CBO: PPPs Modestly Reduce Highway Construction Costs & Expedite Completion

The Congressional Budget Office, in a new report released this week, found that public/private partnerships save time and money versus highway projects that are built by government alone, but only to a slight degree. The CBO report examined the role of the private sector in financing, designing, building, and operating roads and bridges.According to CBO, public/private partnerships for highways are fairly limited in the United States. Between 1989 and 2011, for example, the total value of contracts for those projects with costs surpassing $50 million was about $41 billion — slightly more than 1% of the approximately $3 trillion in 2010 dollars spent on highways during that period by all levels of government.

The use of PPPs across the nation, however, is growing. By one estimate, CBO found that these partnerships accounted for 30% to 40% of all new miles of urban limited-access highways built between 1996 and 2006.

While acknowledging the small number of studies involved and the relative scarcity of data and research available, CBO found that PPPs have built highways just a little less expensively and slightly more quickly than the traditional public-sector approach.

Private financing will increase the availability of money for highway construction projects only when the state or local governments involved have chosen to curtail their spending via legal constraints or self-imposed budgetary limits, the report concludes. That is because — regardless of the funding mechanisms brought into play — revenues from the users of roads and also from taxpayers are the ultimate source of money for highways.

Any remaining differences between public/private and public-only financing for a highway project come from the impacts of incentives and conditions included in the contracts for those partnerships.

“If a public/private partnership arrangement is chosen for a highway project, the government involved must design, implement, and monitor contracts that allocate risk and control between the public and private partners,” according to the report. “Although contracts of that kind are difficult to create because the parties involved cannot anticipate all contingencies, they are essential to establishing the right incentives to perform the work efficiently and manage the project’s associated risks.”

CBO’s 44-page report, “Using Public/Private Partnerships to Carry Out Highway Projects,” is available at 1.usa.gov/CBO-PPP.