Some Maryland legislators are seeking to put new restrictions on private sector investments in the state’s transportation system. They point to large cost overruns and delays on the Purple Line light rail project, implying the same fate would likely befall planned public-private partnerships to add toll lanes to the Beltway, I-270, and American Legion Bridge. The legislators are mistaken, however, and their proposals could cause Maryland to lose billions of dollars of investment and be shunned by private infrastructure investors going forward.
Unfortunately, these concerned lawmakers are conflating two very different kinds of public-private partnerships. The beleaguered Purple Line was financed based on annual payments to the company by the state, meaning taxpayers are stuck with the delays and cost overruns.
The type of public-private partnership being used for the I-270 and Beltway toll lanes is very different. It requires the private company, not taxpayers, to finance the projects based on the expected toll revenues it hopes to receive from customers. This kind of “revenue-risk” public-private partnership (P3) means the company is taking the risks. If the toll road doesn’t generate enough customers or revenue to cover the costs of building and operating the project, the company loses money. Taxpayers don’t.
“Any project deemed profitable for companies should be considered doable for the state to finance on its own,” the Maryland Department of Legislative Services claimed in a report, according to The Washington Post. This statement totally ignores the risk inherent in major infrastructure projects. In a revenue-risk P3, there is no guarantee of any profit. In fact, several early P3 toll roads built using public-private partnerships in California and Texas went bankrupt. They were not bailed out by taxpayers. Instead, the projects remained in service and the bondholders worked out financial settlements with new companies to keep the toll roads in operation.
Another risk-reduction measure being questioned by P3 opponents in Maryland is called a “pre-development agreement.” Agreements like this between the state and private companies address many of the gritty details about rights of way, environmental mitigation, and numerous other problems before negotiating the final long-term agreement. This collaborative approach aims to identify potential hurdles, reduce a project’s risks and costs, and make it more likely a project can ultimately be completed on time and on budget. Transportation agencies and companies have no desire to repeat a situation like the Purple Line fiasco, and this type of agreement is a sound step in that direction.
Similarly, Los Angeles is entering into this kind of agreement with the two companies that are finalists for a major rail transit project. Virginia, arguably the nation’s leader in transportation P3s, used a pre-development agreement for its $2 billion Elizabeth River Crossings project, which finished early and on budget.
Maryland could seek to emulate more of Virginia’s approach to P3s. Virginia, like Colorado and Puerto Rico, has created a specialized P3 unit to assess the feasibility of major transportation projects and whether they should be done traditionally or using long-term public-private partnerships. This type of focused unit, with professional engineering, legal, and financial expertise, can help ensure the state is choosing the best options and getting the best deal for taxpayers.
Maryland’s P3 law could also be improved to better spell out what kind of provisions should be included in long-term P3 agreements, how procurements should be organized, and how to make the process and the resulting agreements more transparent. These are definitely proper topics for legislators to decide. But if Maryland wants to continue to attract serious investment in projects, like the Beltway and I-270, it needs to avoid overly politicizing the process—which the proposed bill would do.
Yes, elected officials will ultimately decide which transportation projects are needed and which are suitable for public-private partnerships. But second-guessing the result of a competitive selection of the best team, as some state legislators are doing with their proposed law, is a major mistake. If companies know that after being invited by Maryland to spend years of time—and money—in research, preparation, good-faith competition, and lengthy negotiation, only for the whole thing to be scrapped or made unviable by a last-minute political fight, well, investors in billion-dollar scale projects simply won’t take that risk.
The Maryland DOT warns the proposed P3 bill could “irreparably damage” the state’s infrastructure efforts, and they’re right. States like California and Florida enacted early P3 laws that permitted last-minute political vetoes of negotiated agreements. They ended up getting no private infrastructure investment until those unwise provisions were removed.
Gov. Larry Hogan and MDOT know the state doesn’t have the money to build the Beltway and I-270 projects. Hopefully, the state legislature won’t drive Maryland’s private partners away.
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