Public-Private Partnerships (P3s) in Transportation

November 2, 2017 – March 26, 2021 R45010

Public-Private Partnerships (P3s)
in Transportation
Updated March 26, 2021
Congressional Research Service
https://crsreports.congress.gov
R45010

Public-Private Partnerships (P3s) in Transportation

Summary
Public-private partnerships (P3s) in transportation are contractual relationships typically between
a state or local government, which are the owners of most transportation infrastructure, and a
private company. P3s provide a mechanism for greater private-sector participation in all phases of
the development, operation, and financing of transportation projects. Although there are many
different forms P3s can take, the two types of agreements that generate the most interest and
discussion are design-build-finance-operate-maintain (DBFOM) contracts and long-term leases.
P3s have emerged, in part, because of the growing demands on the transportation system and
constraints on public resources. To date, the number of transportation P3s in the United States is
relatively small, as is the amount of long-term private financing provided. Among the reasons for
this are the availability to state and local governments of tax-preferred municipal bonds; the need
for some kind of revenue stream, such as a toll, fare, or tax, to provide funding; and the fact that
many states have very limited experience with P3s. Most transportation P3s to date have been in
highways or marine cargo terminals; only a few have involved public transportation, intercity
passenger rail, or airports.
The effect of the Coronavirus Disease 2019 (COVID-19) pandemic on existing P3s and the
creation of new P3s is uncertain. It is not known what effect the pandemic will have on public
resources, transportation demand, and factors that affect the viability of P3s, such as project
revenues and access to financing.
There are three main potential benefits of P3s:
 P3s are a way to attract private capital to invest in transportation infrastructure;
 P3s may be able to build and operate transportation facilities more efficiently
than the public sector through better management and innovation in construction,
maintenance, and operation; and
 the public sector can transfer to the private-sector partner many of the risks of
building, maintaining, and operating transportation infrastructure.
Concerns with P3s include the types of projects involved, the risks retained by the public sector,
and transportation planning. P3s that are reliant on tolls or other user fees are unlikely to address
transportation issues in rural areas or on lightly traveled routes. However, P3s in these areas may
be viable if based on state and local government availability payments. Although some risks are
typically transferred to the private sector in a P3, the public sector may retain significant risk. P3s
may have longer-term effects on the transportation system because they influence decisions about
what to build and where, and can limit what other projects the government can pursue.
The federal government exerts influence over the prevalence and structure of P3s through its
transportation programs, funding, and regulatory oversight, but is usually not a party to a P3
agreement. The current federal role in P3s includes project loans through the Transportation
Infrastructure Finance and Innovation Act (TIFIA) Program, the authorization of private activity
bonds, certain tax provisions such as depreciation schedules, state infrastructure banks, and the
provision of technical advice through the U.S. Department of Transportation.
Limiting the formation of P3s would predominantly entail restricting federal benefits to such
projects. Two broad policy options for expanding use of P3s would be to actively encourage P3s
with program incentives, but with regulatory controls to protect the public interest, or to
aggressively encourage the use of P3s through program incentives and deregulation.
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Introduction
Growing demands on the transportation system and constraints on public resources have led to
calls for more private-sector involvement in the provision of transportation infrastructure through
what are known as “public-private partnerships” or “P3s.” As defined by the U.S. Department of
Transportation (DOT), “public-private partnerships (P3s) are contractual agreements between a
public agency and a private-sector entity that allow for greater private-sector participation in the
delivery of transportation projects.”1 Typically, the “public” in public-private partnerships refers
to a state government, local government, or transit agency. The federal government exerts
influence over the prevalence and structure of P3s through its transportation programs, funding,
and regulatory oversight, but is usually not a party to a P3 agreement.
This report discusses the benefits and limitations of P3s that involve long-term private financing,
the experience with these types of P3s in the United States, and current federal policy. The report
outlines a number of issues and policy options that Congress might consider: project evaluation
and transparency, asset recycling, incentive grants, infrastructure banks, tax credits for equity and
debt, Interstate highway tolling, and changes to an existing federal loan program.
The effect of the Coronavirus Disease 2019 (COVID-19) pandemic on public resources,
transportation demand, and factors that affect the viability of P3s, such as project revenues and
access to financing, is uncertain. Consequently, this report does not discuss the effect of the
pandemic on existing P3s and the creation of new P3s.
Types of P3s
With the traditional method of providing transportation infrastructure, known as “design-bid-
build,” the public sector is in charge of building, financing, operating, and maintaining a facility,
although construction and other activities are typically contracted out to the private sector. By
contrast, a public-private partnership may involve private-sector participation in any or all phases
of development and operation of a new facility or the operation and maintenance of an existing
facility. The many different forms P3s can take are characterized by the extent of the private
sector’s participation: design-build; design-build-finance; design-build-operate-maintain; design-
build-finance-operate-maintain (DBFOM); and long-term lease agreements.
It is these last two types of P3s, DBFOM and long-term lease agreements, which generate the
most interest and discussion. These P3s are also known as concession agreements, as they involve
the ongoing participation of a private partner, termed the concessionaire, in managing the facility
as a business.
 DBFOM P3s involve the private sector in most facets of constructing, operating,
and maintaining a new facility, including long-term financing. The private-sector
partner is repaid either by facility users, through fares or tolls, or by payments
from state or local government over the life of the contract. Known as
“availability payments,” these payments from the government are contingent on
the “availability” of the facility consistent with agreed performance standards,
such as snow removal times, but do not depend on facility demand. Figure 1
depicts the relationships between the public and private partners in a toll road
DBFOM P3, such as the $2 billion Capital Beltway (I-495) High Occupancy Toll

