Over the last two decades, the United States (US) market for transportation public_private partnerships (PPPs) has made gradual if unsteady progress. While the pace of the market’s growth remains unclear, the US will likely continue its shift toward increased provision of transportation services by the private sector; but how ready is it to do so? This chapter revisits an appraisal of the US transportation PPP market in 2009 relative to international practices to gauge where the US stands roughly a decade hence. Clearly, the US has matured with increased federal state and local experience, but the market is still evolving and remains rather fragmented. Moreover, initiatives by federal and state agencies and professional organizations to bolster public agency capacity are well intentioned, but they lack coordination. Perhaps the US should follow the lead of Australia, which established Infrastructure Australia, and create a comparable body to harmonize PPPs in America.
Ting Liu and Michael J. Garvin
Public agencies may opt to support public_private partnerships (PPPs) to enhance their viability. Increasingly, fiscal support in the form of public subsidies, governmental loans, governmental guarantees or direct payments are offered to mitigate PPP revenue risk. For instance, a public agency may choose to retain revenue risk in an availability payment arrangement, whereas it can elect to cover revenue shortfalls when a minimum revenue guarantee is provided. Despite the increased use of fiscal support mechanisms in PPPs, government sponsors have limited guidance when considering such options. Consequently, a framework is presented that considers a mechanism’s impact on ability to raise financing and government’s financial risk exposure to assess alternative fiscal support options that mitigate revenue risk. The framework is illustrated using a hypothetical example and three alternative support mechanisms. The example demonstrates how the framework supports identifying a dominant alternative and making trade-offs among alternatives.
Duc A. Nguyen and Michael J. Garvin
Public_private partnerships (PPPs) are multilateral transactions implemented via contract over long time horizons. Uncertainty is at the root of many long-term contractual issues, such as incentive allocation, high transaction costs and opportunism. Thus, managing uncertainty in PPP contracts is essential over a project’s life cycle, and risk sharing methods are one approach for addressing such uncertainty. This chapter examines 15 risk sharing mechanisms in 21 United States highway PPP contracts to determine whether these mechanisms were designed through ex ante specification or for ex post resolution. Risk sharing strategies ranged from “event” mechanisms to deductible schemes; the former forego ex ante costs but anticipate ex post, while the latter do the opposite. Findings showed that risk sharing strategies relying on ex post resolution were predominant, so these contracts may incur significant transaction costs in operations. Yet, such strategies provide implicit flexibility to address uncertainty as it resolves.
Edited by Raymond E. Levitt, W. R. Scott and Michael J. Garvin
W. Richard Scott, Raymond E. Levitt and Michael J. Garvin
We do not subscribe to a goal of unconstrained development for its own sake; but assuring an adequate supply of civic infrastructure (including housing, roads and public transport, power, water supply and sanitation) is essential to meet the needs of developing countries where populations are growing and becoming more urbanized, as well as those of developed countries where infrastructure is aging and in need of repair and/or replacement. Important as it is, however, providing the necessary infrastructure confronts severe difficulties. Governments of emerging market countries face enormous shortfalls in financial and governance capacity in delivering sorely needed new infrastructure for their growing populations. At the same time, financially strapped governments of mature market economies are struggling to upgrade and retrofit their aging and obsolete infrastructure. Societies at both ends of the development spectrum need more robust project governance structures that can enable new forms of financing coupled with improved systems of managerial oversight and control. Infrastructure is central to societal welfare, and the high cost of replicating the “last mile of pipe or wire” often requires a monopolistic state provision or regulated private provision strategy. We would thus ordinarily expect that the state would play a major role in its prioritization, funding, development and operation. However, historically this has not always been the case. Specific countries vary in their experience, but the United States (US) is not atypical. As Miller and Floricel (2000) point out, during much of the nineteenth century US transportation systems and power networks were built by private entrepreneurs, with minimal public involvement. Toward the end of the century, large corporate groups replaced the entrepreneurs but still experienced only modest public oversight. However, during the Progressive era of the early twentieth century, private initiatives were increasingly regulated and, over time, nationalized as public enterprises. For the greater part of the century, federal, state and local authorities planned, funded, built and operated the bulk of infrastructure. However, during the 1980s, buoyed by a more conservative political wave, calls intensified for the privatization of these enterprises. From that period to the present, varying combinations of private and public entities have partnered to provide these facilities and services.