Rethinking P3 Concession Fees

In April I read Public Works Financing’s article on the groundbreaking for the long-awaited SR-400 Express Lanes project in the Atlanta metro area. It’s the largest surface transportation P3 thus far, with the largest-ever TIFIA loan ($3.89 billion), the largest-ever tax-exempt Private Activity Bond issuance ($3.32 billion), and the largest amount of equity in such a project ($3.36 billion). All this for 16 miles of barrier-separated express toll lanes. What’s not to like?

The article also reported the project’s Engineering, Procurement, and Construction (EPC) cost as $4.6 billion. I’m sure there are good reasons the financing was in excess of $12 billion, but that is not my concern here. What actually troubles me is an additional $3.8 billion “concession fee” that SR 400 Peach Partners paid to Georgia DOT. That sum has no relation to the financing of this record-setting P3 project. And it cannot possibly be a gift to GDOT. Consequently, the cost of making that payment to GDOT will eventually be paid by the customers paying tolls to travel in the new express toll lanes.

Doing a bit of further research, I found two additional instances of concession fees for P3 transportation projects. Another large one is the $1.5 billion fee paid to Virginia DOT in connection with the addition of express toll lanes to I-66 Outside the Beltway (OTB). The other is a proposed $200 million concession fee to Pennsylvania DOT as part of an unsolicited proposal for adding express toll lanes to a portion of highly congested I-76 (Schuylkill Expressway) in Pennsylvania. To the best of my knowledge, these are the first concession fees paid to state DOTs for greenfield projects.