U.S. Department of Transportation
Federal Highway Administration
1200 New Jersey Avenue, SE
Washington, DC 20590
Federal Highway Administrator
BIGGER ROLE FOR THE PRIVATE SECTOR
The President is a great believer in the power of free enterprise and DOT Secretary Mineta and I are working to make PPPs and free markets a much bigger part of U.S. transportation.
We have three key reasons:
Traditional means of highway finance are inadequate for two reasons - First, the public does not have enough trust in the current system to support higher gas taxes. Second, the gas tax is no longer an adequate proxy for the costs imposed by drivers on the system.
We need to think differently about how we deliver a better network to the driving public, and public-private partnerships are a natural place to start.
For decades, the Federal Highway Administration (FHWA) has encouraged private sector participation in project planning, design, construction, maintenance, and operation of highways and bridges. The private sector has expertise and the incentives -- often not available to the public sector -- that can bring innovation, flexibility, and efficiencies to certain types of projects, especially large-scale projects needed to deal with chronic congestion.
Some good examples:
Reno ReTRAC -- the Reno Transportation Rail Access Corridor, now under construction, involves separating train and vehicular traffic in downtown Reno. A new 33-foot deep trench will take train traffic below ground, eliminating car, truck, bus and pedestrian delays at 11 rail crossings along the 2.1-mile route. Part of the ReTRAC project is financed through a DOT innovative financing program that includes a blend of public and private sources for approximately $70 million in credit assistance. King Coal Highway in southern West Virginia -- A partnership among the state DOT, private enterprise, the local redevelopment authority, and Federal Highways is allowing a mining company to place excess material generated by coal-mining activity in designated areas.
It's creating the roadbed for a future four-lane highway and, along the way, saving an estimated $150 million off the total expected cost and allowing it to be completed much sooner.
Here in Florida, the Lake Panasoffkee Bridge was nominated for the National Design-Build Award. This project was developed, permitted, awarded and constructed in three years, instead of the seven it would have taken under FDOT's standard practices. And the project was completed at a cost of 42 percent less than the FDOT estimate.
I'm encouraged by the number of states that have recently enacted legislation to expand their ability to participate in public-private partnerships and I am committed to helping those states develop PPPs that meet their needs. PPPs encourage new ways of thinking about how we do business.
A few states, Florida for one, are developing public sector entities that function much more like private enterprises than traditional public sector agencies. While Florida's Turnpike Enterprise is part of FDOT, 90 percent of its employees are in the private sector. The Enterprise applies a wide variety of PPP approaches involving project development and delivery, project financing, service tracking, and asset management.
While other states have different PPP models, the Florida Turnpike Enterprise certainly has served the citizens of Florida well.
Most important, when long-term surface transportation legislation is finally signed into law -- and it looks like we are going to have to wait until next year . . . We hope it will include our proposals for environmental streamlining, private activity bonds, state infrastructure banks, a strengthened TIFIA, and more state flexibility for tolling.
The unfortunate delay in reauthorization, however, presents us with an opportunity to take a second look at the legal changes needed to encourage the formation of PPPs. U.S. DOT is preparing to transmit a report to Congress on PPPs. This report includes a summary of their importance, impediments that challenge their formation, and suggestions for removing those impediments. NCPPP was very helpful in providing information for this report, and it is our hope that this report will focus Congress and the public on the impact federal law has on PPP formation.
While we await reauthorization, several states and private ventures have asked for FHWA guidance in implementing public-private partnerships in which the private sector assumes a greater role. We want to do all we can to assist those states. Jim March, in my policy office, is pulling together material to support states interested in PPPs, including model enabling legislation and legal partnership documents. In addition, he is working on case studies highlighting what went right with these projects, and what didn't go as well, with the hope that sharing lessons learned will make it easier for others to implement successful projects.
And, of course, workshops like this one provide valuable perspective on PPP issues.
We have evaluated a variety of innovative contracting practices under Special Experimental Project No.14 (SEP-14), several of which have become a regular part of the highway program, including design-build and cost-plus-time bidding. FHWA has also long-encouraged innovations in the area of transportation financing, including TIFIA. It is time, however, for us to take the next step in encouraging innovation and develop a program that provides incentives for innovation in all aspects of project development.
I'm pleased to announce that this morning, the Federal Register published FHWA's most recent effort to encourage innovation -- SEP-15, a "Program to Explore Alternative and Innovative Approaches to the Overall Project Development Process."
Announcing this new program at this conference is appropriate because SEP-15 will encourage the formation of PPPs by providing additional flexibility for states interested in experimenting with better ways to develop projects. SEP-15 will lead to increased project management flexibility, more innovation, improved efficiency, timely project implementation, and new revenue streams.
SEP-15 arose out of some of the questions we received from states interested in pursuing large, corridor projects -- in particular I-81 in VA and I-35 in TX. These projects did not fit well under SEP-14. SEP-14 allows for innovations in contracting, but is not designed to provide flexibility in the environmental review process, project finance, or in areas such as right-of-way acquisition. As the projects in VA and TX underscored, we needed a special experimental project that would allow innovative project proponents to ask for flexibility on a project-wide basis.
SEP-15 provides that project-wide flexibility. States interested in pursuing a SEP-15 project can apply to their Division Office, and a copy of the application will be forwarded to FHWA's Deputy Administrator. A team of Division and Headquarters staff will consider the application.
If the application is approved, FHWA will work with the state and the private sector project proponent to develop a partnership agreement. The agreement will clearly indicate project milestones and decisions that will need to be made at the state and federal levels.
Of course, SEP-15 is not a magic wand to make federal requirements disappear. FHWA will still be responsible for safeguarding our key stewardship responsibilities -- protecting the environment and preventing the misuse of taxpayer dollars. But SEP-15 does allow us, on a case-by-case basis, to carry out those stewardship responsibilities in a more flexible manner.
FHWA recognizes that SEP-15 proposals may include multi-modal components. Federal Highways will coordinate review of multi-modal SEP-15 proposals with appropriate modal administrations.
We know PPPs work. We can lower costs and speed project completion.
The time has come to let the free market and public-private partnerships deliver the innovation, cost savings, and quality they have brought to every other industry.