Public-Private Partnerships And Protecting the Public Interest Preliminary Questions & Issues Steve Cohen Assistant Director U.S. Government Accountability Office Northern Border Finance Conference Chicago, IL May 16, 2007

2 Topics What factors drive consideration of Public- Private Partnerships? What work is GAO doing? What issues relate to achieving public objectives and protecting the public interest?

3 What factors drive consideration of PPPs? M obility and financing challenges Mobility challenges Congestion increasing rapidly Population and freight projections Transportation financing challenges GAO high risk area Revenues not keeping pace Traditional revenue sources may not be sustainable Long term fiscal challenges limit options

4 What factors drive consideration of PPPs? Long-Term Fiscal Challenges Imprudent and unsustainable fiscal path Known demographic trends and rising health care costs Unsustainable deficits and debt

5 What factors drive consideration of PPPs? Long-Term Fiscal Challenges Source: GAO’s January 2007 analysis

6 What factors drive consideration of PPPs? Advantages Generally Cited From Public Perspective Accelerated project delivery--projects built sooner Access to capital Transferring of risks (financing, construction, market, O&M, availability) Private sector efficiencies in construction and operations Defined operation and performance levels and timely upgrading and replacement of assets

7 What factors drive consideration of PPPs? Trade-Offs: GAO’s 2004 PPP Report Political accountability and control Relinquished control over toll rates in some cases Non-compete agreements reduced ability to improve some public roadways Financial trade-offs Varying degrees of public subsidy in both for-profit and non- profit projects Foregone tax revenue in non-profit projects Certain financial responsibilities should private venture fail (e.g., operations and maintenance)

8 What Work is GAO Doing? PPP request from Congress Bipartisan congressional request Senator Inhofe, Environment & Public Works Committee Rep. DeFazio, House Transportation & Infrastructure Committee, Subcommittee on Highways & Transit Senator Durbin, Senate Appropriations Committee Research objectives 1.PPPs and the objectives/factors that contributed to their use 2.Challenges private and public partners face 3.Results and outcomes--how public benefits are achieved and the public interest protected 4.The federal role

9 What Work is GAO Doing? PPP request - Scope and methodology Literature review of US and overseas experiences Interviews with U.S. DOT and state project sponsors Financial and legal consultants Market and industry analysts Site visits/Project case studies Indiana Spain Australia Texas Oregon Toronto Chicago Report to be issued October 2007

10 What Work is GAO is doing? Related GAO work Railroad Bridges and Tunnels; June/July 2007  Options for financing bridge and tunnel projects, including PPPs Efficient Use of Existing Infrastructure; July 2007  Congestion mitigation techniques and actions to use infrastructure efficiently State Contracting Practices; October 2007  Trends in state practices including innovative contracting/PPPs Freight Bottlenecks; November 2007  How freight bottlenecks are being addressed, including PPPs

11 Key Questions For Protecting Public Interest How do we define the public interest? What are the key questions? Performance Financing Accountability What is the federal role?

12 Key Questions For Protecting Public Interest Performance What performance standards does the public require? Construction Operation Maintenance Traffic/congestion Expansion What metrics are we using to measure the success of PPPs? How should effective monitoring and oversight mechanisms be structured and at what cost?

13 Key Questions For Protecting Public Interest Financing How are tolls set and by whom? What level of public support (tax or otherwise) is acceptable and prudent? What responsibility does the public have for upside or downside extremes (e.g. preventing “excess profits”)? What responsibilities does the public have should the private venture fail?

14 Key Questions For Protecting Public Interest Accountability What is the appropriate term for a long term concession? How do we protect the ability of public entities to operate an interconnected roadway “network”? How do we protect the ability of public entities to build and operate additional (potentially competing) facilities? What critical skills sets need to be maintained by public institutions? What ability should public and private partners have to revisit the agreement over several generations if conditions and circumstances dramatically change?

15 The Federal Role Issues Federal stewardship responsibilities National defense, interstate commerce, homeland security protecting the national investment in the system to date goals of the federal program (e.g. economic growth, enhanced mobility, system performance) Future roles and initiatives The need for reexamination—getting the big picture right

16 The Federal Role Fiscal Crisis Requires Fundamental Reexamination Clear federal role and mission? Outcome-based performance measures? Targeting investment toward greatest needs and return? Encouraging investment from other stakeholders? Best tools and approaches? Affordable and sustainable?

17 The Federal Role Framework For The Future? A comprehensive vision for a national transportation network Reexamination and potential realignment of the roles of federal, state and local governments and that of the private sector A financing scheme that leverages resources to optimize performance, meet goals, and achieve results.

Protecting the Public Interest in Public-Private Partnerships Preliminary Questions & Issues Questions? Steve Cohen Assistant Director U.S. Government Accountability Office