1 Department of Transportation, Build America Bureau, “Public-Private Partnerships (P3): Overview,” at
https://www.transportation.gov/buildamerica/project-development/public-private-partnerships-p3/public-private-
partnerships-p3.
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(HOT) Lanes project that opened for traffic in Northern Virginia in 2012. The
parties are Capital Beltway Express, LLC (a joint venture of Fluor, a construction
and engineering company, and Transurban, an Australian firm specialized in
managing toll roads) and the Virginia Department of Transportation.
 Long-term lease agreements involve the operation and maintenance of an
existing facility by a private concessionaire for a specified amount of time. The
private partner pays the public sector a concession fee and agrees to operate and
maintain the facility to prescribed standards. In return, the private company
typically collects tolls or other user fees to pay lenders and debt holders and to
generate a return on equity investment. Many cargo terminals in U.S. ports are
operated by for-profit firms under contracts with the public port agencies that
own the underlying land. A prominent highway example of this type of P3 is the
75-year lease concession of the Indiana Toll Road that was awarded in 2006 to
the Indiana Toll Road Concession Company (ITRCC), a partnership between
Cintra, a Spanish developer of transportation infrastructure, and Macquarie
Infrastructure Group, then a subsidiary of an Australian investment bank, for a
single lump-sum payment of $3.8 billion. Ownership of the lease was transferred
to a new concessionaire, IFM Investors, after the bankruptcy of ITRCC in 2014.
Figure 1. Relationships Between Partners in a DBFOM Toll Road P3 Project

Source: Federal Highway Administration, Risk Assessment for Public-Private Partnerships: A Primer, December 2012,
p. 2-3, at https://www.fhwa.dot.gov/ipd/pdfs/p3/p3_risk_assessment_primer_122612.pdf.
Note: SPV = special-purpose vehicle, a legal entity created solely to serve a specific function, in this case to
conduct a single transportation project.
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P3 Implementation
Implementing the procurement of infrastructure projects through P3s typically requires the public
sector to establish a legal and policy framework through a state enabling statute. These laws
provide the authority for state and local government agencies to establish P3s and typically
include provisions that limit the types of P3 arrangements allowed, how projects are to be
selected and approved, how proposals are reviewed, the involvement of the public, and
requirements for the release of information.2 According to DOT, 36 states, the District of
Columbia, and Puerto Rico currently have general P3 enabling legislation.3
The implementation of a P3 typically entails complex and costly legal, financial, and technical
issues that require public oversight over the course of a long-term contract. This may require
extensive staff time and hiring of outside experts. An important aspect is the evaluation of
projects. This may involve traffic and revenue studies, risk assessment, studies of project costs
and financial feasibility, and value-for-money analysis that compares the proposed P3 with
delivery of the project by the public sector.4
To date, the number of transportation P3s in the United States is relatively small, as is the amount
of long-term private financing provided. According to one source, from 1993 through June 2018
there were 37 transportation P3s involving long-term financing, with total project costs totaling
$57 billion. This includes the 99-year lease of the Chicago Skyway; the I-595 managed lanes
project in Florida; the Purple Line light rail transit project in Maryland; the first large airport P3,
the $5 billion renovation of Terminal B at LaGuardia Airport in New York, agreed to in June
2016; and the $5 billion “People Mover” train linking the Los Angeles International Airport with
the Los Angeles Metro Rail system.5
Although the pace of P3 deals has accelerated over time, P3s remain a very small percentage of
investment in transportation. The Congressional Budget Office estimated that the value of
contracts involving privately financed roads over 25 years through 2016 was about 2% of
government highway spending. The equivalent amount for transit partnerships was about 3%.6
P3s and private investment in surface transportation are relatively larger in many other countries,
including Portugal, Spain, Australia, and the United Kingdom.7
There are a number of possible reasons for the limited use of P3s in the United States. Among
them are the following:

2 National Conference of State Legislatures, Public-Private Partnerships for Transportation: A Toolkit for Legislators,
October 2010, at http://www.ncsl.org/Portals/1/Documents/transportation/PPPTOOLKIT.pdf.
3 Federal Highway Administration, “State P3 Legislation,” at https://www.fhwa.dot.gov/ipd/p3/legislation/.
4 Patrick DeCorla-Souza, Jennifer Mayer, Aaron Jette, and Jeffery Buxbaum, “Key Considerations for States Seeking
to Implement Public-Private Partnerships for New Highway Capacity,” paper presented at the Transportation Research
Board Annual Meeting, January 2013, p. 8.
5 Public Works Financing, “U.S./Transportation PPPs/Leases Market” October 2020, p. 23.
6 Congressional Budget Office, Public-Private Partnerships for Transportation and Water Infrastructure, January
2020, at https://www.cbo.gov/publication/56003.
7 Federal Highway Administration, Public-Private Partnerships for Highway Infrastructure: Capitalizing on
International Experience, March 2009, at http://international.fhwa.dot.gov/pubs/pl09010/pl09010.pdf; Jonathan
Woetzel, Nicklas Garemo, Jan Mischke, Martin Hjerpe, and Robert Palter, Bridging Global Infrastructure Gaps,
McKinsey Global Institute, June 2016, at https://www.mckinsey.com/industries/capital-projects-and-infrastructure/our-
insights/bridging-global-infrastructure-gaps.
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 Municipal bonds, long-term debt instruments that receive preferential income tax
treatment, allow state and local governments to borrow at lower cost than private
investors. P3s are more widely used in many other countries, where there is no
similar tax preference for state or local government borrowing.8
 P3s are a source of financing, not a source of funding. They require some type of
revenue stream, such as a toll, fare, or tax, to service debt and provide a return on
private equity, and such measures can be unpopular.9
 While the federal government can encourage the development of P3s, decisions
are taken at the state and local level. Many states have very limited experience
with P3s. Fourteen states do not have enabling statutes.
Benefits of P3s
There are three main potential benefits of P3s. First, P3s are a way to attract private capital to
invest in transportation infrastructure. This can be particularly important when public-sector
budgets are tightly constrained, as is likely to be the case in the wake of the COVID-19
pandemic. P3s, therefore, can spur the building of transportation facilities earlier than would be
the case if left to the public sector alone. The opportunity to invest in equity or taxable debt may
lure pension funds and foreign investors, which generally are not subject to U.S. federal income
tax and thus do not benefit from the tax exclusion of interest on municipal bonds.
Second, P3s may be able to build and operate transportation facilities more efficiently than the
public sector through better management and innovation in construction, maintenance, and
operation. Private companies may be more able to examine the full life-cycle cost of investments,
whereas public agency decisions are often tied to short-term budget cycles.10
Third, through P3s the public sector can transfer to the private-sector partner many of the risks of
building, maintaining, and operating transportation infrastructure (Table 1). One major risk is that
a facility will cost more to operate and maintain than budgeted, particularly if the quality of initial
construction is poor. Another is that a facility to be financed by tolls will have less demand than
estimated, and will fail to generate the expected revenue. Transferring these and other risks to the
private sector may not save money, as the private partner requires compensation for assuming
them, but the risk transfer may provide greater certainty for the public sector.
A DBFOM P3 project that has demonstrated some of these benefits is the U.S. 36 Express Lanes,
Phase II project that connects Denver and Boulder, CO. The $260 million project included about
$62 million in private debt and equity and was constructed within budget. By creating a P3, the
project was accelerated by at least 10 years, according to one analysis. The P3 also transferred
risk to the private sector, including the revenue risk associated with the toll road.11

