Public Works Management & Policy

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Toll Roads, Politics, and PublicPublic Partnerships: The Case of Texas State Highway 121 R. Paul Battaglio, Jr and Ghassan A. Khankarli Public Works Management Policy 2008; 13; 138 DOI: 10.1177/1087724X08323844 The online version of this article can be found at: http://pwm.sagepub.com/cgi/content/abstract/13/2/138

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Toll Roads, Politics, and Public–Public Partnerships

Public Works Management & Policy Volume 13 Number 2 October 2008 138-148 © 2008 SAGE Publications 10.1177/1087724X08323844 http://pwmp.sagepub.com hosted at http://online.sagepub.com

The Case of Texas State Highway 121 R. Paul Battaglio, Jr. Ghassan A. Khankarli University of Texas at Dallas Governments have increasingly relied on market mechanisms to improve the efficiency of public services. This is especially true when it comes to financing the nation’s transportation infrastructure system, where enabling legislation at the federal and state level has gradually placed greater reliance on the private sector through collaborative endeavors such as public–private partnerships (P3s). This article examines the process and structure of such collaborative endeavors in the case of the toll road along Texas State Highway (SH) 121. Initially, the state transportation agency entered into an agreement with a private consortium but later withdrew support for the agreement in favor of a public–public partnership (PPuP) with the local toll road authority. State and local politicians withdrew support for the private consortium as public sentiment waned. The article concludes that citizen input and state and local politics have a significant impact on the process and structure used for implementing public–private partnerships. Keywords: public–private partnership; network arrangements; collaborative public management; public–public partnership

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pproaches to reforming public management such as new public management (NPM), the National Performance Review (NPR), and other neo-managerialist efforts have vociferously advocated the use and adoption of market mechanisms in public service delivery. Champions of reform have admonished the public sector for its practices distinguished by monopoly, hierarchy, static structure, and management inflexibility in favor of private sector innovation (Savas, 2000, 2005). Privatization and public–private partnerships (P3s) are often touted as means for improving accountability and quality of service in the public sector (see Osborne, 2000; Peterson, 2000; Rosenau, 2000).1 While research has more often concentrated on the economic and financial outcomes of P3 efforts (Megginson, 2005; Savas, 2000; Sklar, 2000), there is an increasing appreciation for the politics surrounding the process (Agranoff & McGuire, 2001; Durant & Legge, 2002; Heilman & Johnson, 1992; Thompson & Elling, 2000). While supporters continue to extol the efficiencies and flexibilities P3s offer, recent scholarship suggests there are also potential problems concerning accountability and legitimacy (e.g., Agranoff & McGuire, 2001; Fung, 2006; Milward & Provan, 2000; Osborne, 2000; Page, 2004;

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Peterson, 2000; Pollitt & Bouckaert, 2005; Rosenau, 2000). The recent P3 effort in the State of Texas involving the tolling of state highway (SH) 121 suggests that politics can produce unforeseen consequences. Instead of opting for a private partner, calls for greater public accountability led to a public–public partnership (PPuP) with a public tolling authority. The analysis begins with a review of emerging literature on interorganizational networks. With this as a context, our goal is to draw conclusions from the SH 121 case which may provide insight toward managing the political environment of P3s. We then review both federal and Texas state transportation legislation that increasing calls for the use of innovative financing tools to foster P3s. For Texas, this transportation legislation was amended to further political agendas and encourage PPuPs. We argue that understanding the nature of the state’s eventual partnering with a PPuP is of critical importance given the implications Authors’ Note: Correspondence concerning this article should be addressed to R. Paul Battaglio, The University of Texas at Dallas, Public Affairs Program, School of Economic, Political, and Policy Sciences, P.O. Box 830688, WT17, Richardson, TX 75083-0688; e-mail: [email protected].

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for design, implementation, and even more important, accountability and legitimacy in the delivery of goods and services to the public sector.

Table 1 Summary of Dimenions and Characterisitcs Relevant to Network Arrangements Dimension

