Trump's Public-Private Infrastructure Vision Rejected in Texas
(Bloomberg) -- President Donald Trump’s plan to invest $1 trillion in U.S. infrastructure with the help of public-private partnerships has hit a speed bump in Texas.
Wary of public opposition to new highway tolls, the Texas House voted on May 5 to reject a bill that would have allowed the partnerships, known as P3s, to participate in 18 highway projects costing as much as $30 billion. The defeat leaves the second most-populous U.S. state unable to tap into the partnerships to finance the infrastructure improvements, even as Trump is proposing to expand their use.
“Clearly, we’ve kind of hampered our ability to take advantage of that in a significant way,’’ said C. Brian Cassidy, an Austin attorney who represents seven regional public authorities that Texas counties have created to do transportation projects.
The bill’s failure underscores the difficulty Trump faces in his bid to use private investment to reach $1 trillion in funding to rebuild roads, bridges, airports, veterans’ hospitals and other facilities. While P3 deals take different forms, they generally involve private investors accepting risk and responsibility for design, construction and operation of a project in return for a revenue stream made up of tolls, user fees or regular tax outlays known as “availability payments.” The White House press office declined to comment on the vote.
Nationwide, 13 states have yet to adopt legislation authorizing some form of public-private partnership deals, according to Moody’s Investors Service, and states including Texas, New Mexico and Mississippi tried unsuccessfully to pass P3 measures this year. Now, some advocates say there aren’t enough willing public partners, and there’s too little predictability for investors.
“The president can put this out there, and I applaud him for him for doing that,’’ said Mary Peters, a consultant and former U.S. transportation secretary. “But at the end of the day, local government officials, mayors, governors, others, are going to have to step up.’’
The Trump administration may produce an outline of its infrastructure plans soon, and there may be legislation by the third quarter, Transportation Secretary Elaine Chao said in a Bloomberg Television interview on May 3. The plan is expected to include $200 billion in public spending; private investment would make up the rest of the $1 trillion in spending over 10 years, Chao has said.
Still, Democrats and even some Republicans have said P3s don’t work in rural or low-income areas that can’t support tolls or a predictable revenue stream, and Chao has said “there are many barriers to public-private partnerships.” In Texas, resistance to paying new tolls helped sink the bill that would have allowed “comprehensive development agreements,” a form of public-private partnerships, for 18 projects, including work on Interstate 635 East near Dallas.
‘On the Sidelines’
Texas previously had broad authority for such partnerships, and some state entities can still use them for such work as building dormitories at universities. But in 2007, the state Legislature voted to restrict P3’s use for transportation-related projects and require that each new proposal for one be authorized.
But with an estimated $270 billion in transportation needs through 2035, the state doesn’t have enough highway money, said Republican Representative Larry Phillips, who sponsored the P3 bill that was defeated last week. And he said he fears Texas might be a step behind when it comes to Trump’s plan.
“It would be a shame for Texas to sit on the sidelines and see other states or cities take advantage of it,’’ Phillips said before the House voted to reject his bill, 52 to 79.
Opponents of the bill argued it wasn’t needed and that Texans don’t want more toll roads. Republican Representative Jonathan Stickland said he won his seat in 2012 in part by opposing tolling, and he said his colleagues could lose their seats for backing Phillips’s measure.
“It’s not a conservative or a liberal issue,’’ Stickland said during the sometimes-contentious debate before the vote. “Your constituents do not like the idea of us partnering with foreign companies and giving control over our roads to them.’’
The Texas Legislature isn’t set to meet again until 2019, so the vote leaves the state at a disadvantage, said Mary Scott Nabers, president and chief executive of Strategic Partnerships Inc., a public-affairs firm in Austin that specializes in procurement consulting, market research, government affairs and P3s.
“Public funding is not adequate or available,’’ Nabers said. “So private-sector capital is needed if public officials are to address the critical issues that will definitely impact the state economically.’’
Trump hasn’t released details of his plan, but administration officials have suggested it could include payments for what’s known as asset recycling, in which a government leases an asset in return for money that can spent on other projects that lack funding. Some advocates have suggested offering federal funds to state and local governments to help offset their upfront costs as they study and pursue P3 deals.
States can still pass legislation to authorize public-private partnerships after Trump’s plan emerges, but “the question will be whether the federal program offers financial incentives that can be combined with the necessary political will at the state and local level to move projects forward,’’ said John Schmidt, a Chicago attorney who has focused on public-private partnerships.
The U.S trails Canada, Australia and other countries in using the partnerships, partly because tax-exempt debt and federal funding have been readily available in the U.S., said Michael Bennon, managing director at the Global Projects Center at Stanford University. Many planned projects get canceled because politicians are replaced and deals lose support, he said.
Some high-profile bankruptcies -- including for a P3 project on the Texas State Highway 130 toll road that opened in 2012 -- may linger in some public officials’ minds. Toll revenues on the Texas road fell well short of projections, but the bankruptcy had no financial impact on the state, according to a December report by the Federal Highway Administration.
A bankruptcy doesn’t mean the P3 model is bad -- if taxpayers are protected in the deal, said Shirley Ybarra, a former Virginia transportation secretary who authored that state’s P3 law and has worked with Trump’s transition team.
Meanwhile, opponents of P3s in Texas are deluding themselves if they think the state will be able to meet its transportation needs in the long term without private-sector partners, said Democratic Representative Celia Israel.
“If we suffocate these options for our local communities, I doubt very seriously that we are going to step up to the plate and say, ‘Here’s some support for other creative options,’’’ Israel said during the May 5 debate.