Encouraging more public-private partnerships is reportedly one of Schwarzenegger's top goals. While we don't have any P3 transportation examples we can point to in Los Angeles, the 10-mile South Bay Expressway SR-125, which links south San Diego County with Mexico, can be used as a case study for future projects here because the majority of funds for the $800 million project came from an investment bank, the rest from a federal loan.
Like most P3s, private investors in the South Bay Expressway are sharing the risk by entering into a concession agreement with the state to finance, build and operate the toll road. In this case, the partnership lease runs for 35 years; 20 to 50-plus years is typical. The investors recover the original investment and earn a profit from tolls and user fees.
The real question is whether Californians who are unwilling to fund improvements through taxes are willing to pay tolls or other fees to private operators. Experience tells us that if there are transparent benefits for example, if the government's share of revenue from concession agreements is reinvested in state transportation projects and not diverted to other purposes or if toll payment were easy and convenient, they might.
An electronic collection system that enables motorists to be charged for tolls while driving at highway speeds is a key component of the South Bay Expressway. As one of the first public-private partnerships in California, it can be a case study for the rest of the state.
I've been involved in many facets of P3 projects for 15 years, which include four state routes that today make traffic bearable in Orange County. If not for these investments by P3s over the last 15 years, traffic during rush hour in O.C. could take an extra hour in the morning and evening for many commuters.
While they are not a panacea for Los Angeles' infrastructure problems, they can become an important part of the solution.
Michael Lucki heads Ernst & Young LLP's
construction/infrastructure practice in the Americas. He works in Los Angeles.
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