Private investment and road pricing: the investment public-private partnership

Private infrastructure investment through the use of public-private partnerships (PPPs) is gaining currency in the United States. This is due in part to aging roads, bridges, and tunnels combined with constrained state and local budgets. PPPs are in use in the United States to design, build, finance, operate and maintain existing infrastructure, as well as to renovate, operate and maintain existing infrastructure under long-term concession leases. Meanwhile, there is broad agreement among economists that variable per-mile road pricing can address a host of endemic problems facing transportation infrastructure, including funding. However, it is difficult to gain the approval of citizens and motorists to implement area-wide road pricing. We link PPPs and road pricing in this paper in a way that enhances the political appeal of road pricing. Private infrastructure investment is often viewed as providing an alternative financing method given a revenue stream from a transportation facility rather than as creating new revenue or infrastructure funding per se. As we show, private investment in the form of upfront concession lease payments for newly priced roads can be used strategically to enhance the public appeal of road pricing, thus generating large, new revenue streams from existing transportation facilities. Our approach uses the value embedded in U.S. infrastructure that is released through pricing to make that pricing politically feasible. We suggest preserving a portion of the wealth generated by road pricing in perpetuity through a permanent fund, which is one type of public trust fund. Permanent funds are currently in use in Alaska, Texas, Norway and many other jurisdictions, to preserve natural resource wealth. Following Alaska, investment income from the fund will be used to provide an annual dividend payment to all households within the newly priced region. We refer to this approach as an investment public-private partnership, or IP3. The IP3 has several advantages relative to current proposals to increase citizen support for road pricing. In particular, it ameliorates the agency problem between citizens and their elected representatives that are exacerbated by the free cash flows that road pricing generates. It also creates direct citizen-stakeholdership in transportation infrastructure, which increases public support pricing. The Alaskan experience suggests that this approach can also reduce income inequality, create higher personal income, and mitigate the effects of recessions.