The Road to Renewal

R. Richard Geddes

Description

Despite record levels of government spending, America's transportation system is plagued by traffic congestion, decaying infrastructure, and politicization of transportation funding-leading to calamities such as the 2007 collapse an interstate highway bridge over the Mississippi River and political fiascos like Alaska's infamous "Bridge to Nowhere." In The Road to Renewal, R. Richard Geddes surveys the current state of U.S. ground transportation and finds that, like the roads themselves, transportation policy is in desperate need of repair. A shift toward increased use of public-private partnerships (PPPs)-contractual agreements that allow private participation in the design, construction, operation, and delivery of transportation facilities-could significantly improve the quality of U.S. roadways.

Sujets

• Public Transportation
• Transportation

Informations

• Publié par: AEI Press
• Date de parution: 16 février 2011
• Nombre de lectures: 0
• EAN13: 9780844743486
• Langue: English

Extrait

The Road to Renewal

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Library of Congress Cataloging-in-Publication Data
Geddes, R. Richard. The road to renewal: private investment in U.S. transportation infrastructure / R. Richard Geddes. p. cm. Includes bibliographical references and index. ISBN-13: 978-0-8447-4346-2 (cloth) ISBN-10: 0-8447-4346-1 (cloth) ISBN-13: 978-0-8447-4347-9 (pbk.) ISBN-10: 0-8447-4347-X (pbk.) [etc.] 1. Transportation—United States—Finance. 2. Transportation engineering— United States—Finance. 3. Infrastructure (Economics)—United States— Finance. 4. Public-private sector cooperation—United States. I. Title.
HE206.2.G43 2010 388'.049—dc22
© 2011 by the American Enterprise Institute for Public Policy Research, Washington, D.C. All rights reserved. No part of this publication may be used or reproduced in any manner whatsoever without permission in writing from the American Enterprise Institute except in the case of brief quotations embodied in news articles, critical articles, or reviews. The views expressed in the publications of the American Enterprise Institute are those of the authors and do not necessarily reflect the views of the staff, advisory panels, officers, or trustees of AEI.
Printed in the United States of America

