Over the past three decades, governments worldwide have increasingly turned to the private sector to design, build, finance, operate, and maintain infrastructure, including electric, gas, and water utilities; airports, seaports, and toll roads; and pipelines and telecommunications facilities.

Existing infrastructure entities needing reconstruction or modernization have been “privatized” via either outright sale or long-term leases. (These are referred to as “brownfield” transactions.)

For new infrastructure, governments award long-term design-build-finance-operate-maintain (DBFOM) concessions via a competitive process. These long-term public-private partnerships (P3s) have terms typically between 30 and 50 years. These transactions for new projects are referred to as “greenfield” projects.

While the United States still lags behind many countries in Europe, Asia/Pacific, and Latin America/Caribbean in using these kinds of P3s, this difference arises in part because much non-transportation infrastructure that was state-owned and operated in Europe and other regions was historically investor-owned in the U.S.—such as telecommunications, electric and gas utilities, pipelines, and a fraction of water and wastewater utilities.

On the other hand, major transportation infrastructure such as airports, seaports, and toll roads that have been widely privatized in Europe, Asia/Pacific, and Latin America/Caribbean countries are still mostly government-owned and operated in the United States.

Both brownfield and greenfield infrastructure projects require long-term financing. Facilities owned and operated by governments are often financed 100% by government revenue bonds or general-obligation bonds, which in the United States are exempt from federal taxation. When the private sector invests in infrastructure, it typically invests equity to cover part of the cost and finances the rest via long-term revenue bonds.

To level the financial playing field for U.S. public-private partnerships, Congress has provided for tax-exempt private activity bonds (PABs), which are now widely used for such projects.

The large financing needs for privately financed infrastructure have led to the development and growth of infrastructure investment funds, which raise equity to be invested in privately owned or P3 infrastructure.

Public-sector pension funds, seeking to increase the overall return on their investments, are also making significant equity investments in revenue-generating infrastructure, generally via infrastructure investment funds.

Likewise, insurance companies and sovereign wealth funds are now making long-term investments in this kind of revenue-generating infrastructure.

This report reviews 2024 developments in private/P3 infrastructure investment, focusing on transportation infrastructure.

While the report’s scope is global, it pays particular attention to U.S. developments in P3 infrastructure and the continued growth in pension fund investment in this field.

Part 2 reviews the ongoing role of infrastructure investment funds worldwide.

Part 3 provides an update on the largest companies and major P3 projects under way globally and in the United States.

Part 4 then reviews pension funds’ increasing investment in revenue-generating infrastructure.

Read the full Policy Brief:

The post Annual Transportation Finance Report 2025 appeared first on Reason Foundation.

Governments have used long-term public-private partnerships for surface transportation projects for the past 60 years.

As documented by José A. Gómez-Ibáñez and John Meyer, the phenomenon began in the 1950s and 1960s, as France and Spain emulated the model pioneered by Italy prior to World War II. Italy’s national motorway systems were developed largely by investor-owned or state-owned companies operating under long-term franchises (called concessions in Europe).

In exchange for the right to build, operate, and maintain the highway for a period ranging from 30 to 70 years, the company could raise the capital needed to build it (typically a mix of debt and equity).

The model spread to Australia and parts of Asia in the 1980s and 1990s, and to Latin America in the 1990s and 2000s. Nearly all the projects in those regions from the 1950s to 1980s were financed based on the projected toll revenues to be generated once the highway was in operation.

Some projects went bankrupt as a consequence of reduced traffic and revenues during severe economic downturns (e.g., the oil price shock of 1974), leading to the nationalization of some companies.

However, in the late 1990s and early 2000s, the governments of France, Italy, Portugal, and Spain all privatized their state-owned toll road companies and formalized the toll concession P3 model.

Australia has allowed several concession company entities to go through liquidation, with the assets (in each case major highway tunnels) being acquired by new operators at a large discount from the initial construction cost.

Other governments in Europe adopted a different form of highway concession. Generally, not favoring the use of tolls, they created the concept of availability payments as a means of financing long-term concession projects.

In this structure, the company or consortium selected via a competitive process negotiates a stream of annual payments from the government sufficient (the company expects) to cover the capital and operating costs of the project and make a reasonable profit. The capital markets generally find such a concession agreement compatible with financing the project via a mix of debt and equity. Since no toll revenues are involved, this model applies to a much broader array of transport and facility projects, including rail transit. In the highway sector, nearly all long-term concession P3 projects in Canada, Germany, the United Kingdom, and a number of Central and Eastern European countries have been procured and financed as availability payment (AP) concessions.

In a small but growing number of cases—major bridges, as well as highway reconstruction that includes added express toll lanes, for example—governments collect the toll revenues and use the money to help meet their availability payment obligations. These cases are called “hybrid concessions” in this report.

Of the top 10 worldwide surface transportation P3s that reached financial close in 2024, four used availability payments, bucking what had been a growing trend over the last seven years. In 2023, seven of the top 10 P3s used availability payments.

The growing use of AP concessions has enabled P3s for projects that do not generate their own revenues, as well as hybrid concessions in which toll revenues help the government cover the costs of its AP obligations.

For the past seven years, almost three-quarters of the largest P3 projects, by financial value, have used availability payment public-private partnerships.

See the full Report here:

The post Annual Surface Transportation Infrastructure Report 2025 appeared first on Reason Foundation.

In the second half of the 20th century, the world’s airports and air traffic control systems were essentially all departments of governments. Two events in 1987 launched an ongoing wave of organizational and government reforms: the privatization of the British Airports Authority (BAA) and the corporatization of the New Zealand government’s air traffic control functions as Airways New Zealand.

BAA was privatized as a single entity comprising the three major London airports plus several other airports in the United Kingdom. Later, government policy decisions led to selling Gatwick, Stansted, and two Scottish airports to new private owners.

The improved performance of the privatized airports inspired a global wave of airport privatization and long-term public-private partnerships (P3s) that has resulted in over 100 large and medium-sized airports being either sold to investors or long-term leased as revenue-based P3s—in Europe, Asia, Latin America, and elsewhere.

The outlier has been the United States, which has only three P3-leased airports (San Juan International, Tweed New Haven, and Avon Park Executive in Florida) and a small number of P3 arrangements for airport terminals and other individual facilities.

The corporatization of Airways New Zealand in 1987 also led to a global trend under which more than 60 countries subsequently separated their air traffic control systems from the government’s transport ministry and set them up as self-supporting corporations, regulated for safety at arm’s length from the government.

Within the first decade of this trend, the leading air traffic control providers organized a trade association called the Civil Air Navigation Services Organization (CANSO).

Today, CANSO has 93 full members (providers of ATC services) and 91 associate members (mostly supplier companies). CANSO is the ATC counterpart of the global organizations for airlines (IATA) and airports (ACI).

This brief reviews developments in the United States and worldwide regarding private-sector participation in airports and air traffic control.

While the United States remains an outlier when it comes to airport and air traffic control organization and governance, interest in airport privatization via long-term P3 leases continues.

Read the full Report here:

The post Annual Aviation Infrastructure Report 2025 appeared first on Reason Foundation.

Annual Surface Transportation Infrastructure Report 2025

Annual Transportation Finance Report 2025

The post Annual Privatization Report 2025 appeared first on Reason Foundation.

• Reason report on aviation infrastructure P3s and privatization
• NextGen’s incredible shrinking benefits
• Help for airports without surface surveillance systems
• Reality check for eVTOL startups
• Replacing old control towers with old-fashioned control towers
• Good news and bad news for CLEAR
• News Notes
• Quotable Quotes

Reason’s Annual Report on Aviation Infrastructure Privatization and P3s
By Marc Scribner

Recovery from the COVID-19 pandemic continued in 2023, with the long-term global trend of private investment in airports—via outright purchase, long-term lease, or public-private partnerships (P3s) for select airport projects—proving to be durable in the face of the largest demand shock in aviation history. These activities are documented in Reason Foundation’s Annual Privatization Report 2024: Aviation, which was published last week.

The airport section includes an updated table of reported 2022 revenue of the world’s 38 largest investor-owned airport companies, with the five largest being Aeroports de Paris, Aena Aeropuertos, Heathrow Airport Holdings, Fraport, and Vinci Airports. Combined revenue from these airport companies totaled $38.9 billion, representing 32.5% of 2022 world airport revenue of $119.8 billion.

Interestingly, despite the United States leading the aviation recovery and its lack of private commercial service airports, the private airport industry has proven to be more financially resilient than government-owned airports. As a result, privatized airports have increased their worldwide revenue share. For pre-pandemic comparison, investor-owned airport companies collected $48.3 billion—or 26.6%—of $181.7 billion of 2019 global airport revenue.

This resilience may be partially explained by the increasing importance of the airport group model, in which private companies manage multiple airports. A 2022 study commissioned by Airports Council International (ACI) identified 27 airport groups comprising 425 airports, which collectively handle 29% of global passenger traffic and 23% of cargo tonnage. The report found numerous ways in which the airport group model adds value, such as economies of scale, increased ability to finance capital improvements, and economic resilience.

This year’s Reason report also contains two new tables summarizing global airport P3 transactions compiled from Acuris’s Infralogic database. Both the number and value of projects reaching financial close in 2023 were down sharply from 2022, but last year’s $17.7 billion in airport P3 deal value is still well above the $11.2 billion low point in 2020. In 2023, the largest fraction of projects was “greenfield,” or newly constructed airport facilities, which accounted for 43% of total transaction value and 44% of projects.

The last year saw a number of major airport privatization developments across the world. In November, Brazil concluded its seventh round of airport concessions. The most recent round awarded P3 concessions for 15 airports. The three winning companies—Aena Brasil, Noa Airports, and Pax Airports—have agreed to invest $1.48 billion during the 30-year concessions. As a result of the seven rounds of airport concessions, there are now 11 operators managing 59 airports in Brazil, handling 93% of all passenger traffic and 99% of cargo traffic in the country.

After years of delay, the government of Greece netted an estimated €785 million from the Jan. 2024 initial public offering for a 30% stake in Athens International Airport, Europe’s 18^th busiest airport. The sale was initially proposed in 2018, but the transaction was put on hold following the pandemic-induced collapse in air travel. German airport company AviAlliance, which already owned a 40% stake, exercised its right to buy an additional 10% stake at a 20% premium to the IPO price. This gives AviAlliance a controlling stake in Athens International.

In another example of false starts, the Philippine government had opted at the beginning of 2023 to not privatize Ninoy Aquino International after considering it for several years. It then reversed course after receiving an unsolicited proposal in April from U.S.-based Global Infrastructure Partners valuing the concession at $1.8 billion, attracting interest from investors around the world. In Feb. 2024, the Philippine government finally entered into a 15-year concession with a consortium led by San Miguel Corporation to modernize and operate Ninoy Aquino International Airport in Manila. The project is estimated to cost $3 billion.

The United States is an outlier in the worldwide trend of private airport investment and management. While P3s for major projects such as passenger terminals, cargo facilities, and consolidated rental car centers are growing in popularity, whole-airport P3 leases remain rare.

The notable exception has been the P3 lease of San Juan, Puerto Rico’s Luís Muñoz Marín International Airport in 2013. It may soon be joined by a couple of smaller whole-airport P3s. In December, the Federal Aviation Administration (FAA) completed the required environmental assessment of a proposed 43-year P3 concession of Tweed New Haven Airport in Connecticut. If all mitigations are accepted, Tweed New Haven will become the first commercial airport on the U.S. mainland to operate under a long-term public-private partnership. In addition, general aviation airport Avon Park Executive Airport in south-central Florida applied to enter the Airport Investment Partnership Program in September to authorize a proposed 30-year whole-airport concession.

The Annual Privatization Report 2024: Aviation also covers recent private-sector activities in air traffic control, with particular attention to the past year’s developments in space-based ADS-B and remote/digital towers.

The space-based ADS-B industry remains dominated by pioneer Aireon, which began providing near-real-time global surveillance via satellite in 2019. By 2024, subscriptions to Aireon’s space-based ADS-B service cover more than three dozen countries and more than half the world’s airspace. Aireon may soon face two competitors in the space-based ADS-B market.

Canberra-based Skykraft has entered an agreement with Airservices Australia to launch and operate a 200-satellite constellation to improve ADS-B coverage in Australia and its oceanic airspace. The service will include VHF communications between pilots and controllers in addition to ADS-B surveillance. Subsequent launches to complete the initial satellite constellation are scheduled for later this year, with space-based ADS-B service to go live in 2025. In addition to Skykraft, Spain’s Startical plans to launch at least 240 satellites to provide space-based ADS-B and VHF communications. The company said in September 2023 that it plans to put its first demonstrator satellite into orbit “around 2025.”

With respect to remote/digital air traffic control towers, 2023 saw broadening interest in Europe. In July, Heathrow announced plans to develop a virtual contingency facility that will eventually be capable of operating 100% of airport air traffic control activity in the event of a major outage. In September, Germany’s DFS Aviation Services entered into a contract with Lithuania’s air navigation service provider Oro Navigacija to conduct a feasibility study of using remote/digital towers at four airports, including the capital city’s Vilnius Airport. This was followed by news in Feb. 2024 that Frequentis DFS Aerosense was awarded a contract to install a virtual tower validation system at Munich Airport to evaluate the viability of using remote/digital tower technology at larger hub airports.