Unique Solutions to “Wicked Problems” Governments are increasingly looking for unique solutions to solve society’s more “wicked problems”— challenges which public agencies can no longer accomplish on their own (O’Toole, 1997, p. 46; see also Rittel & Webber, 1973). “Wicked problems” often include emerging policy challenges in transportation, the environment, and health and human services (see Koontz & Thomas, 2006; Milward & Provan, 2000; O’Toole, 1997). These unique solutions encompass several arrangements that often involve public, for-profit, and nonprofit organizations (e.g., P3s) that take the form of multiactor networked arrangements—networks—in place of single organizations (Agranoff & McGuire, 2001, p. 296). Understanding the reasons for the emergence of these networks in the public sector has increasingly taken on vital importance for the study and practice of public management (O’Toole, 1997, p. 46). This emergence is part of a greater shift in American society and embodies a radical change in the way we structure administrative functions to cope with the rise of wicked problems (Agranoff & McGuire, 1999, p. 19). Networks have assumed the role of traditional hierarchies in bureaucracy which have become outmoded as governments partner with various organizations to bring together resources and solutions to complex problems. Indeed, traditional hierarchies may prove detrimental to policy outcomes in the “multiorganizational, multigovernmental, and multisectoral forms of governing” in networks (Agranoff & McGuire, 2001, pp. 296-297; O’Toole, 1997, p. 47). Thus, public managers must be progressive in seeking “critical linkages” among potential network partners for the delivery of goods and services to the public while managing traditional government functions in their own respective agencies (Agranoff & McGuire, 1999, p. 19; Milward & Provan, 2000, p. 362). While measuring the effectiveness of these networked arrangements has proven problematic (Koontz & Thomas, 2006; Page, 2004), more promising research has focused on the emergence of network approaches to managing public policies (Agranoff & McGuire, 1999, 2001; Milward & Provan, 2000; O’Toole, 1997). Collaborative public management is a crucial component toward successfully navigating network arrangements, requiring unique skills from managers (Agranoff & McGuire, 2001).2 Table 1 captures some of the key dimensions

Resource munifisence

Stakeholder support

Management/Leadership

Clarity of mission Feedback

Relevant Characteristics Financial resources Human resources Technological resources Knowledge management Government oversight Key network actors: Politicians and public managers Contractors Citizens/customers Fostering trust Building cooperation/collaboration Communication and information exchange Continued recruitment Articulating vision Clarifying design of mission Empirical verification Customer satisfaction Political endorsement

public managers are concerned with as they undertake networked solutions to complex societal problems. Research suggests that generous resources are a strong contributor to success for networked arrangements (Milward & Provan, 2000, 2003; Provan & Milward, 1995). Such resources include not only financial appropriations but also adequate human resources, technological resources, and knowledge management (McGuire, 2006; Rainey & Steinbauer, 1999). Support from key stakeholders is yet another dimension for network arrangements (Fung, 2006; Koontz & Thomas, 2006; McGuire, 2006; Page, 2004). Stakeholders include not only politicians, public managers, and contractors but also citizens (Haque, 2001; McGuire, 2006; Vigoda, 2002). Mission clarity is a crucial component to articulating the vision and design of the undertaking to stakeholders (Kettl, 2006; Page, 2004). In addition, network managers are tasked with engendering the support of stakeholders through a variety of management and leadership tasks (Agranoff & McGuire, 2001; Haque, 2001; Koontz & Thomas, 2006; McGuire, 2006; O’Toole, 1997). This necessitates public managers mobilizing behavior to encourage commitment to joint undertakings and fostering support from both key players outside the collaborative effort (i.e., citizens) and those who are directly involved (McGuire, 2006, p. 37; see Innes & Booher, 1999). Public managers neglecting buyin from citizens risk endangering the success of collaborative endeavors such as P3s.

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“Even in network settings,” Agranoff and McGuire (2001, p. 321) assert, “structure follows strategy.” The emergence of networks as a result of political context and strategic changes in policy provides a context for the present case study (Agranoff & McGuire, 2001). In the Texas SH 121 case, network managers’ failure to adequately assess citizen input jeopardized the involvement of stakeholder support (e.g., Texas legislature, state and regional transportation committees, etc.). By not adequately synthesizing trust-building activities through communication, the network actors in the Texas SH 121 case underestimated public outrage over the bidding out of the toll road to a foreign contractor. The case demonstrates the necessity of stakeholder support in promoting productive and purposeful interaction (synthesizing) among all actors (McGuire, 2006, p. 37).

Innovations in Transportation Infrastructure Arrangements Formerly, government agencies financed, owned, and operated their infrastructure for purposes of sustaining economic growth and meeting public demand. However, population growth has placed a greater demand on government to look to the private sector for assistance in meeting transportation infrastructure needs. The result of this growth has been an imbalance in the supply of and demand for infrastructure which leaves government agencies scrambling for short-term and long-term solutions. From the fiscal side, governments employed taxexempt bonds for financing infrastructure development until the mid 1980s. Public agencies used general obligation bonds for public purposes whereas revenue bonds were used for both private and public purposes with repayment linked to revenue streams collected from imposed user fees (Watson & Vocino, 1990). The 1986 Tax Reform Act sought to reduce the increased misuse of tax-exempt bonds on controversial projects by severely restricting the terms of its use. The result was 41% of all bonds issued in 1984 were no longer eligible for issuance as tax-exempt bonds under the new law by 1991 (p. 429). Consequently, the act had the unintended effect of slowing the growth of P3s as it impacted capital-intensive projects where private sector participation is needed (Watson & Vocino, 1990). In an effort to reinvigorate public sector reliance on private innovations, National Performance Review reforms under the Clinton administration encouraged increased reliance on the private sector for production and provision of goods and services (Gore, 1996, p. 5). In the

