P3: OPPORTUNITIES FORAMERICA’SINFRASTRUCTUREGreg Hummel

Public Private Partnerships (“P3”)

Broadly refers to a variety of transactions in which a public orquasi-public entity shifts some degree of control andresponsibility for development and operation of a facility or apiece of infrastructure to be used by the public, or forgovernmental or other institutional purposes, to a privateentity

Types of P3 Projects

1. Private Contract-Fee Services

2. Design Build

3. Build Operate Transfer and Build Transfer Operate

4. Long-Term Lease Agreement

5. Design Build Finance Operate

6. Build Own Operate

P3 Funding and Financing

• User Fees - payments associated with the actual use of theinfrastructure by the public• E.g. tolls

• Availability Payments - payments made for the supply orprovision of the infrastructure and not the degree of its use• Most flexible

• Lease payments, registration fees, bonds and other forms ofdebt, public sector grants, and equity investments

Benefits of P3

1. Projects are more likely to be completed on time and withinbudget

2. Risk and cost of maintenance and repairs shifted to theprivate partner

• Ensures high level of maintenance

3. Construction cost savings and reduced life-cycle costs dueto ongoing operation and maintenance

4. Cost-spreading over course of life

5. Provides positive and consistent customer experience

6. Allows public entity to focus on outcomes than the meansby which those outcomes are achieved

P3 Challenges in the US

• Slow to be adopted

• Challenges• Federal and 50 different state statutory schemes

• Conventional procurement laws based on “design, bid, build” scheme

• No pipeline

• Competing demands for capital

• Lack of coordination

• Lack of enabling frameworks

• Inadequate infrastructure strategy/planning

• History/Reputation

Global Success

• Despite challenges to adoption in the US, P3s have beenwidely used around the world

• Utilized in Europe, Canada, Asia, Australia, and Africa

Global Success: Australia Asset Recycling

Global Success: Infrastructure Ontario

• “Full service” delivery vehicle• Advisory services, project management, financing

• Alternative Financing and Procurement model• Private sector financing and expertise

• Public sector control

Global Success: Infrastructure Ontario

Key Elements of Successful P3s

• Strong Enabling Legislation• Public-Private Transportation Act (VA)

• Public-Private Education Facilities and Infrastructure Act (VA)

• Organized Structure• Development of internal expertise

• Developed policies and procedures

• Streamlined project selection

• Detailed Planning• Fosters pipeline of future projects

• Guaranteed Revenue Streams• User fees, tolls, availability payments, special taxing districts

Keys to Success: Virginia P3

• Public-Private Transportation Act of 1995 (“PPTA”)• Main means for the construction of new, large transportation projects

in the Commonwealth

• Implementation Manual and Guidelines provides detail as to theprocess of approving transportation P3s, including Key Action Itemsand associated time requirements

• Flexible, including in the means of financing P3 projects

• Value-for-money analysis used to determine whether a project providesmore benefits to its users and to the Commonwealth when deliveredthrough the P3 delivery process than when delivered through analternative method

• Transparent and predictable – 30 day public comment period

Keys to Success: Virginia P3

• Public-Private Education Facilities and Infrastructure Act of2002 (“PPEA”)• Establishes the means to use P3s for infrastructure, education

projects, and public facilities of all types

• Guidelines and Procedures for the PPEA instruct the state and localinstitutions in adopting projects -- P3 projects are appropriate underthe PPEA “where private involvement may provide the project in a moretimely or cost-effective fashion [and] lead to productivity or efficiencyimprovements in the public entities’ processes or delivery of services.”

• Project is checked for “compatibility with the appropriate local orregional comprehensive or development plans”

Successful P3 Projects in the US

• Virginia I-495 Expressway Expansion

• PortMiami Tunnel

• Long Beach Court House

• Eagle Project (Denver)

• KentuckyWired

Virginia I-495 Expressway Expansion

• Cost less thanVirginia’s estimateand displaced fewerresidents due to itsinnovative design

• Four new lanes, twoin each direction,along 14-mile stretchof the Capital Beltway

• Electronic/dynamictolls

• Consolidatedavailability payment

PortMiami Tunnel

• Prior to construction of thetunnel, approximately 16,000vehicles travelled to and fromthe seaport daily throughdowntown Miami, causingsevere traffic congestion andindirectly threatening theseaport’s economic position

• One concessionaire• Payments contingent on

construction, availability, andquality

• Public stakeholder: obligatedto pay $670 million

PortMiami Tunnel

George Deukmejian Courthouse - LongBeach, CA

• Replaced old courthouselabeled “one of the worstbuildings in the state”

• First major civic building in theU.S. to be delivered through P3

• Represented the Californiajudiciary’s first “Performance-Based Infrastructure”project

• State paid nothing untilbuilding occupied, and will payan annual fee of $50 millionthereafter for 35 years• Fee adjusted based on

performance and upkeep

• Additional courtrooms leasedto LA County – revenue stream

George Deukmejian Courthouse Success

• Completed on timeand below budget

• Engagement andoversight from thestate’s AdministrativeOffice of the Courts

• Projected that thestate saved $26million throughPerformance BasedInfrastructure

Denver’s Eagle Project• Commuter line between downtown and the airport opened April 22, 2016

