital to the Commonwealth, preventing more tax increases while adequately funding roads and infrastructure. This path is one toward prosperity.

Pennsylvania’s transportation policy is due for modernization, and the Governor and Legislature will have to be partners in getting the job done. If they choose the proven, effective policy tool of public-private partnerships, billions in private money will flow in, creating jobs and improving the state’s transportation network for generations without putting taxpayers at risk.

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Geoffrey F. Segal is the director of government reform at the Reason Foundation ( and an adjunct scholar at the Commonwealth Foundation ( in Harrisburg.