Posted on: August 13th, 2012
Fifty-six years ago, President Dwight D. Eisenhower launched one of America’s most ambitious infrastructure investment programs – our interstate highway system. Eisenhower was keenly aware that, compared with the safe and efficient German Autobahn, America’s highway network was woefully inadequate. It is hard to imagine now, but at that time our highway system was to a large degree made up of dirt roads and unsafe bridges. It took two months to travel by car across the country.
Ike’s competitive spirit drove his vision, and his leadership on the national transportation issue culminated in The Federal-Aid Highway Act of 1956. In fact, on August 2nd, 1956, my home state of Missouri became the first one to award contracts with the new interstate construction funding. One contract was for construction on the historic U.S. Route 66 (now Interstate 44), and the second one awarded that same day was for work on U.S. 40 (now Interstate 70, the Mark Twain Expressway in St. Charles County).
Fast-forward 50 years to 2012. Across the country, many of our interstate highway systems and bridges are in need of major repair. Innovations in fuel-efficient cars and the recent economic downturn have resulted in stagnated fuel taxes, which fund improvements and renovations of public roads. How will our country continue to meet its transportation needs? What alternative financing can our leaders seek to keep the economic engine of our country on track?
Around the globe, public-private partnerships, also known as “P3s,” are becoming a preferred choice that enables financing from user fees and other revenue sources in the free-enterprise system. Properly designed P3s can also help achieve cost savings and deliver new infrastructure faster than the traditional government-led development model. Public-private partnerships are contractual agreements formed between a public agency and a private sector entity that allow for greater private sector participation in the delivery and financing of transportation projects. A well-structured P3 improves the incentives for all the parties and can deliver projects faster and at lower total costs.
The development and operation of a new toll road, for example, may be can be improved if the state contracts with a private entity that is the developer, operator and has its own equity at stake in the project. This should result in faster delivery of the project because the firm would have an incentive to begin earning back its investment. It would also lead to a design that takes into account operating costs given the need for profits beyond the costs.
Another option is the creation of extra “express lanes” developed by the private sector. Drivers would decide if they want to use and pay for the new convenience (faster lanes, etc.). This particular design is a win-win for all drivers. Express lane drivers clearly benefit, as do all other drivers, as there will be fewer vehicles in the traditional lanes of traffic.
The Federal Highway Administration has recognized public-private partnership model legislation across twenty-three states related to highway projects. If your state chamber of commerce or free-market think tank is not lobbying for more results in this public policy area, now is the time to motivate action. If your building trades union is hungry to provide more shovel-ready projects within your community, there now are many innovative ways to activate such programs. Policymakers don’t have to choose between increasing taxes and delivering fewer services to their citizens.
Today, America’s total infrastructure spending (on items such as buildings, factories, freight rail, pipelines, refineries, roads, and airports) is driven more by private sector investment because of a specific business development need. In 2011, a Cato Institute Report grouped the Bureau of Economic Analysis of private gross fixed investments at $1.7 trillion, compared to gross fixed investments by federal, state, and local governments of only $505 billion. One conclusion from this analysis is that if Congress wants to boost infrastructure spending, the first step should be reforms that encourage private investment. Tax reforms, such as a corporate tax rate cut, would increase the net returns to a wide array of private infrastructure investments.
Some policymakers already are discussing alternative financing options for state and local governments, such as the Federal Reserve Bank of Chicago. Business leaders should demand no less than Chicago Mayor Rahm Emanuel and his civic effort with the Chicago Infrastructure Trust in refusing to tie the city’s economic viability to political dysfunction. Other metropolitan regions, such as Atlanta‘s, are set to let voters decide by local ballot referendum later this month. Voter-empowered choices like the Untie Atlanta Campaign demonstrate how America overcomes obstacles by offering the practical elements found within public-private partnership agreements.
President Dwight Eisenhower once said that “plans are nothing; planning is everything.” It is time for our states, cities, counties, and agencies to start planning and move America’s future down the road.