Considerations ranging from the unpopularity of toll roads to changes in political leadership are known challenges to reaching financial close, but the growing polarization of the US electorate and within the country’s political parties has the potential to negatively impact decisions on transportation infrastructure to a degree not previously seen.
A case-in-point is the $2.1bn P3 for the new Calcasieu River Bridge in Lake Charles, Louisiana.
The P3 initiative for the bridge replacement began nearly three years ago with the support of the state’s then-Governor, Democrat John Bel Edwards, and under the guidance of Dr Shawn Wilson, the Secretary of the Louisiana Department of Transportation Development (LaDOTD) and a widely respected advocate of the P3 model. Per Louisiana’s P3 statutes, the House and Senate Transportation Committees must approve pursuing the project as a P3, and the Republican-controlled legislature granted their consent in 2020.
Fast forward to 2023. The term-limited governor is in the final days of his administration. Wilson, who ran as a Democratic candidate for governor, was defeated on October 14, by Republican Attorney General Jeff Landry. The governor-elect and the Republican-controlled legislature are loathe to hand Edwards a win on a signature project, especially after a contentious legislative session led to some members’ personal projects being removed from the state budget in retaliation for certain votes.
And so, in a worst-case scenario for the Calcasieu Bridge P3, the state transportation committees were required on October 24, 2023, to vote to approve that LaDOTD execute the contract with Calcasieu Bridge Partners (CBP).
Current LaDOTD Secretary Eric Kalivoda sent a letter to the chairs of the committees ahead of the vote, imploring them to grant the department authorization to proceed. He noted that the failure of the legislature to grant DOTD authority to enter into this P3 for the replacement of the bridge would necessitate a major repair to keep the 70-year-old structure in service. He also noted that $250m in federal discretionary grants could be at risk should the project be canceled.
Nonethless, the vote went against the project, and the deal is now in limbo with no real prospect of it getting signed.
One member of the House Transportation Committee implied to P3 Bulletin that they would not vote for anything which had “Governor Edwards’ fingerprints” on it. The lawmaker expressed concerns about tolling an interstate highway and was not happy about their constituents footing the bill for this project while the rest of the state drove on the interstate without charge.
However, pure politics is also at play here: the representative also added that if Governor Landry supported the project, they would vote for it.
In speaking with other members of the Louisiana legislature, there seems to be a general acceptance that some type of P3 will likely be necessary to get this and other mega infrastructure projects built in the future. This sentiment was also reflected during a recent gubernatorial debate where six of the seven leading candidates expressed their support for toll roads, including Landry.
In a presentation to a Joint Transportation Committee meeting in August, Kalivoda had stated that consultants estimated the private partner, Calcasieu Bridge Partners (CBP), had incurred design and engineering costs in excess of $10m in the preparation of their proposal response. He also noted they would be paid a $2.75m stipend if the contract was not approved. At that time, he cautioned the committee that if they did not advance the P3 plan, the Calcasieu Bridge project would be deferred indefinitely and that the P3 market would likely not return to Louisiana for a number of years.
Dr Jonathan Gifford, the director of the Center for Transportation Public-Private Partnership Policy at George Mason University, echoes the secretary’s observations: “These are global companies with global capital. These proposals are costly. There are strengths in the American market, but political risk is definitely a liability. Cancellations are expensive. It harms the reputation of the state and lessens its competitive appeal for future projects. If a state’s intention is to have a pipeline of projects going forward, it will have to demonstrate buy-in and commitment from political stakeholders.”
The situation facing Louisiana is not unique, and many public authorities are increasingly wary and concerned about the high level atmosphere.
“As long as I’ve been in this transportation industry, political risk is the biggest risk,” one veteran public sector leader told P3 Bulletin. “These projects are big and it doesn't take much publicity to be a lightning rod - that might or might not play out, but in a heightened environment, there’s so much turbulence and storminess: if you have something that can draw attention, it’s a concern.
“There’s maybe more headwinds at this time because of the political division, a lot more animosity. You never know what target someone will attach that anger to,” the source adds. “These are risks you know are there but hard to address.”
From the private sector side, Transurban cited “a changing political landscape” as one of the factors that led to their high profile withdrawal from the Maryland Express Lane project.
Like Louisiana, Maryland went through a change in governor from Republican Larry Hogan, who originally proposed the project, to Democrat Wes Moore, who wanted to go in a different direction. While Transurban still sees opportunity in North America and the Greater Washington Area, the press release noted that “choosing not to continue with the project enables operating cash and corporate liquidity to be used for other purposes”.
These scenarios raise a number of questions for the US P3 market. Will extreme political divide that results in project cancellation cause the industry to blacklist certain states? Is this political uncertainty an acceptable cost of doing business and is it sustainable? Will the market abandon the large, mega projects in exchange for smaller opportunities or different sectors such as education and energy? Will governors advocate for P3 statutes that remove legislative oversight? Or, will the federal government take the leadership reins and begin to develop centralized P3 policies and guidelines like we see in the UK, UAE and Australia?
While the answers are not yet known, one thing is certain: for US P3s, political risk is becoming more expensive, more difficult to navigate and a threat to the country’s transportation infrastructure planning and future needs.