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Economy

How Transportation Public–Private Partnerships Can Benefit Missourians

By Jakob Puckett on Feb 26, 2021
Toll lanes
Ann Baldwin / Shutterstock

Interstate 70 and several important Missouri roads need to be replaced soon but the Missouri Department of Transportation claims it lacks the money to do so. Using public–private partnerships (P3s) to operate toll roads can help the state finance road repairs.

With fuel tax revenue in a years-long stagnation and transportation revenues uncertain in the COVID-19 work-from-home era, P3s can be useful for funding big transportation projects. P3s are arrangements between a government agency and a private company to partner on a project’s financing, construction, and operation, typically through a long-term agreement. A big advantage of P3s is that investors can finance large projects upfront, rather than waiting for state transportation budgets to get back to normal.

P3s have other benefits. Because a company is responsible for road maintenance for, say, 30 years, it has an incentive to minimize costs over the long run. In contrast, state governments often have an incentive to minimize initial payments or upfront costs in order to make tax hikes or bonds more politically palatable.

Many states have turned to P3s to finance and operate road infrastructure improvements.

Toll road P3s shift the risk of generating enough revenue from the state government to the private sector. Moreover, by relying on tolls rather than existing state revenue sources, toll road P3s open up a new funding stream for road improvements and maintenance. P3s enable the private sector to offer toll-financed solutions where there isn’t a tolling agency or the political will to establish one.

P3s also avoid adding new state debt or liabilities. The toll road company is on the hook for future maintenance obligations, and the state can terminate the contract if the company does not hold up its end of the bargain.

The benefits of using P3s for toll-financed road improvements should prompt Missouri policymakers to reexamine Missouri’s P3 laws. Currently, P3s can be used for a range of infrastructure projects, but not toll roads. Several bills have been introduced in recent years that would change this, but none have passed. Perhaps falling fuel tax revenues and uncertain transportation budgets will encourage policymakers to reconsider.

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About the author

Jakob Puckett

Analyst

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