The money road: a lack of resources is causing states to look at privatization to fund transportation projects.

• Author: Sundeen, Matt

It's not that often that state lawmakers can debate the pros and cons of adding billions of dollars in new revenue to the state coffers. But that's the scenario playing out in many state capitols this year and it may be coming soon to a state near you.

What's the subject for such lofty discussions? It's the idea that states now may be able to turn existing government-owned assets into cash that can be used to pay for transportation budget shortfalls or other needs.

The monetization of transportation assets--commonly referred to as privatization agreements, public-private partnerships, or more simply as P3s--is attracting a lot of attention as lawmakers grapple with concerns about a lack of resources for transportation.

"It allowed us to pay for our entire 10-year transportation plan," says Indiana Senator Tom Wyss about a 2006 agreement to privatize the Indiana Toll Road. "Other states wish they could have the same thing," he says.

But the concept has as many critics as supporters. "It's a state yard-sale," counters New Jersey Assemblyman John Wisniewski of a proposal to privatize several toll roads in his state. "Roads are a state asset that give people freedom of movement and are essential to national security. They want to turn it over to a private entity that's in it for the money, not the public interest," says Wisniewski, who chairs the Assembly Transportation Committee.

So, what is this new funding mechanism that's generating so much heated discussion, and is it appropriate for your state?

FUNDING ALTERNATIVES

Across the country, states are experiencing significant shortfalls in surface transportation funding. A 2005 report by the National Chamber Foundation of the U.S. Chamber of Commerce predicted that by 2015, all levels of government would collectively need to spend more than $295 billion each year to maintain and improve the nation's aging network of highways, bridges, tunnels, rail lines and waterways. But governments are woefully behind this target, and the National Chamber Foundation estimated that by 2015 the United States will reach a $1 trillion cumulative shortfall between what needs to be spent and what actually is spent on transportation.

Not surprisingly, such gloomy national projections have translated into ominous forecasts for individual states. In November 2006, for example, the Pennsylvania Transportation Funding and Reform Commission released a report revealing that the average state-owned bridge was 50 years old and estimating that 23 percent of bridges in the state some 5,900--were structurally deficient. The report also found that more than 8,500 miles of state-owned roads, including 32 percent of secondary roads, were in poor condition. Given the needs, the commission identified a $1.7 billion funding shortfall, including an annual gap of $965 million for highways and more than $760 million for transit.

Much of the difficulty in Pennsylvania and elsewhere can be traced to the decline in revenues from motor fuel taxes. A funding staple in most places, gas taxes have not grown rapidly enough to match needs. Some have speculated that such declines can be traced to hybrid cars and more fuel-efficient vehicles. A more likely culprit is a failure to raise motor fuel tax rates. With fuel prices soaring, gas tax increases are a...