Market Overview

Feds Found Lacking In P3 Project Oversight


Photo Credit: Jim Allen/FreightWaves

Photo Credit: Jim Allen/FreightWaves

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Public-private highway projects designed to reduce freight and passenger congestion are under increased scrutiny due to deficient federal oversight.

A report made public on March 8 by the U.S. Department of Transportation's (USDOT) Office of Inspector General (OIG) found that the Federal Highway Administration (FHWA) hasn't followed its own requirements ensuring that financial plans for public-private partnerships (P3s) assess whether the projects are suitable for delivery.

"FHWA is not following its current guidance for approving P3 projects, which notes that P3 projects warrant additional stewardship considerations to address unique risks," the OIG's report stated.

"In addition, although FHWA's guidance states that P3s that remain funded by federal loans warrant additional oversight during the operations and maintenance phase, we found that the agency is not fully carrying out this guidance and has not clearly defined roles and responsibilities for this oversight."

The OIG noted that increasing demand for highway capacity combined with constraints on public funding resources have led to more involvement from the private sector in building highway infrastructure using P3s. The Trump Administration has run hot and cold on public-private partnerships to fund infrastructure, and it remains to be seen how they might figure in a highway reauthorization bill or a stand-alone infrastructure package this year.

"We view them as one tool – not a solution for every need," Elaine Nessle, executive director of the Coalition for America's Gateways & Trade Corridors, told FreightWaves. "In some instances, they may be incredibly useful and appropriate, but that's not always the case, and they're certainly not a replacement for federal funding."

When P3s are identified, many get funding assistance through government-backed Transportation Infrastructure and Innovation Act (TIFIA) loans. Since 1999, USDOT has loaned more than $19 billion in total TIFIA credit, with almost half of that going to P3 projects.

One of the projects included in a sample of cases looked at by FHWA is the SH 288 toll project in Texas, a 61-mile highway between Houston and the Gulf of Mexico which "provides a vital route for commuters, as well as freight and commercial trucking," according to the project's website. Of the project's estimated $1.1 billion cost, $357 million is being funded through TIFIA.

But getting a federal loan means that even though there's private money in the mix, the project must still conform with federal-aid project requirements, which includes site visits by FHWA personnel and a review of performance reports. The agency must also provide input "on conditions that may be affecting performance, ensuring compliance with the TIFIA credit agreement, reviewing financial plan annual updates, and reviewing disbursement requests for, and making disbursements of, TIFIA funds," the OIG report stated.

The report revealed, however, that FHWA "has not fully implemented this guidance and is not actively performing this oversight. FHWA officials in three of the four division offices we visited were unaware of the roles and responsibilities detailed in the guidance."

The OIG made five recommendations to the agency's administrator to improve FHWA's P3 project approval and monitoring process. They include requiring that the agency "follow established procedures for reviewing and approving initial financial plans to ensure they include an assessment of the appropriateness of a P3 for project delivery."

FHWA deputy administrator Brandye Hendrickson concurred with OIG's recommendations, promising to use the report to make improvements that she said would be completed by the end of the year. Among them, "FHWA will clarify the P3 assessment requirement in our financial plan guidance, while making clear the undisputed autonomy of the public sponsor in determining the outcome of that assessment."

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