case of transportation, public demand for improvements to transportation infrastructure in the United States has encouraged innovative network arrangements for meeting future needs (Brown, 2007; Leavitt & Morris, 2007; Sciara & Wachs, 2007). At the federal level, Congress’ passage of various transportation acts allowed for greater reliance on the private sector to finance highways and intermodal facilities (see Table 2). On October 6, 2004, the Federal Highway Administration (FHWA) initiated a new Special Experimental Project (SEP-15) regarding the development process for transportation projects (FHWA, 2008b, 2008c). The aim of SEP-15 is to improve efficiency, timely project delivery, management flexibility, and revenue streams (source). With SEP-15, FHWA sought to capitalize on the successes of private sector innovation through legislation such as the Transportation Equity Act for the 21st Century (TEA-21). Expanding on previous developments, SEP-15 specifies all aspects of project development including planning, financing, right-of-way acquisition, and environmental compliance. In addition, SEP-15 sought to address project financing options related to P3s while taking into consideration existing financial tools in place as a result of the Transportation Infrastructure Finance and Innovative Act (TIFIA) as well as tax-exempt bond financing. To this end, the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) laid the groundwork for greater private participation in infrastructure projects authorizing FHWA US$244.1 billion dollars in surface transportation funding through FY 2009 (FHWA, 2005). In turn, several states have followed the federal governments lead with similar legislation aimed at taking advantage of P3 arrangements. The state of Texas, in particular, has been singled out for its innovative practices (see Sciara & Wachs, 2007). Since 1920, Texas state transportation needs have been financed through a gas tax that is currently 38.4 cents per gallon, of which 18.4 cents is federal and 20 cents state (Texas Transportation Commission, 2004, p. 4). However, given increased traffic and the resulting wear and tear of the existing infrastructure system, the revenue streams from the tax system barely cover the cost to maintain it. Consequently, the state looked increasingly to alternatives to address this situation. Beginning with passage of Proposition 15 in 2001, Texas has relied on regional mobility authorities (RMAs) to meet the challenges of regional transportation infrastructure needs. RMAs serve as regional transportation authorities tasked with generating revenue, planning, and facilitating implementation of local transportation projects (Sciara & Wachs, 2007, p. 387). The broad authorities granted RMAs making

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Table 2 Summary of Federal Legislation Relevant to P3s Legislation

Relevant Components

Highway Act (1956) Surface Transportation and Uniform Relocation Assistance Act (1987) Intermodal Surface Transportation Efficiency Act (ISTEA; 1991) National Highway System Designation Act (1995) Transportation Equity Act for the 21st Century (TEA-21; 1998)

Transportation Infrastructure Finance and Innovation Act (TIFIA; 1998) Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU; 2005)

Method for dealing with State toll roads incorporated into the interstate highway system. Provided toll road pilot program in which nine states were given authority to develop and construct toll roads using up to 35% of federal aid funds. Section 1012 of the Act incorporated Section 129 of Title 23 for the purpose of providing state and local governments more flexibility in generating new capital for needed highway investment. Incorporated FHWA’s Test and Evaluation (TE-045) project recommendations dealing with innovative financing. • Created a pilot program allowing states to toll interstate highways for the purpose of reconstruction or rehabilitation. • Allowed leveraging federal funds via innovative financing under Title 23. • Allowed local transportation agencies to award design build contracts under regulations developed by FHWA. Provided federal credit assistance to major transportation investments of critical national importance • Created new category under Section 1143 of Title XI to exempt transportation facilities using private activity bonds. • Enhanced the authority to toll existing facilities to finance the construction of highways using P3s. • Allowed for greater flexibility in design build contracting by streamlining the process • Under TEA 21, TIFIA provided loans to public entities, whereas under this Act, P3s and other legal entities assuming a project may directly apply for TIFIA.

Source: Federal Highway Administration (FHWA), 2008a. NOTE: P3s = public–private partnerships.

them a novelty among traditional transportation infrastructure arrangements. State legislation has granted RMAs the authority to finance, acquire, design, construct, operate, maintain, or expand transportation projects (see Table 3, HB 3588). In addition, RMAs are authorized to take control of nontolled sections of state highways in an effort to convert them to tolled roads. Table 3 highlights elements of recent legislation since passage of Proposition 15. On June 22, 2003, Texas Governor Rick Perry signed HB 3588 in an effort to encourage and enhance P3s—referred to as Comprehensive Development Agreements (CDAs) in the legislation—for transportation infrastructure, specifically enabling RMA’s toward this end. This bill was further amended by the 79th legislative session (HB 2702) and went into effect on June 14, 2005. HB 3588 and 2702 enabled the Texas Department of Transportation (TxDOT) to use new innovative financing tools to enter into P3 agreements. However, beginning with SB 792, Texas officials have become more cautious in entering into P3s. Their experience with the bidding out of SH 121 led to a reversal in favor of a PPuP agreement with a local quasigovernmental agency—the local tolling authority as spelled out in SB 792. The SH 121 experience provides a unique opportunity to address the issue of whether or not politics and the policy instrument dictate the form of

networks that are created through innovative P3s. It is anticipated that examining how and why the Texas legislation resulted in the emergence of a PPuP that scholars and practitioners will garner a greater appreciation for network arrangements (Agranoff & McGuire, 2001, p. 322).