8 CRS Report R43308, Infrastructure Finance and Debt to Support Surface Transportation Investment, by William J.
Mallett and Grant A. Driessen.
9 See, for example, Brandon Formby, “Texans Fear Trump’s Highways Plan Will Create More Toll Roads,” the Texas
Tribune, November 25, 2016, at https://www.texastribune.org/2016/11/25/texans-fear-trumps-infrastructure-plan-will-
create/; Kevin Williams, “The Crumbling Bridge that Two Presidents Couldn’t Fix Faces an Uncertain Future,”
Washington Post, November 17, 2020.
10 Eduardo Engel, Ronald Fischer, and Alexander Galetovic, “Public–Private Partnerships: Some Lessons After 30
Years,” Regulation, Fall 2020, pp. 30-35, at https://www.cato.org/sites/cato.org/files/2020-09/regulation-v43n3-2.pdf.
11 Lisardo Bolaños, Morghan Transue, Porter Wheeler, and Jonathan L. Gifford, “U.S. Surface Transportation Public-
Private Partnerships: Objectives and Evidence,” Center for Transportation Public-Private Partnership Policy, George
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Table 1. Possible Allocation of Risks Between Public and Private Partners
in Transportation Projects
Design-Bid-Build
Design-Build-Finance-
Risk Type
(Traditional)
Design-Build
Operate-Maintain
Change in Scope
Public
Public
Public
NEPA Approvals
Public
Public
Public
Permits
Public
Shared
Private
Right of Way
Public
Public
Shared
Utilities
Public
Shared
Shared
Design
Public
Private
Private
Geological Conditions
Public
Public
Private
Hazardous Materials
Public
Public
Shared
Construction
Private
Private
Private
Quality Assurance/Quality Control
Public
Shared
Private
Security
Public
Public
Shared
Final Acceptance
Public
Private
Private
Operations and Maintenance
Public
Public
Private
Financing
Public
Public
Private
Demand/revenue risk
Public
Public
Private
Force Majeure
Public
Shared
Shared
Source: Adapted by CRS from Federal Highway Administration, Risk Valuation and Allocation for Public-Private
Partnerships (P3s), 2013, at https://www.fhwa.dot.gov/ipd/pdfs/p3/factsheet_02_riskvalutationandallocation.pdf.
Note: NEPA = National Environmental Policy Act.
Limitations of P3s
Concerns with P3s include the types of projects involved, the risks retained by the public sector,
and transportation planning. Private-sector investors are drawn to projects that have the greatest
potential financial returns, adjusted for risk. P3s that are reliant on tolls or other user fees,
therefore, are unlikely to address transportation issues in rural areas or on lightly traveled routes.
However, P3s in these areas may be viable if based on state and local government availability
payments.
Although some risks are typically transferred to the private sector in a P3, the public sector may
retain significant risk. In some P3s, the public sector retains revenue risk, thus putting itself on
the line to repay creditors if the project fails to generate anticipated revenue. Poorly written
contracts, weak private-sector partners, and external events may force the public sector to
renegotiate the P3 contract or to assume project ownership.12 And many transportation P3s
involve federal loans through the Transportation Infrastructure Finance and Innovation Act

Mason University, at http://p3policy.gmu.edu/index.php/research/white-papers/u-s-surface-transportation-public-
private-partnerships-objectives-and-evidence/.
12 Lauren N. McCarthy, Lisardo Bolaños, Jeong Yun Kweun, and Jonathan Gifford, “Understanding Project
Cancellation Risks in U.S. P3 Surface Transportation Infrastructure,” Transport Policy, Vol. 98, 2020, pp. 197-207.
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(TIFIA) program, exposing federal taxpayers to losses if project revenue is insufficient to service
the loans.
Some of these issues have been experienced with an availability payment DBFOM P3 that was
created in 2016 for a new 16-mile light rail line in the Maryland suburbs of Washington, DC,
known as the Purple Line. The P3 between a consortium of companies, the Purple Line Transit
Partners (PLTP), and the Maryland Transit Administration (MTA) included an $875 million
TIFIA loan and private activity bonds issued by the state on behalf of PLTP (see “Private Activity
Bonds and Tax Issues”). A lawsuit by project opponents and challenges with the acquisition of
right-of-way by the state resulted in delays and additional costs that became the subject of a
dispute between the public and private partners. In November 2020, with about 40% of the
project complete, MTA agreed to pay PLTP an additional $250 million to keep the P3 going.
Nevertheless, under the agreement, the lead construction contractor of the consortium dropped
out of PLTP, necessitating PLTP to search for a new partner. The project was originally scheduled
to enter service in 2022, but now may not open until 2024 or later.13
P3s may have longer-term effects on the transportation system insofar as they influence decisions
about what to build and where. Unsolicited project proposals may not reflect the priorities of the
state, region, or locality as incorporated into short- and long-range transportation plans.
Noncompete clauses in P3 contracts may restrict public improvements near a privately operated
facility or require the payment of compensation. Such restrictions may impede the ability of
public agencies to increase capacity and to devise coordinated congestion management policies.
The long terms of some concession agreements, 99 years in some cases, can tie the hands of
planners and policymakers years into the future, when conditions may be very different.
Most transportation P3s to date have involved highways or marine cargo terminals. A few have
involved public transportation, intercity passenger rail, or airports. User fees (fares) collected by
public transportation agencies make up less than one-third, on average, of the funding used to
provide transit service, and rail projects are similarly challenged. Private-sector entities are
unlikely to initiate projects in such situations, and the public sector has sought to finance only a
few transit projects through availability payments. Airport P3s have been inhibited by a number
of factors, including restrictions on the use of lease proceeds for airport purposes, cheaper
financing for public airport operators through tax-exempt bonds, and regulatory conditions such
as the necessity for 65% of air carriers serving an airport to approve a lease or sale.14
Federal Role in P3s
Transportation Infrastructure Finance and Innovation Act (TIFIA)
Program
The main way in which the federal government has encouraged P3s and private financing in
surface transportation is through the TIFIA program, which provides long-term, low-interest
loans and other types of credit to project sponsors.15 Loans can be provided up to a maximum of

