Knowledge Resources

An increasingly common approach for state Departments of Transportation that are faced with budgetary shortfalls is to award contracts to the private sector for the provision of transportation services. Public-private partnerships may serve the public but it is important that incentives for the private sector do not limit the ability of the responsible public agency to address changing traffic conditions. This issue is particularly relevant for long-term contracts because traffic conditions change over time. The experience in the State of California, which had awarded a service contract to a corporation for the operation of the value-priced express lanes on State Route 91 (SR 91), provides a set of key lessons learned for privatization projects, as follows:

• Ensure that the contractual arrangement preserves the ability of the state DOT to expand upon, improve or build transportation facilities that may be perceived as competing with the privatized toll roads. The contract between Caltrans and the company that managed the express toll lanes on SR 91 restricted the ability of Caltrans to build or improve competing transportation facilities. This restriction became increasingly detrimental to the public interest as congestion levels built up over the course of the contract. Because conditions will change, it is important that non-compete clauses or clauses requiring the public agency to pay “just compensation” for a competing facility do not restrict the public agency’s ability to improve the transportation network to meet increasing or changing demand.
• Provide transparency during the decision-making process to privatize and include public vetting of the private sector proposals. The public image of the company operating the SR 91 express toll lanes was negatively affected by the perception that the company raised tolls unjustifiably and held a monopoly over transportation projects. Over time, public approval decreased significantly as more and more reports emerged alleging the firm did not properly disclose performance and financial information. To address public concern over fairness, the contractual agreement should strive to balance the right of the public to have access to financial information while also protecting company interests in proprietary information.
• Require that private-public partnerships adhere to state-of-the-art safety standards on toll roads. The contractual arrangement must require that the private sector entity adhere to the highest safety standards for toll lane operations. Over the course of the SR 91 project, reports emerged alleging that the safety of the toll lanes had been compromised for the sake of profit. An evaluation study revealed that these allegations harmed the initially high level of public approval for the facility, demonstrating that private operators must strive to live up to the public’s expectation for traffic safety and meet the highest safety standards.

Caltran’s experience in privatizing the SR 91 express toll lanes provides an important lesson for agencies considering their own privatization projects. It is important to note that the SR 91 project reduced congestion and more and more motorists demonstrated a willingness to use the toll lanes. However, the project created longer term problems that are partly attributed to the contractual agreement between the public and private partners. This experience demonstrates that public agencies entering into public-private partnerships should protect the public’s interest by retaining the ability to improve or build competing facilities, practicing full disclosure of financials, and ensuring that the managing firm prioritize safety concerns over profit considerations. These steps support the nation's mobility and safety goals on toll lanes.