On the road (and bridge) again: in this era of declining revenues, more states are turning to the private sector to complete transportation projects.

• Author: Reed, James B.
• Position: TRANSPORTATION

We've heard it for years. The nation's bridges are crumbling, our roads are peppered with potholes, Congress won't pass a comprehensive transportation funding plan, and gas tax revenue isn't cutting it.

There's just not enough money to fix the millions of miles of roads and the tens of thousands of bridges spanning the country. What we need is some $134 billion to $262 billion each year for the next 20 years. What we have: 40 percent to 70 percent less.

What's even more alarming is that one in nine bridges in the United States--and the average is 42 years old--is structurally deficient, according to the American Society of Civil Engineers' 2013 Infrastructure Report Card. And to fix them, we need $8 billion more each year than we already spend.

Wisconsin plans on about $2.5 billion in state and federal transportation money each year, but it needs $480 million more to maintain, improve and modernize its existing roads and bridges.

In 2013, 5,540 of Pennsylvania's bridges--24 percent--were structurally deficient. Today, that number has dropped to 4,200, thanks to an aggressive program and a not-so-new idea with a new twist: public-private partnerships (P3s or PPPs).

The fuel taxes drivers pay at the pump have paid for most transportation projects, but that money is decreasing every year. And without "the political will to raise the revenue necessary to pay for what is needed," says Minnesota Senator Scott Dibble (DFL), P3s may be one solution.

Sharing the Risk

The concept is simply a new take on an old idea: Fund and finance complex projects by cobbling together a variety of local, state, federal and private sources, but change the stakes. These public-private partnerships bring new money and shift some of the risks to the private partner, so a state's department of transportation can do what it does best--plan the project and obtain environmental permits and rights-of-way.

This is the key feature distinguishing P3s from conventional government projects: Through a performance-based, long-term service contract with a government agency, the private entity takes on what has typically been the responsibility of the public sector--financing, design, construction, operation and maintenance, even toll revenue collection.

There is a public cost to transferring risk to the private side. The bigger the risk assumed by the private sector, the greater the cost to the state because of its guarantee of return on private investments. But the private party also has "skin in the game" in terms of its financial investment, so keeping up operation standards on its side is pretty much guaranteed.

"Giving a private partner an equity stake in a project, as well as control over the project's execution, generally encourages more efficient management than the traditional approach affords," the Congressional Budget Office (CBO) stated in testimony to Congress in March 2014. The contracts specify that when finished, the private side must hand back projects to the public side in improved condition.

P3s are viable for "some, but certainly not all infrastructure projects," says Representative Ed Soliday (R), chair of the Indiana House transportation committee, whose state has embarked on a number of these projects. "There are many types of P3s. The key is having a state revenue source to make payments to the private entity as project phases are completed."

This is the key caveat. P3s do not free up or create new public funds. They may reduce some of the initial upfront public debt, but revenues from tolls or other state transportation...