Funding High-Speed Transportation in America with Public-Private Partnerships

Ask a Democratic legislator to put $25 to $30 billion a year, every year, toward HSR, or any type of rail, when constituents are camped out in their offices and jamming their phone lines worried about cuts to Medicare, Social Security, Medicaid and Home Heating Assistance, which do you think will be one of the first items to fall off the plate? If you said rail, you would be correct.

Similarly, ask a Republican law maker who appreciates the benefits of rail about his priorities when sequestration (i.e. mandatory budget cuts) provisions from the debt ceiling deal of earlier this year will result in further significant cuts to Defense. What falls off the Republican’s plate? Correct again. Rail.

So despite the positive words from many rail advocates who parade up to Capitol Hill with “Pollyanna” funding requests and no recommendation as to how these expenditures can be funded, the prospect of the government funding these rail transportation infrastructure investments is remote at best.

Plan B: Private Sector Funding: Privatization

Then there is Plan B, or “private industry provides all the funding.” Looking at HSR again, Plan B makes the assumption that if “true” HSR is such a great idea with fantastic opportunities for financial success, then private industry should be willing to jump right in and assume all the risk for the certain reward.

This approach has primarily been recommended by conservative think tanks and Congressional conservatives. In fact, there was an opportunity just recently for the private sector to invest in the upgrade of the NEC to “true” HSR capabilities. No takers.

How many projects of this scale have broken ground in America, to date, under Plan B? Zero. Might we get a line or two operating this way? Perhaps. But will America get a network of 21st Century HSR infrastructure that will be competitive with and complement air travel? Unlikely.

What is the private sectors aversion to provide funding public sector projects? Risk, specifically for lack of a better word, governmental risk. Developers, architects, engineering and construction firms et al clearly understand risk.

One of the significant benefits they bring to the table is their expertise in quantifying risk and putting a box around it. It’s what gives them the confidence to develop a cost commitment for a project and agree to a schedule.

Challenges like the type of steel, glass and cement to use (or invent); or how to deal with wind shear or water infiltration, or underpinning existing structures do not faze them. What does concern them are issues like the time to acquire all the properties needed to start a project. Even more so are the painstaking processes of zoning the property and mitigating the impact of the new infrastructure on impacted parties, both real and imagined. But nothing concerns the private sector more than NEPA: National Environmental Protection Act regulations. It is nearly impossible to qualify and quantify that risk.

In development, time is money. Few, if any, private sector firms can bear the risk of lawsuit after lawsuit, appeal after appeal, stopping a multi-billion dollar project dead in its tracks, year after year after year.

Plan P3: Public-Private Partnerships

This leads to the third way of funding public infrastructure. That approach would be implementation of public-private-partnerships, PPP or P3s as they are often called. The underlying assumption with P3s is that (1) there is a role for both government and private industry in building out this infrastructure, (2) neither the government nor private industry has the financial wherewithal to do so on its own, and (3) by both parties doing what they do best, the construction can be expedited and results realized more quickly.

Many now believe that P3s can be the answer to building HSR in America. The task at hand is devising a formula for P3s that would work and be palatable to government, private corporations, unions and management, as well as citizen taxpayers, fare payers and toll payers.

Several actions are needed: There needs to be enabling legislation to facilitate P3s in areas like Joint Power Authorities for governance, and regulations that will expedite permitting, zoning and environmental regulations. House Transportation & Infrastructure Chair John Mica (R-Fla.) has already called for this to upgrade the NEC.