13 Katherine Shaver, “Maryland, Purple Line Firms Reach $250 Million Deal to Keep Project Moving,” Washington
Post, November 24, 2020; Colin Campbell, “Maryland’s Purple Line Has Uncertain Future After Contractor Quits,
Claiming $800M in Overruns,” Baltimore Sun, November 19, 2020; Katherine Shaver, “Firms Managing Maryland’s
Purple Line Construction Begin Search for New Contractor,” Washington Post, January 8, 2021.
14 CRS Report R43545, Airport Privatization: Issues and Options for Congress, by Rachel Y. Tang.
15 23 U.S.C. §601 et seq.
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49% of project costs. Projects eligible for TIFIA assistance include highways and bridges, public
transportation, intercity passenger bus and rail, intermodal connectors, and intermodal freight
facilities.16
Several features of TIFIA financing make it attractive to project sponsors, including private-
sector partners. Federal credit assistance provides funds at the same fixed interest rate at which
the U.S. Treasury borrows, a lower rate than would be available to any private borrower. Loans
are available for up to 35 years from the date of substantial completion, repayments can be
deferred for up to five years after substantial completion, and amortization can be flexible. TIFIA
financing is also available with a senior or subordinate lien, but is typically used as subordinate
debt, meaning it is in line to be repaid after the project’s operational expenses and senior debt
obligations. However, the TIFIA statute includes a provision requiring that in the event of a
project bankruptcy, the federal government will be made equal with senior debt holders. This is
referred to as the “springing lien,” and has led some to ask whether TIFIA financing is truly
subordinate. The springing lien issue notwithstanding, TIFIA financing is generally thought to
reduce project risk, thereby helping the partners in a P3 to secure private financing at rates lower
than would otherwise be possible.
There are a number of eligibility criteria for TIFIA assistance. One is creditworthiness: to be
eligible, a project’s senior debt obligations and the borrower’s ability to repay the federal credit
instrument must receive investment-grade ratings from at least one nationally recognized credit
rating agency. Generally, a project must cost $50 million or more to be eligible for assistance, but
the threshold is $15 million for intelligent transportation system projects and $10 million for
transit-oriented development projects, rural projects, and local projects. One further eligibility
requirement is that loans must be repaid with a dedicated revenue stream. Limiting the federal
share of project costs, encouraging private finance, and insisting on creditworthiness standards
are ways in which the program attempts to rely on market discipline to limit the federal
government’s exposure to losses.
One attraction of TIFIA from the federal point of view is that a relatively small amount of budget
authority can be leveraged into a large amount of loan capacity. Because the government expects
its loans to be repaid, an appropriation need only cover administrative costs and the subsidy cost
of credit assistance. According to the Federal Credit Reform Act of 1990 (2 U.S.C. §661(a)), the
subsidy cost is “the estimated long-term cost to the government of a direct loan or a loan
guarantee, calculated on a net present value basis, excluding administrative costs.” A typical rule
of thumb is that the average subsidy cost of a TIFIA loan is 10%, meaning that $1 million of
budget authority devoted to the subsidy cost can provide $10 million of loan capacity. In practice,
the subsidy rate has been lower than 10%, thus the leveraging effect of every dollar of budget
authority has been greater than a factor of 10.17
The Fixing America’s Surface Transportation (FAST) Act (P.L. 114-94) authorized funding for
TIFIA at an average of $285 million per year from FY2016 through FY2020. This was extended
at the FY2020 amount of $300 million for FY2021 by the Continuing Appropriations Act, 2021
and Other Extensions Act (P.L. 116-159). The unobligated amount of funding in the TIFIA
program was $1.9 billion at the end of FY2019, thus there was no shortage of funding to cover
the subsidy costs of new loans. However, the FAST Act also allows states to use funds from two
federal highway grant programs to pay for the subsidy and administrative costs of credit