• Project was procured by the Denver Regional Transportation District (“RTD”)as a 34-year design-build-finance-operate-maintain concession contract

• RTD to make monthly availability payments to Denver Transit Partners, LLC (privateconcessionaire)

• RTD retains ownerships, sets fares and fare policies

• Supported by local sales taxes and federal funding grant

KentuckyWired• Private financing to provide broadband fiber cable connectively to

every county

• Private entity will build, finance, operate and maintain the network,and the Commonwealth will oversee the broadband lines• Internet providers will lease lines to complete connections to homes

• Will connect 1,100 government facilities and allow for higher internetspeeds to homes and businesses

Mixed Results

• Chicago parking meters

• Chicago Skyway

• Indiana Toll Road

Chicago Parking• Parking Meters

• 75-year concessionagreement for control ofcity’s 36,000 parkingmeters for $1 billion• Revenue to fund Chicago’s

immediate needs• Later determined that the

city undervalued byapproximately $974million

• Failed to account for risingrates and costs

• Millennium Garage• 99 year concession

agreement for $563million

Chicago Skyway• 7.8 mile toll road connecting the Indiana Toll Road with the Dan Ryan

Expressway, leading into the Loop• Existing toll road leased to private concessionaire – first time in the US an

existing toll road was privatized• 99-year lease

• City retains ownership and received $1.8 billion upfront• Concessionaire has right to operate and receive revenues• Concession sold lease in 2015 for $2.8 billion

Indiana Toll Road

• 175 mile toll road acrossnorthern Indiana

• Owned by the State, butleased to concessionairefor 75 years – $3.8 billionupfront payment• Concessionaire filed for

bankruptcy 8 years intolease

Jury’s Out

• Maryland Purple Line

• Florida’s I-4 Ultimate Improvement Project

• Trump’s Infrastructure Plan

Maryland Purple Line

• Maryland Purple Line• Light rail through Maryland’s

DC suburbs

• Single private partner willdesign, construct, operateand maintain project andprovide $900 million infinancing

• MTA will make annualavailability payments

Florida’s I-4 Ultimate Improvement Project

• Involves the reconstruction of 21 miles of roadwayinfrastructure in and around Orlando• Will add 4 variable toll lanes

• Has received Envision Platinum recognition from the Institutefor Sustainable Infrastructure (ISI)• Sustainability efforts of environmental, social and economic impact on

the community

Keys to Success

• National Council for Public-Private Partnerships six keys tosuccess:1. Statutory and Political Environment

2. Organized Structure

3. Detailed Business Plan

4. Guaranteed Revenue Stream

5. Stakeholder Support

6. Project and Partner Selection

Keys to Success

• Authorization system that allows for transparency• Perception that P3s fail to protect the public interest or inappropriately

profit

• Appropriate cost-benefit analysis (value for money)• E.g. failed analysis re: Chicago parking

• Defined processes to ensure timely adoption andimplementation integrated in a way that provides somedegree of certainty for private parties

Trump Infrastructure Planning – A WayForward• Tax credit proposal

• USDOT & NEC deliberations – vetting successful examples• Sparrow Point Project

• More specifics forthcoming?

• In the meantime, consider:• Partnership to Build America Act

• Bipartisan Policy Center Bridging the Gap Together: A New Model toModernize U.S. Infrastructure (2016)

Partnership to Build America Act (HR2084)• Would create the American Infrastructure Fund (“AIF”),

enabling $750 billion in loan or guarantees to local and stategovernments to finance infrastructure projects• At least one-third of projects must be P3s, with at least 20% financed

by private capital

• Framework expanded in 2013 (“Delaney Infrastructure 2.0Act”) by calling for international corporate tax reform• One time mandatory tax on overseas earnings, raising $120 billion for

the Highway Trust Fund

• Pilot program that would provide $25 million for regional infrastructureaccelerators

Bridging the Gap Together: A New Modelto Modernize U.S. Infrastructure• Identifies three barriers in the US

• Lack of project pipeline – must prioritize projects

• Permitting risks

• Political risks

• New core principles:• Must clearly identify and state public benefits

• Infrastructure investment decisions should incorporate full life-cycle evaluation, beyond initial costs

• Benefits, costs and risks must be completely accounted for andmade transparent

• Risk of not investing must be quantified and compared againstcosts of action

• Public and private sectors must share these risks

Sector and Regional Planning

• Must integrate federal infrastructure tax credits with anumber of well-developed public finance tools

• Give precedence to projects with detailed supportingbusiness plans that are regionally based and demonstratesignificate local support• Detailed plans should be prepared first by section and then region,

integrating units of government and public funding sources

• Meaningful locally generated revenue• E.g. Denver and 35 other local units of government levied local option sales tax

which enabled, in part, the Eagle Project linking Denver International Airportand Denver’s Union Station

Conclusion and Recommendations

• Aging infrastructure must be renewed

• Federal departments, especially US DOT and Treasury, mustcoordinate with state and local governments

• Prepare detailed business plans for each infrastructure sectorbased on expected capital expenditure keyed to the full lifecycle of assets comprising each infrastructure system

• P3 not appropriate for all projects

• Bolster the power of federal infrastructure tax credits withfederal, state and local revenues, special tax district taxation,and private capital

• Establish centers of excellence for the study of P3 andinfrastructure delivery and innovation