As with private-sector involvement in airports, the United States lags behind much of the world on space-based ADS-B and remote/digital towers. In the latest FAA reauthorization, Congress included provisions aimed at encouraging the deployment of remote/digital air traffic control towers in the United States, emphasizing the positive role they could play at small rural airports that presently lack tower service. This could finally clear a path to U.S. remote tower deployments that have been stymied by FAA bureaucracy. Unfortunately, for space-based ADS-B, the most Congress could muster was a toothless “sense of Congress” declaration that FAA should continue to evaluate potential uses of space-based ADS-B.

In addition to the Annual Privatization Report 2024: Aviation, readers of this newsletter may also be interested in Reason’s Annual Privatization Report 2024: Transportation Finance. Robert Poole examines developments in the infrastructure investment fund world, provides updates on the largest companies and major P3 projects underway, and reviews pension funds’ increasing investment in revenue-generating infrastructure.

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NextGen’s Incredible Shrinking Benefits

Back in 2003, Congress authorized the Federal Aviation Administration (FAA) and several other agencies to create a Joint Planning & Development Office (JPDO) to plan a complete transformation of the National Airspace System (NAS). The revised system, to serve FAA, the Defense Department, NASA, and several other agencies, was called Next Generation Air Transportation System (NGATS). Along the way, as it evolved into a Department of Transportation/FAA-only program, it was renamed NextGen. One of the original premises was that demand for air travel would double or triple by 2025, which proved wildly over-optimistic.

Over the several decades of NextGen implementation, the Government Accountability Office (GAO) and the Department of Transportation (DOT) Office of Inspector General (OIG) have produced numerous reports on how the effort is doing. The latest OIG report (AV2024023) dated April 30, 2024, shines a great deal of light on NextGen. In the 2018 FAA reauthorization, Congress asked FAA to report on NextGen’s progress and also asked OIG to review FAA’s report once it was released.

For some context, the original JPDO analysis justifying NGATS estimated that FAA plus airline costs would total $29-42 billion by 2025, but would yield benefits of $213 billion by that time. Alas, as the Office of Inspector General report notes, in part because many elements of NextGen have experienced long delays and cost overruns, the latest estimate from FAA is that benefits as of May 2023 totaled only $9.5 billion, less than 5% of the original estimate, but that’s partly because the system is still a long way from being completed.

The Office of Inspector General’s report provides a critical assessment of the report Congress requested from FAA. The agency submitted it to Congress in Dec. 2021, and OIG reviewed it in detail for two-plus years. Its conclusions are highly critical of what FAA delivered. Basically, FAA’s report “does not capture the full extent of program delays, cost [overruns], and benefit reductions.” One highlighted example is TFDM—Terminal Flight Data Manager. This is the new system that will finally include electronic flight strips. OIG reports that TFDM will not be fully deployed until 2030 and will be installed in only 49 instead of 89 towers. But even that is now out of date, since the 49-tower goal will not be met until 2032. FAA’s report also said that the more-advanced Dynamic Trajectory Based Operations capability will be operational by 2030, but OIG says a senior NextGen official told them it will not be operational by then because many of the systems it depends (such as DataComm) are also behind schedule.

FAA’s report to Congress also claims that, “The NextGen vision has remained constant over time.” Not so, replies OIG, because delays and program changes have resulted in a less-transformational NextGen than was originally intended. Many legacy systems that NextGen intended to replace remain in service, requiring ongoing sustainment spending that reduces what can be spent on newer technology. OIG also reports industry comments that what FAA is actually pursuing in recent years is not the original NextGen vision but that of RTCA’s Task Force 5’s 2009 vision, which “focused on what could be implemented in the near term with technologies already available on aircraft and already deployed in the NAS.”

Parenthetically, I can’t resist a comment about the OIG report’s Figure 1, provided by the FAA NextGen office in May 2023. It lists major programs in the original plan, notes two that were removed, and then adds four that were “added to the plan over time.” One of those is Metroplex, which predates NextGen (and which unfortunately eliminated by far the biggest originally included airspace: New York/Philadelphia). Another is Remote Towers, which I’m sure will be news to airports and remote tower developers worldwide which have seen no such program.

OIG also calls out FAA’s report to Congress for not including all NextGen costs or the challenges presented by increased sustainment and operating costs. For example, FAA’s reported costs include only programs funded by the agency’s Facilities & Equipment account, but not its Operations or Research accounts. Even worse, for some reason, it omitted all NextGen expenditures for 2004 through 2006 (perhaps due to the program still being called NGATS then?) and also omitted expenditures between 2019 and April 2021. OIG provides a more complete cost estimate of $13 billion for NextGen thus far. But that still excludes directly related spending of $3.5 billion by NASA and other spending by DoD, Commerce, and DHS.

Finally, the OIG report’s Figure 2 documents the incredible shrinking benefit projections. In July 2016, FAA was still claiming $160 billion in benefits by 2030. That decreased to $100 billion by 2030 as of 2018, and was revised further downward in March 2021 to $100 billion by 2035. But at last, in June 2023, FAA revised its benefits estimate again, this time to $19 to $25 billion by the early 2030s.

Although the Office of Inspector General did not conclude with an assessment of benefits versus costs, on page 13, it cites FAA’s estimate that implementing all of NextGen will cost FAA and airlines $36 billion. Hence, FAA itself now admits that the costs of NextGen will significantly exceed its benefits.

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Help for Airports Without Surface Surveillance Systems

In much of the coverage of last year’s alarming increase in near-collisions at U.S. airports, this newsletter pointed out that out of 61 large and medium hub airports, only 44 had a surface surveillance system such as ASDE-X or a slightly different follow-on system called ASSC. Those systems use radar, multilateration, and ADS-B information from aircraft and (if equipped) ground vehicles to see their position and movement in real time, enabling corrective instructions to be issued. The site of the worst near-collision—Austin (AUS)—was one of the airports not equipped.

ASDE-X has been out of production for years, and it’s not clear what spare parts are even available. And I’ve not seen any cost estimates for re-opening a production line and producing large new batches. The National Transportation Safety Board (NTSB) has long argued that all large and medium hub airports should have this technology, but FAA has made no moves to do that.

But in a welcome development on April 15, FAA announced that it has selected three companies as qualified to begin deploying a system that will perform some of the ASDE-X/ASSC functions, and at a much lower cost. Called Surface Awareness Initiative (SAI), it uses ADS-B signals from airliners, private planes, and ground vehicles (if equipped) to enable controllers to see where these air and surface vehicles are in essentially real time, regardless of weather. The three providers are Indra, Saab, and uAvionics. FAA has published a list of 45 airports that will get the new SAI equipment, with the first five being Austin, Dallas Love, Indianapolis, Nashville, and Tampa. With three vendors qualified and ready to produce, I hope all 45 of these additional airports will be equipped with SAI within the next year or two (though no schedule has been released).

This is a big step forward for runway safety. Though lacking the surface radar and multilateration capability of the more-expensive systems, SAI should significantly increase controller awareness of potential collisions at the airport. At least one of the qualified vendors, Saab, can offer an added feature: automated safety alerts, in which an identified incident generates an audio alert to the relevant controller position.

This is also an innovative approach for FAA technology procurement. Instead of selecting one tech company to design and develop a new system, it defined the functions that need to be provided and what a potential supplier had to do to become qualified. This is far quicker and less-costly than traditional FAA procurement of new technology systems. Thumbs up to FAA for this innovative approach, and its unusually quick response to last year’s epidemic of runway incursions.

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Reality Check for eVTOL Startups

The dynamic duo of Aviation Week’s Ben Goldstein and Sergio Cecutta of SMG Consulting proved somewhat prophetic in their latest assessment of electric vertical take-off and landing (eVTOL) startups in the magazine’s April 22-May 5 edition, “Narrowing Runways” by Goldstein, drawing on SMG’s ongoing research and analysis.

The article included a new table titled “Estimated Financial Runway for eVTOL Startups.” To get right to the point, the text and tables continued to assess Joby and Archer as the highest-capitalized and hence front-runners in the U.S. air taxi market. That was no surprise, since those two show up in the table with a “financial runway” extending into spring 2025 (Archer) and spring 2026 (Joby). But the text notes that since Joby also plans to operate the eVTOLs it produces rather than selling them to operators as Archer plans, “Joby needs to maintain a larger cash position” since it will not have aircraft sales revenue.

Eve Air Mobility, though spun off from Embraer, still benefits from a working relationship with the latter and is estimated to have a financial runway extending into fourth-quarter 2025. Another rated as being funded through third quarter 2025 was Volocopter, but with a caution in the text that this company, unlike the others in the table, is not publicly traded,” which limits visibility into its financial status. That caution was borne out via an April 26 article in Aviation Daily, “Volocopter May Have to Consider Insolvency in Foreseeable Future.” A German government guarantee for a loan “fell through at the last minute on April 23,” Jens Flottau reported. Volocopter CEO Dirk Hoke told Flottau that because the finance market has turned, “We may have to consider filing for insolvency in the foreseeable future.”

One week later, the Daily Memo in Aviation Daily was headlined, “We Would Not Be Better Off on the Moon—Lilium.” The previously noted table in Goldstein’s article projected Lilium’s financial runway as extending only to third-quarter 2024, but it now appears to be shorter. As with Volocopter, a €100 million government loan guarantee had made no headway over a six-month period, CEO Klaus Roewe told reporter Flottau, also noting that “the capital market is not buzzing at the moment.” And with no support coming through, Flottau wrote, “Lilium is now weighing its options.”

This situation is not really that surprising. Around turn of this century, venture capitalists seemed to be throwing money at just about any kind of online startup, and soon enough that bubble burst. The period before and during the pandemic, with interest rates near zero, led to startups in many fields going public via Special Purpose Acquisition Companies (SPACs). Rosy financial projections for what are turning out to be eVTOL projects that are technically more difficult than many “investors” realized, still looked good at near-zero interest rates. But not so much when more-usual interest rates returned. Secondly, as pointed out many times in this newsletter, realistic business plans for carrying large numbers of paying passengers in very small vehicles have yet to be tested against reality. The most-realistic of these startups may find niche markets that are willing to provide enough passenger volume to yield an actual return on investment. Even that remains to be seen.

As I was writing this piece, a small news article shined a ray of hope on Lilium. A U.S. startup eVTOL operator called UrbanLink announced that it has committed to buy 20 of Lilium’s eVTOL aircraft, with an option to buy 20 more. UrbanLink says it plans to build a regional network connecting cities in South Florida, primarily via vertiports at existing airports in the region. It will be the operator of the Lilium aircraft, using those yet-to-be-built vertiports. I’ve lived in South Florida for 21 years and I follow aviation very closely. I am not aware of any airport in this region that plans to add a vertiport—though there may be plans that have not been announced. I’ll confess to having written some time ago that Lilium might have a wiser business model than very short-haul air taxi service, due to its eVTOL’s announced longer range and suitability for longer-than-air-taxi routes. But that, of course, does not itself constitute a viable business plan.

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Replacing Old Contract Towers with Old-Fashioned Towers

The FAA’s Contract Tower program has been a success since it was launched by the Reagan administration as part of rebuilding the air traffic control work force following the 1981 PATCO strike. That beginning was followed by large-scale expansion of contract towers as part of the Clinton administration’s “reinventing government” agenda. Today there are 250 contract towers across the United States.

Unfortunately, as many of these brick-and-mortar air traffic control towers reach the end of their useful lives, FAA is allocating funds to replace them, not with digital/remote towers (which cost less to build and operate and deliver improved performance) but with brick-and-mortar towers.

On March 21, 2024, FAA released a list of 20 contract tower airports to which a total of $20 million is being awarded. Half of these are for either rehabilitation or equipment replacement or additions at aging towers. Six of these grants are to start the design or construction of a replacement conventional tower and another is to add such a tower to a new-entrant airport in the Contract Tower program. Here are those unfortunate seven airports that would be far better served by a digital/remote tower.

*New entrant airport

Despite having invented the concept in 2007 (well-documented in an article in the Journal of Air Traffic Control), FAA has done nothing with it, and has imposed onerous new requirements on the only two U.S. remote tower projects—both state-funded, not FAA-funded—that killed the one in Leesburg, Virginia, and imperiled the other one in Loveland, Colorado.

Yet, as demonstrated by dozens of certified, operational digital/remote towers across Europe, the idea makes very good sense for smaller airports (the focus of this article). First, a remote tower (RT) costs less to build. You don’t need a fancy architect; all you need is a modest (secured) office with all the needed equipment, plus one or more masts to mount an array of cameras and other sensors. Second, the RT costs less to maintain: no elevator to service or repair or very high windows to keep clean. Third, for small airports like those that barely meet the requirements for the Federal Contract Tower program, ANSPs in Germany, Norway, and Sweden are controlling multiple small airports from a single remote/digital tower center. Talk about economies of scale!

Remote/digital towers also increase safety, which is FAA’s stated number one priority. As far back as the original FAA project at the Tech Center in Atlantic City, controllers were delighted to be able to see what was going on at the airport in rain, fog, and after dark, thanks to some of the cameras being infrared. And today’s RT displays attach aircraft ID tags to their moving images, to ensure that controllers correctly see what is moving on the ground and in the air.

FAA has also ignored the provision in the 2018 FAA reauthorization bill calling for a five-airport pilot program for remote/digital towers. Instead, as I reported in the Jan. 2023 issue of this newsletter, it had an architectural firm design a “sustainable” brick-and-mortar tower concept to replace aging towers at 31 smaller airports and got $500 million from Congress to begin implementing them. This is an example of how ‘the world’s most advanced ATC system’ has lost the right to make such a claim.