16 U.S. Department of Transportation, “TIFIA Credit Program Overview,” at https://www.transportation.gov/
buildamerica/sites/buildamerica.dot.gov/files/2019-08/TIFIA%20Background%20Slides%20%2801-26-2017%29.pdf.
17 Office of Management and Budget, President’s Budget, Mid-Session Review FY2021: Federal Credit Supplement, at
https://www.whitehouse.gov/wp-content/uploads/2020/02/cr_supp_fy21.pdf.
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assistance. This provision provided the potential to increase TIFIA financing much above the
direct authorization, but at the discretion of state departments of transportation.
Private Activity Bonds and Tax Issues
Private activity bonds (PABs), a type of municipal bond issued for transportation and secured by
revenue generated by the project financed with the bonds, have been an important financing
mechanism for P3s. Congress has approved limited use of tax-exempt PABs for selected
transportation projects, as outlined in Section 142 of the Internal Revenue Code. These include
airports, docks and wharves, mass commuting facilities, high-speed intercity rail facilities, and
qualified highway or surface freight transfer facilities. The Secretary of Transportation must
approve the use of PABs for qualified highway or surface freight transfer facilities, and the
aggregate amount allocated must not exceed $15 billion. As of December 1, 2020, $13.3 billion
of the $15 billion had been issued and another $1.7 billion had been allocated.18 Examples of P3s
partially financed with PABs are the Capital Beltway (I-495) High Occupancy Toll (HOT) Lanes
project in Northern Virginia and the Gold Line transit rail project in Denver.
Other aspects of federal tax law also affect P3s, such as depreciation. Businesses are allowed to
claim a deduction from their reported income for the depreciating value of their physical assets.
The rate at which the private partners in a P3 may depreciate their assets for tax purposes can
have a significant effect on the rate of return of a project. Under current law, for example, roads
and bridges are generally depreciated over 15 years using the Modified Accelerated Cost
Recovery System. To the extent that tax-exempt bond financing is utilized, roads and bridges are
generally depreciated over 20 years using the Alternative Depreciation System .19 If this period is
less than the expected life of the asset, the short depreciation period represents a form of
government subsidy to the project. Different depreciation schedules may apply for other types of
transportation assets and in other situations. Reducing the depreciation period (or allowing the
entire investment to be subtracted from income in the first year, known as “expensing”)
effectively reduces the marginal tax rate on income from the investment, which increases the
after-tax rate of return to the investors.
State Infrastructure Banks
Another source of financing for P3 projects is state infrastructure banks (SIBs). Most of these
were created in response to a program originally established by Congress in 1995 (P.L. 104-59).
According to the Federal Highway Administration (FHWA), 32 states and Puerto Rico have
established a federally authorized SIB.20 Several states, among them California, Florida, Georgia,
Kansas, Ohio, and Virginia, have SIBs that are unconnected to the federal program.21 In a few
cases, local governments have also created infrastructure banks. For example, the City of Chicago
established the Chicago Infrastructure Trust in 2012 as a way to attract private investment for

18 U.S. Department of Transportation, Build America Bureau, “Private Activity Bonds,” at
https://www.transportation.gov/buildamerica/financing/private-activity-bonds-pabs/private-activity-bonds.
19 Joint Committee on Taxation, Overview of Selected Internal Revenue Code Provisions Relating to the Financing of
Public Infrastructure, JCX-7-19, March 4, 2019, at https://www.jct.gov/publications/2019/jcx-7-19/.
20 Federal Highway Administration, “State Infrastructure Banks,” at https://www.fhwa.dot.gov/ipd/finance/
tools_programs/federal_credit_assistance/sibs/.
21 Robert Puentes and Jennifer Thompson, “Banking on Infrastructure: Enhancing State Revolving Funds for
Transportation,” Brookings Institution, September 2012, at https://www.brookings.edu/wp-content/uploads/2016/06/
12-state-infrastructure-investment-puentes.pdf.
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public works projects. The Trust was closed in 2019. Another example is the entity created by
Dauphin County, PA, to loan funds to the 40 municipalities within its borders and to private
project sponsors. Funds for the loans are derived from a state tax on liquid fuels.22
Federal law allows a state to use some of its share of federal surface transportation funds to
capitalize a SIB. The FAST Act also provides authority for a TIFIA loan to a SIB to capitalize a
“rural project fund” within the bank. There are some requirements in federal law for SIBs
connected with the federal program (23 U.S.C. §610), but for the most part their structure and
administration are determined at the state level. Most SIBs are housed within a state department
of transportation, but at least one (Missouri) was set up as a nonprofit corporation, and another
(South Carolina) is a separate state entity.
Most SIBs function as revolving loan funds, in which money is directly loaned to project
sponsors and its repayment with interest provides funds to make more loans.23 Some SIBs, such
as those in Florida and South Carolina, have the authority to use their initial capital as security for
issuing bonds to raise further money as a source of loans, with loan repayments then used to
service the bonds.24 SIBs also typically offer project sponsors other types of credit assistance such
as letters of credit, lines of credit, and loan guarantees.
In general, state infrastructure banks have not been significant participants in financing
transportation projects. A survey by FHWA in 2017 found that most SIBs received two
applications or fewer for credit assistance each year. Most of their credit assistance is provided to
local governments rather than private participants in P3s.25
Several factors may explain the generally low level of activity of state infrastructure banks and
the dominance of public projects.26 Capitalization of the banks has typically lagged because the
federal funds that could be used have already been committed to traditional projects. Relatively
few small, local projects have the ability to generate sufficient revenue to repay a loan. Tolling,
for example, is often infeasible (due to low traffic volumes) or unpopular. The costs of
procurement and oversight make P3s impractical for many smaller projects. Because projects
funded by a federally authorized SIB must comply with federal regulations on matters such as
environmental review and prevailing wages, project sponsors may decide it is cheaper and
quicker to use funding from another source. Other concerns include how a SIB may affect a

