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Principles for Public Private Partnerships and California’s High-Speed Rail Project

For Immediate Release:

San Francisco, CA – A first-of-its-kind report released today outlines principles for utilizing public-private partnerships to build high-speed rail in California. The research report released by CALPIRG examines the experience with public-private partnerships for high-speed rail in other countries and the U.S. In addition to outlining the promise and pitfalls, the report recommends ten principles to protect taxpayers and the public interest under private financing deals.

The report comes at a time when California is preparing to start laying the first tracks for high-speed rail in 2012, and Congress and state officials are debating future funding. Meanwhile, the U.S. House Transportation and Infrastructure chair has proposed privatizing Amtrak with the hope of garnering private financing for new bullet trains along the Northeast.

“The report shows that private financing can be a supplement but not a substitute for public commitments to support high-speed rail,” said Emily Rusch, State Director for CALPIRG. “In other nations the majority of support comes from the public sector. The rail companies overseas often have public ownership and the public on their board like a public utility or Amtrak.”

The report cautions that public-private partnerships in other countries have often run into trouble when they do not employ the recommended principles. When private financing has been used as a short-cut around public funding, taxpayers often end up paying dearly. Partnerships must have the highest levels of transparency, clear rules of accountability, and strong public capacity for monitoring and enforcing agreements, says the report.

President Obama has put forth the goal of linking 80 percent of the U.S. population via high-speed rail by 2035. Compared to the United States, other industrialized nations around the globe tend to be far ahead of the United States in developing high-speed rail and invest a far greater portion of Gross Domestic Product on infrastructure.

“While many in Congress and Sacramento are having trouble finding money to invest in high-speed rail, they need to consider the costs of not moving forward,” said Rusch. “Without high-speed rail, we will be more dependent on oil and will pay dearly to build more airport runways and ever-wider highways.”

The principles that should guide California’s approach to PPPs are:

1) Governments must only pursue PPPs for the “right” reasons, such as the ability to deliver a public project for lower price or with higher quality—rather than use PPPs to avoid budgetary discipline or compliance with labor standards or other regulations governing public projects.

2) PPPs must deliver added value for the taxpayer, as measured by a comprehensive test that includes all the relevant costs of a high-speed rail project.

3) PPPs must align private sector incentives with public sector goals, ensuring that private sector partners experience penalties and rewards that forward the public’s interest in timely and cost-effective completion of the project and effective and safe operation.

4) PPPs must only be pursued where ample competition exists for the service being put out for bid.

5) PPPs must only be pursued by competent, well-prepared governments with the ability to defend the public interest in contract negotiations and to properly monitor and enforce contracts as they are carried out. In California, that means the California High-Speed Rail Authority will need more dedicated staffing as more contracts are signed.

6) There must be clear public accountability in PPP projects, with one government agency responsible for overseeing the project and holding contractors accountable for their performance. In California, the California High-Speed Rail Authority is set up to be the responsible agency, and their public accountability should flow directly up to the governor’s office.

7) The public must retain control over key transportation-system decisions, ensuring that high-speed rail lines are built and operated in ways that are consistent with the public interest rather than the maximization of private profit.

8) PPP projects must not impose unreasonable limitations on future government action, such as the “non-compete” clauses in some toll road leases that forbid government from improving other nearby transportation facilities.

9) PPP contracts should be of reasonable length, with contracts for the operation and maintenance of long lasting infrastructure being longer than contracts for trains, communications equipment and other items with faster turnover.

10) There must be complete transparency in the PPP contracting process and in the execution of PPP contracts. When there is a conflict between public right to be informed and private investors’ confidentiality rights, the former should prevail. In California, key public private partnership contracts with the High-Speed Rail Authority should be posted on the state’s website.

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The California Public Interest Research Group (CALPIRG) is a result-oriented public interest group that protects consumers, encourages a fair sustainable economy, and fosters responsive democratic governance.

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