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Good News and Bad News for CLEAR

CLEAR, the company that provides Transportation Security Administration-approved identity verification for passengers who subscribe, and then escorts them to the head of the screening lines, has fully implemented its new contract with TSA to be an official enrollment provider for TSA PreCheck applicants. This makes CLEAR the third such provider, after Idemia and Telos (and, of course, TSA itself). That’s the good news.

The bad news is that two egalitarian California state senators are pushing legislation to ban CLEAR’s operations at airports in what used to be called the Golden State. Well, it’s not quite that draconian, despite the ‘haves vs. have-nots; rhetoric from some politicians and reporters. What the bill actually calls for is to only allow CLEAR to operate if it negotiates with the airport and TSA to have its own separate screening lanes. CLEAR already pays airports for the right to operate there, and last year it paid California airports $13 million for the spaces it uses.

Most major airlines are happy with CLEAR, with the exception of American (which at some airports has its own “premium passenger security check-in queues” per a photo in Gary Leff’s April 22 View from the Wing blog). Leff points out that CLEAR members travel more than most travelers and stand in more lines than most, so most are happy to pay $189 per year for membership. Airports with CLEAR seem glad to have it, making their airport more attractive to frequent flyers. Two groups that support the egalitarian California bill are the flight attendants’ union, AFA-CWA, and the TSA screeners’ union for Northern California.

I’ve encountered similar ‘line-cutter’ and ‘Lexus Lane’ rhetoric in my work on toll lanes and surface transportation policy. This class rhetoric is ugly and silly. Markets offer all kinds of choices for those willing to pay more. Airlines offer first- and business-class seats. Even government-owned Amtrak offers first-class cars on the same train that others ride. 

For me, PreCheck is time-saving enough. I don’t see enough value to pay an additional $189 per year for CLEAR. On the other hand, I still get enough value from American Airline’s Admirals Clubs to pay the recently increased annual membership fee. Different strokes for different folks.

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News Notes

American and United Support $2.2 Billion Terminal at Chicago O’Hare
Chicago O’Hare’s two largest airlines on May 3 announced an agreement with the city of Chicago in support of the $2.2 billion Terminal 2 expansion. The project will more than double the terminal’s capacity, handling both domestic and international flights. It will increase O’Hare’s gate capacity by 25%. The Terminal 2 expansion is the last major component of O’Hare’s $8.5 billion expansion, which has included both runway and terminal additions.

Vinci Airport Buying Majority Stake in Edinburgh Airport
Vinci Airports, the world’s fifth-largest airport company by revenue, has announced the acquisition of a majority stake in Edinburgh Airport, the UK’s sixth-largest. Vinci is paying $1.58 billion for the 50.01% stake, with the balance owned by Global Infrastructure Partners, a global infrastructure investment fund. Vinci also owns large stakes in London Gatwick Airport and Belfast International Airport. The Edinburgh purchase equates to 14.3 times the airport’s recent EBITDA, or earnings before interest, taxes, depreciation, and amortization.

No Current Plan for Space Launch User Fees: FAA
Despite several recent articles about the idea of charging commercial space launch companies fees for using airspace adjoining launch and recovery sites, Space News (April 10) quoted an FAA official saying that the Biden administration “has no plans for the time being to levy taxes on commercial launches.” Among those stating the opposite was The New York Times, whose April 4 story said the administration was proposing such a user tax or fee, given the increasing use of airspace in the vicinity of Florida’s Cape Canaveral launch sites.

Consortium Wins Concession for Paris-Beauvais Airport
A consortium including construction firm Bouygues, Nice airport operator Aeroports de la Cote d’Azur, and infrastructure funds Serena and TIIC last month agreed to pay €4 billion for a 30-year concession. Located 80 kilometers north of Paris, the airport is France’s tenth largest in passenger traffic, with 4.6 million in 2022. The winning consortium plans a considerable expansion of the airport.

GMR Plans Expansion of Goa Airport
Indian airport company GMR plans a major expansion of its airport in Goa, according to Infralogic (April 23). It has applied for permission to increase the airport’s capacity from 4.4 million annual passengers to 7.7 million. The airport, Manohar International, opened in Jan. 2023 and handled 6.8 million passengers in its first year. GMR Airports has a 60-year P3 concession for the airport.

Aena Plans Expansion of Sao Paulo’s Congonhas Airport
Aviation Daily reported (April 11) that Spanish airport company Aena (world’s second-largest in revenue) will invest $401 million to expand the capacity of Sao Paulo’s second-largest airport. The four-year project will replace the existing terminal with one more than twice its size, increasing the airport’s capacity from 17 million annual passengers to 29.5 million. The project will also upgrade the airport’s runways.

UK Plans to Integrate UAVs into Airports
After a series of simulations run by NATS, the country’s ANSP, an industry coalition now plans demonstration flights later this year in which un-crewed aerial vehicles (UAVs) will fly into and out of busy airports. UAV operators will have to file flight plans for each such flight. The project is organized by UK Research and Innovation (UKRI).

Lithuania to Implement Wide Area Multilateration
Air Traffic Management (April 18) reports that ERA has been awarded a contract by Oro Navigacija, the ANSP of Lithuania. The WAM system will cover all Lithuanian airspace, including the Vilnius FIR and 50 miles beyond the country’s borders. This secondary surveillance system relies on both ADS-B and wide-area multilateration. ERA last year completed the installation of a comparable system in Latvia.

Digital Tower Test Center Under Way in Belgium
Skeyes, the ANSP of Belgium (formerly known as BelgoControl), unveiled its Digital Tower Test Center in Steenokkerzeel. It is a prototype for the digital control center being set up in Namur by Skeyes and the Walloon airport operator in Namur. By 2026, air traffic at both Charleroi and Liege airports will be managed by the new center in Namur. The digital tower center will be responsible for air and ground traffic at both airports, reported Air Traffic Management (April 26).

Potential Sale of UK Airport Group AGS
Macquarie Asset Management and Ferrovial are both exploring the sale of their ownership interests in the AGS group (Aberdeen, Glasgow, and Southampton). The two companies acquired the airports from Heathrow Airport Holdings in 2014. The United Kingdom’s air traffic is still recovering from the COVID-19 pandemic and has yet to reach pre-pandemic levels. However, Infralogic reported (April 23) that Glasgow’s 2023 passenger count was up 12.9% from the previous year, but still short of nearly 9 million in 2019.

Iridium Introduces Satellite Time and Location Service
Iridium Communications, which operates a constellation of low earth orbit communications satellites, on April 2, announced the completion of its acquisition of Satelles, Inc. That company, now Iridium Satellite Time and Location (STL) offers space-based time and location service as a backup for GPS/GNSS, which is vulnerable to jamming and spoofing.

Saab Unveils Deployable Digital Tower
Swedish aerospace company Saab now offers a “deployable” version of its remote/digital tower aimed primarily at military and counter-drone applications. Saab Digital Air Traffic Solutions says the deployable version can be up to 25 meters high, can be transported by truck or aircraft, and set up in as little as 30 minutes. The deployable tower has been certified to NATO standards.

Conrac Solutions Finances Reno Airport Rental Car P3
The Conrac Solutions (CS) division of Meridiam reached financial close on May 2 for a new ground transportation center at Reno-Tahoe International Airport. It includes a consolidated rental car center and other facilities. This project will bring CS’s consolidated rental car centers to 18, reports Infralogic (May 7). Meridiam acquired CS in May 2023.

Atlanta Airport Announces 24/7 Access Restrictions
Thanks to a new regulation from the Atlanta City Council, access to Hartsfield-Jackson International Airport (ATL) will be restricted 24 hours a day to ticketed passengers, airport staff, those meeting/greeting passengers, maintenance staff, and others having “legitimate business” at the airport. The restriction includes the SkyTrain, Rental Car Center, and parking structures. Violators are subject to arrest and prosecution.

FAA OKs Boom XB-1 for Supersonic Test Flights
In mid-April, FAA granted permission to Boom Supersonic to operate supersonic flight tests using its XB-1 demonstrator aircraft. Its first (non-supersonic) flight took place at Mojave Air and Space Port on March 22. The supersonic flights will take place in restricted airspace associated with Edwards Air Force Base. It is limited to 20 flights of the XB-1 and a T-38 chase plane between now and April 2025.

Correction to Last Month’s Issue
In the April issue article “Europe’s New Plan for a Single Sky—Not,” a statement by Andrew Charlton was incorrectly attributed. His excellent newsletter is Aviation Intelligence Reporter, not Aviation International Reporter. We apologize for the error.

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Quotable Quotes

“The cost savings from consolidating ATC centers are undoubtedly large, but it is unlikely to happen soon, for three reasons: politics, politics, and politics. I was closely involved in the partial privatization of the UK ANSP (NATS) in 2001. I remember at the time discussion of perhaps combining UK and Irish airspace, which includes large parts of the North Atlantic. Both countries have two ATC centers each. The second UK center at Prestwick is there solely because the support of the Scottish Members of Parliament was needed to get the NATS legislation passed. But, we were told, the work of the two Irish centers could be undertaken by the addition of just 3 or 4 additional desks at the main UK center, with large cost savings. The problem was, and is, why would the Irish agree to handing over well-paid jobs to the UK (or vice-versa) in a state-owned company that at the very least didn’t cost the government anything? And that problem is multiplied throughout Europe. I think the European Commission has realized that this is a problem too difficult to solve, so instead has turned its attention to economic regulation of the monopoly ANSPs. Unfortunately, this has failed as well, for similar reasons to why it took so long to liberalize intra-European air services, namely the very close association between ANSPs and governments. Repeatedly, attempts to increase ANSP efficiency and reduce costs and charges have been undermined by protectionist EU member states. Airlines were forced to change following a legal case which concluded that aviation and shipping were subject to the competition provisions of the Treaty of Rome. I haven’t seen any sign, even from Michael O’Leary, of a similar development with respect to ANSPs.”
—Barry Humphreys, aviation consultant and author of The Regulation of Air Transport: From Protection to Liberalization and Back Again, online aviation discussion group, April 18, 2024 (used with the author’s permission)

“Growth is still front and center in the most mature markets. United Airlines’ current strategy is to become the largest airline in the world, and its efforts are being held back more by Boeing’s inability to deliver or certify aircraft on time . . . . The idea [for a cap on Available Seat Miles] does not sufficiently consider the consequences on the manufacturing side. Airbus’ target to raise single-aisle production to 75 aircraft per month and its intent to follow through with steep increases in widebody output are no coincidence. The OEM needs huge amounts of free cash flow to finance the two next-generation developments it has announced. . . . The same is true on the Boeing side. . . .  Serving only the replacement market—as in the ASM cap scenario—would be a devastating outlook for OEMs and would hold back investment. Airbus’ global forecast sees a market for 40,850 new aircraft in 2024-42, only 17,170 are for replacement. . . . Like it or not, if the industry is to self-finance its transition to being much more sustainable, it must be allowed to grow.”
—Jens Flottau, “The Growth Conundrum,” Aviation Week, April 22-May 5, 2024

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The post Aviation Policy News: Airport and air traffic privatization and P3 trends appeared first on Reason Foundation.

• New report documents P3 transportation finance
• Reason’s report on surface transportation P3s
• Report argues for “trucks-first” mileage-based user fees
• California’s locomotive emissions regulation misfire
• Changed criteria may kill a California express toll lanes project
• News notes
• Quotable quotes

Annual Privatization Report Documents P3 Transportation Finance Trends

Using long-term public-private partnerships (P3s) to develop and manage large-scale transportation infrastructure began in Europe in the 1970s, primarily to finance, develop, and operate new toll roads. The Margaret Thatcher era in the 1980s led to extensive privatization of airports and state-owned electricity, telecommunications, and water utilities. The idea of leasing major transportation assets (airports, seaports, toll roads, etc.) spread to Australia and Latin America in the 1990s and early 2000s. The first two “greenfield” highway P3s in the United States—the Dulles Greenway in Virginia and the SR 91 Express Lanes in California—both reached financial close in 1993, but for about a decade they were outliers.

With global growth in privatization and long-term public-private partnerships becoming a major phenomenon in the 1990s and 2000s, financial markets created infrastructure investment funds to raise equity from institutional investors to enable these new funds to build portfolios of privatized and P3 infrastructure. For several decades, the Reason Foundation’s transportation program has published annual reports on such developments. The reports are issued each spring: one focused on transportation finance, another on surface transportation, and a third on aviation.

This article summarizes findings from Reason’s 2024 Annual Privatization Report: Transportation Finance.

The new report first summarizes the worldwide continued growth of infrastructure investment funds. In 2023, the top 100 such funds, as tracked by Infrastructure Investor, reached a trillion-dollar milestone: Over the most recent five-year period, the investment funds raised $1.04 trillion. Of these top-100 funds, 41% of that total was raised by U.S.-based funds, with European-based funds accounting for another 33%.  Adding Australia/New Zealand funds (14%) and Canadian funds (10%), 98% of the total comes from funds in those countries.

What are these funds investing in?

Data firm Infralogic reports that in 2023, as in 2022, transportation was the largest category; its $51.8 billion accounted for 62% of 2023 investments by infrastructure funds. And 54% of the total went toward greenfield projects. However, of the largest 15 global transportation projects financed last year, the largest was the brownfield lease of Puerto Rico toll roads, at $3 billion. The only other U.S. project on that list was the $35 million New York Metropolitan Transportation Authority station refurbishment project.

Annual Privatization Report also tallies the world’s P3 developers, by number of projects, with the top five being Vinci, Meridiam, Sacyr, ACS Group, and Macquarie. The top three developers of U.S. public-private partnership projects are Meridiam (9 projects), Ferrovial/Cintra (7), and ACS (6).