22 Jeff Frantz, “Dauphin County Creates Infrastructure Bank for Road Improvements,” PennLive, March 1, 2013, at
http://www.pennlive.com/midstate/index.ssf/2013/03/dauphin_county_creates_infrast.html; Dauphin County,
“Infrastructure Bank,” at https://www.dauphincounty.org/government/departments/
community_and_economic_development/industrial_development_authority/infrastructure_bank.php.
23 Under federal transportation law SIBs can provide assistance to any entity with an eligible project. A state may limit
this to project sponsors of its choice (e.g., local governments).
24 See Federal Highway Administration, “State Infrastructure Banks: Frequently Asked Questions,” at
http://www.fhwa.dot.gov/ipd/finance/tools_programs/federal_credit_assistance/sibs/faqs.htm; Jonathan L. Gifford,
State Infrastructure Banks: A Virginia Perspective, School of Public Policy, George Mason University, Research
Paper, November 24, 2010, at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1714466.
25 Federal Highway Administration, Office of Innovative Program Delivery, State Infrastructure Bank, Practitioner
Survey, Summary of Survey Results, Fall 2017, at https://www.fhwa.dot.gov/ipd/pdfs/finance/
sib_practitioners_survey_results_17.pdf; Robert Puentes and Jennifer Thompson, September 2012.
26 See U.S. General Accounting Office (now the U.S. Government Accountability Office), State Infrastructure Banks:
A Mechanism to Expand Federal Transportation Financing, GAO/RECD-97-9, October 1996, pp. 13-19, at
http://www.gao.gov/archive/1997/rc97009.pdf; Federal Transit Administration, Update on State Infrastructure Bank
Assistance to Public Transportation, July 15, 2005, at https://www.transit.dot.gov/funding/grants/2005-report-update-
state-infrastructure-bank-assistance-public-transportation-pdf; Federal Highway Administration, State Infrastructure
Bank Review, Washington, DC, February 2002, at http://www.fhwa.dot.gov/ipd/pdfs/finance/sib_complete.pdf.
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state’s debt limit and credit rating and objections to creating an independent entity that can
engage in off-budget financing.27
Build America Bureau
DOT has also been mandated to support P3s by compiling and making available best practices in
the use of P3s, developing model contracts, and providing technical assistance. The FAST Act
authorized the creation of a new bureau within DOT to consolidate federal transportation
financing programs and support for P3s. To fulfill this mandate, DOT established the Build
America Bureau in July 2016.
The Build America Bureau is responsible for administering TIFIA, the Railroad Rehabilitation
and Improvement Financing (RRIF) program, the state infrastructure bank program, the
allocation of PABs, and the Nationally Significant Freight and Highway Projects Program (23
U.S.C. §117). It is also responsible for providing help to project sponsors with other DOT grant
programs; establishing and disseminating best practices and providing technical assistance with
innovative financing and P3s; ensuring transparency of P3 agreements; developing procurement
benchmarks; and working with project sponsors to navigate environmental reviews and
permitting to reduce uncertainty and delays.
Policy Issues and Options
P3 agreements are typically negotiated between a private company and a state or local
government, the owners of most transportation infrastructure; the federal government is not
directly involved. However, the federal government can pursue policies to encourage P3s or not,
and it can implement regulations on the way in which P3s are formed, particularly when federal
funding, financing, and tax incentives are involved in the project. Limiting the formation of P3s
would predominantly entail restricting federal benefits to such projects. Two broad policy options
for expanding use of P3s would be to actively encourage P3s with program incentives, but with
regulatory controls to protect the public interest, or to aggressively encourage the use of P3s
through program incentives and deregulation.
Protecting the Public Interest
P3s offer a number of potential benefits for states and localities, but they also present a number of
trade-offs and potential problems. Skeptics emphasize that P3s sometimes involve little private
money or are subsidized by the public sector, that risk transfer from the public to the private
sector can be illusory, and that P3 contracts may constrain government decisions about the
transportation system.28 Proponents of this view tend to be cautious about the benefits of P3s and
favor regulations designed to protect the public interest. Two aspects of protecting the public

27 These concerns were raised in New York in the wider context of P3s; see State of New York, Office of the State
Comptroller, “Controlling Risk Without Gimmicks: New York’s Infrastructure Crisis and Public-Private Partnerships,”
January 2011, p. 12, at http://www.osc.state.ny.us/reports/infrastructure/pppjan61202.pdf.
28 Jean Shaoul, Anne Stafford, and Pam Stapleton, “The Fantasy World of Private Finance for Transport via Public
Private Partnerships,” Discussion Paper 2012-6, OECD Roundtable on Public Private Partnerships for Funding
Transport Infrastructure: Sources of Funding, Managing Risk, and Optimism Bias, September 27-28, 2012, at
https://www.oecd-ilibrary.org/transport/the-fantasy-world-of-private-finance-for-transport-via-public-private-
partnerships_5k8zvv6tn2bv-en;jsessionid=zPYh1ACYhSBn53xxixO1tco8.ip-10-240-5-5; Ellen Dannin, “Crumbling
Infrastructure, Crumbling Democracy: Infrastructure Privatization Contracts and Their Effects on State and Local
Governance,” Northwestern Journal of Law and Social Policy, Volume 1, Issue 6, Winter 2011, pp. 47-93.
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interest are the evaluation of P3 projects and the transparency of the negotiations and agreement
between the public and private sectors.
Evaluation
Concerns about undervaluing public assets and windfall private profits are common with P3
deals. An often-cited example is the 75-year lease of parking meters in Chicago that the city’s
inspector general argued was undervalued by 46%.29 For this reason, the Government
Accountability Office and others have proposed requiring rigorous up-front analysis of the costs
and benefits of a P3.30 One such approach is a value-for-money analysis that compares a
traditional public-sector procurement with a P3 on the basis of projected risk-adjusted life-cycle
costs. This may inform decisions about “which procurement approach to use, which risks to
allocate to the private sector, and which private sector bid to accept.”31
Such analyses are not without their own problems because they rest on a host of estimates and
assumptions, including project costs, the valuation of risks, and future interest rates. Nevertheless,
Congress could require the use of value-for-money analysis or a similar analysis tool for proposed
P3 projects using federal funding or financing. This was one recommendation of the House
Transportation and Infrastructure Committee’s Special Panel on Public-Private Partnerships (T&I
Special Panel), which met in 2014.32
Transparency
Disclosure of information to the public, especially at an appropriate time in the decisionmaking
process, is another issue in the development of P3 agreements and throughout the contract period.
The T&I Special Panel noted that “when federal funds are proposed to be included in a P3
agreement, the federal government should ensure that the project sponsor develops the agreement
through a transparent process, the parties are held accountable, and there is an accurate
accounting of the total federal investment.”33 The information disclosed in highway P3s might
include the proposed contract, current and future toll rates, use of toll revenue for other
investments, noncompete clauses, and administrative costs incurred by the public sector. In terms
of the federal investment, the T&I Special Panel recommended that federal agencies should
provide detailed information including tax benefits deriving from tax-preferred financing and
asset depreciation allowances. A tradeoff to consider, however, is that the private sector may be

