State of Private Financing in Development of Highway Projects in the United States

Abstract

The U.S. Department of Transportation and state DOTs across the nation seek private investments to leverage their shrinking financial resources and fulfill their growing funding shortfalls. The decision to involve the private sector in financing highway projects varies from state to state in several aspects. State DOTs pursue a wide range of objectives when they utilize private financing for highway projects. State DOTs utilize different procurement methods for project financing and use different approaches to evaluate financial qualifications and proposals. State DOTs face different kinds of financial, political, legal, management, and organizational issues affecting their abilities to attract private investments in highway projects. Various strategies have been utilized by state DOTs to facilitate adoption of private financing in their highway projects. Considering variations in current practices of private financing among state DOTs, there is a need for a study to enhance the state of knowledge about current practices of private financing among different state DOTs. The major objective of this study is to capture the underpinnings of private financing as utilized by state DOTs in development of highway projects. A national survey was developed and sent to transportation officials in 50 state DOTs. Results of this survey were examined and analyzed in detail. The results of the survey indicate that only some state DOTs have established mature private financing programs, and private financing will remain a viable alternative for highway project development in these state DOTs. It was found out that state DOTs typically think of private financing more as an instrument to bridge their funding gaps and financing shortfalls and less as an innovative solution to gain life cycle cost efficiencies, encourage competition, and transfer critical project risks to the private sector. Stringent organizational policies and inefficient project development processes were found to be among the major concerns of state DOTs in effective utilization of private financing. Statutory limitations and inefficient frameworks for project financing and procurement method in the public sector were recognized as major barriers for private sector involvement in financing highway projects. Legislative flexibility for engaging private financing and commitment of key project stakeholders and top state officials were identified as critical factors that significantly enhance the adoption of private financing in highway project development.