Public-Private Partnerships And Protecting the Public Interest

Preliminary Questions & Issues

Steve CohenAssistant Director

U.S. Government Accountability Office

Northern Border Finance ConferenceChicago, IL

May 16, 2007

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Topics

• What factors drive consideration of Public-Private Partnerships?

• What work is GAO doing?

• What issues relate to achieving public objectives and protecting the public interest?

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What factors drive consideration of PPPs?Mobility and financing challenges

• Mobility challenges• Congestion increasing rapidly • Population and freight projections

• Transportation financing challenges• GAO high risk area• Revenues not keeping pace• Traditional revenue sources may not be sustainable

• Long term fiscal challenges limit options

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What factors drive consideration of PPPs?Long-Term Fiscal Challenges

• Imprudent and unsustainable fiscal path

• Known demographic trends and rising health care costs

• Unsustainable deficits and debt

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What factors drive consideration of PPPs?Long-Term Fiscal Challenges

Source: GAO’s January 2007 analysis

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10

20

30

40

50

2006 2015 2030 2040Fiscal year

Percent of GDP

Net interest Social Security Medicare & Medicaid All other spending

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What factors drive consideration of PPPs?Advantages Generally Cited From Public Perspective

• Accelerated project delivery--projects built sooner

• Access to capital

• Transferring of risks (financing, construction, market, O&M, availability)

• Private sector efficiencies in construction and operations

• Defined operation and performance levels and timely upgrading and replacement of assets

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What factors drive consideration of PPPs?Trade-Offs: GAO’s 2004 PPP Report

• Political accountability and control • Relinquished control over toll rates in some cases• Non-compete agreements reduced ability to improve some

public roadways

• Financial trade-offs• Varying degrees of public subsidy in both for-profit and non-

profit projects• Foregone tax revenue in non-profit projects• Certain financial responsibilities should private venture fail

(e.g., operations and maintenance)

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What Work is GAO Doing?PPP request from Congress

• Bipartisan congressional request • Senator Inhofe, Environment & Public Works Committee• Rep. DeFazio, House Transportation & Infrastructure Committee,

Subcommittee on Highways & Transit• Senator Durbin, Senate Appropriations Committee

• Research objectives 1. PPPs and the objectives/factors that contributed to their use 2. Challenges private and public partners face3. Results and outcomes--how public benefits are achieved and the

public interest protected4. The federal role

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What Work is GAO Doing?PPP request - Scope and methodology

• Literature review of US and overseas experiences

• Interviews with • U.S. DOT and state project sponsors• Financial and legal consultants• Market and industry analysts

• Site visits/Project case studies• Indiana • Spain• Australia

• Texas • Oregon • Toronto

• Chicago

Report to be issued October 2007

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What Work is GAO is doing?Related GAO work

• Railroad Bridges and Tunnels; June/July 2007 Options for financing bridge and tunnel projects, including PPPs

• Efficient Use of Existing Infrastructure; July 2007 Congestion mitigation techniques and actions to use infrastructure

efficiently

• State Contracting Practices; October 2007 Trends in state practices including innovative contracting/PPPs

• Freight Bottlenecks; November 2007 How freight bottlenecks are being addressed, including PPPs

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Key Questions For Protecting Public Interest

• How do we define the public interest?

• What are the key questions?

• Performance• Financing• Accountability

• What is the federal role?

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Key Questions For Protecting Public Interest Performance

• What performance standards does the public require?• Construction• Operation• Maintenance• Traffic/congestion• Expansion

• What metrics are we using to measure the success of PPPs?

• How should effective monitoring and oversight mechanisms be structured and at what cost?

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Key Questions For Protecting Public Interest Financing

• How are tolls set and by whom?

• What level of public support (tax or otherwise) is acceptable and prudent?

• What responsibility does the public have for upside or downside extremes (e.g. preventing “excess profits”)?

• What responsibilities does the public have should the private venture fail?

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Key Questions For Protecting Public InterestAccountability

• What is the appropriate term for a long term concession?

• How do we protect the ability of public entities to operate an interconnected roadway “network”?

• How do we protect the ability of public entities to build and operate additional (potentially competing) facilities?

• What critical skills sets need to be maintained by public institutions?

• What ability should public and private partners have to revisit the agreement over several generations if conditions and circumstances dramatically change?

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The Federal RoleIssues

• Federal stewardship responsibilities• National defense, interstate commerce, homeland security• protecting the national investment in the system to date • goals of the federal program (e.g. economic growth, enhanced

mobility, system performance)

• Future roles and initiatives

• The need for reexamination—getting the big picture right

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The Federal Role Fiscal Crisis Requires Fundamental Reexamination

• Clear federal role and mission?

• Outcome-based performance measures?

• Targeting investment toward greatest needs and return?

• Encouraging investment from other stakeholders?

• Best tools and approaches?

• Affordable and sustainable?

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The Federal Role Framework For The Future?

• A comprehensive vision for a national transportation network

• Reexamination and potential realignment of the roles of federal, state and local governments and that of the private sector

• A financing scheme that leverages resources to optimize performance, meet goals, and achieve results.

Protecting the Public Interest inPublic-Private Partnerships

Preliminary Questions & Issues

Questions?

Steve CohenAssistant Director

U.S. Government Accountability Officecohens@gao.gov