Remarks by Robert L. Darbelnet, President & CEO, AAA on Transportation Public Private Partnerships

Washington, D.C. - 11/1/2007

I appreciate the opportunity to be here today and to discuss what is arguably one of the hottest topics in transportation right now - public private partnerships.  

But first, allow me to deliver a message on behalf of our 50 million plus members. It's a simple message of appreciation - thank you.

Thank you for designing and building the finest network of highways, roads, bridges, tunnels and other transportation assets in the history of mankind.

One only has to travel in other parts of the world to appreciate how fortunate we are in this country. Nowhere is personal mobility such a widely shared benefit.

In fact, personal mobility is so much of our daily routine the majority of Americans take our transportation network for granted - until something goes wrong.

The collapse of the I35W bridge in Minneapolis brought the condition of the nation's transportation infrastructure to the forefront - at least temporarily.

When the infrastructure fails, the public pays attention and immediately understands that shortfalls in funding maintenance can be disastrous.

Under the circumstances, it's not surprising that the prospect of a silver bullet in the form of P3s is getting a lot of attention.

Before discussing the role of public private partnerships in more detail, I'd like to share some observations about the challenges ahead for transportation.

Obviously, how to fund roads, bridges, safety and transit programs going forward is important, and complex.

But even more important is to articulate the overall vision for our nation's future transportation system.

Let's face it -- the issues at hand are larger than just "how to fund" what we need.

We celebrated the 50^th Anniversary of the Interstate system last year. That milestone reminded us all of how decisions made in the '50s had a determining effect on our economy and quality of life for the decades that followed.

I believe we've reached a similar critical juncture - much like 50 years ago - where the decisions we make today will impact the future economic success and standard of living in this country.

If we give transportation short shrift, our economy and quality of life will suffer.

All of us committed to transportation are faced with a dual challenge.

• We must develop a new vision and purpose for the nation's transportation system that will meet the demands of a complex, growing and globally connected society.
• But we also need to ensure that the vision is understood and embraced by the general public, for that in turn will condition their willingness to pay for it.

Developing this vision should be the product of a broad exploration of the various stakeholder needs.and what they are willing to do in a collective way to support a new surface transportation program.

We need to be looking further ahead than the next four or five years. We need to understand how our country will change over the next two or three decades.

There are important questions that need to be addressed. They include:

• How will demographic shifts and the distribution of the population affect transportation needs?
• What effect is globalization having on where goods are manufactured and how they journey from there to each of us?
• What will be the impact of growing freight movement interacting with the motoring public?
• How will changing fuel sources affect our transportation systems?
• How can we ensure that safety is a central factor in all transportation system planning?
• How do we meet the needs of travel and tourism, a dynamic and growing economic engine in this country?

These are important issues and if we fail to address them we will be placing our nation's economy, and for that matter, the "American Way of Life" in jeopardy.

We need a more balanced, inclusive and self-sustaining transportation program that is flexible enough to accommodate

• shifts in the economy,
• international crises,
• technological breakthroughs that change the way we live, work and travel, and. of course.
• the ever-changing needs and preferences of the consuming public.

That's a tall order, but AAA believes this country has the ingenuity to accomplish it.

As AAA looks at the major transportation policy debates in recent months, we are concerned there has been

• too much focus on "how to pay for it", and
• not enough attention given to the nation's longer term strategy for transportation

This must change - we need to raise our sights.

The first, and biggest, challenge is not to figure out how to fund what we need.

Rather, we must devote more attention to understanding the long term trends which will affect the nation's transportation needs and formulate a vision of how to address them.

There is a story that is told about Oliver Wendell Holmes who, as you know, was once Chief Justice of the Supreme Court.

It was late in his career, and he was riding on a train. The conductor came up to him and asked for his ticket.

Holmes started fumbling looking for it. The conductor recognized him - Justice Holmes had a very distinctive face - and said:

"That's all right, Justice Holmes, don't worry about it, you can just send your ticket in when you find it."

Holmes looked at him with some irritation and said, "The problem is not where my ticket is. The problem is, where am I going?"

If we focus first only on funding, we may end up with a ticket to go, but not have any idea where we're going.

I hope we will be able to answer Justice Holmes' question when the next transportation reauthorization bill is considered in 2009.

In the meantime, we recognize that there are very real near-term funding challenges that warrant attention.

The federal Highway Trust Fund is very nearly broke and is expected to be in deficit by early fiscal year 2009.

Unless additional revenues are found, we will experience a large cut in federal transportation funding in the future.

As a community, we need to work together to make sure that does not happen.

AAA is on record, along with ARTBA and other stakeholders, in support of an effort by the Senate Finance Committee to address the 2009 shortfall with a financing package that, for now, does not include a federal gas tax increase.