Public–Public Partnership (PPuP): The SH 121 Case While changes to infrastructure policies were being discussed at the federal level, congestion on Texas roadways was rising at a rapid pace. The state’s population increased by 22.8% between 1990 and 2000 from 16,986,510 to 20,859,435 and is estimated to have topped 22,913,569 in 2006 (North Central Texas Council of Governments [NCTCOG], 2001; US Census Bureau, 2006). At the same time, the number of vehicles grew by 61%, with road capacity only growing by 7.6% (Texas Transportation Commission, 2004, p. 14). The situation was particularly acute for the northeast region of the state encompassing the Dallas metropolitan area, particularly the suburban counties of Collin and Denton. Estimates suggest Collin and Denton Counties saw their population more than double between 1990 and 2007

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Table 3 Summary of Texas Legislation Relevant to P3s Legislation HB 3588, 78th Legislative Session, 2003

Relevant Components • • • • • • •

HB 2702, 79th Legislative Session, 2005 (Measures amend provisions in HB 3588)

• • • • • • • • • •

SB 792, 80th Legislative Session, 2007

• • • • • • • • •

Allows the creation of the Texas Trans Corridor that includes tolled and nontolled highways. Allowed Texas Department of Transportation (TxDOT) to utilize innovative financing including tolls, fees, bond proceeds, and state investment banks. Allowed TxDOT to enter into an agreement with private or public entities to construct or operate part of the Texas Trans Corridor. It allows the use of Comprehensive Development Agreements (CDAs) to achieve this purpose. Allowed the creation of regional mobility authorities (RMAs) with authority to issue revenue bonds and impose tolls and fees to generate revenues or by selling or leasing sections of a transportation project. Authorized the Texas Transportation Commission to issue bonds not to exceed US$3 billion. Authorized TxDOT to pay pass-through tolls to public or private entities as a reimbursement for constructing a tolled or nontolled facility. Allowed the Texas Transportation Commission, if approved by the local County Commission, to convert a nontolled highway into a tolled facility. Prohibits TxDOT from limiting access to a facility, requires TxDOT to preapprove a methodology for setting toll rates, and prevents TxDOT from agreeing to a noncompete clause. Imposes a 2-year moratorium on the construction and operation of commercial ancillary facilities except for SH 13-A and SH 130 in Travis or Williamson Counties. Requires RMAs to approve a methodology for setting toll rates. Authorizes TxDOT to double its level of short term borrowing. Authorizes private entities to reimburse TxDOT for development and construction of a highway project on a per-vehicle or vehicle-mile basis and increases financial flexibility to local entities. Authorizes TxDOT to transfer a toll project to a governmental entity that has the authority to operate a toll road. Prohibits TxDOT from converting a nontolled highway to a tolled highway unless it was designated so before September 1, 2005 or if the project expands capacity without eliminating existing nontolled lanes. Authorizes TxDOT to operate a nontolled highway as a tolled one if it had not been open to traffic before September 1, 2005 provided it is approved by the local commissioners’ court of each county or municipality. Authorizes the negotiation of CDAs based on apparent best value. Provides for a limited waiver of sovereign immunity to provide greater financial protection to a developer under CDAs. Authorizes the use of private activity bonds as enacted by the federal government. Authorizes the use of CDA payments for transportation and air quality projects in the region. Term of agreement can be extended up to 70 years Limits term of agreement to 50 years. Prohibits TxDOT from entering into new CDA agreements until August 2009, with the exception for certain exempted projects Requires rather than authorizes the use of CDA payments for transportation and air quality projects in the region. Establishes provisions for regional tolling entities to enter into agreements with TxDOT to construct and operate regional toll projects in the counties served by the regional tolling entities using CDAs which includes SH 121. Provides for oversight of CDAs by the attorney general, Legislative Budget Board, and state auditor. Increases the amount of bonds that the commission can raise from US$3 billion to US$6 billion.

Source: Texas Legislation Online, 2008a, 2008b, 2008c; Texas Transportation Commission, 2004. NOTE: P3s = public–private partnerships.

(NCTCOG, 2008). Rapid population changes coupled with economic growth led to a significant increase in traffic numbers. Unfortunately, most of the roadways in this region were neither designed nor planned to account for such growth in a short period of time which is the case for SH 121.

