Down the road

We may be entering an era where our major infrastructure will be owned by private entities with public partner. Matt Rosenberg, a senior fellow at the transportation think tank Cascadia Center for Regional Development, eloquently spoke to this in his article, “A state agency eyes public-private transportation” which appeared in the on-line publication Crosscut. The article suggests that the Washington State Investment Board may be interested in financing various highway improvements in the State of Washington through a public private partnership. The Investment Board, like other large organizations with significant pension and other cash accounts, has found that government’s transportation infrastructure provides a good return on investment.

For many reasons, it is quite likely that there is more than a little interest in this outcome. Washington, like other states across this country face multi-billion dollar investments in highway maintenance and expansion projects. In addition, Congress is not interested in another gas tax increase (last time it was raised was 1983). At this year’s Democratic National Convention, I participated in a Rockefeller Foundation funded session entitled “The 2008 Rocky Mountain Roundtable Transportation & Infrastructure Roundtable.” There was an interesting exchange between Pennsylvania Governor Ed Rendell and Rep. Rosa DeLauro (D) Connecticut. Despite the insistence of both Gov. Rendell and former Speaker of the House Richard Gephardt that a gas tax might be necessary, Rep. DeLauro made it clear that the House of Representatives had little appetite for a gas tax increase. Where does that leave us? Clearly, it is unlikely that we’ll see the Federal government pouring billions into any s tate’s roadway system.

What does this mean? Quite frankly, the Central Puget Sound, like every major metropolitan area of the country, will begin to see system wide variable tolling – not taxes – to finance congestion relief and unclog our roadways. This was suggested in a 2007 study of the region by Jack Oplia from Booz Allen Hamilton on behalf of King County. It is also the position of the United States Department of Transportation. In addition, the Puget Sound Regional Council (PSRC) is also looking at system tolling alternatives in their Transportation 2040 update. One alternative involves just limited access roadways; the other: limited access roadways and arterials. Both alternatives show huge congestion relief and revenue generating potential.

Why will we see private/public partnerships? In order to build you must sell bonds against tolling revenue. To get a good rate from the bond market and a lower toll, government usually pledges its full faith and credit. As states and municipalities reach their capacity to bond, they may seek a large private partner to help cover risk. This is where the private market has aggressively stepped into the transportation arena. Investment banking giants, Morgan Stanley, Goldman Sachs and JP Morgan were all represented by senior partners at the Rocky Mountain Roundtable in Denver touting the capacity of the private sector to invest in our public infrastructure assets. It is has done successfully in the United States and abroad

The future will unquestionably bring system-wide variable tolling. It will ease congestion, reduce harmful emissions, and finance and rebuild our transportation infrastructure. Before these tolled facilities will be owned and operated by the private sector is something we will need to watch closely. We owe the public as much.

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