Among the elements of the package are:

• Crediting the Highway Trust Fund approximately $3.2 billion for emergency expenditures that have been paid since 1998;
• Requiring the General Fund to offset the costs of current fuel tax exemptions and refunds provided to state and local governments;
• Cracking down on fuel tax evasion; and
• Transferring "gas guzzler tax" revenues from the General Fund to the Highway Trust Fund.

Beyond these near-term trust fund fixes, addressing the long-term solvency of the Highway Trust Fund will be a much bigger challenge.

The funding challenges we face at the federal level are now being seen and felt in terrible and tangible ways at the state level.

Unless there is a sea change in public opinion, an increase in the gas tax of sufficient magnitude to address our current and future needs is not in the cards.

We therefore must look at other ways to fund our transportation infrastructure.

Public private partnerships, or P3's, are certainly one of the options, and I am here to say that AAA believes that these partnerships have a role to play.

That said, P3's are not the only answer and they must be implemented with care.

Let me be more specific.

The more I learn about how public private ventures have been executed in other countries, the more concerned I am about the direction P3's are headed in this country.

In the US, judging by public-private partnerships involving the Chicago Skyway and Indiana Toll Road, among others, P3's are the invention of investment bankers who tend to see these transactions through a lens of "financial deals" with their primary objective of raising money.

Our members, through numerous surveys conducted by AAA around the country, have stated clearly that they are wary of these deals.

• A recent AAA survey of Pennsylvania members found that 70% said they would oppose selling public roads to private companies as a way to raise transportation funds;
• 56% of respondents to a AAA survey in New Jersey said they would oppose a proposal to sell or lease the New Jersey Turnpike and the Garden State Parkway to a private operator for the purpose of raising money to retire the state's debt; Only 19% supported the proposal.
• We also did a nation-wide survey of AAA members in October 2006. Respondents were asked which of several funding options they would support to meet increasing transportation demands. Leasing existing road facilities to private interests garnered 7% support.

Our members, like all of us in this room, know that our roads and bridges are not just financial assets to be sold to highest bidder.

There are other objectives that need to be part of the deal.

Objectives such as:

• Ensuring value is really being added by the private partner.
• Providing the customer a better service in return for the higher tolls they will be required to pay.
• Sharing equitably the risks between the private and public partners.
• Balancing the interests of all stakeholders.

Last year AAA issued its Motorists' Bill of Rights on Transportation Funding.

Of the ten guiding principles we laid out, three are particularly relevant to P3's.

These three principles will guide us as we decide whether to lend our support to individual P3's.

First, public-private partnerships must be structured to ensure that fees paid by motorists are not diverted to non-transportation purposes.

Second, transportation revenues collected from motorists should fairly represent the costs of using the system.

Third, all transportation system users should bear a fair and proportionate share of financing our surface transportation infrastructure.

Many of the P3's done to date and some that are currently being contemplated do not get very high marks when graded against these commonsense principles.

• Cash raised from some P3's have been diverted to non-transportation purposes.
• High prices paid for the concessions are destined to be recovered through higher tolls with no assurance of better service.

AAA believes it is imperative that, instead of just figuring out how to turn our transportation assets into cash cows, we consider the following questions:

• What are the implications of roads in a region being under different ownership with divergent interests?
• Will concession agreements be actively and forcefully monitored to ensure the roads are operated safely and with an eye toward customer service?
• Will future tolls impose an unfair burden on users?
• Will the term of the concession outlast the revenue received from granting the concession itself?
• Will the bidding be based on "best value" to the public or simply on price?

I recognize that answering these questions using the public interest as the overriding objective will likely reduce the financial yield.

So be it!

P3s should be done thoughtfully and in a manner which delivers the benefits to those who have already paid for the assets now being sold.

Let me conclude by saying that there are two "line-in-the-sand" issues for AAA regarding P3's:

One: If the motivation for a P3 project is to generate upfront cash that can be used to solve statewide budget problems or finance other expenditures not related to transportation, we will oppose that deal.

Two: P3's must be subject to an open, forthright and deliberative process that allows time for adequate public input and debate.

These are complex financial and operational arrangements and they warrant close scrutiny.

The privatization process must be transparent and involve all of the stakeholders from the beginning.

We will oppose deals signed in private and revealed to the public at the final hour.

The problems we now face have been years, if not decades, in the making.

We are kidding ourselves if we think there is quick or easy fix.

Unfortunately, P3's have been put forward by many as THE answer. a painless way to fund our transportation infrastructure.

I hope we are now past the initial swoon that the first generation of P3's caused.

I hope that our dialogue has matured to the point where we can engage in an objective and considered debate about how and where P3's are appropriate.

AAA looks forward to being a productive voice in those discussions.

As we focus on P3s, let us not forget the larger issue of the overall transportation visions for the nation.

Dealing with this issue is not a distraction.

Rather, it is the foundation upon which we can then build widespread support for the need to invest in transportation.

That in turn will condition the public's willingness to pay. And let's face it -- that's what this whole debate is really about!