McKinsey Study Calls for Toolbox of Highway Funding Options

Fact-based, transparent project selection, streamlined delivery, maximizing existing infrastructure, ensuring effective governance, and a diverse funding and financing framework are the five best practices to emerge from a new survey of trends and best practices in the global road sector, conducted by McKinsey & Company and the International Road Federation.

Reading McKinsey’s summary of the project, you would almost think the two organizations had taken in IBTTA’s 2018 theme, Trust and Accountability, fed it into a survey engine, and reported back on the results.

The article touches on many of the key areas of infrastructure finance and administration where tolling agencies have been sharing success stories for years. And it explicitly calls for a toolbox of funding, finance and management options to clear a deep budgetary shortfall.

“Research shows that road-sector investment needs to be approximately $900 billion per year to keep pace with projected growth—currently, it falls short by $180 billion per year,” McKinsey states. And “experience shows that, to significantly and sustainably improve a country’s road network, the whole delivery system must be taken into consideration. It is not enough simply to increase funding.”

Follow the Evidence. Then Get It Done.

The first two items on McKinsey’s best practices list could have been ripped from the pages of several recent IBTTA conference programs.

“The key to improved project selection is to establish (and stick to) a rigorous, fact-based project evaluation, and a transparent process for establishing what can be done and in what order,” the article states. “Ensuring an outcome-focused approach to prioritization will bring the greatest benefits to citizens and businesses,” while “transparency in the process and on the criteria for prioritization also helps with stakeholder management.”

Once a project is designed, the report points to design-build contracts as one way to streamline delivery. “Their increased use can improve cooperation, align incentives, and enable stakeholders to better draw on each other’s strengths,” while effective negotiations “can help limit erroneous calculations, reduce overly wide discrepancies in risk estimates, and encourage improved use of alternative construction methods.”

Using Assets Wisely

Even more important to McKinsey than building new infrastructure the right way is to make the best use of existing roads. Tolling and congestion pricing both show up prominently in the overall picture.

While “the existing stock of roads will always be more important than network additions,” the summary states, “our diagnostic shows that many countries do not focus enough on this lever.” Here, again, a business-as-usual best practice for tolling agencies makes the page, with McKinsey recommending “a fact-based maintenance strategy to reduce road life cycle costs and ensure that assets are not allowed to deteriorate to a point where reconstruction costs start to rise sharply.”

The article adds that “pricing mechanisms such as congestion charges can improve road network utilization and lead to higher economic effectiveness, while environmental effects are often positive.”

McKinsey identifies project management expertise, cross-sector and multi-stakeholder collaboration, sound governance, and a mix of public and private funding as important cornerstones for effective infrastructure management. The article closes on the need for a toolbox of options to pay for a complex, varied surface transportation network.

“No one solution is right for all countries,” it states. But “toll stations, infrastructure bonds, real estate appreciation capture, congestion charges, public-private partnerships, build-operate-transfer, and other methodologies can be part of the toolbox and considered as a way of topping up available funds.”

Make sure your practice is the best practice! Register today to attend IBTTA’s Annual Meeting and Exhibition, October 14-16, 2018 in Baltimore, MD.