Remarks as prepared for delivery
FHWA Acting Administrator Rick Capka
"PPP Basics - A Practical One-Day Seminar"
December 5, 2005, Washington, DC

INTO THE TOOLBOX

My agency, the Federal Highway Administration, is part of the U.S. Department of Transportation.

Over the past two years or so, Secretary Mineta and his team at U.S. DOT have spoken often about Public Private Partnerships. For many people, the subject was a new one. I call it the "what is it" stage. We've been explaining what PPPs are, why innovative financing has so much potential, and emphasized that a few states are already trying it with great success.

In many states, they're not yet part of the toolbox for delivering highway and bridge projects. But, we're starting to get the message out. We're demonstrating how PPPs can deliver projects more efficiently, faster and at less cost to taxpayers. We're showing state and local governments how PPPs can turn their highway infrastructure from liabilities into assets.

In the coming year, I see PPPs as the tool in many more toolboxes -- a tool that is grabbed more confidently and more often. And that's why U.S. DOT and FHWA are proud to be a co-sponsor of this Americas Summit.

FEDERAL GOV SUPPORTS PPPs

Why is the federal government encouraging, supporting, promoting more PPPs?

I'd like to outline our vision of why the private sector should play a bigger role in surface transportation. And to do that, I want to start with a look back, because it can guide us about how to go forward.

In September 1954, President Eisenhower established the President's Advisory Committee that was directed to develop a plan for an Interstate Highway System. This Committee ultimately recommended -- and President Eisenhower agreed -- that the Interstate System should be funded primarily by gas and diesel oil taxes.

The user-fee system set up to finance the Interstate Highway system -- the Highway Trust Fund (HTF) -- has served us well. But, traditional funding by the gas tax is simply not keeping up with the growth of business and personal travel. The challenges we face today are very different than those of a half-century ago.

The challenge then was national connectivity. Today, it is congestion and capacity -- largely local and regional issues. One business at a time and one commuter at a time, congestion robs our nation of productivity and quality of life.

The way we approach financing, construction, operations and maintenance must evolve so we can address congestion and capacity problems.

So what do we do?

We need to determine what is truly in the national interest for surface transportation and then structure a funding mechanism to support those priorities. Let me suggest that our vision for meeting future transportation needs and reducing congestion is the same answer we have for nearly every other product and service in America -- unleashing the power and opportunity of our free market system.

The same market forces that took us from Ma Bell's standard issue, black rotary phone to cell phones and Blackberrys can relieve congestion, reduce the need for road repairs, and improve the safety of our highways.

U.S. DOT is working on new approaches for meeting transportation needs. And a big part of that is encouraging private sector investment.

TACKLING CONGESTION

Leveraging infrastructure investment through non-traditional -- innovative -- financing will help us tackle the biggest problem in surface transportation -- congestion. As we all know, transportation moves America and congestion can put our economy in the slow lane.

• We need a new approach to keep goods and products on the move -- new approaches to ease trade with our North American and worldwide partners.
• We need to broaden our thinking . . . change our mindset.

We need innovative financing to give a boost to our highway system. The private sector brings a lot to the table that complements the public sector:

• Cost and management efficiencies,
• The ability to complete projects faster and at less cost,
• And a growing group of willing investors ready to share the risk in advancing large, crucial projects.

PPPs are a tool that we need. They are tools that only work when everyone in the deal benefits. That means the public sector, the private sector and travelers for business and pleasure -- you and me.

SAFETEA-LU & INNOVATIVE FINANCE

SAFETEA-LU, the surface transportation act signed into law by President Bush last August, is the largest investment our country has ever made in highway, transit and safety programs.

It broadens the availability of federal financing initiatives such as TIFIA, a credit assistance program for large transportation projects. Another provision -- what I consider a major policy change -- gives states more flexibility to use tolling to finance infrastructure improvements. States can choose what's best for them.

SAFETEA-LU changes in the area of design-build will make innovative contracting procedures much more commonplace. The private sector can get involved earlier in the process. Highway and surface freight transfer facilities are now eligible for up to $15 billion in tax-exempt Private Activity Bonds, and this will prove to be an extremely important financing tool. Changes in environmental provisions will improve cooperation between state and federal agencies that participate in the environmental review process.

There's much more detail on the Act's innovative provisions, public-private partnership case studies, and other information on the FHWA website. For more personal assistance, Federal Highways has a new PPP office to serve as a central point of contact for state and local transportation officials.