The report includes an annually updated table of U.S. transportation P3 projects of two types: revenue-risk (RR) projects, financed primarily by user fees, and availability payment (AP) projects, financed by annual government payments. From the finance breakdowns of each project in the table, the 21 revenue-risk project financings averaged 28% equity, compared with an average of 6% in availability payment projects. Accordingly, the average AP project’s financing included 34.9% state government funding, compared with an average of 8.3% in RR projects.

The largest U.S. greenfield transportation project in the report is the $2.1 billion Calcasieu River Bridge project in Louisiana, which actually reached final approval in Jan. 2024.

Other important U.S. P3 transportation news in 2023 included Transurban’s withdrawal from the $6 billion Maryland express toll lanes project after a change of governor made the prospect of reaching an agreement to proceed unlikely. The Illinois legislature revised its P3 law to allow for unsolicited proposals and approved a potential P3 to add express toll lanes to congested I-55 in the Chicago metro area.

The pipeline of upcoming U.S. transportation public-private partnership projects includes the Georgia Department of Transportation’s (DOT) $1.6 billion express toll lanes on SR 400 and the much larger I-285 Top End express lanes in Atlanta.

Also in the pipeline across the United States are planned P3 express toll lanes (dubbed Choice Lanes) in Tennessee, including in Nashville, Chattanooga, and Knoxville. Other potential projects in coming years include adding express toll lanes to I-77 between Charlotte, North Carolina, and the South Carolina state line, a port-connector highway in New Orleans, a new Mississippi River bridge in Baton Rouge, LA, and possibly extending the 20 miles of express toll lanes on I-4 in Orlando, FL, further northeast and southwest.

The report’s final section covers the ongoing expansion of infrastructure investment (via the major infra investment funds) by U.S. state and local public employee pension systems. Investing equity in a portfolio of revenue-generating infrastructure was pioneered decades ago by Australian and Canadian pension systems, which today invest in infrastructure worldwide (and are fully funded).

The average funding ratio of 118 U.S. state pension systems in 2023 was 76%, with only two fully-funded state pension systems (in New York and Washington). The largest U.S. public pension system, the California Public Employees’ Retirement System, or CalPERS, was the U.S. pioneer, making landmark investments in the privatized London Gatwick Airport and the U.S. Indiana Toll Road long-term P3 concession. Some of the larger state pension systems making new or expanded commitments to infrastructure investment funds in 2023 were the New York State Common Retirement Fund, the Illinois Municipal Retirement Fund, and the Employees Retirement System of Texas. City and county employee retirement funds made numerous new commitments in 2023, as well.

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Reason Foundation’s Report on Surface Transportation P3s
By Baruch Feigenbaum

Today, Reason Foundation is also publishing the Annual Privatization Report Surface Transportation chapter. Transportation privatization activity decreased in the immediate post-COVID-19 period, but the number of 2023 project closings has recovered, and now exceeds 2019.

In the United States, there are only 23 privately owned roadways. Most are bridges or highways that lead to bridges. Alabama has more than any other state with four. There are three private bridges connecting Texas and Mexico, built to speed up freight movement with the country’s number one trading partner. Two other bridges connect the U.S. with Canada, another major trading partner. Other private roads serve small communities or beachside towns. All of these bridges met a need for a facility that the state transportation department could not fund.

Public-private partnerships (P3s) are much more common than privatized highways. Reason defines a P3 as having at least four of the five parts of a full concession: design, build, finance, operate, and maintain. Almost all infrastructure is some type of public-private partnership. For example, the Georgia Department of Transportation awards some Interstate repaving build-maintain contracts to CW Matthews. However, these contracts are generally for short-term maintenance only. Design-builds, in which the three design-bid-build steps are combined into one, and design-build-finance can be considered mini-P3s. They help to reduce costs, speed up project delivery, and improve project quality. However, since they are not full public-private partnerships, they are not included in this chapter.

Unlike in past years, the two largest international surface transportation public-private partnership projects occurred in the United States. The largest of these projects was the $4.2 billion sale of State Highway 288 (from one set of private firms to another) in Houston and the second largest was the $3 billion lease of four Puerto Rico toll roads, both to Abertis. Unfortunately, the Texas Department of Transportation early this year chose to terminate the SH 288 P3 concession because the department wanted to control the toll rates and add new general purpose capacity, and contract termination was the cheapest method.

Globally, five other surface transportation P3 projects topped the billion-dollar mark. Israel reached financial close on two light rail lines. A Norwegian highway connecting a summer resort area and the largest airport in the northern part of the country reached financial close. Texas State Highway 130 was refinanced. Finally, the Dongbu Expressway, an important highway in Busan, South Korea’s second-largest city, was refinanced.

While the U.S. had the two largest deals, the report shows extensive surface transportation P3 activity occurred across the globe. Asia had a staggering 63 projects reach financial close, for $8.9 billion. Europe had 12 projects totaling $3.4 billion. The Middle East had two large projects totaling $3.3 billion. North America had 11 projects totaling $9.8 billion. Oceania (in this case Australia), Latin America, and Africa round out the list.

Currently, the U.S. has 42 surface transportation P3 projects of at least $100,000 that have reached financial close. While that may not sound impressive, it is a 24% increase from just seven years ago, showing the U.S. market is expanding. These P3 transportation projects range from the $5.7 billion Indiana Toll Road to the $0.1 million Teodoro Moscoso Bridge in Puerto Rico.

One reason that public-private partnership activity has increased is the doubling of the federal private activity bond (PABs) cap in the last surface transportation reauthorization, the Infrastructure Investment and Jobs Act. Private activity bonds are tax-exempt bonds that help level the playing field with municipal bonds. Without PABs, public-private partnership investors would have to pay a tax on P3 bonds, which they do not have to pay on municipal bonds. Given that P3s serve a public purpose, it is important that they are treated the same way as municipal bonds. Twenty-four P3 projects have used private activity bonds as part of their financing package.

For better or worse, 2023 was not a banner year for state-level P3 legislation in the United States. One reason is that half of all states already have broad P3 enabling laws. Broad enabling legislation typically allows state transportation departments to enter into public-private partnerships with minimal meddling from elected officials. Another 17 states, and the District of Columbia and Puerto Rico have restrictive legislation. In this legal setup, the legislative and executive branches must approve each P3 project. While this is better than no legislation, it introduces politics and horse trading into the process, minimizing the technical guidance of the state Department of Transportation engineering, financial, and legal advisors.

Illinois shortened its prequalification process for P3s and authorized a P3 for proposed express toll lanes on I-55 in Chicago. Regarding the prequalification process, Illinois is a state with broad P3 authority, but no major projects. The hope is the change will incentivize additional projects.

A bill to expand public-private partnership authority in Texas beyond the three tollway authorities (Austin, Dallas, Houston) failed. Finally, while major P3 highway projects in Georgia and Virginia continued to move forward, the $7.6 billion Maryland managed lanes project was canceled by new Gov. Wes Moore. The Maryland process shows the danger of politicizing a transportation project. Maryland plans to use a design-build approach to add express lanes to some of the planned corridor. But, the state does not currently have the funding. Further, there is no funding for the transit services that the proposed P3 would have funded.

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New Report Argues for “Trucks-First” Mileage-Based User Fees

Last month, Washington, DC-based think tank Information Technology & Innovation Foundation (ITIF) released a nine-page policy paper titled. “Why Congress Should Enact a Mileage-Based User Fee for Heavy Trucking.” The author is Robert T. Atkinson, ITIF’s founder and CEO. In 2008-09, Atkinson chaired the National Surface Transportation Infrastructure Financing Commission, on which my Reason Foundation colleague Adrian Moore served, and which recommended mileage-based user fees (MBUF) as the best replacement for per-gallon fuel taxes. ITIF does a lot of good public policy work, and Rob is a respected public policy researcher. However, I disagree with his recommendation in this new paper, despite strongly supporting the need to replace per-gallon fuel taxes with per-mile charges.

Just so I’m not misunderstood on this subject, let me first explain where Rob and I are in agreement. First, as numerous engineering and cost allocation studies have documented over many decades, heavy trucks do substantial damage to nearly all in-use pavement designs. They also lead to weight limits on smaller bridges.

Second, the pavement damage is less severe the more axles a truck has, to better distribute its load on the pavement. Nearly all U.S. big rigs have three axles on the tractor and two on the trailer. Heavier trucks in Australia and Canada sensibly use more axles. Both countries allow what are called “B Double” rigs with a conventional tractor and two trailers, with a connecting three-axle bogie between the trailers; the Australian version also has a three-axle configuration at the rear of the second trailer. The ITIF report does not mention the benefits of more axles or how this would be incentivized by a system that charged trucks based on the weight per axle rather than gross weight.

The ITIF proposal also includes congestion pricing (which truckers argue would distort their roadway choices) and an emissions tax in the per-mile charge. What any practical MBUF proposal needs to be is simple—a user charge to pay for roadway use. The more add-on taxes and fees there are, the more politically dubious any implementing legislation would be.

My greatest concern is that imposing mileage-based user fees on heavy trucking before any other types of motor vehicles could set back the progress being made on reaching a political consensus on phasing in per-mile charging to replace fuel taxes.

As this newsletter has documented, most recently in the Oct. 2023 issue, the Eastern Transportation Coalition has led path-breaking MBUF truck pilot projects, in which trucking companies voluntarily participated, and which have led to important findings about how best to proceed. Participating trucking companies understand that—just as on toll roads—a Class 8 tractor-trailer rig could pay something like four times as much per mile as a passenger vehicle. Pilot project participants accepted that as realistic.

But they also stressed that to be workable in a complex interstate and cross-border (to/from Canada) system, the charging system should be simple. For example, there are different definitions of truck weight, and they argued that a truck MBUF system would be far less complex if it used a simple standard weight for all trips, such as the truck’s “registered weight,” regardless of a truck’s actual gross weight on any specific trip. They also pointed out that in today’s fuel-tax world, the trucking industry already has a system in operation to divvy up state truck fuel taxes among the states traversed, regardless of which state(s) a truck’s fuel was purchased in—the International Fuel Tax Agreement (IFTA). That organization cooperated with the 2022 International Mileage-Based Truck Pilot. Even though divvying up fuel taxes among states would not be needed with a truck MBUF system, IFTA would be in a good position to handle the details of interstate and international (U.S.-Canada) truck MBUF processing and record-keeping.

Despite the active participation of trucking companies in the Eastern Transportation Coalition’s several truck MBUF pilot projects, the American Trucking Association’s official position is still anti-MBUF and even more opposed to “singling out the trucking industry” by requiring it to go first. What we need is not a war with the trucking industry, but a negotiated peace agreement that takes into account the industry’s serious concerns, as brought out in the truck pilot projects.

Rather than a truck-first implementation, I think a wiser beginning of the transition would be an Interstates-first implementation. The Interstates handle about one-third of all U.S. vehicle miles of travel, so that would be a significant shift from fuel taxes to mileage charges.

Second, most motor vehicles could begin using existing all-electronic tolling technology, rather than requiring new technology in their vehicles. Interstate trucks, as ITIF points out, nearly all have GPS and communications technology, and many fleets have nationwide toll accounts with either Bestpass or PrePass.

Third—and very important—state transportation departments would have to provide refunds of the motor fuel tax paid by cars and trucks driving on the converted Interstates, making good on the promise that mileage-based user fees will replace, rather than add to, fuel tax revenues. Such refunds would build political credibility that all future transitions to MBUF would be replacements, not additional payments for roadway use.

Alas, I did not see anything in the new ITIF paper about refunding trucks’ diesel taxes if/when they shifted to a truck MBUF. Perhaps, if the paper had led with that it would be taken more seriously by the trucking industry.

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California’s Locomotive Emissions Regulation Misfire
By Marc Scribner

California is seeking special approval from the federal government to implement sweeping new regulations on train locomotive emissions. The problem is California’s rule is so stringent that it would severely disrupt freight rail operations in the state and cause customers to shift to rail’s trucking competitors—thereby increasing overall emissions. In April, Reason Foundation weighed in against a waiver being considered by the Environmental Protection Agency (EPA) that would permit the California Air Resources Board’s (CARB) costly deviation from national locomotive standards.

Last year, over the objections of rail carriers and customers, CARB finalized its In-Use Locomotive Regulation. CARB’s locomotive rule contains a number of provisions, including a requirement that railroads adopt zero-emission locomotives for railyard and industrial uses by 2030, and for long-distance line-haul operations by 2035. It would also force the early retirement of locomotives that do not meet the highest Tier 4 emissions standards and require operators to pay into a restricted trust from which funds can only be expended for regulatory compliance purposes. CARB optimistically estimates compliance costs to be $13.8 billion through 2050—mostly in the form of equipment capital costs—with annual costs exceeding $1 billion for several years during the planned zero-emission phase-in deadlines.

Under the federal Clean Air Act, state and local governments are generally prohibited from enacting their own requirements on nonroad engines and vehicles. However, the law allows for a special carve-out for California if the EPA makes the following four findings:

• California’s standards are at least as protective of public health and welfare as federal standards;
• California’s determination is not arbitrary and capricious;
• California’s standards are necessary to meet a compelling and extraordinary need; and,
• California’s standards are consistent with the Clean Air Act’s mobile-source emissions requirements.

