Statement of Jim LaBelle is deputy director of Chicago Metropolis 2020.
By Guest Author- June 13, 2006
Good morning. My name is Jim LaBelle. I represent Chicago Metropolis 2020, a business-led civic organization created by the Commercial Club of Chicago to promote sound economic growth for the Chicago region. We research issues and actively advocate public policies and institutional reforms based on that research.
A major theme of our work has been that development and transportation must be well coordinated in order to achieve effective use of public and private resources. We actively supported legislation passed unanimously in 2004 that created a Regional Planning Board to integrate planning and set priorities for the Chicago region. We have also supported the tollroad capital program, the CREATE rail improvement program, and public transit service upgrades and reforms. The modeling that we have done shows that if public transit and freight rail can handle more of the load, traffic congestion and delay on our roads can be reduced and it will be more attractive for people and businesses to continue to locate in our region.
You are holding these hearings, in part, because our governments are not raising enough money to pay for the transportation system. Simply put, funding for transit, roads and rails is not keeping pace with infrastructure needs. Gasoline taxes lag inflation and increased travel, so IDOT has little more than half of the money needed to properly maintain the existing system. Transit capital funds have been exhausted. The CREATE rail program is less than 25% funded.
Transportation funding will be a major topic for the legislature in the coming months, so this is a key moment to consider how private capital can help meet some of that funding need. New revenues are needed, so the possibility of attracting private “partners” to fund our transportation needs is, at the least, intriguing.
While it may be possible to get a lot of private money by leasing the tollway, no deal is free. Each member of this committee has shown concern about balancing the public and private interests if the tollroads were leased. You asked many important questions: What should be the role of the General Assembly in approving a deal? How should projects be negotiated? How long should a lease term be? What safeguards are needed to protect the interest of all taxpayers? How should tollroad lease proceeds be allocated and spent? How do we prevent conflict between privately run tollroads and public roads? How can we retain the ability to add transit to privately leased tollroads?
It is critical that those questions, and any others, be answered before any deal is negotiated. I will try to begin to answer those questions by providing some guidelines to ensure private capital helps achieve public goals and that the long-term public interest is protected and advanced.
1. Develop sound policies, using an accountable and transparent process, to guide any public-private partnership.
These hearings are helping to do that. But it is critical to this entire process to have the Regional Planning Board work with IDOT, the Toll Authority and the RTA to draft, in the next few months, a special type of strategic plan – one that identifies long-term issues that should be addressed in any lease or concession contract, and proposes management policies and coordination strategies to address those issues. You should request that be done now, before there is any legislative action by the General Assembly on this issue.
This type of strategic plan would enable key participants to clarify what results are desired and how private capital can effectively be used to achieve those results. It would address such matters as dual use of rights of way, compliance with long-term plans, maintenance of asset condition, the responsibilities of any private operator to coordinate facilities with the rest of the system, and ongoing contract administration and oversight. Based on that, the General Assembly would be able to adopt legislation authorizing use of public-private-partnerships, and there would be sound principles and provisions to guide execution of contracts.
2. Any income received from a tollroad lease or concession contract should be reinvested into transit, roads and freight assets.
We face huge transportation funding shortages in northeastern Illinois and statewide, and gas taxes and tolls have not kept up with inflation and travel demand. Any funds pulled out of the tollroad system should be reinvested in transportation system assets to reduce traffic congestion and delay. The covenant that has been made with tollroad users is that the tolls they pay will be used to improve their transportation system. “User pays” is a good principle and has public support. We should continue that policy.
3. Don’t ever use asset lease proceeds to support operating expenses.
The Chicago Tribune has described this as “don’t eat the seed corn”. We agree. It makes no sense to sell or lease long-term assets to support short term living expenses.
4. Encourage innovation and market-based pricing.
One of the benefits of engaging a private partner is to take advantage of market incentives that lead to innovation. Contracts should be structured to encourage innovations like variable pricing to improve traffic flow and reduce delay. Chicago Metropolis 2020 supports pricing to achieve efficient use of our road system, which can provide the most return to the public from its investment in our road assets. In the Metropolis Freight Plan, published in 2004, we proposed applying new electronic toll collection technology to develop a system of barrier-free “value pricing” on the region’s most congested roads, where charges can vary based on congested conditions or time of day. Value pricing is a market mechanism that can be used to optimize public asset use, and it can also, over time, take the place of gas tax revenues that will decline as fuel improves the use of alternative fuels expands.
Technology can help us reduce traffic congestion, and we should create incentives for private partners to develop innovative approaches to improving the transportation system. We should utilize sound private sector ideas on how technology and market-based pricing techniques might be used to unclog bottlenecks on more of our congested roads.
5. Retain some long-term upside potential for the public in any lease.
We agree with John Adler of the Service Employees International Union who said at the first hearing, “The long-term success, and your legacy as public officials, utterly depends on the government retaining an ongoing interest in the asset it leases to the private sector.” This should be done in several ways. The term of the lease should generally be less than 50 years. Non-compete provisions should be avoided. Lease payments should be scheduled over the life of the lease, and the public contracting agency should receive a share of the revenues received exceeding certain thresholds. Sharing the upside potential is especially valuable given the unknown and potentially dramatic improvements in technology that could improve operating and revenue collection efficiency and the useful life of assets. Where risk is shared through a blend of public and private capital to build and operate a new asset like the proposed O’Hare western bypass/Elgin-O’Hare expressway, a return to the public should be provided through lease payments that are pegged to revenue levels. Finally, there should be straightforward lease provisions for reversion to the public in case of default.
6. Make sure the public continues as an active long-term partner.
Accountable oversight and contract administration must be part of any lease agreement. If the State considers leasing the tollroad, it must ensure that the government and private lessee have an active long-term relationship where each partner maintains an ongoing interest in serving the public. Any contract must be guided by carefully developed policies, and the government must make sure that well-trained contract administrators are in place to enforce any contract.
In sum, Chicago Metropolis 2020 sees potential for substantial benefits to the public from leveraging private capital to achieve a public good. However, we need to make sure that as opportunities to attract private capital arise, we don’t sell out the public interest. We do not support simply selling public assets to achieve the maximum short-term gain. There needs to be a public strategy for meeting our transportation needs that includes the possible use of private equity and debt. And we need a set of principles and criteria that can be used to make sure that the public is best served in any public-private-partnership.
We stand ready to assist you in any way as you think through the opportunities related to public-private-partnerships.
Thank you.