Presented by Tom Morsch, on behalf of Business Leaders for Transportation, on May 31, 2006.
By Guest Author- May 31, 2006
Good morning. My name is Tom Morsch, and I am speaking on behalf of Business Leaders for Transportation, a collective voice for Chicago-area employers, providing advocacy for policy and funding on surface transportation issues critical to the region. Led by the Chicagoland Chamber of Commerce, Chicago Metropolis 2020, and the Metropolitan Planning Council, Business Leaders for Transportation is a growing alliance of over 180 business organizations representing more than 12,000 regional employees.
Thank you for the opportunity to speak today.
Business Leaders has been interested and active in promoting the authorization of public-private partnerships in Illinois for a few years. Last year, we convened a taskforce of experts to examine the feasibility of using partnerships to build new critical infrastructure, focusing in particular on the O’Hare Western Bypass and Elgin-O’Hare Extension. We released a paper, “Making the Case for Public-Private Partnerships in Illinois” earlier this year and have since begun working with Senators and representatives from both parties on introducing legislation to authorize the use of public-private partnerships in Illinois; the lease of the Illinois tollway is one example of the type of public-private partnership that this enabling legislation could authorize.
My testimony today will focus on answering four questions:
- What are public-private partnerships?
- Why do we need them?
- What can we learn from existing partnerships?
- What process should be built into authorizing legislation to protect the public interest?
1. What are public-private partnerships?
There are many different types of partnerships, many of which the state and local municipalities already use to construct, operate, and/or maintain our public infrastructure. This chart illustrates the variety of public-private partnerships. As you can see, there are two main types: ones used for existing infrastructure and ones for new infrastructure.
The state already uses partnerships to construct new transportation infrastructure. Partnerships can also be used to design and build new infrastructure or design, build, and operate new infrastructure. There are many examples outside of Illinois of using partnerships to construct new infrastructure; Business Leaders looked at the example of the O’Hare Western Bypass and Elgin-O’Hare Extension to examine whether using partnerships to design, build, and operate new transportation infrastructure would be feasible in Illinois . I would be happy to answer questions on that study at the end of my testimony.
Of course, this panel is especially interested in the use of public-private partnerships for existing infrastructure, specifically the Illinois tollway. Just as the state already uses forms of partnerships to construct new infrastructure in Illinois , the state already uses them to manage the operations and/or maintenance of existing infrastructure. The City of Chicago contracts with a private company to perform janitorial maintenance at O’Hare International Airport, they charge private companies landing and gate fees to operate at their airports, and lease the operations and maintenance of Chicago parking garages. The City of Chicago was one of the first municipalities to lease existing infrastructure with the long-term lease of the Chicago Skyway. I also want to add that there is another type of partnership that is not widely used, if at all, which is the outright sale of existing infrastructure.
You’ll notice the arrows on this chart. These are to show that, as you go along the continuum of partnerships from less to more private involvement, there is both more monetary reward for the public entity and less public control. Balancing the needs of revenue and public control are the key issues to debate in the use of public-private partnerships.
2. Why do we need public-private partnerships?
As representatives of the business community, Business Leaders for Transportation is especially sensitive to the role of well-performing infrastructure to the growth of the state’s economy. To make the region work and maintain its position as a global commerce center and tourism destination, our government must be prepared to invest in the transportation systems that have made us so successful.
Unfortunately, like most states, the combination of current funding methods in Illinois is not sufficient to fully maintain the existing transportation system, let alone keep pace with increased demands. Money is becoming scarcer at every level of government, and critical sources of transportation funds are not keeping pace with needs. State motor fuel taxes have not matched inflation, and have lagged increased highway use by 20 percent since 1990. Overall, state and local governments have increased their reliance on general sales, income and property taxes to fund transportation, because the traditional sources of funding are not keeping up with demand.
The State of Illinois has not dedicated funds to invest in infrastructure since Illinois FIRST expired in 2004. Approved by the governor and General Assembly in 1999, Illinois FIRST dedicated funds over five years to update infrastructure, including $6 billion for railways and roads. This commitment helped secure federal transportation funding that would have been unavailable without the state matching funds. As impressive as Illinois FIRST was, by June 2004, the funds were exhausted, and the state has limped along without a capital funding program for the past two years. Without a new source of revenue, the state does not have sufficient funds to maintain the existing system, much less pay for needed new service or match funding that Congress has authorized for many new projects.