SH 121 is the main roadway for the northeast Dallas area, stretching 26 miles southwest to northeast across Denton, Dallas, and Collin Counties and is subdivided into five segments from Denton-Tap Road in Denton County to US 75 in Collin County. Segments one and two traverse through Denton and Collin Counties from

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Table 4 Texas State Highway (SH) 121 History Date 1999 January 2000 2003 and 2005 Early 2004 October 2004 November 2003-November 2004 January 2005 April 2005 July 2005 November 2005 April-May 2006 June-August 2006 February 2007 May 2007 June 2007 October 2007 February 2008

Key Events North Texas Tollway Authority (NTTA) solicited to bid on SH 121. NTTA’s initial feasibility studies show limited viability for toll. HB 3588 and HB 2702 allows gas tax supported projects that are constructed but not opened to traffic to be tolled. TxDOT conducts toll feasibility study indicating better viability. Texas Transportation Commission approves plan to toll SH 121. NTTA re-evaluates earlier decision and conducts further toll feasibility studies. Swedish firm Skanska submits unsolicited bid. Result of NTTA’s re-evaluation support strong toll feasibility. TxDOT short lists four private firms. NTTA/Collin County bid on SH 121; bid not accepted by the Regional Transportation Council in February 2006. Regional Transportation Council adopts policies for SH 121/CDA; TxDOT issues draft request for proposal. Board of directors authorizes NTTA to bid on 121. Texas Transportation Commission announces the selection of Spanish firm Cintra for the construction and operation of SH 121 toll road; decision later rescinded as a result of SB 792. NTTA submits bid on SH 121. Texas Transportation Commission votes to let NTTA construct SH 121. Agreement signed between TxDOT and NTTA; NTTA pays TxDOT US$3.3 billion upfront NTTA awarded US$168 million to construct segment three of SH 121.

Source: Hartzel, 2007; Lindenberger, 2007a, 2007b, 2007c, NTTA, 2007; Torbenson, 2007. NOTES: CDA = comprehensive development agreement; TxDOT = Texas department of transportation.

Denton Tap-Road to Hillcrest Road. Segment three extends from Hillcrest Road to Lake Forest Drive, and Segment four covers the section from Lake Forest Drive to east of US 75 that includes the interchange at US 75. Segment five covers the interchange at the Dallas North Tollway. The proposed reconstructed roadway consists of a three-lane frontage road in each direction in addition to six divided main lanes that can be expanded to eight lanes at a later date. The gas tax revenues funded the mainlanes and the frontage roads in segments one and two whereas only the frontage roads were funded and constructed for segment three. The current schedule calls for completion of construction activities of the mainlanes in segment two by April 2008 which leaves the mainlanes in Collin County as well as the interchanges at the Dallas North Tollway and US 75 not constructed. Given this reality, and considering the financial tools that are available, SH 121 generated a lot of interest from potential investors who saw an opportunity to enter into a P3 with TxDOT. Table 4 summarizes the key chronology of events. In 1999, the North Texas Tollway Authority (NTTA) was asked to bid on the Collin County portion of SH 121 (NTTA, 2007).3 Collin County, along with the several regional cities requested a feasibility study from NTTA for the tolling of the US 75 to Dallas North Tollway section of SH 121. In early 2000, NTTA’s initial toll feasibility

study indicated limited toll viability for the Collin County portion of the roadway, forestalling their involvement in the project. As a result, Denton County and the several regional cities opted for state loans to accelerate construction of SH 121 main lanes in Denton County through a state infrastructure bank loan from the TxDOT. The loan was approved by the Texas Transportation Commission dedicating state highway funds from gas tax dollars to construct Denton County main lanes.4 By May of 2003, new legislation (HB 3588 and HB 2702) authorized gas-tax supported roadways (constructed but not opened) to be opened as toll roads (NTTA, 2007). Consequently, the state transportation commission directed TxDOT to evaluate each added capacity project as a toll road (Texas Transportation Commission, 2003). TxDOT’s toll feasibility study indicated the viability of SH 121 for tolling, reversing the course set by NTTA’s conclusions in 2000. In October 2004, the state transportation commission approved plans to toll SH 121 from Lewisville to the Dallas North Tollway. The state commission’s plan also authorized the use of proceeds from any bonds issued based on the revenue stream of the main lanes of SH 121 in Denton County, then under construction, to finance a number of nearby state highway projects—a policy which would eventually arouse public ire. Over the course of the year,