29 City of Chicago, Office of the Inspector General, “An Analysis of the Lease of the City’s Parking Meters,” June 2,
2009; see also Aaron M. Renn, “The Lessons of Long-Term Privatizations: Why Chicago Got It Wrong and Indiana
Got It Right,” Manhattan Institute, July 7, 2016, at https://www.manhattan-institute.org/html/lessons-long-term-
privatizations-chicago-indiana-9052.html.
30 Government Accountability Office, Highway Public-Private Partnerships: More Rigorous Up-front Analysis Could
Better Secure Potential Benefits and Protect the Public Interest, GAO-08-44 (Washington, DC, February 2008), at
http://www.gao.gov/assets/280/272041.pdf.
31 Patrick DeCorla-Souza, Jennifer Mayer, Aaron Jette, and Jeffery Buxbaum, “Key Considerations for States Seeking
to Implement Public-Private Partnerships for New Highway Capacity,” paper presented at the Transportation Research
Board Annual Meeting, January 2013, p. 8.
32 House Transportation and Infrastructure Committee, Special Panel on Public-Private Partnerships, Public Private
Partnerships, Balancing the Needs of the Public and Private Sectors to Finance the Nation’s Infrastructure, September
2014.
33 Ibid., p. 19.
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less willing to enter into partnerships without confidentiality of certain aspects of a project, such
as innovations and cost structures.34
Asset Recycling
The federal government could offer financial incentives for state and local governments to enter
into long-term lease concessions of public assets and to “recycle” the proceeds from these deals
into other infrastructure investments.35 Assets with the potential for leasing are those with user-fee
revenue streams, such as toll roads and airports. New investments in infrastructure could involve
facilities with or without such revenue streams, such as rural roads and transit systems. Examples
of asset recycling of transportation facilities in the United States include the long-term leasing of
the Chicago Skyway (2005), the Indiana Toll Road (2006), and the Seagirt Marine Terminal in
Baltimore, MD (2009).36 One study of nine state-owned toll road systems estimated the potential
net proceeds of long-term leases to their state government owners. For instance, the study
estimated that the New Jersey Turnpike system, one of the country’s biggest toll road systems,
could be leased for between $11.6 billion and $23.2 billion. This estimate does not include the
immediate uncertainty created by the COVID-19 pandemic, but lease deals typically stretch over
several decades.37
In Australia, the national government paid an incentive grant of 15% of the value of the asset to
state and territorial governments to enter into asset recycling agreements. For example, the State
of Victoria leased the Port of Melbourne for 50 years for nearly $10 billion, with those funds to
be spent on removing highway-rail grade crossings and other regional infrastructure projects.38
This asset recycling program was active from 2014 until 2016. Criticisms of the Australian
program included that the public sector loses control of income-producing assets for a one-time
infusion of funds; that the incentive payment may lead to poor decisions by state and local
government to privatize assets; and that the incentive funding favors states and localities that have
large assets to privatize.39
Incentive Grants
Federal grants also could be made available to encourage the development of P3 projects for new
projects. One option would be to set up a program of $2 billion per year to provide grants of up to
20% of costs for projects that would require life-cycle costing of capital, operations, and
maintenance. These grants would be available to both government and P3 projects, but the

34 Patrick DeCorla-Souza et al.
35 Jake Varn and Sarah Kline, “How Could Asset Recycling Work in the United States,” Bipartisan Policy Center, June
8, 2017, at https://bipartisanpolicy.org/blog/how-could-asset-recycling-work-in-the-united-states/.
36 Robert J. Poole, Asset Recycling to Rebuild America’s Infrastructure, Reason Foundation, November 2018, at
https://reason.org/wp-content/uploads/asset-recycling-rebuild-america-infrastructure.pdf.
37 Robert J. Poole, Should Governments Lease Their Toll Roads?, Reason Foundation, August 2020, at
https://reason.org/wp-content/uploads/should-governments-lease-their-toll-roads.pdf.
38 Jean Edwards, “Port of Melbourne lease sold to Lonsdale consortium for $9.7 billion by Andrews Government,”
ABC News, September 19, 2016, at http://www.abc.net.au/news/2016-09-19/port-of-melbourne-sold-to-lonsdale-
consortium/7857328.
39 Parliament of Australia, Privatisation of State and Territory Assets and New Infrastructure, Senate Standing
Committees on Economics, March 19, 2015, at http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/
Economics/Privatisation_2014/Report.
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expectation would be that a significant number of projects would be implemented with a P3.40
Canada had program like this with incentives provided by the P3 Canada Fund from 2009
through 2017.41
Infrastructure Banks
A national infrastructure bank could be designed to promote development of P3s. The central idea
of a national infrastructure bank, or “I-bank,” would be to provide low-cost, long-term loans on
flexible terms, much like the TIFIA program.42 However, an I-bank might have more
independence than TIFIA, which is controlled by DOT, and as a separate organization might be
able to build up a specialized staff, including expertise on the creation and oversight of P3s.
Funding could come from an appropriation to pay for administrative costs and the subsidy cost of
credit assistance, although in some formulations an I-bank would raise its own capital through
bond issuance.
Many different formulations of an I-bank have been proposed over the past few years. Four I-
bank proposals introduced in the 116th Congress were the National Infrastructure Development
Bank Act of 2019 (H.R. 658, Representative DeLauro); the National Infrastructure Investment
Corporation Act of 2019 (H.R. 4780, Representative Carbajal); the National Infrastructure Bank
Act of 2020 (H.R. 6422, Representative Danny Davis); and the Reinventing Economic
Partnerships and Infrastructure Redevelopment (REPAIR) Act (S. 1535, Senator Warner).43
A related idea is the formation of a federal financing fund, most likely in the Department of the
Treasury, which could administer all federal credit programs. This would improve consistency
and use of best practices across infrastructure sectors, and would avoid the conflict of interest
within federal agencies of promoting projects and providing credit.44
An alternative to creating a national infrastructure bank could be enhancing state infrastructure
banks that already exist in many states. Although they tend to provide credit assistance to small
projects that do not involve a P3, an expansion of their role may make them more supportive of
projects involving a private partner. One of the biggest stumbling blocks to federally authorized
SIBs has been capitalization. This is because federal grant funds that could be used to capitalize a
SIB have typically been committed elsewhere. A FAST Act provision provides authority for a
TIFIA loan to a SIB, but to date none have been made. Other ideas that have been proposed but
not enacted include dedicating federal funds to SIBs (H.R. 7, 112th Congress) and authorizing
SIBs to issue a type of tax credit bond (H.R. 2534; S. 1250, 113th Congress).
Equity Investment Tax Credits
To encourage the development of P3s, the federal government could provide a tax credit for
equity investment in infrastructure projects. Such a proposal in the 116th Congress was the Move

