As the state prepares to move forward with Nevada’s first public-private partnership in a highway improvement project, the risks and rewards of the venture must be measured against the risks and rewards of the status quo.
The work is critical to the region’s economic growth and quality of life. Project Neon will rebuild the busiest, most gridlock-prone stretch of road in Nevada. The reconfiguration and expansion of Interstate 15 between U.S. Highway 95 and Sahara Avenue will cost an estimated $1.2 billion to $1.5 billion and, if completed through traditional financing and construction protocols, take about 20 years to finish.
However, if state officials follow through on a plan to contract with a private partner on Project Neon, in which companies line up financing, handle construction and take over long-term maintenance, the work should be complete in five or six years. Additionally, allowing the state to pay about $34 million per year for 35 years to its partner to cover project costs, instead of selling 20-year bonds, will give transportation officials more financial flexibility and the ability to fund other needed projects simultaneously.
The risk of putting a private company in charge of all aspects of a highway project must be weighed against the risk to the economy of two more decades of snarled traffic, longer commutes and delayed commerce. The reward of reduced annual payments must be weighed against the reward of having the project paid off sooner.
As it is, the risk-reward table tilts heavily toward the public-private partnership. But the state can make the terms even more favorable to the public by constructing the deal to shift almost all of the risk to the companies it contracts with. The private partner builds the improved highway and maintains it for 35 years, and if it can’t meet its end of the deal, it doesn’t get paid. The trick is doing enough due diligence, in both selecting the private partner and writing the contract language, to make sure the public doesn’t take a bath. Other states have pulled it off. Just copy their model.
The Nevada Department of Transportation is wise to pursue this kind of arrangement, given its lack of road-building resources. Sticking with tradition means sidelining several important infrastructure projects for many years and prolonging the pain and inconvenience of Project Neon.
Officials can’t eliminate all the risk, but they can reduce it enough to make the arrangement more than worthwhile.