A State Agency Eyes Public-Private Transportation Funding

Original Article

The need for public-private partnerships to help rebuild the nation’s overburdened and underfunded surface transportation network is growing. Even before gas prices spiked and gas tax hike prospects dived, the Washington State Transportation Commission was calling for P3s. They did so in this January 2007 report, and then again here.

The January, 2007 report states that P3s should be closely examined as a potential strategy for completing planned major projects including the SR 520 floating bridge replacement, I-5 Columbia River Crossing, the State Route 167 extension to the Port of Tacoma, I-90 Snoqualmie Pass improvements, the State Route 704 Cross-base Highway in Pierce County, improvements to the state ferry system’s busiest dock, in downtown Seattle, Colman Dock, and for other ferry terminal, freight rail capacity and transloading improvements. Two other P3 candidates would be the unfunded and badly-needed $2 billion worth of pavement and interchange work on I-5 in Seattle; and treacherous, deadly U.S. Route 2 in Snohomish County, also in need of about $2 billion worth of work. That’s money which again, the state doesn’t have.

Legislators are taking notice. At Cascadia Center’s West Coast Tolling and Traffic Management Workshop in late June of this year, Washington State Senate Majority Caucus Vice-Chair Ed Murray of Seattle (D-43rd) voiced his strong support for surface transportation P3s. Public radio station KPLU-FM reported:

ANCHOR: “Western Washington is coming up tens of billions of dollars short of what’s needed for highway improvements, bridge replacements and transit infrastructure. Tolls and more involvement by the private sector were among the solutions discussed at a workshop in Seattle Thursday….

REPORTER: “The gathering, sponsored by the non-profit Cascadia Center, brought together public officials, entrepreneurs and policy-makers, wrestling with the region’s growing transportation woes. Democrat Ed Murray is vice-chair of the senate transportation committee in Olympia. He told the group that traditional sources of transportation funding are drying up.”

STATE SEN. ED MURRAY: “There is simply not enough revenue to do what we need to do, in this state, anyway, for education, for health care, and to use the amount of money we would need to use – $50 billion – to finance a transportation system” (ed. – in Central Puget Sound).

REPORTER: “Murray says government is likely to move toward more contracts with private sector businesses to build and operate toll highways and transit systems….

Those, and bridges or tunnels may come to mind first when contemplating transportation P3s. But other sectors, such as maritime cargo, are stimulating public-private deals, too. Freight rail – expected to double in the U.S. over the next 30 years – is also ripe for P3s. The Seattle Times reports the non-profit research group Rand in a new study estimates $148 billion in needed improvements to the U.S. freight rail infrastructure; and adds that a third of that will need to be covered either by P3s or tax incentives.

There’s a spotlight on the whole arena. Foreign- and domestic-based private infrastructure investment funds backed by U.S. public employee and building trade union pension funds have been buying into North American transportation infrastructure projects more and more in recent years. In Europe, Canada and Australia, transportation P3s are already well-established.

In article published recently, the New York Times mentions several of the union pension funds which are now or are planning to invest in surface transportation infrastructure. The list includes the Washington State Investment Board, which has $81.9 billion under management. The board invests on behalf of 17 funds for public employees including teachers, other school workers, law enforcement officers and firefighters; and on behalf of another 21 funds supporting industrial insurance, higher education, developmental disabilities and wildlife protection. Here’s the NYT:

Some American pension funds see an investment opportunity. “Our infrastructure is crumbling, from bridges in Minnesota to our airports and freeways,” said Christopher Ailman, the head of the California State Teachers’ Retirement System. His board recently authorized up to about $800 million to invest in infrastructure projects. Nearby, the California Public Employees’ Retirement System, with coffers totaling $234 billion, has earmarked $7 billion for infrastructure investments through 2010. The Washington State Investment Board has allocated 5 percent of its fund to such investments.

Some foreign pension funds that jumped into the game early have already reaped rewards: The $52 billion Ontario Municipal Employee Retirement System saw a 12.4 percent return last year on a $5 billion infrastructure investment pool, above the benchmark 9.9 percent though down from 14 percent in 2006.

Sorry, but I’m not seeing Gordon Gecko here. Still, it’s plainly worrisome to some voters – and those who must account to them – that a private interest with a profit motive, rather than a solely public entity with no such incentive, would manage transportation assets for a state, regional or local government.

The choice is often between getting a vital project built sooner versus much later (and at a far higher cost), or not at all. With additional capital available from “private” funds, we can begin again to keep pace. These deals are typically not “make-a-quick-buck” schemes. The public sector retains ownership of the facility and control of tolls, rates and fees, over a payback period of 35 to 40 years, or longer. Performance standards for the private partners – who often operate and maintain the facilities, once built – can be baked into the contracts.

In the meantime, more than half the battle has to do with reality versus calumny around “private, foreign” infrastructure funds, as Leonard Gilroy of the Reason Foundation and Matthew J. Brouillette of the Commonwealth Foundation point out in this Philadelphia Inquirer op-ed:

…the New Jersey Teachers’ Pension Fund is a major shareholder in the Spanish toll-road operator Cintra. Australia-based Macquarie, one of the biggest international toll-road firms, has received significant investments from the Mid-Atlantic Carpenters Pension Fund and the Midwest Operating Engineers Pension Fund. Therefore, restricting the participation of foreign firms actually threatens the investments of hard-working Americans – union members, public employees and individual investors alike.

When our friends, family and neighbors are invested in these companies, are they really foreign?….(states) should welcome companies interested in creating job opportunities and investing billions of dollars in the state. This is the reverse of outsourcing – it’s “insourcing” – and it’s good for the economy…..Those fostering foreign fears need a reality check. We drive foreign cars and strap our kids into foreign-made car seats every day. Most people watch the news on foreign-made televisions and surf the Internet on computers filled with foreign-made parts. We routinely fly on foreign-made Airbus planes. But somehow we don’t want to drive on asphalt poured by a foreign company?

The Washington State Investment Board’s plans are another indication that transportation P3s are seen not only as in the public interest due to the mobility and economic gains; but that Regular Joes and Janes right here on our home turf are prominent among the investors who reap the rewards.

Funding is just one piece of the puzzle right now in transportation. At the same time that infrastructure needs are demanding creative solutions, the push is growing to move beyond oil in surface transportation, toward new generations of electric-powered and flex-fuel cars, something that Anne Korin of the Set America Free Coalition explained well on the Dave Ross Show recently on KIRO-AM 710 in Seattle, appearing with our Senior Fellow Steve Marshall and Chelsea Sexton of Plug In America. They’ll all be speaking at Cascadia Center’s “Beyond Oil: Transforming Transportation” conference Sept. 4 and 5, co-sponsored with Idaho National Laboratory, Microsoft, USDOT and WSDOT. There’s a stellar agenda, and space is still available. Register here, directions here. To get a sense of the game-changing mindset, here’s a current Wired profile on one our “Beyond Oil” speakers, the electric car infrastructure champion Shai Agassi of Better Place.

Whether the issue is funding or fueling surface transportation, dramatic change isn’t a nice-to-have. It’s a must-have.

Matt Rosenberg is a Senior Fellow at the Cascadia Center For Regional Development, a transportation think tank that is part of the Discovery Institute in Seattle.