Setting aside the legal debate about the scope of federal preemption, the major policy problem for California is that CARB is far too optimistic about the state of zero-emission locomotive technology. As a result, its aggressive phase-in of unproven technology could devastate freight rail in the state and cause customers to shift their traffic to more-polluting trucks. As a result, rather than reduce emissions as intended, the expected effect of CARB’s In-Use Locomotive Regulation is an increase of air pollution emissions in both California and in neighboring states. For this reason alone, the EPA should deny CARB’s request for a Clean Air Act waiver.

Zero-emission freight locomotives for both switching/industrial and line-haul operations remain under development. Progress Rail’s EMD SD40JR Joule switching locomotive is currently undergoing a year-long test on the Pacific Harbor Line at the Ports of Los Angeles and Long Beach, with similar testing underway in Brazil. For line-haul operations, Wabtec’s FLXdrive battery-electric locomotive is scheduled to begin testing sometime in 2025 in Western Australia. In comments to the EPA, Wabtec itself stated, “Although progress is being made, [zero-emission] locomotives are still in the early development phase and not yet commercially available,” and urged the EPA to deny CARB’s waiver request.

CARB acknowledged in its Initial Statement of Reasons that smaller railroads reliant on older locomotives may be bankrupted by its rule and thereby cause communities to lose access to rail service. As a result of the infeasible compliance requirements in CARB’s In-Use Locomotive Regulation, freight would increasingly shift to trucks.

In its Initial and Final Statements of Reasons, CARB claims it “did not find empirical research that focused on the impact of regulatory costs on freight diversion or mode shifts from rail to trucks.” But this is untrue. In fact, CARB had commissioned a study in 2016 from the Rail Transportation and Engineering Center at the University of Illinois at Urbana-Champaign, which found that a CARB-style locomotive rule is likely to substantially raise costs and degrade the rail network. Based on Europe’s experience, the study concludes, the “net result of these outcomes will likely be a decrease in freight rail market share.”

According to the EPA, when compared to freight rail, trucks produce approximately 10 times as much carbon dioxide (CO2), more than three times as much fine particulate matter (PM2.5), and two-and-a-half times as much nitrogen oxides (NOX) per ton-mile.

Given that trucks emit far more pollutants than trains to move the same volume of freight, a modal shift from rail to truck would increase the air pollution emissions intensity of the transportation sector. CARB’s In-Use Locomotive Regulation, by reducing rail’s cost advantage over trucks, can thus be expected to increase total emissions—at least until zero-emission locomotives are developed and commercialized for line-haul service. Given that long-haul freight movements occur across state lines, CARB’s rule would also have the expected effect of increasing emissions in neighboring states.

As laudable as some might view CARB’s intentions, the agency’s assumptions about the state of freight rail technology and intermodal competition are so mistaken that CARB’s locomotive regulation would have the perverse effect of worsening pollution. Federal regulators should not allow California dreaming to trump basic facts. For more detail, Reason Foundation’s full comment letter to the EPA is available here.

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Changed Criteria May Kill Planned California Express Toll Lane Project
 
Yolo 80 is a proposed Caltrans tolled managed lane project to relieve peak-period congestion on the stretch of I-80 between Sacramento and Davis (where the University of California-Davis is located). Politico reported on April 16 that both the U.S. Environmental Protection Agency (EPA) and the Federal Highway Administration (FHWA) are objecting to the environmental analysis of the project. It is also being opposed by the California Air Resources Board (CARB) and the usual environmental groups. In March, the California Transportation Commission postponed a vote on the project, after CARB sent it a letter saying the project is inconsistent with its emissions plans and failed to mitigate its potential increase in vehicle miles of travel (VMT) and greenhouse gases.

Underlying these objections is a profound change imposed by the state legislature last decade. Under California Senate Bill 743, highway planning is no longer supposed to be based on improving the level of service (LOS), meaning reduced congestion. Instead, projects are to be evaluated based on reducing VMT, as a proxy for reducing greenhouse gas (GHG) emissions. Never mind that California has the most aggressive program in the nation to phase out internal combustion engine vehicles over the next 20 years and that highways are long-term investments with a useful life (if well-maintained) of 50 years. In 2019 the state’s Natural Resources Agency updated the state’s California Environmental Quality Act (CEQA) Guidelines to include the Senate Bill 743 changes, which have been in effect since mid-2020. Nearly all highway projects now have to carry out an “induced travel” assessment, and if that shows significant increases in VMT, they must propose ways to mitigate those increases.

There are several “induced demand calculators” in being, including one from Rocky Mountain Institute that was critiqued in this newsletter by my colleague, Baruch Feigenbaum in the Jan. 2022 issue. As he pointed out, that calculator treats all VMT increases as bad, yet new capacity offers benefits such as better access to jobs and the ability to reach a larger variety of retail and services. It also ignores the potential safety benefits of shifting traffic to safer limited-access roadways from ordinary arterials. And in the case of variably priced express toll lanes, vehicles avoiding stop-and-go conditions at speeds around 45-50 miles per hour produce far less greenhouse gas emissions than those in the congested general-purpose lanes.

But California’s mandated anti-VMT policies force transportation agencies to use potentially flawed models to estimate “induced demand” and then set forth measures to reduce it. In the Yolo 80 project case, Caltrans came up with a large array of possible measures, such as increasing passenger rail service in that corridor, adding “microtransit” services, and subsidizing monthly transit passes, at a cost of $55 million. It rejected another array of mitigations that would cost another $95 million as either too expensive or not feasible.

A brief produced by consulting firm Kimley Horn for a different California roadway project outlined potential short-term and long-term induced demand based on a calculator from the National Center for Sustainable Transportation, called the California Induced Travel Calculator, which is what Yolo 80 is confronted with. The brief notes that the NCST Calculator and metro area travel demand models are not the only tools to estimate induced demand—and that no travel demand models in use in California can estimate long-term induced demand. It also points out that Caltrans recommends that heavy vehicle VMT not be included in such assessments, because the same factors that influence personal vehicle use are not relevant for most heavy vehicle travel. Kimley Horn also points out several limitations of the NCST calculator. Among these are that it:

• Does not reflect findings of some of the studies on which its elasticity estimates are based;
• Does not include rural areas;
• Uses lane-miles instead of travel time to estimate induced VMT;
• Does not address correlation vs. causality in some of the studies it relies on; and
• Does not include the context of the roadway under study.

I think the legislature imposed on Caltrans a conceptually flawed approach. Given the emerging shift to electric vehicles in California, it’s bizarre to focus on reducing the amount of driving in the name of greenhouse gas reduction.

The vast majority of Americans choose personal vehicles because they best meet their mobility needs. Dreams about radical densification of urban areas are unrealistic, and the findings about access to jobs in metro areas being very much higher via automobiles than transit—both in Europe and the United States—suggest that the proper focus should, in fact, be on improving the Level of Service, rather than limiting the amount of driving. This approach to transportation will make California even more unlivable if continued.

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News Notes

Florida DOT Announces Two Megaprojects
Last month, the Florida Department of Transportation announced two much-needed congestion-reduction megaprojects. A $2.5 billion project will widen 14 miles of chronically congested I-4 southwest of Orlando from six lanes to 10. Let’s hope the new lanes will be extensions of the I-4 express toll lanes already in operation on 20 miles of I-4 through the Orlando metro area. The second project, at $908 million will rebuild the Golden Glades interchange in Miami-Dade County. The interchange includes I-95 (general-purpose and express toll lanes), Florida’s Turnpike, the SR 826 expressway, and US 441. The outmoded design and limited capacity have led to a northbound afternoon and evening peak bottleneck for the I-95 express toll lanes, made worse by a legislative limit on peak-period tolls.

I-77 Express Toll Lanes Decision Expected This Year
North Carolina DOT is nearing completion of a study comparing conventional and P3 procurement for adding express toll lanes to I-77 between Charlotte and the South Carolina border. The study was requested by the Charlotte Regional Transportation Planning Organization last year when it rejected an unsolicited proposal from Cintra for doing the project as a toll-financed public-private partnership. If the NCDOT analysis finds in favor of the public-private partnership alternative, it will lead to a competitive procurement.

Brightline West Breaks Ground on Las Vegas to California Project
The public-private partnership between Brightline West and the departments of transportation (DOTs) of Nevada and California held a ground-breaking ceremony near the end of April, launching the construction of this $10 billion project. It is being financed by private equity, tax-exempt private activity bonds, and $3 billion in federal Infrastructure Investment and Jobs Act (IIJA) funding. The 218-mile route will be built mostly in the median of I-15 and will link Las Vegas with Rancho Cucamonga in San Bernardino County, CA. At the station there, passengers will be able to transfer to the Metrolink commuter rail line to complete their trip to locations in the Los Angeles metro area. Scheduled travel time from Vegas to Cucamonga is planned to be 2 hours and 10 minutes. From there to Union Station in downtown Los Angeles takes an hour and 15 minutes on Metrolink, making the Vegas-LA trip time three hours and 25 minutes, not counting transfer time at the Cucamonga station.

Hybrids Extend Lead Over Battery Electric Vehicles
The Wall Street Journal recently reported that hybrids increased their lead in sales over battery electric vehicles in each quarter of 2023, with the trend continuing in the first quarter of 2024. In the first quarter of 2024, hybrid sales increased 43% while BEVs increased by only 2.7%. Auto companies, which had downplayed hybrids in favor of BEVs in recent years, are now re-emphasizing hybrids. Incidentally, Consumer Reports’ annual auto reliability survey in 2023 found that BEVs are 79% more likely to have problems than internal combustion vehicles, but hybrids have 23% fewer problems than gas-powered cars.

Florida P3 Legislation Bill Signing
On April 15, Florida Gov. Ron DeSantis signed into law House Bill 781, which streamlines the process under which Florida DOT deals with unsolicited proposals. The measure was generally supported by public-private partnership advocates. The other P3 bill in Florida, House Bill 287, allows for revenue-financed highway P3s to have concession agreements for as long as 75 years. Florida has not yet implemented any revenue-risk P3s, but now that Gov. DeSantis has signed HB 287, the way is clear for FDOT to consider using revenue-risk P3s for both greenfield and brownfield projects.

Portland Moving Ahead with I-5 Deck in Rose Quarter Area
In a project to both reduce congestion and reconnect a minority neighborhood bisected decades ago by I-5, the Oregon Department of Transportation will use a $450 million federal reconnecting-communities grant to add auxiliary lanes where I-5, I-405, and I-84 intersect—the worst traffic bottleneck in the state, congested 12 hours per day. The reduced congestion should lead to lower emissions in the Rose Quarter, and the  “substantial cover” over I-5 will reconnect and improve street travel in the area, while also adding bicycle and pedestrian facilities on the new deck over the freeway.

Georgia DOT RFI for Major Atlanta Express Toll Lanes P3
In March, the Georgia Department of Transportation issued a request for information (RFI) to kick off the development of its plan to add express toll lanes to the “top half” of ring road I-285 around the core of the Atlanta metro area. This initial RFI is for the first of several planned toll-financed P3 projects, referred to as I-285 East. It will add express toll lanes to the eastern and northern portions of I-285 (referred to locally as “the Perimeter”) from I-20 on the east to Northside Drive on the north. The RFI asked for input from potential P3 developers of this megaproject, with responses due before the end of April. Public Works Financing has more details in its March 2024 issue.

Alabama Purchasing Private Toll Bridge and Expressway
The Alabama state government announced in mid-April that the privately developed and operated Foley Beach Express Bridge will be bought by the state and operated, without tolls, by Alabama Department of Transportation. ALDOT will pay the Baldwin County Bridge Company $57 million for the bridge and will also pay the city of Orange Beach $3 million for local road improvements. The bridge will continue to operate in both directions until 2026, when a parallel bridge will be completed and opened to traffic. At that point, one bridge will operate northbound and the other southbound.

Delays Announced on Virginia’s Hampton Roads Bridge-Tunnel Expansion
Virginia DOT’s $3.9 billion project to double the number of tunnel lanes beneath the main channel of Virginia’s major port has announced a revised schedule, delaying the project’s completion date by 18 months to Feb. 2027. The project has encountered “unforeseen cost and schedule impacts,” reported Engineering News-Record in its April 15 issue. The two new tunnels are on I-64 across the harbor, and each will be 7,500 feet long and 45-feet in diameter. The project team includes Dragados USA, VINCI Construction, and several other companies.

Grants Available for Asset Concessions
The Infrastructure Investment and Jobs Act included a small program to assist owners of existing infrastructure to study brownfield public-private partnership concessions, sometimes referred to as “long-term asset leases” or “infrastructure asset recycling.” In March, the Build America Bureau of U.S. Department of Transportation issued a Notice of Funding Opportunity for Technical Assistance Grants to state agencies that own such assets and also Expert Services Grants to be used for hiring consultants to plan such asset concessions. More details are in the March 2024 issue of Public Works Financing.

Massachusetts Seeks P3s for Highway Service Plazas
Infralogic reported on April 9 that MassDOT issued a request for information for the management, operation, and potential redevelopment of its 18 highway service plazas. The agency wants potential developers/operators to include fast-charging electric vehicle facilities. Responses to the RFI are due May 24. Current service plaza leases expire Dec. 31, 2025. Since 2009, six states have entered into long-term P3 agreements to expand and modernize their service plazas, including Florida, Indiana, and New York.

More Express Toll Lanes Open in Tampa Area
On April 26, new express toll lanes opened on the Pinellas side of Tampa Bay on Florida’s west coast. Elevated toll lanes on local arterials were opened to traffic heading to I-275 on its way to the Howard Frankland Bridge, with new express toll lanes also added to I-275 itself. When the current expansion of that bridge is completed, it will include express toll lanes, as well.