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NTTA, North Central Texas Council of Governments, and TxDOT revaluated the potential for completing SH 121 through tolling. The new feasibility studies indicated the viability of SH 121 for tolling, resulting in TxDOT issuing a request for proposal (RFP) in 2005 for development of the state highway through the new CDA provisions of HB 3588 and HB 2702 (see Table 3). TxDOT’s request attracted interest from a number of international and national firms, including Spanish-based Cintra, Swedish-based Skanska BOT, Australian-based Macquarie, and Dallas Mobility Link. In addition, NTTA and Collin County, along with the several regional cities, developed a tolling proposal for submission to TxDOT guaranteeing annual payments of US$2.7 billion (US$515 million net present value) and potential variable payments of US$2.7 billion (US$517 million net present value; NTTA, 2007). However, the Regional Transportation Council rejected the Collin County/NTTA proposal.5 Through 2006, the Regional Transportation Council adopted a series of policies concerning the CDA procurement process for SH 121. Accordingly, TxDOT issued a draft request for detailed proposals for SH 121 to the short-listed firms which included a 75/25 split in funding (i.e., a 75% upfront payment and 25% over the life of the agreement; NTTA, 2007). Once again, NTTA expressed interest in the project, authorizing staff to develop a proposal for the Collin and Denton counties portion of SH 121 but later backtracks on the initiative. The state transportation commission subsequently rescinds all previously adopted orders authorizing or directing a CDA delivery on SH 121 in Tarrant and Johnson counties. However, by early 2007, the state commission changed course, announcing a tentative deal with Spanish firm Cintra for the private operation of the SH 121 as a toll road in exchange for paying TxDOT an upfront payment of US$2.1 billion in addition to an estimated US$700 million over the life of the contract (Hartzel, 2007). The upfront payment was expected to accelerate construction of badly needed regional projects to relieve bottlenecks and traffic congestion in the region. The deal also requested Cintra to complete the construction of segments three, four, and five valued at US$560 million in addition to an allowance of US$1.7 billion for the maintenance and operation of the 26-mile corridor (Hartzel, 2007). However, political opposition to the P3 was underestimated as the extent of Cintra’s involvement in transportation development in Texas provided fodder to politician’s eager to bring the SH 121 project back under state control (Batsell, 2007; Torbenson, 2007). As a result of the political fallout involving the Cintra deal, the state legislature quickly pressured policy

makers toward a deal with NTTA, culminating in passage of SB 792 (Batsell, 2007). In March of 2007, Senator John Carona, Chairman of the Texas Senate Committee on Transportation and Homeland Security, requested that NTTA provide feasibility studies regarding operation of SH 121. NTTA’s proposal demonstrated three scenarios based on rough traffic and revenue estimates and ranges in value to region from US$4.6 to US$7.3 billion (NTTA, 2007). Passage of SB 792 on June 11, 2007 placed a 2-year moratorium on the widespread use of CDAs, although exempting a few areas of Texas, including the north Texas area (Denton and Collin Counties). Moreover, SB 792 established favorable provisions for regional tolling entities to enter into agreements with TxDOT to construct and operate regional toll projects in the counties served by the regional tolling entities (Table 3). The regional tolling authority represented by the NTTA was allowed to submit a bid independent of the Cintra proposal. Both proposals were evaluated and on June 18, 2007, the Regional Transportation Commission decided that NTTA’s US$3.3 billion proposal offered the best value over Cintra’s offer of US$2.88 billion (Lindenberger, 2007c). The Texas Transportation Commission followed the regional commission’s decision voting to allow NTTA to construct SH 121 toll road with more than 200 lawmakers and local officials in attendance (Lindenberger, 2007b). Although many applauded the legislature’s commitment to public accountability, critics of the new deal with NTTA suggest the move may discourage future collaborative efforts with private firms (Torbenson, 2007). Private companies may be unwilling to become involved in P3s where the political stakes are high.

Discussion The global public management movement has advanced the devolution of policy through contracting out, intergovernmental grants, loans and loan guarantees, regulations, and collaborative public management or interorganizational network arrangements to state and local governments (e.g., P3s; Kettl, 2000, p. 492). Such endeavors have facilitated, often-times unwittingly, the “wiring” of civil society ever more directly into public programs (p. 492). Consequently, it has been suggested that new public management’s push to make government practices more businesslike has constituted an “aggressive” attack on the tradition of democratic accountability (Denhardt & Denhardt, 2000; Terry, 1998). Government’s involvement in closer alliances with third parties (both for-profit and nonprofit) through P3s has posed new