40 Public Works Financing, Performance Incentive Innovation (PII) Grants, April 2017, p. 15.
41 Government of Canada, Infrastructure Canada, “P3 Canada Fund,” at https://www.infrastructure.gc.ca/prog/
programs-infc-summary-eng.html#p3; Government of Canada, Infrastructure Canada, “P3 Canada Fund Projects,” at
https://www.infrastructure.gc.ca/prog/fond-p3-canada-fund-eng.html.
42 For more information, see CRS Report R43308, Infrastructure Finance and Debt to Support Surface Transportation
Investment, by William J. Mallett and Grant A. Driessen.
43 CRS In Focus IF11608, National Infrastructure Bank: Proposals in the 116th Congress, by William J. Mallett.
44 Performance Infrastructure Review Committee, “Budget Friendly Tools to Boost Infrastructure Finance,” Public
Works Financing, April 2017, p. 18.
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America Act of 2019 (S. 146; H.R. 1508), introduced by Senators Hoeven and Wyden and
Representative Blumenauer. The act proposed to provide for 10 years a 10% tax credit on
investment in a qualified project or 5% in a qualified infrastructure fund. Qualified funds would
have included state infrastructure banks and water pollution and drinking water revolving loan
funds. An investment in a fund or a project eligible for the tax credit could have taken the form of
equity, a loan, or a loan guarantee. A criticism of equity investment tax credits is that they could
be a windfall for equity investors and would not produce any new infrastructure investment.
However, others argue that a well-designed tax credit for investors “should generate incremental
tax-oriented equity augmenting (not displacing) the level of financial equity justified by project
cash flows.”45
Private Activity Bonds
Private activity bonds (PABs) provide P3 projects access to municipal bond market rates available
to government project sponsors. Under current law, the use of tax-exempt, qualified PABs for
transportation projects is limited to a fixed $15 billion for the life of the program. The Secretary
of Transportation has the authority to allocate amounts of PAB issuance to qualified projects. As
of December 1, 2020, about $13.3 billion of the $15 billion had been allocated to projects and
issued, and another $1.7 billion had been allocated but not yet issued.46 Several proposals have
sought to raise the cap. For example, the REPAIR Act (S. 1535, 116th Congress) introduced by
Senator Warner proposed to increase the cap from $15 billion to $16 billion. Another proposal is
to standardize the tax rules for different types of projects and to uncap the volume.47 A more
limited proposal, part of the Move America Act of 2019, called for the establishment of a new
type of PAB known as Move America Bonds. These bonds would have had some features to
encourage P3s.
Changes to TIFIA Program
Another option for Congress is to increase direct funding for or otherwise adjust the TIFIA
program. The FAST Act cut direct funding to the TIFIA program, while allowing states to trade
formula grant funding for a larger loan. At the moment states do not have to make that trade
because the TIFIA program is not in danger of running out of budget authority. In October 2019,
unobligated budget authority in the TIFIA program amounted to about $1.9 billion. If the TIFIA
program does exhaust its direct funding in the future, an unanswered question is whether states
will voluntarily choose to use grant funding to pay the subsidy and administrative costs of a loan.
Streamlining the application process to speed up approvals is another possible option for
improving the use of TIFIA financing in P3 projects.48

45 David Seltzer and Bryan Grote, “A Policy Wonk’s Guide to Recent Tax Credit Proposals,” Public Works Financing,
November 2016, pp. 15-16.
46 Department of Transportation, Build America Bureau, “Private Activity Bonds,” at https://www.transportation.gov/
buildamerica/financing/private-activity-bonds-pabs/private-activity-bonds.
47 Performance Infrastructure Review Committee (PIRC), “PIRC’s Recommended Financing Tools,” Public Works
Financing, April 2017, p. 4.
48 Testimony of Jennifer Aument, Group General Manager, North America Transurban, U.S. Congress, Senate
Committee on Environment and Public Works, The Use of TIFIA and Innovative Financing in Improving Infrastructure
to Enhance Safety, Mobility, and Economic Opportunity, 115th Cong., 1st sess., July 12, 2017.
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P3s and Interstate Highway Tolls
User fees such as vehicle tolls provide a revenue stream to retire bonds issued to finance a project
and to provide a return on investment. Many parts of the Interstate Highway System, those in
urban areas and some in rural areas, have traffic levels that would make it financially viable to
have toll-supported P3s.49 The need for reconstructing Interstates is likely to accelerate in the
years ahead, as many reach their approximately 50-year design life. Many of these projects are
likely to be very expensive “mega-projects,” running into the hundreds of millions of dollars.
Although imposing tolls on “free” roads is likely to be unpopular, Congress could allow states to
impose tolls on an Interstate after its reconstruction as a way to facilitate P3 involvement in
financing such projects.

Author Information

William J. Mallett

Specialist in Transportation Policy

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material.

49 For more on this issue, see CRS Report R42402, Tolling of Interstate Highways: Issues in Brief, by Robert S. Kirk
(available to congressional clients upon request).
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R45010 · VERSION 8 · UPDATED
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