Baltimore Claims Container Ship Was “Unseaworthy”
On April 22, the city of Baltimore filed suit against the owner and the operator of the container ship, the Dali, that ran into the Key Bridge on March 26. The court document says the companies are “potentially criminally negligent” due to having an “incompetent crew” and the ship not being seaworthy due to an inconsistent power supply, as demonstrated by alarms having sounded. The National Transportation Safety Board is conducting a detailed inquiry into the cause(s) of the collision, but its findings are many months from release. In addition, the FBI is looking into whether any of the crew members know of any serious problems prior to the ship’s departure.

California High-Speed Rail Board Issues RFP for Trainsets
Despite having only a relatively short rail line (from Merced to Bakersfield) under construction in the Central Valley, the California High-Speed Rail Authority board has approved issuing a request for proposals for trains to operate on that corridor. The RFP will go to the two pre-qualified companies, Alstom Transportation and Siemens Mobility. Proposals will be due sometime this fall.

“Is the Shine Coming Off Japan’s Bullet Trains?”
That’s the title of a story posted on TechXplore on April 12. Among other things, the article noted that these bullet trains were designed with a wider gauge than the rest of Japan’s railroads, and that seems to have dampened interest in some other countries for adopting the Japanese trains. One example cited is the $7.3 billion Indonesian high-speed rail project, where Japan’s trains lost out to high-speed trains from China.

» return to top

Quotable Quotes

“When the Francis Scott Key Bridge is rebuilt, experts agree that it won’t be like the old bridge from the 1970s. Sen. Ben Cardin (D, MD) said last week that the current vehicle and maritime traffic and height needs are being evaluated in order to make sure it’s ‘replaced with a bridge that represents the modern capacities for a bridge of this type.’ Bridge pier protection will undoubtedly factor into the new design to guard against future ship strikes, but other features of modern bridges are under consideration. ‘It might be a completely new design; it might have cable stays and towers and everything looks different,’ said Rick Geddes, director of the Cornell University infrastructure policy program. ‘We would probably design it so that there would be wider shoulders, maybe bike lanes.’”
— Oriana Pawlyk and Tanya Snyder, “Build Back Better,” Politico, April 15, 2024

“An autonomous car is complicated technology, to say the least. But there is a way we can know that [Musk] really stands behind it as ready: when Tesla takes liability for crashes that occur under its vehicles’ control. Or, to put it another way, when Musk is willing to put his money on the line with our safety. That should be the red line. Otherwise, it is just glorified cruise control. ‘Unless Tesla says humans do not have to pay any attention and humans are not driving and humans are not responsible for what happens when they’re not driving and when they’re not paying attention, then Tesla does not have self-driving,’ said Bryant Walker Smith, an expert in laws around automated driving at the University of South Carolina law school. . . . Waymo, Alphabet’s driverless car unit with vehicles transporting passengers around select cities without anyone sitting behind the wheel, is responsible for the liability in a crash. German automaker Mercedes-Benz, too, has said it is responsible for its limited-autonomous vehicles, owned by customers, when those vehicles are driving themselves.”
—Tim Higgins, “Musk’s Driverless Car Faces Key Hurdle,” The Wall Street Journal, April 15, 2024

“We are not having such a crisis now. But we are doing everything we would do if we wanted to have a crisis: running up debt, not on productive investments in the future but on ordinary government operating expenses. When we do trim spending or raise taxes, it is generally to fund something new—such as Obamacare or the current administration’s green energy agenda—rather than to ensure that what we’re already doing is fiscally sustainable. This means that when we need to restore some semblance of balance, we’ll already have used up the most politically palatable options. If we can’t balance our books now, when everything is going well, how will we manage it later, when our growing debt might push up interest rates, crowding out private investment and worsening the budget math? What will we do if, God forbid, another crisis needs to be finessed with borrowed money, but no one will lend to us at reasonable rates? Almost no one in government is even asking those questions.”
—Megan McArdle, “The Economy Is Strong. Why Are Our National Finances So Weak?” The Washington Post, April 8, 2024

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The post Surface Transportation News: Trends in infrastructure finance and public-private partnerships appeared first on Reason Foundation.

Worldwide over the past three decades, governments have turned to the private sector to design, build, finance, operate, and maintain infrastructure, including electric, gas, and water utilities; airports, seaports, and toll roads; and pipelines and telecommunications providers. In many cases, existing infrastructure entities needing reconstruction or modernization were “privatized” via either outright sale or long-term leases.

For new infrastructure, governments awarded long-term design-build-finance-operate-maintain (DBFOM) concessions via a competitive process. These long-term public-private partnerships had terms typically between 30 and 50 years.

The sale or lease of an existing facility is referred to as a “brownfield” transaction, while a public-private partnership to develop and operate a new facility is a “greenfield” transaction.

While the United States still lags behind many countries in Europe, Asia/Pacific, and Latin America/Caribbean, this difference arises in part because, in the United States, much infrastructure that was state-owned and operated in Europe and other regions was historically investor-owned in the U.S.—such as telecommunications, electric and gas utilities, pipelines, and a fraction of water and wastewater utilities.

On the other hand, major transportation infrastructure such as airports, seaports, and toll roads that have been widely privatized in Europe, Asia/Pacific, and Latin America/Caribbean countries are still mostly government-owned and operated in the United States.

Both brownfield and greenfield infrastructure projects require long-term financing. Facilities owned and operated by governments are often financed 100% by government revenue bonds or general-obligation bonds, which in the United States are exempt from federal taxation. When the private sector invests in infrastructure, it typically invests equity to cover part of the cost and finances the rest via long-term revenue bonds. To level the financial playing field for U.S. public-private partnerships, Congress provided for tax-exempt private activity bonds (PABs), which are now widely used for such projects.

The large financing needs for privately financed infrastructure have led to the development and growth of infrastructure investment funds, which raise equity to be invested in privately owned or P3 infrastructure.

Public-sector pension funds, seeking to increase the overall return on their investments, are also making significant equity investments in revenue-generating infrastructure.

Likewise, insurance companies and sovereign wealth funds are now making long-term investments in this kind of revenue-generating infrastructure.

This report reviews 2023 developments in public-private partnerships and private infrastructure investment, focusing on transportation infrastructure. While the report’s scope is global, it pays particular attention to U.S. developments in P3 infrastructure and the continued growth in pension fund investment in this field.

Part 2 reviews the continuing growth of infrastructure investment funds worldwide.

Part 3 provides an update on the largest companies and major P3 projects under way globally and in the United States.

Part 4 reviews pension funds’ increasing investment in revenue-generating infrastructure projects.

Annual Privatization Report 2024 — Transportation Finance

The post Annual Privatization Report 2024 — Transportation Finance appeared first on Reason Foundation.

In the second half of the 20th century, the world’s airports and air traffic control systems were essentially all departments of governments. Two events in 1987 launched an ongoing wave of organizational and government reforms: The privatization of the British Airports Authority and the corporatization of the New Zealand government’s air traffic control functions as Airways New Zealand.

British Airports Authority (BAA) was privatized as a single entity comprising the three major London airports plus several other airports in the United Kingdom. Later government policy decisions led to selling Gatwick, Stansted, and two Scottish airports to new private owners.

The improved performance of the privatized airports inspired a global wave of airport privatization and long-term public-private partnerships (P3s) that has resulted in over 100 large and medium-sized airports being either sold to investors or long-term leased as revenue-based P3s—in Europe, Asia, Latin America, and elsewhere.

The outlier has been the United States, which has only two P3-leased airports (San Juan International and Tweed New Haven) and a small number of public-private partnership arrangements for airport terminals and other individual facilities.

The corporatization of Airways New Zealand in 1987 also led to a global trend under which more than 60 countries subsequently separated their ATC systems from the government’s transport ministry and set them up as self-supporting corporations, regulated for safety at arm’s length from the government. Within the first decade of this trend, the leading air traffic control providers organized a trade association called the Civil Air Navigation Services Organization (CANSO). Today CANSO has 93 full members (providers of ATC services) and 91 associate members (mostly supplier companies). CANSO is the air traffic control counterpart of the global organizations for airlines (International Air Transport Association) and airports (Airports Council International).

This brief reviews developments in the United States and worldwide regarding private-sector participation in airports and air traffic control.

While the United States remains an outlier when it comes to airport and air traffic control organization and governance, interest in airport privatization via long-term public-private partnership leases continues.

Read the full report here:

The post Annual Privatization Report 2024 — Aviation appeared first on Reason Foundation.

Governments have used long-term public-private partnerships for surface transportation projects for the past 60 years.

As documented by José A. Gómez-Ibáñez and John Meyer, the phenomenon began in the 1950s and 1960s, as France and Spain emulated the model pioneered by Italy prior to World War II.

Italy’s national motorway systems were developed largely by investor-owned or state-owned companies operating under long-term franchises (called concessions in Europe). In exchange for the right to build, operate, and maintain the highway for a period ranging from 30 to 70 years, the company could raise the capital needed to build it (typically a mix of debt and equity).

The model spread to Australia and parts of Asia in the 1980s and 1990s, and to Latin America in the 1990s and 2000s.

Nearly all the projects in those regions from the 1950s to 1980s were financed based on the projected toll revenues to be generated once the highway was in operation. Some projects went bankrupt as a consequence of reduced traffic and revenues during severe economic downturns (e.g., the oil price shock of 1974), leading to the nationalization of some companies.

In the late 1990s and early 2000s, however, the governments of France, Italy, Portugal, and Spain all privatized their state-owned toll road companies and formalized the toll concession public-private partnership model.

Australia has allowed several concession company entities to go through liquidation, with the assets (in each case major highway tunnels) being acquired by new operators at a large discount from the initial construction cost.

Other governments in Europe adopted a different form of highway concession. Generally, not favoring the use of tolls, they created the concept of availability payments as a means of financing long-term concession projects. In this structure, the company or consortium selected via a competitive process negotiates a stream of annual payments from the government sufficient (the company expects) to cover the capital and operating costs of the project and make a reasonable profit.

The capital markets generally find such a concession agreement compatible with financing the project, via a mix of debt and equity. Since no toll revenues are involved, this model applies to a much broader array of transport and facility projects, including rail transit. In the highway sector, nearly all long-term concession public-private partnership projects in Canada, Germany, the United Kingdom, and a number of Central and Eastern European countries have been procured and financed as availability payment (AP) concessions.

In a small but growing number of cases—major bridges, as well as highway reconstruction that includes added express toll lanes, for example—governments collect the toll revenues and use the money to help meet their availability payment obligations. These cases are called “hybrid concessions” in this report.

Of the top 10 worldwide surface transportation public-private partnerships that reached financial close in 2023, seven used availability payments, continuing what had been a growing trend over the last seven years.

In 2022, five of the top 10 public-private partnerships used availability payments.

The growing use of availability payment concessions has enabled P3s for projects that do not generate their own revenues, as well as hybrid concessions in which toll revenues help the government cover the costs of its AP obligations.

Annual Privatization Report 2024 — Surface Transportation

The post Annual Privatization Report 2024 — Surface Transportation appeared first on Reason Foundation.

During his tenure, Arizona passed groundbreaking public pension reforms that put the state’s public safety pension system on a path to financial solvency. Through other efforts to make government more efficient and reduce taxpayers’ costs, Arizona employed 5,000 fewer state workers when Gov. Ducey left office in January 2023 than when he took office. The private sector added over 500,000 jobs in Arizona during his two terms.

As a longtime advocate of school choice, Ducey also expanded vouchers, enabling families to choose the best public or private school for each child’s needs. Other school choice leaders—including former Florida Gov. Jeb Bush, former South Carolina Gov. Nikki Haley, and columnist George Will—hailed Arizona’s plan as the gold standard in school choice programs. 

Reason Foundation’s Savas Award for Privatization is named in honor of privatization pioneer Dr. E. S. “Steve” Savas, who worked with government, businesses, and academics to advance his idea of engaging the private sector to improve the provision and quality of public services. 

Previous Savas Award recipients include Purdue University President Mitch Daniels, Success Academy co-founder Eva Moskowitz, Alliance for College-Ready Public Schools co-founder Frank Baxter, X Prize winner Burt Rutan, former Federal Communications Commission Chairman Ajit Pai, and Task Force Pineapple founder Lt. Col. Scott Mann.

For more about Reason Foundation’s Savas Award for Privatization, please visit www.reason.org.

Contact

Kelvey Vander Hart
Communications Specialist
Reason Foundation, Reason magazine
kelvey.vanderhart@reason.org

The post Former Arizona Gov. Doug Ducey receives 2023 Savas Award appeared first on Reason Foundation.

Long-term public-private partnerships (P3) for transportation infrastructure are still relatively uncommon in the United States (though more widely used in Europe, Latin America, and the Asia/Pacific region). A recent policy paper lists 37 such projects that have been financed in the United States between 1993 and the end of 2022—less than two projects per year.

Although 38 states (plus Puerto Rico and the District of Columbia) have enacted P3 transportation legislation, according to the National Conference of State Legislatures, such projects have been financed and built in only 11 states (plus the Port Authority of New York & New Jersey).

The majority of states that have enacted such public-private partnership legislation either have not identified large projects suitable to this procurement approach or have included provisions in the legislation that create political risk, which deters investors. And two of the early-adopter states have ceased building P3 projects. California legislators allowed the state’s P3 authorization to expire, and Texas legislators have imposed a moratorium on new toll and P3 projects.

One factor in the limited use of long-term public-private partnerships for major projects is the opposition of some traditional transportation contractors to public-private partnerships.