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accountability challenges (see Donahue, 1989; Moe, 1987). Such alliances have occasionally created misgivings among the public regarding the transparency of transactions, the use of public resources to benefit businesses, and the degree of government control over contractors, and hence overall accountability (Frederickson, 1997, p. 80; Haque, 2001, p. 71). The concern is that through such vested business dealings, the services in question have the potential to lose their “publicness” in terms of the scope and activity of services (Haque, 2001).6 Moreover, P3s may pose a threat to accountability because citizens may simply not be able to determine the responsible party for the particular service (government or its contractors), and thus firms who want to may be able to eschew accountability (Haque, 2001, p. 71; Peters, 1993, p. 383). Such may have been the case here, where threat of foreign ownership exacerbated Texas politicians’ and citizens’ fears of losing the “publicness” of SH 121, irreparably marring the appearance of accountability through third party arrangements. Citizens increasingly expect greater choices regarding services administered through less traditional government activities (see Goldsmith & Eggers, 2004, p. 34). While managerialist efforts claim to promote accountability through more responsiveness to customer (i.e., citizen) demands, in reality such endeavors have posed new accountability challenges by failing to elicit citizen input (Vigoda, 2002). Fostering citizen involvement and trust is an essential feature of effectiveness in government (Holzer & Callahan, 1998; see also Rainey & Steinbauer, 1999). This is true not only of government organizations but also of interorganizational network arrangements (Fung, 2006; Koontz & Thomas, 2006; McGuire, 2006; Page, 2004). Customer focus involves building partnerships not only with public and private organizations in the network arrangement but also with citizens (Holzer & Callahan, 1998; Rainey & Steinbauer, 1999). Citizens are thus “partners” in network arrangements, and as partners, these arrangements need their buy-in just as they need buy-in from other key partners (e.g., contractors, government agencies, public managers, politicians, etc.) to keep the network intact. In the case of SH 121, the Perry administration’s push for P3s to meet transportation needs underestimated the public’s reaction, and subsequently the Texas legislature, to partnerships involving foreign investment and operation of a public good. Collaborative public management in network settings requires unique skill from managers (Agranoff & McGuire, 2001). Returning to Table 1, the SH 121 case highlights the importance of support from key stakeholders (Fung, 2006; Koontz & Thomas, 2006; McGuire, 2006; Page, 2004). Politicians, public managers, contractors,

and citizens all must be willing partners in P3s (Haque, 2001; McGuire, 2006; Vigoda, 2002). Network managers must be particularly cognizant of engendering support from these stakeholders, using a variety of management and leadership tasks (Agranoff & McGuire, 2001; Haque, 2001; Koontz & Thomas, 2006; McGuire, 2006; O’Toole, 1997). This necessitates public managers mobilizing behavior to encourage commitment to joint undertakings and fostering support from both key players outside the collaborative effort (i.e., citizens) and those who are directly involved (McGuire, 2006, p. 37; see Innes & Booher, 1999). Public managers neglecting buy-in risk endangering the success of collaborative endeavors such as P3s. SH 121 network managers’ failure to adequately assess citizen input jeopardized the involvement of other key stakeholders (e.g., Texas legislature, state and regional transportation committees, etc.). Moreover, public managers must be involved in promoting productive and purposeful interaction (synthesizing) among all actors (McGuire, 2006, p. 37). Such synthesizing activities include facilitating relationships to build trust and promote communication. Perhaps also, greater mission clarity in the case of SH 121 may have gone a long way toward articulating the vision and design of the undertaking to stakeholders and alleviating any fears these partners may have had (Kettl, 2006; Page, 2004). The SH 121 case underscores the tension that exists in modern governance between being responsive to citizens as customers or clients on the one hand, and engendering the support of citizens as partners in collaborative efforts such as P3s (Vigoda, 2002). Fostering responsiveness and promoting collaboration with citizens is crucial toward building high performing network arrangements. However, the current case also demonstrates the potential for democratic institutions (e.g., public scrutiny, press freedom, entrenched political and administrative institutions, etc.) to serve as conduits for furthering public accountability (Haque, 2001). Interestingly, the initial decision to undertake a P3 with a foreign firm for the tolling of SH 121 was reversed by legislation and not by an administrative decision. The legislative change was prompted by the policy environment where citizen opposition was framed by views of double taxation and escalating charges and doubt about private sector motives and service delivery (Batsell & Lindenberger, 2007; Lindenberger, 2007a; Purefoy, 2007). As opposition to the toll road grew among a public concerned with foreign involvement in the undertaking and the negative perception of business motives, political and administrative institutions were forced into action to ameliorate the accountability gap by soliciting NTTA’s involvement according to the amended legislation (SB 792). The SH

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146 Public Works Management & Policy

121 scenario suggests that such traditional democratic systems are not as outmoded as some public management proponents would contend (see Haque, 2001, p. 76). Perhaps such PPuP arrangements with public authorities may offer an alternative course which takes advantage of private sector innovation while maintaining public accountability (Leavitt & Morris, 2004).

