Public Private Partnerships to Build Transportation Infrastructure

Public Private Partnerships (PPPs) have become increasingly popular over the past decade, particularly since the passage of the Safe, Accountable, Flexible, Efficient Transportation Equity Act in 2004. PPPs were embraced by the Administration of President George Bush and his second Secretary of Transportation, Mary Peters. Public private partnerships are defined as government mechanisms that enable the private sector to participate in the funding of transportation infrastructure.

What has occurred over the past few years is an intentional blending of the "privatization" idea of selling roads with the "public-private marketplace" idea of setting up debt markets. This was intentional on the part of previous administrations, because the debt market idea is a good one, while the privatization is usually (but not always) a bad one. The FHWA has an office of Public/Private Partnerships which covers both types of projects. Here is a rundown of the programs that have become among the most commonly implemented. Direct links to the fact sheets on these government programs can be found in the links section of this article.

TIFIA focuses on freight projects and major facilities. The primary purpose of this program is to guarantee debt purchased for federal aid projects. TIFIA has been popular for use on freight projects, because there isn't much money reserved for freight infrastructure. TIFIA can also provide loans directly from its revolving fund.

State Infrastructure Banks provide a pool of funds to buy down interest rates on debt issued by the individual state. State Infrastructure Banks can also act as a broker for transportation debt, similar to how Sallie Mae acts as a reseller of student loan debt. SIBs are also authorized to guarantee debt issued by agencies with no credit-worthiness The purpose is to increase the attractiveness of transportation project bonds in the marketplace and therefore, attract more money from the private sector at favorable rates.

Private Activity Bonds do not have a fact sheet, because no actual money is spent on this program. Instead, it is simply the authorization for private companies to issue tax-exempt bonds if they build a public transportation facility. So if Wal-Mart wants to build a 4-lane road to its new store, they can issue a corporate bond that will have tax-exempt status. This makes the bond more appealing to investors, and drives down the rate that Wal-Mart must pay.

Public Private Partnerships will no doubt play an important role in transportation infrastructure finance over the coming decades.