PPPs are becoming an integral part of the way we do business, and they will be even more crucial in the future.

Right now, the Trans Texas Corridor is probably the best known. In March 2005, TxDOT and Cintra-Zachry, an international consortium of engineering, construction and financial firms, signed an agreement to develop TTC-35. They are proposing as much as a $7.2 billion investment to develop the approximately 600-mile, Oklahoma to Mexico portion of the Trans Texas Corridor. They are willing to pay as much as $1.2 billion for the privilege. The consortium, using private resources, will operate the toll road for 50 years and then return it to the state.

Among other projects in the U.S.:

The SR 125 South Toll Road (South Bay Expressway) in San Diego, California. This project is being advanced under an agreement between Caltrans and the San Diego Expressway Limited Partnership (SDELP), which is owned by the Macquarie Infrastructure Group (MIG).

MIG is investing more than $150 million to develop and operate the toll road. This $642 million project is being funded by a combination of senior bank debt, a TIFIA credit assistance loan, sponsor equity, and donated right-of-way.

The Chicago Skyway. A consortium of two firms with extensive experience in the toll road business was awarded a 99-year concession and lease agreement from the City of Chicago for the Chicago Skyway. Under this agreement, the consortium paid $1.8 billion for the right to toll, operate, and maintain the Skyway.

Other states, such as Indiana, Delaware, Virginia, and New Jersey, are considering leasing rights to toll roads to the private sector.

LOOKING FORWARD

So, SAFETEA-LU has new and improved tools to support innovative financing.

Now is the time to start using the tools. At the federal level, there are fewer hurdles to private sector investment and innovative financing. We're not completely where we need to go, but almost. But it's a different story at the state level and with the private sector.

And at the state level, many restrictions are still in place. Only 19 states have public-private partnership laws. Virginia has had one on the books for several years, and the Commonwealth is reaping the benefits. But many states have not even contemplated the idea that the private sector could be a highway service provider or investor.

As always, institutional inertia is a barrier for states that traditionally build the roads and for the private sector that can -- potentially -- invest in, construct and operate a vital roadway.

Here's what I'd like to see:

We need to broaden our thinking and move forward.

As I said earlier, instead of thinking of roads and bridges as a liability, a drain on a tight budget -- state and local governments (who own all those roads and bridges) need to think of infrastructure as an asset.

The U.S. is behind some parts of the world in innovative financing. In the Americas, there are notable projects in Mexico, Canada, and Chile. There are many international firms that have the experience and they are comfortable taking on the risk.

Innovative financing works because the public and private sectors share the risks and the benefits. Both sides can succeed. And then travelers and shippers get new or renovated roads and bridges. It's a win-win-win.

THINGS WE CAN COUNT ON

We'll have to be flexible and prepared for surprises. We have to pull together to recover from devastation on the Gulf and Atlantic Coasts from three enormous hurricanes.

But, of course, many trends can be reasonably extrapolated. Safety and congestion concerns aren't going away.

We can be confident that -- --

• Increasing pressure on traditional sources of revenue will change the way user fees and taxes are collected.
• Technology will make fee collection ever easier, increasing opportunities for PPP projects.
• State and local transportation planners are only beginning to look toward PPPs when considering transportation improvements. This may change as public revenue sources become scarcer.
• Federal law still contains a bias against tolling for many roads. This may disappear, particularly if net revenue is dedicated to transportation.

The list of trends and variables is almost endless. The point is that transportation builders, transportation investors, and transportation supporters, whether public or private, will have to stay nimble so that we can respond to changes as they occur.

A CRITICAL TIME

There are no easy solutions to our nation's transportation challenges. Congestion is not going away. Tight budgets are not going away.

Let me close by noting that highways in the U.S. are traditionally government planned, government funded, and government maintained. Not the typical American approach to industry.

But that is changing. The time has come for us to acknowledge that building a highway network is not substantially different than building a telecommunications network or a network for the delivery of electricity. It is time to let the free market deliver the innovation, cost savings, and quality it has brought to other industries. I, for one, am quite happy to have options beyond a heavy rotary-dial desk telephone.

PPPs maximize the strengths of both the private and public sectors. It's taking advantage of the private sector's flexibility, innovation, creativity, expertise and access to capital . . . along with the public sector's oversight, long-term strategic planning and accountability to taxpayers.

It's a way to get the most bang for our transportation buck.

The time is right to move PPPs into the mainstream of transportation finance. And I believe this PPP Americas conference will supply some of the momentum we need.

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