This report examines those claims in light of the actual experience with P3 procurements of major highway, bridge, tunnel, and rail transit projects. It also explains the profound differences between traditional design-bid-build (DBB) projects and the P3 model that encompasses design-build-finance-operate-maintain (DBFOM) projects. Legislators need to understand these differences in order to better assess traditional design-bid-build contractors’ concerns about public-private partnerships.

Full Policy Brief: Contractors and Transportation Public-Private Partnerships

One Pager: U.S. Contractors and Long-Term Public-Private Partnerships

The post Using DBFOM public-private partnerships benefits drivers, states and transportation contractors appeared first on Reason Foundation.

The post Annual Privatization Report 2023 appeared first on Reason Foundation.

Since the late 1980s, governments have privatized many state-owned infrastructure enterprises, including airports, electric utilities, gas utilities, pipelines, railroads, seaports, telecommunication providers, and toll roads. Some of these facilities were sold to investors, in whole or in part (e.g., many European airports). In most other countries, public infrastructure facilities were leased to investors under long-term public-private partnerships.

A growing number of governments are also using such public-private partnerships (P3s) to finance, build, and operate new airports or airport terminals, electricity facilities, seaports, and toll roads. The sale or lease of an existing facility is called a “brownfield” transaction (in part because significant refurbishment may be needed). By contrast, P3s for brand-new facilities are referred to as “greenfield” transactions.

In the United States, a significant amount of infrastructure is owned and operated by the private sector, including most U.S. energy production and distribution, electric and gas utilities, and a fraction of water and wastewater utilities. These assets may be held through publicly traded corporations or (in the case of energy) master limited partnerships, or they may be owned directly by private investors.

In transportation, however, nearly all U.S. airports, seaports, and toll roads are government-owned enterprises, generally by either state or local governments. Both brownfield and greenfield infrastructure projects require long-term financing.

In the public sector, such facilities are often financed 100% by government bonds, which in the United States are tax-exempt. When the private sector invests in infrastructure, it typically invests equity to cover part of the cost and finances the rest via either bank loans or long-term borrowing, such as revenue bonds.

These large financing needs have led to the development and growth of infrastructure investment funds, most of which raise equity to invest in privately owned or P3 infrastructure. Public pension funds, seeking to increase their overall return on investments, are also making significant equity investments in revenue-generating infrastructure. Likewise, insurance companies and sovereign wealth funds are investing equity in private or privatized infrastructure.

Inframation reports that in 2022 investors put $148.75 billion in new money into infrastructure investment funds.1 Pension funds continued to increase their investment in infrastructure, in most cases by placing a specific allocation with one or more of the infrastructure funds, but a handful of large pension funds have built professional staffs that enable them to make direct investments in individual facilities.

This report reviews 2022 developments in the infrastructure investment fund world, focusing on transportation infrastructure. While the scope of the report is global, it pays particular attention to U.S. developments in P3 infrastructure and the growth of U.S. pension fund investing in this field.

Part 2 reviews the continuing growth and scope of infrastructure investment funds worldwide.

Part 3 then provides an update on the largest companies and major P3 projects underway globally and in the United States.

Finally, Part 4 reviews pension funds’ increasing investment in revenue-generating infrastructure.

Annual Privatization Report 2023 — Transportation Finance

The post Annual Privatization Report 2023 — Transportation Finance appeared first on Reason Foundation.

In the second half of the 20th century, the world’s airports and air traffic control systems were essentially all departments of governments. Two events in 1987 launched an ongoing wave of organizational and government reforms. Those events were the privatization of the British Airports Authority (BAA), and the corporatization of the New Zealand government’s air traffic control (ATC) functions as Airways New Zealand.

BAA was privatized as a single entity comprising the three major London airports plus several other airports in the United Kingdom. Later government policy decisions led to selling Gatwick, Stansted, and two Scottish airports to new private owners. The improved performance of the privatized airports inspired a global wave of airport privatization and long-term public-private partnerships (P3s) that has resulted in over 100 large and medium-size airports being either sold to investors or long-term leased as revenue-based P3s—in Europe, Asia, Latin America, and elsewhere.

The outlier has been the United States, which has only two P3-leased airports (San Juan International and Tweed New Haven) and a small number of P3 arrangements for airport terminals and other individual facilities.

The corporatization of Airways New Zealand in 1987 also led to a global trend under which more than 60 countries subsequently separated their ATC systems from the government’s transport ministry and set them up as self-supporting corporations, regulated for safety at arm’s length from the government.

Within the first decade of this trend, the leading ATC providers organized a trade association called the Civil Air Navigation Services Organization (CANSO). Today, CANSO has 88 full members (providers of ATC services) and 91 associate members (mostly supplier companies). CANSO is the air traffic control counterpart of the global organizations for airlines (IATA) and airports (ACI).

This report reviews developments in the United States and worldwide regarding private-sector participation in airports, air traffic control, and airport security. While the United States remains an outlier when it comes to airport and air traffic control organization and governance, interest in airport privatization via long-term public-private partnership leases continues.

Annual Privatization Report 2023 — Aviation

Table of Contents

Part 1 Introduction

Part 2 Airports
2.1 Airport Privatization Overview
2.2 Airport Industry Changes in 2022
2.3 Global Airport Privatizations and P3 Concessions
2.4 US Airport Privatization and Public-Private Partnerships

Part 3 Air Traffic Control
3.1 Air Navigation Service Providers
3.2 Global Space-based ATC Surveillance
3.3 Digital, Remote Air Traffic Control Towers
3.4 Us Air Traffic Control Reform

Part 4 Airport Security
4.1 Contract Screening
4.2 Trusted Traveler

The post Annual Privatization Report 2023 — Aviation appeared first on Reason Foundation.

Governments have used long-term public-private partnerships for surface transportation projects for the past 60 years. As documented by José A. Gómez-Ibáñez and John Meyer, the phenomenon began in the 1950s and 1960s, as France and Spain emulated the model pioneered by Italy prior to World War II. Italy’s national motorway systems were developed largely by investor-owned or state-owned companies operating under long-term franchises (called concessions in Europe).

In exchange for the right to build, operate, and maintain the highway for a period ranging from 30 to 70 years, the company could raise the capital needed to build it (typically a mix of debt and equity). The model spread to Australia and parts of Asia in the 1980s and 1990s, and to Latin America in the 1990s and 2000s.

Nearly all the projects in those regions from the 1950s to 1980s were financed based on the projected toll revenues to be generated once the highway was in operation. Some projects went bankrupt as a consequence of reduced traffic and revenues during severe economic downturns (e.g., the oil price shock of 1974), leading to the nationalization of some companies.

In the late 1990s and early 2000s, however, the governments of France, Italy, Portugal, and Spain all privatized their state-owned toll road companies and formalized the toll concession P3 model. Australia has allowed several concession company entities to go through liquidation, with the assets (in each case major highway tunnels) being acquired by new operators at a large discount from the initial construction cost.

Other governments in Europe adopted a different form of highway concession. Generally, not favoring the use of tolls, they created the concept of availability payments as a means of financing long-term concession projects. In this structure, the company or consortium selected via a competitive process negotiates a stream of annual payments from the government sufficient (the company expects) to cover the capital and operating costs of the project and make a reasonable profit.

The capital markets generally find such a concession agreement compatible with financing the project, via a mix of debt and equity. Since no toll revenues are involved, this model applies to a much broader array of transport and facility projects, including rail transit and public buildings.

In the highway sector, nearly all long-term concession P3 projects in Canada, Germany, the United Kingdom, and a number of Central and Eastern Europe countries have been procured and financed as availability payment (AP) concessions.

In a small but growing number of cases—major bridges, as well as highway reconstruction that includes added express toll lanes, for example—governments collect the toll revenues and use the money to help meet their availability payment obligations. These cases are called hybrid concessions in this report.

Five of the top 10 worldwide public-private partnerships that reached financial close in 2022 used availability payments, continuing a growing trend over the last seven years. In 2021, seven of the top 10 P3s used availability payments. The growing use of AP concessions has enabled P3s for projects that do not generate their own revenues, as well as hybrid concessions in which toll revenues help the government cover the costs of its AP obligations.

Annual Privatization Report 2023 — Surface Transportation

Table of Contents

Part 2 Private Highway Projects

Part 3 International Surface Transportation Infrastructure 2022
3.1 Largest International Surface Transportation Public-Private Partnerships
3.2 Countries Reaching Financial Close on First Public-Private Partnership
3.3 International P3 Activity by Region

Part 4 Surface Transportation Concessions, 2022
4.1 Largest US Surface Transportation P3s
4.2 2021 Surface Transportation P3s

Part 5 Federal Policy on P3 Concessions
5.1 Surface Transportation Reauthorization
5.2 Overview of Financing Tools
5.3 Other Federal Tolling Policy

Part 6 P3 Legislation and Highway Activity by State
6.1 Overview of State P3 Legislation
6.2 2022 State Legislative P3 Activity
6.3 State Concession Activity

The post Annual Privatization Report 2023 — Surface Transportation appeared first on Reason Foundation.

Occupational Licensing Reduces Consumer Benefits from Online Platforms 

“The share of U.S. workers required to hold an occupational license has exploded from around 5% in 1950 to 25% in 2020,” writes Reason Foundation’s Vittorio Nastasi. Occupational licensing has a documented history of limiting competition and stifling innovation while making certain classes of professionals into protected classes. Nastasi reviews recent literature pointing to yet another negative impact of occupational licensing: making it harder to use the online platforms that rate home improvement contractors. Using data from the popular home improvement site Angi’s HomeAdvisor, a Harvard researcher estimated that a recent New Jersey pool contractor licensing law resulted in customers becoming 16% less likely to find at least one qualified contractor on the site, with an overall negative impact of licensing as high as 25%. As Nastasi notes, licensing, in this case, squanders some of the benefits buyers and sellers can enjoy from online platforms. 

ESG Investing Violates Fiduciary Duty in Public Pension Plans 

Investing based on environmental, social, and governance (ESG) standards is a hot topic. Reason Foundation Senior Fellow Richard Hiller argues that ESG investing must be subject to clear fiduciary standards for public pension funds, so they first ensure secure retirement benefits for their members and limit costs to taxpayers. Hiller points out the important differences between individual investors, who are free to pursue any investment strategies—such as boycotts of companies and industries for ESG or activist reasons— they want and pension systems, whose advisors have a fiduciary duty to pursue the best strategies to maximize returns. When public pension fund managers make decisions based on ESG or any other political motivations, they violate that fiduciary duty, Hiller writes. 

NEWS & NOTES 

STATE GOVERNMENT 

West Virginia University Seeks Potential Energy P3: Inframation News revealed that West Virginia University released a request for proposals (RFP) for financial advisors to assist in developing a public-private partnership (P3) for the school’s utility systems, including energy and chilled water facilities. According to the RFP’s language, the school “envisions some form of public/private partnership, whether in the form of a concession agreement, design-build-finance-operate-maintain agreement, or some other transactional structure.” 

Hawaii Rejects P3 for Aloha Stadium: After three years of planning and millions spent on the project, Hawaii Gov. David Ige revealed he would reject using a public-private partnership to redevelop Aloha Stadium near Honolulu. Instead, a state agency (The University of Hawaii has been mentioned, though a final decision is still pending) will pursue the project itself with $350 million set aside by the state legislature earlier this year, according to the Ige administration and the state’s Department of Business, Economic Development, and Tourism. 

LOCAL GOVERNMENT 

Mississippi City Begins Outsourced Public Works: This month, the city of Petal, Mississippi, began a contract with Alabama-based ClearWater Solutions to take over most of the duties of the town’s public works division. Aside from solid waste management, which WastePro handles for the city in a separate contract, the ClearWater contract will cover all other division functions, including water and sewer operations, as well as road and fleet maintenance. Town aldermen voted to enter into the contract in August, citing difficulties in hiring and keeping employees, performance and compliance issues, as well as rising costs of pensions and health insurance.     

Towamencin Faces Vote That May Make Sewer Sale Illegal: In November, residents in Towamencin Township, Pennsylvania, will vote on a referendum that could potentially void a pending sale of the city’s sewer system to NextEra Energy for $115 million. Supporters of the referendum hope that by creating a home rule charter, the sale of the sewer system could be canceled, but admit the strategy “hasn’t been tested yet.” In May, town supervisors approved the deal, which still awaits an approval decision by the Pennsylvania Public Utility Commission. 

Economic Study Shows Benefits of Police Work Outsourcing: A report by the Montreal Economic Institute showed how large American cities can save taxpayers money by delegating non-critical police functions to private employees. By outsourcing a combination of administrative work and traffic enforcement, the study found that Los Angeles, Miami, and Milwaukee could annually save anywhere from $31 million, Milwaukee’s low estimate, to over $350 million, Los Angeles’ high estimate. The authors also cite the advantages of competitive bidding to ensure those functions are handled by the most capable and accountable actors. 

Texas City Releases RFP for Publicly-Owned Waterfront Parcel: The city of Beaumont, Texas, released a request for proposals to seek a purchaser and developer for 555 Main Street, a 2.7-acre downtown lot that sits on the Neches River waterfront. The city is providing $25 million for the project and also cleaned up a rail yard site to facilitate the purchase. Attracting economic development is a primary concern the city says. Beaumont’s population doubled from 1940–1960 but has mostly remained stagnant for the past 60 years. 

