It’s been five years since the Florida Department of Transportation first ventured into private financing for public infrastructure, and it now has nearly $4 billion on the books. The lessons it learned make the agency a go-to for states that want to get into public-private partnerships. According to Marsha Johnson, director of financial development, P3s allow the state to complete high-priority projects years ahead of when they would be scheduled if the state had to finance them out of pocket.
For example: A consortium is building high-occupancy toll lanes parallel to Interstate 95 near Miami. The company put up some $1.2 billion to design, finance, build and maintain the roads, to be repaid by toll revenue over the next 35 years. Johnson said if the state waited to build the project on its own, it would take 15 years to solve today’s congestion problem.
“People pay to go into the express lane to get off 95. You have a choice, and from what I hear, people are so thrilled,” Johnson said. “It’s a benefit to the traveling public. You’re no longer sitting in traffic on I-95.”
Florida is tapping into private sector financing that’s likely to get greater attention in Washington as Congress struggles with ways to pay for transportation infrastructure. There’s no political will to raise taxes, and future funding from the Highway Trust Fund is uncertain. And U.S. Chamber of Commerce President Thomas Donohue said Jan. 11 that a new multiyear transportation bill could attract some $200 billion in private capital ready to meet pent-up demand.
Maybe so, but David Seltzer, a principal in Mercator Advisors of Philadelphia, said if states don’t have the revenue to repay, private-sector money may be a mirage.
“I’m saying it is fool’s gold, unless there is the revenue stream to pay a return on that capital,” Seltzer said. “I would be wary of claims that the private sector can step in and execute where state and local governments cannot, because they still need that revenue stream which politicians have been unwilling or unable to approve at any level of government.”
Florida gets high marks from bond rating companies because it has controls in place to ensure the state doesn’t overextend its ability to honor its contracts, Johnson said. The state finances projects with a mix of public and private sources.
The federal government is also taking a stake in the two largest P3 projects, the I-595 toll roads and a $607 million tunnel into the Port of Miami. The Federal Highway Administration guarantees loans under the Transportation Infrastructure Finance and Innovation Act, a program popular on Capitol Hill and likely to be continued in a new transportation bill.
Investors in public-private projects generally have negotiated to buy and lease back existing infrastructure. “It’s a much safer investment. It’s the low-hanging fruit. That’s where the equity funds have been oriented until recently,” Seltzer said. “To my mind, the more beneficial use of the private sector resources is for development of new projects, and those could be the tax-supported projects.”
Contact R.G. Edmonson at email@example.com.