US Department of Transportation
FHWA Planworks: Better Planning, Better Projects
Public Private Partnerships
P3 and the Decision Guide
The use of Public-Private Partnerships (P3s) marks a shift away from traditional ways of procuring and financing highway projects. Under the P3 model, a private partner may participate in some combination of design, construction, financing, operations and maintenance, including collection of toll revenues. This approach provides promising tools for developing or expanding transportation infrastructure and for solving complex problems creatively and efficiently. Many states allow P3 in transportation planning and project development, either through blanket policies or on a project-by-project basis. Lessons learned from pioneering projects indicate that early consideration of P3 increases the likelihood of success for both the public and private entities involved. See FHWA's Center for Innovative Finance Support Website (Reference Links) for more information.
Three areas of information support this application:
- P3 and the Decision Guide (below). Each of the four planning phases provides opportunities to educate decision makers and stakeholders about P3s.The Decision Guide describes when and how to include P3 considerations, including questions to consider, data, relationships to other topics, and examples from current practice.
- Revenue Generation. Mechanisms such as value capture and tolling or congestion pricing can provide additional sources of funding for traditionally-delivered as well as P3 transportation projects.
- Innovative Financing. Innovative sources of financing can leverage revenues that are expected in the future (such as revenue from tolls) to allow investment in traditionally-delivered as well as P3 projects. Financial resources made available by P3 may free up traditional funding to be applied to other projects.
Revenue is different than "Innovative Finance" and encompasses tolling, pricing, taxes, loans, and the relatively new topic of value capture. Below are some brief descriptions with examples to help navigate the options for revenue generation.
Tolling has become a familiar approach to revenue generation in recent years where the private sector assumes both the risks and potential benefits of highway expansion. Direct user fees generate revenues and may result in economic benefit. Few facilities can be fully financed using toll revenues alone; most projects will require a combination of revenue sources to work.
Example: E-470 Tollway
Pricing is a broad strategy that generally imposes user fees that vary based on the travel demand on a highway. Fees may vary based on different travel conditions such as peak-period, congestion, market-based pricing, and other factors.
State taxes are the traditional revenue sources for transportation. Taxes may be placed on motor fuel, vehicle registration, and other taxes such as general fund revenues. For more detail see State Revenue Sources.
Sales taxes are more common at the local level where taxes and fees are authorized at the state level or approved by voters. For additional information see Local Revenue Sources.
Federal-aid highway funds are available through a variety of mechanisms including bonds, loans, and matching funds. For the wide-range of options in this category see Federal-aid Fund Management Tools.
Value capture is another approach to revenue generation that has not generally been used with highway P3 projects in the past. However, MAP-21 authorized new ways to expedite multiple loan request under a single loan agreement with the Federal government.
Example: I-405 Improvement Project
For additional information, visit the FHWA Center for Innovative Finance Support where you can reach out to experts in many aspects of revenue generation who are available to provide information and assistance.
Traditionally, agencies have used public funding and bonds for transportation projects.With P3s there are more financing options available.In addition to private banks and bonds that the private sector has access to,there are a range of finance tools for P3 projects - including innovative programs offered by USDOT.Private sector partners can bring expertise in arranging complex project financing packages, and help assume financial risk.
Due to changes in federal legislation in the last few decades, toll roads (which collect user fees) are again a possible financing tool for highway construction. Toll revenues may be used to repay project financing, or pay the private sector partner for operating and/or maintaining the facility.
The improvements for the I-595 Corridor Roadway in Florida include the addition of toll lanes.Toll revenues will be used to repay financing for the $1,833.6 million project.
USDOT provides direct loans, loan guarantees and contingent lines of credit for large-scale projects of regional or national significance,for up to 33 percent of the total project cost. TIFIA offers lower, fixed-rate financing,matching each dollar of traditional federal-aid funding with up to $10 in additional assistance.
The North Tarrant Express in Texas received a $650 million TIFIA loan for the $2,047 million project.
USDOT issues tax-exempt bonds for highway construction.The funds are allocated by the Secretary of Transportation, who is authorized to issue up to $15 billion in bonds for eligible transportation projects.
The I-495 Capital Beltway HOT Lanes project in Northern Virginia received $589 million in Private Activity Bonds for the $1.938 billion project.
States can create a SIB, a revolving loan fund comprised off federal-aid transportation funds and/or state funds that provide grants or loans for transportation projects.Loan repayments replenish SIB funds, which are then available for new projects.
The Cooper River Bridge Replacement received a $325 million grant and $215 million loan from the South Carolina Transportation Infrastructure Bank for the $675.2 million project.
Section 129 loans provide assistance to toll and non-toll transportation project.Loans repayments are then used to fund other eligible projects, though the requirements differ from SIB loans.
The President George Bush Turnpike in Texas received a $135 million Section 129 Loan for the $530.5 million project.
Financing instruments (bond, note, mortgage, lease, etc.) are issued to provide project financing that will be repaid with future federal-aid transportation funding.This mechanism is used for very large projects with costs that exceed available financial resources,and requires approval from USDOT and FHWA.
The Intercounty Connector (ICC) in Maryland received $750 million from GARVEE bonds for the $2,566 million project.