US faces uncertain legislative climate for PPPs

President-elect Barack Obama's choice for transportation secretary could impact the future of private sector participation in public projects in the US.

The financial crisis has caused a flight to safety, making infrastructure investment more attractive than it used to be, said David Gribbin, general counsel for the Federal Department of Transportation. 

“I think transportation in the current environment has gone from being predictable to being downright sexy,” Gribbin, a former division director with Macquarie in the US, said to an audience of engineering, finance and government officials gathered at the California Infrastructure Summit on Tuesday.

The nation's highway transportation funding system has “fundamental flaws”, including the fact that Americans are using less fossil fuels and driving less, which equates to decreasing gas tax revenues for the Highway Transportation Trust Fund.

As politicians look for a way to fix this, Gribbin said he hopes that next year's transportation reauthorization bill will bring forth a national framework for public private partnerships.

However, just how friendly public policy will be toward private sector involvement will depend largely on who Obama picks to head the department of transportation.

Possibilities range from the current chair of the House Transportation Committee, Democrat Jim Oberstar from Minnesota, who has long expressed skepticism toward PPP arrangements, to Democratic Pennsylvania Governor Ed Rendell, who has championed the cause.

If Congress supports public financing of infrastructure projects over private sector participation, the result can be a “distortion” of state funding priorities, Gribbin said, in which states are promised public funds that are under-delivered, causing shortfalls.

“Unfortunately, they usually come up with about 10 cents on the dollar . . . the fact that there is a big pile of money in Washington can actually be detrimental,” Gribbin said.

Currently 23 states have laws that give them tolling authority or enable them to enter into PPP-type arrangements, Gribbin said. He expects that number to increase and said near-term legislative developments could arise in New Jersey, Pennsylvania, Illinois and Nevada.

Congress does not have the authority to intercede in state PPP agreements, Gribbin said. However, he cautioned that Congress can and is likely to legislate how such agreements are implemented.

“Looking forward, I think we can expect Congress, especially on the house side, to provide some sort of regulation on top of [state] PPPs,” Gribbin said.

Obama also may consider as transportation secretary former Clinton administration Deputy Department of Transportation Secretary Mortimer Downey; former Federal Aviation Administration head Jane Garvey and Congressman Earl Blumenauer, a Democrat representing Oregon's third congressional district, Gribbin said.