Conclusion The final outcome for Texas SH 121 is that the public sector is still providing and producing the service despite levying tolls. To coalign for the purpose of achieving a common goal, SH 121 collaborative partners had to rethink the original network structure to ingratiate a seething public. The resulting structure of the SH 121 case confirms the importance of maintaining the responsibility of the provision of the service in the public domain. While accountability and responsiveness remain worthwhile goals for collaborative efforts in maintaining transparency to the public, what happens when “wicked problems” force public administrators to turn again to the private sector to achieve public demands for goods and services? Will instances like the SH 121 case create a sense of trepidation among private capital markets to get involved in future P3 efforts? Will the transaction costs of partnering become too high for private sector firms to enter into collaborative endeavors?7 If network structures follow political strategies, what will the overall impact be on the governance of networks? Clearly, the SH 121 case serves as a reminder of the delicate balance among public–private collaborative efforts. Although the trend in recent years has been a move toward private capital markets to finance transportation needs (Orski, 2008), the SH 121 case may portend a shift away from P3s toward arrangements that foster accountability such as PPuPs. Returning to Table 1, the feedback dimension serves as a guide for advancing a research agenda. Research suggests that empirical verification, customer satisfaction, and political endorsement are critical for providing crucial feedback to collaborative partners in an effort to ensure network feasibility (see Haque, 2001; McGuire, 2006; Page, 2004). McGuire (2006) notes the dearth of empirical evidence verifying collaboration as a key ingredient toward network success.8 Without the empirical evidence to support the progress of network activities, the positives of P3s will be lost in the political maelstrom. Selling the success of P3s as a positive force in society to the public should matter. In so doing, assessing customer satisfaction and political buy-in become key components to engendering public

support. Client satisfaction has proven to be a significant contributor to overall network success (see Milward & Provan, 2003; Provan & Milward, 1995). The SH 121 case demonstrates customer satisfaction is entwined with political endorsement. As public sentiment turned against the original deal with Cintra, the Texas Legislature pressured state and regional transportation committees to amend their endorsement of P3s, favoring instead the resulting PPuP. Although the present research represents one case, the lessons drawn provide many avenues for future research on the contribution public sentiment and political endorsement make toward network effectiveness. Future research into the activities of P3s, PPuPs, and other collaborative efforts may draw from these lessons a research agenda for public management. A systematic and sustained effort aimed at assessing the impact of public input and politics will facilitate the dearth of empirical evidence associated with collaborative efforts. The future of collaborative endeavors may rest on fully understanding governance and network structures as future public managers wrestle with wicked problems.

Notes 1. Privatization often involves a number of political, cultural, and technical issues unique to particular countries which may complicate the privatization process (Durant & Legge, 2001; Durant, Legge, & Moussios, 1998). We admit that this article does not capture all the complexities and nuances of privatization. For instance, the distribution between “public” and “private” is not always clear-cut for most services affiliated with government or the private sector. Also, privatization can assume many forms to include financing, customer services, and management/operations. In fact, some suggest that the term “privatization” simplifies the complexity of multiactor arrangements for the delivery of infrastructure needs (see Leavitt & Morris, 2007). To maintain consistency, we will refer to public–private partnerships (P3s) throughout the text as a generic term for such arrangements. 2. While some may dispute the collaborative nature of private sector involvement in such endeavors, collaboration is a necessary formality for ensuring success in such network arrangements, regardless of the profit motives of private sector enterprises. Research (see PAR special issue 66[6]) has increasingly underscored the importance of cooperation and collaboration in solving society’s more complex policy problems. 3. The North Texas Tollway Authority (NTTA) is the public entity that builds and manages toll roads in Dallas, Denton, Collin, and Tarrant counties. The North Texas Tollway Authority board of directors is appointed by the counties in the service area and the Texas Governor (Batsell & Lindenberger, 2007). 4. The Texas Transportation Commission is the policy-setting board for the Transportation Department (TxDOT). Made up of five members appointed by the governor, it has final say on major transportation decisions, including the awarding of the SH 121 toll contract. TxDOT builds most of the major roads in Texas, carrying out the policies set by the state transportation commission (Batsell & Lindenberger, 2007).

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Battaglio, Khankarli / Public–Public Partnerships 147 5. The Regional Transportation Council is the transportation policy board for the North Central Texas Council of Governments, representing cities and counties in the northeast Texas area (Batsell & Lindenberger, 2007). 6. Haque (2001, pp. 66-67) determines the “publicness” of goods and services along five dimensions: (a) the degree to which one can distinguish aspects of the service as either public or private (the public–private distinction); (b) the composition of service recipients; (c) the nature of the role the service plays in society; (d) the extent of public accountability; and (e) public trust regarding credibility, leadership, and responsiveness of public service to citizens. 7. Transaction costs are those associated with contractual arrangements and the production process, costs that typically exceed production costs such as labor, capital, and land (Meier & Krause, 2005, pp. 10-11). Transaction cost theory is intertwined with the activities of individuals and institutions involved in the contract process. This includes both before and after the contract is finalized, costs associated with information gathering and the performance of tasks (pp. 10-11). Examples include the costs associated with negotiating, bargaining, monitoring performance, and correcting nonperformance. For a rich discussion of transaction cost theory, see Williamson (1985). 8. There is an emerging literature which addresses the positive role management plays in stabilizing the external environments of public organizations (see Agranoff & McGuire, 2001; Meier & O’Toole, 2003; O’Toole & Meier, 1999).

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