FEDERAL GOVERNMENT 

U.S. Air Force Releases Microreactor RFP: The United States Air Force released an RFP for a pilot program dedicated to creating a nuclear microreactor at Eielson Air Force Base in Alaska. The Air Force hopes to develop microreactors for its more remote installations, citing their adaptability to changing conditions and ability to operate independently from the power grid. The microreactor resulting from the project will be privately owned and operated. 

QUOTABLE QUOTES 

“Our (Public Employees Retirement System), we pay 17.4 percent on that, which kind of hurts us,” Ducker said in a previous story. “And we’ve noticed over the last year or so that we’re losing people that are going into construction and other jobs that are just able to pay more…So the privatization could be a good thing for some of the employees because they would get a pay increase. It’s tough when you’re paying folks $15 and $16 an hour, and other municipalities and private entities are paying $19 to $22 an hour.” 

—Petal Mayor Tony Ducker on the decision to outsource the city’s public works division 

“(T)he reality of policing in the United States is that we have asked police to take on more and more responsibilities that are increasingly far removed from critical policing tasks.” 

—From “Enhancing Public Safety While Saving Public Dollars with Auxiliary Private Security Agents” by the Montreal Economic Institute

“I am concerned that we spent three years and $25 million to get to this point, and we were all ready to go. And here we are two months before the end of their term, they’re saying that they somehow have a miraculously better idea to hasten this project?” 

–Hawaii State Sen. Glenn Wakai on the decision not to pursue a P3 for the redevelopment of Aloha Stadium 

“The release of the RFP for the Eielson AFB micro-reactor is a critical next step in furthering the development and deployment of reliable and clean energy technology at Department of the Air Force installations. This program is extremely important to mission assurance and sustainment in the face of climate change and continued national defense threats, and demonstrates the department’s commitment to ensuring our installations have a safe, reliable supply of energy, no matter their location.” 

– Deputy Assistant Secretary of the Air Force for Environment, Safety, and Infrastructure Nancy Balkus on a pilot program to develop a nuclear microreactor at Eielson Air Force Base

The post Privatization and Government Reform News: Impact of occupational licensing, ESG investing, and more appeared first on Reason Foundation.

New Medi-Cal Amendment Ensures More Expensive Ambulance Rides 

A recently passed amendment to California’s Medicaid program, Medi-Cal, is set to raise the average cost of an ambulance ride from about $120 per trip to over $1,000 per trip without justification. Local California fire departments were a large advocate for the change, which they seem to see as a potential financial windfall if they are can shift emergency medical services (EMS) to be under the purview of their departments. In a new article in the Orange County Register, Reason Foundation’s Austill Stuart explains why the Medi-Cal amendment will hurt taxpayers and how it could potentially disrupt EMS services across California.  

Jackson’s Water System Problems Need Long-Term Commitments 

The residents of Jackson, Mississippi, had already been without drinkable water for weeks when the city’s water and sewer systems failed amid major flooding last month. While the boil advisory has been lifted and service has mostly returned, Jackson’s water infrastructure problems remain, including malfunctioning equipment in the city’s treatment facilities and a lack of personnel capable of operating and maintaining the equipment itself, according to a recent U.S. Environmental Protection Agency inspection report. The city has deep financial problems, too. Jackson’s bond rating is barely investment grade, and it has lost over 14% of its residents over the last 10 years. The situation is so bad that a bipartisan mix of officials agree that an entity other than Jackson should operate the city’s water systems, with Mississippi Gov. Tate Reeves suggesting privatization as an option. In a new article, Reason Foundation’s Austill Stuart examines the depths of Jackson’s water problems, why the city is likely going to require private capital and solutions to address them, and how to best protect taxpayers.  

Long Overdue Reforms to the FDA Regulation of New Drugs Could Save Lives 

“There are few areas of public policy where the results have been as diametrically opposed to the intentions as pharmaceutical regulation in the United States,” writes Reason Foundation’s Managing Director of Drug Policy Geoffrey Lawrence in a recently released policy brief on how to reform the Food and Drug Administration. The paper includes recommendations on how to reform the FDA, streamline the drug approval process, use pharmaceuticals approved by the European Union, reduce prescription drug costs, and help achieve the broad public goal of improving the lives and health of all Americans.

Uneven Progress Toward Transparent and Machine-Readable Financial Reporting In Florida 

The Florida Division of Auditing and Accounting released a business reporting language taxonomy that local governments can use to release their financial reports digitally. A 2018 Florida House Bill mandated XBRL as a necessary common standard. But after the bill’s passage, the Government Finance Officers Association said it “opposes efforts to mandate the use of specific technologies by state and local governments for financial reporting and disclosure.” In a recent commentary, Senior Policy Analyst Marc Joffe explains why XBRL is the best fit for financial reporting by local governments and how it can help provide taxpayers and policymakers with data in a consistent and usable manner to increase transparency and accountability. 

Keep Congress Away from College Football  

While college football players can now earn money from their name, image, and likeness (NIL), the National Collegiate Athletic Association continues to cling to the “amateur” status of players. This long-outdated idea has reached the point of being a fairy tale, allowing universities and their athletic departments to rake in billions of dollars annually in revenue, as Reason Foundation Director of Education Reform Aaron Garth Smith describes in a recent commentary. The NCAA knows its rules may be on shaky legal grounds, which is why it is lobbying Congress for a federal policy that would preserve the NCAA’s strong grip while keeping players from reaching their full market potential.

NEWS & NOTES 

STATE GOVERNMENT 

Puerto Rico Chooses Partner for Cruise Ports Public-Private Partnership: In August, the Puerto Rico Ports Authority (PRPA) selected Global Ports Holdings as its partner for a 30-year concession of the San Juan Cruise Port. The deal includes an initial $75 million payment to the PRPA and $350 million in capital investments in the port by the company to improve services and expand capacity. 

Hawaii Modifies Resort RFP Action to Exclude Sale: Earlier this month, the Hawaii Board of Land and Natural Resources modified an action it made in July to disallow a sale of state properties, opting instead for a lease. The Hawaii Department of Land and Natural Resources (DLNR) wants to tear down or renovate a waterfront hotel and a nearby condo building, but funds are not available for the project or for an environmental assessment and impact statement (EIS). Therefore, a long-term lease is seen as the only way to attract developers to fund both the EIS and the renovation work. DLRN staff canceled a previous request for qualifications/proposals process for the project last year after it couldn’t fully verify the financials of its preferred proponent. 

LOCAL GOVERNMENT 

Los Angeles Jail Diversion Program Shows Promising Results: The Rand Corporation recently released a report evaluating the early results of the Los Angeles County “Just in Reach Pay For Success” (JIR PFS) program, which provides permanent supportive housing (PSH) for individuals eligible for diversion from jail. In early results, participants spent an average of 24 fewer days in jail compared to a control group. The Los Angeles County Department of Corrections oversees the program, which was originally started in 2017 and is funded by $10 million from the Conrad Hilton Foundation and United Healthcare. Success payments are based on maintaining a 92% and 90% PSH retention rate after six- and 12-month intervals, respectively, and a 42% jail avoidance rate for participants over two years. 

Miami-Dade Releases $10 Billion Downtown Redevelopment RFP: Miami-Dade County released a request for proposals in August for a $10 billion downtown redevelopment project. The county is providing 17 acres of land adjacent to most of the county government’s offices. It hopes to find partners to develop potentially 17-to-24 million square feet in a combination of housing, offices, retail, parking, a transit terminal, and a minimum of 2.5 acres of green spaces. The chosen developer for the project would pay the county to lease the land for up to 99 years.   

Annapolis Closes on Parking and City Dock P3: Earlier this month, the city of Annapolis and the Maryland Economic Development Corporation reached financial close with Annapolis Mobility and Resilience Partners on a $70 million public-private partnership that includes renovations to a downtown parking garage and the Annapolis City Dock. The parking improvements will be procured as a design-build-finance-operate-maintain project. For the dock, the work will be design-build-finance and includes a raised seawall and storm surge barriers as well as green spaces to capture stormwater.  

Pittsburgh Announces Micro-mobility Pilot: The city of Pittsburgh, Carnegie Mellon University, and mobility services provider Spin announced the creation of a pilot program to provide micro-mobility solutions to low-income workers. The pilot program will provide 50 selected individuals free access to public transit, bikes, scooters, and zip cars in a year-long test. This program is intended to track socioeconomic progress and will compare results to a 50-person control group evaluated by Carnegie Mellon. The Richard King Mellon Foundation is providing $200,000 for the funding alongside $50,000 from Spin. 

Baltimore Starts Guaranteed Income Pilot Program: In August, Baltimore revealed it had started processing payments to individuals in its Baltimore Young Families Success Fund. A group of 200 individuals is scheduled to receive monthly cash payments of $1,000 for two years in exchange for participating in interviews and answering surveys about their experiences. Local nonprofit the CASH Campaign of Maryland and personal finance portal Steady will provide operational support for the city’s project, which will be evaluated by Johns Hopkins and is being funded by $4.8 million in American Rescue Plan Act funds as well as grants from private donors.  

New Jersey Town Forced to Outsource Animal Control After Resignations: Last month, two animal control officers in Stafford Township, New Jersey, resigned, leading the town to temporarily outsource the town’s animal control services to A-Academy. The contract, which Mayor Greg Myhre made clear is an “emergency decision,” will last until the end of the year. 

QUOTABLE QUOTES 

“The Just in Reach Pay for Success program appears to significantly reduce participants’ use of many county services…The program may provide a feasible alternative—from a cost perspective—for addressing homelessness among individuals with chronic health conditions involved with the justice system in Los Angeles County.” 

—Sarah B. Hunter, lead author of a Rand Corporation Report about Los Angeles County’s “Just in Reach” jail diversion program, in a press release.

The post Privatization and Government Reform News: Expensive ambulances, Jackson’s water crisis, FDA reform, and more appeared first on Reason Foundation.

Conditions are so bad that Rep. Bennie Thompson (D-MS) and Mississippi Gov. Tate Reeves (R), who agree on little else, agree that Jackson needs a new water operator. Gov. Reeves raised the possibility of water privatization at a recent  press conference:

“I’m open to all options. Privatization is on the table,” Reeves said.

 “Having a commission that oversees failed water systems as they have in many states is on the table… There have been even a number of city council members that I have seen over the last several weeks that have talked a lot about the need to hire outside contractors to come in and run different pieces of or the system as a whole.”

“I think you’re seeing more and more individuals recognize that the operations of city government in general, but particularly the operations of the water system… it ain’t Republican or Democrat or ideological, it’s about delivering a basic service to the people you represent,” he said.

Reeves and the state government will play a role in helping Jackson overcome its water problems. Still, the financial and productive capital required for such a large undertaking will likely need to come from the private sector. Long-term, Jackson’s water, sewer, and stormwater system need an estimated $2 billion to get them working again and back in compliance with the Environmental Protection Agency.

Jackson’s shaky finances and the dire shape of its water and sewer operations mean merely outsourcing maintenance, as Jackson Mayor Chokwe Antar Lumumba suggested as an alternative to privatization, would not solve the long-term water system replacement concerns, attract the needed capital investments to repair and rebuild, or truly address the city’s more extensive environmental compliance and staffing concerns.

While outsourcing would certainly help some of the day-to-day operations issues, Jackson would still be mostly on its own for getting itself back into compliance and finding the $2 billion needed for system repairs and upgrades. 

Jackson’s previous bad contracting experience with its water system should not prevent the city from seeking a long-term deal now. A few years into a 2013 water contract with Siemens to repair sewer infrastructure and upgrade billing and meter systems, Jackson filed a complaint in court against the company, claiming it was misled into the 15-year $90 million contract with promises of increased revenues that never materialized and work that was never done. Before going to trial, the parties agreed to a settlement equal to the original contract’s total amount, $90 million, paid to the city.

In the future, a well-written, long-term privatization contract can set clear benchmarks for the private company to meet and instill financial penalties for failing to do so. Any privatization contract should protect Jackson’s taxpayers, make it easy to hold the private water company accountable for meeting its commitments and avoid some of the problems from the Siemens deal. 

Six weeks without drinking water has drawn public attention to the government’s failures in Jackson and decades of failing to comply with EPA standards. For example, drinking water quality is partly ensured by monitoring the turbidity—cloudiness from impurities—of water samples taken from the system. A 2020 EPA inspection found that the turbidity monitoring equipment at one of Jackson’s two water treatment plants didn’t work because it hadn’t been calibrated in around three years, resulting in continuously inaccurate readings. And, in an example of how hard it will be for the city to fix all of its water problems itself: The technician position needed to perform water turbidity maintenance and monitoring is not filled right now. In fact, the job no longer exists in the city government at all.  

Additionally, the EPA found that when Jackson’s lead levels rose above acceptable limits, the city didn’t notify residents. The EPA report also noted that Jackson did not have a plan to remove lead service lines from its water system—something the city has been required to do but has been failing since 1992. 

Among other problems, the EPA report also discovered that filter membranes in water treatment facilities were not functioning and were damaged beyond repair, automated treatment systems were failing, and low staffing levels were a constant problem.

Jackson’s water problems are severe, and solving them won’t be inexpensive. Still, the right long-term partnership could help the city overcome its obstacles as cost-effectively as possible. Hiring capable partners legally bound to perform well would put Jackson on a path to bring its system into compliance and start reducing its backlog of maintenance and repairs.  

Without a privatization deal, Jackson’s water system will likely worsen. Procuring a multi-decade lease will undoubtedly be challenging, but without one, there is no path to address Jackson’s many water and sewer management problems fully.

The post Jackson’s boil advisory lifted, now must address long-term water problems  appeared first on Reason Foundation.