Acknowledgments
I am grateful to many people for their assistance in the preparation of this book. I have benefited from discussions with and suggestions from Germà Bel, Ross Bevevino, Susan Binder, Shane Chalke, Tyler Duvall, John Foote, Joe Giglio, D. J. Gribbon, Amy Hawkins, Ken Orski, Jeff Shane, and Clifford Winston. I also learned much from lively discussion and debate with fellow members of the National Surface Transportation Policy and Revenue Study Commission: Frank Busalacchi, Maria Cino, Steve Heminger, Frank McArdle, Secretary Norman Mineta, Steve Odland, Secretary Mary Peters, Patrick Quinn, Matt Rose, Jack Schenendorf, Tom Skancke, and the late Paul Weyrich. I am indebted to all the staff of the U.S. Department of Transportation who assisted the commission with its work and thus laid the groundwork for many concepts discussed here. Cornell University students Alex Bowerman and Julia Melamud provided excellent research assistance. Emily Batman, Laura Harbold, Henry Olsen, Mary Peters, Bob Poole, Peter Samuel, and three anonymous referees read earlier versions of the book and provided indispensable comments and suggestions. I am thankful to Adrian Moore for help with several technical issues. I am also grateful to the Australian-American Fulbright Commission for its support and encouragement. The Economics Program in the Research School of Social Science, Australian National University, and the Australian government’s Productivity Commission were both gracious hosts during the book’s completion. Finally, I am grateful to the American Enterprise Institute for its assistance during every stage of this process.
Preface
Large-scale private investment in transportation infrastructure has the potential to thoroughly revitalize America’s highway, bridge, tunnel, port, and intermodal systems, which are in desperate need of expansion, renovation, and repair. The dire fiscal condition of many states and localities means that fewer public dollars are available for infrastructure, making private investment especially timely. Private investment not only injects vast amounts of capital into transportation system maintenance and expansion, but also introduces the sharp, focused incentives that are necessary to operate, upgrade, and expand key facilities efficiently.
The principal mechanism for injecting the fresh capital and incentives of private investment into America’s transportation system is the public-private partnership, or PPP. “Public-private partnership” has become a catchall phrase for an array of contractual relationships between one or more private parties and a public-sector entity. Transportation PPPs are neither a risky nor an experimental approach. Other countries have been using PPPs of various forms for decades, and in some cases for over a century. The United States itself has extensive experience with this approach. Most of America’s early river crossings and bridges and many major roads depended on the grant of a toll charter to private investors. Among the most common companies to issue stock in the first half of the nineteenth century were those that privately financed turnpikes.
Despite their importance, and despite the efforts of a small but growing group of analysts and commentators on their behalf, many misconceptions about PPPs remain. Some stem from an inadequate appreciation of the nature and role of property rights in the transportation sector. For example, some analysis of PPPs proceeds as if U.S. transportation facilities were today essentially unowned, arguing that the exclusion of private investors creates a “savings,” since no returns need be paid to equity holders. This ignores the fact that citizens own the vast majority of U.S. transportation facilities and, like any investors, deserve a competitive return on their investment. PPP-induced competition for the use of citizens’ capital will improve those returns.
While PPPs are often—and justifiably—promoted for their ability to tap new pools of capital that can be used to renovate existing facilities and construct new ones, and for their ability to assume risk, the effect of private participation on the incentives of facility operators is less well appreciated. Economists are in broad agreement that transportation facilities are precisely the type of assets—those whose contractual performance can be monitored effectively—in which the focused incentives associated with private participation create social benefits such as the rationalization of transportation investments and the provision of information about the true value of transportation facilities. It is thus not only new capital investment and risk assumption, but also the associated high-powered incentives that have the potential to rejuvenate America’s beleaguered transportation sector. I explore the effects of those incentives in this book.
Another underappreciated benefit of PPPs is that they inject fresh competition into a range of transportation activities. Competition is a powerful force for promoting social welfare, since it encourages firms to operate efficiently, to focus on customers, and to adopt new technologies rapidly. PPPs already benefit motorists, taxpayers, and investors by allowing competition in several dimensions of transportation provision, such as facility design and construction. In addition to competing for citizen-owners’ capital, PPPs can bring competition to new activities, including facility financing, maintenance, expansion, and operation.
Moreover, the PPP approach is often assessed in isolation; potential challenges associated with private investment are considered without reflecting on how those same issues might arise under current practice. One of this book’s key themes is that the advantages and disadvantages of PPPs must be assessed within the context of a critical question: “Compared to what?” PPPs are, for example, sometimes charged with creating a loss of public control over critical transportation assets. But control under a PPP approach must be assessed relative to the public’s control under a traditional procurement approach. By incorporating detailed, transparent, and enforceable contracts, well-executed PPPs in fact improve public control over transportation facilities.
Many discussions of PPPs focus on the benefits to demanders of capital—the states and localities that desperately need new investment in transportation infrastructure. The benefits to the other side of this market— the debt and equity investors who supply that fresh capital—are often downplayed. Yet PPPs have the potential to expand enormously an important new class of alternative investments in transportation and related infrastructure. Though appealing to many investors, transportation infrastructure is likely to be especially attractive to those already benefiting from tax-exempt status, such as pension funds and nonprofit enterprises. The creation of unique, long-term investment opportunities to improve the retirements of teachers, police, and firemen remains an underappreciated social benefit of PPPs.
Some observers also assume that PPPs can only be used on facilities that generate enough toll revenue to make them profitable. That is false. Even if a facility loses money, competitive bidding through PPPs ensures that the public pays the least possible subsidy required to keep it in operation—an approach that has been used in other countries.
But commentators sometimes overlook relevant experience internationally and in related economic sectors. A diverse set of countries— including Australia, Austria, France, Greece, Hungary, Italy, Japan, Poland, Portugal, Spain, the United Kingdom, and many others—is using PPPs in several transportation-related areas. The United States itself has considerable experience with private investment in many industries that share a similar network structure with transportation, including natural gas, electricity, cable television, railroads, and telecommunications. 1 Many of these industries have been financed through private investment for generations. Underinvestment in any of them would not result in calls for higher taxes to fill the gap, but instead in calls for an environment that would better facilitate private investment.
Moreover, PPPs are now being used in many countries to finance a host of activities loosely termed “social infrastructure.” These include the building a