The Safe, Accountable, Flexible, and Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) passed by Congress last summer, included substantial increases in federal funding for Illinois public transportation, roads and bridges through 2009. Federal funding certainly helps, but it will not be enough to meet all of the region’s transportation needs. In addition to providing general funding to maintain and rebuild roads and transit, SAFETEA-LU “earmarked” funding for a large number of specific projects. But SAFETEA-LU money is no guarantee that projects will ever be built. In many cases, projects authorized in SAFETEA-LU include no construction funding or only a small portion of the total project cost, leaving the state and local governments to raise funds to complete them.
In short, the Chicago region currently has insufficient state, federal and local funding to complete needed transportation system improvements, expand service, or launch federally authorized projects. New funding sources must be developed to guarantee a long-term, viable solution to funding our infrastructure needs.
3. What can we learn from existing partnerships?
Public-Private Partnerships have successfully financed numerous infrastructure improvements around the world, including right here in Chicago with the leasing the Chicago Skyway. In Italy and Australia , the majority of toll roads are owned by the private sector. As of February 2004, 23 states — not including Illinois — have enacted legislation that would allow Partnerships to be used for transportation infrastructure. As a result, the list of Public-Private Partnership projects in other states is growing, and includes projects like Minnesota ’s Hiawatha Light Rail, Colorado ’s E-470 Tollway, New Jersey ’s Hudson-Bergen Light Rail, Nevada ’s Las Vegas Light Rail, Massachusetts Route 3 North, Virginia ’s Dulles Greenway and Pocahontas Parkway, California ’s SR 125, and Alabama ’s Folly Beach Express.
The lesson to draw from the numerous – and growing – examples of public-private partnerships is both that they are an extremely useful and common tool for financially strapped states and that they are best used to further the public good. Earlier this year, Business Leaders for Transportation released “Private-Public Partnerships Principles of Use: A Commitment to the Public Interest,” which outlines three principles that the state should use to ensure that the use of public-private partnerships embodies a commitment to the public interest. I draw your attention to the handout in your packet that describes these principles, which state that partnerships should be:
- Approved by a Regional Planning Process
- Subject to Special Scrutiny
- Reinvested in Appropriate Areas
Business Leaders encourages the panel to continue to work with the Attorney General’s office to flesh out a process that conforms to these principles, including the interests of drivers who use and employees who work on infrastructure built and operated or leased through a public-private partnership. I also encourage the panel to work with affected unions to examine how public-private partnership deals could include labor benefit packages that both preserve existing labor deals in partnerships and tie the success of the project to additional worker benefits. I would be happy to speak about an example of this during the question period. Finally, I encourage the panel to examine the common practice of pension funds investing in infrastructure projects operated with a public-private partnership.
4. What process should be built into authorizing legislation to protect the public interest?
Before I delve into our proposed process, I want to clarify what is proposed in draft authorizing legislation.
Currently, many of the types of public-private partnerships described in this chart are legal in Illinois . However, the types of partnerships that have a star next to them on the chart – design/build new infrastructure, design/build/operate new infrastructure, and lease existing infrastructure – are not currently legal in Illinois . Business Leaders for Transportation has worked to prepare authorizing legislation to lift the de facto ban on these types of partnerships, which is the first step towards discussing specific projects that could use a public-private partnership, like the Illinois tollway. Legislation should also provide a process for accountability, which is not currently in the draft legislation.
The following eight step process is presented as a possible means of ensuring accountability in the use of public-private partnerships that involve long term lease:
1) Each year the Illinois Department of Transportation, Toll Highway Authority and other authorized agencies present a list to the General Assembly that will be considered for public-private partnerships. Only projects approved by a regional planning process can be presented to the General Assembly.
2) Once the authorized agency has decided upon a project list, it should send notice to the County Chair(s) affected by the project indicating that the project has been preliminarily approved for a public-private partnership.
3) Local legislators should sponsor public hearings on the proposed use of a public-private partnership for the project in district.
4) The authorized agency should complete an Environmental Impact Statement (if required) for the project before releasing a request for proposals.
5) Once the authorized agency completes the EIS, it releases the RFP for the project.
6) The authorized agency analyzes its responses to the RFP and produces a financial report to the Commission on Government Forecasting and Accountability with copies to general assembly leadership and the Governor based on the best response to the RFP.
7) After reviewing the authorized agency’s report to the Commission on Government Forecasting and Accountability, the General Assembly has final authority over the approval of the project.
8) The authorized agency will deliver a final report to the Commission on Government Forecasting and Accountability one year after completion of the deal analyzing the deal and identifying lessons for future application of the process.
In closing, I congratulate the panel on its interest in this very important financial tool, and I encourage the General Assembly to pass legislation authorizing the use of public-private partnerships to improve the transportation system in Illinois . Thank you again for the opportunity to testify today. I am happy to answer your questions.
Read "Making the Case for Public-Private Partnerships in Illinois."