P3: OPPORTUNITIES FOR AMERICAS INFRASTRUCTURE Greg Hummel Public - - PowerPoint PPT Presentation

P3: OPPORTUNITIES FOR AMERICA’S INFRASTRUCTURE

Greg Hummel

Public Private Partnerships (“P3”)

Broadly refers to a variety of transactions in which a public or quasi-public entity shifts some degree of control and responsibility for development and operation of a facility or a piece of infrastructure to be used by the public, or for governmental or other institutional purposes, to a private entity

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 the

infrastructure by the public

• E.g. tolls
• Availability Payments - payments made for the supply or

provision of the infrastructure and not the degree of its use

• Most flexible
• Lease payments, registration fees, bonds and other forms of

debt, public sector grants, and equity investments

Benefits of P3

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

budget

• 2. Risk and cost of maintenance and repairs shifted to the

private partner

• Ensures high level of maintenance
• 3. Construction cost savings and reduced life-cycle costs due

to 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 means

by 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 been

widely 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

• Stron
• ng Enabli

ling Legis isla lation

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

ized Stru ructu cture

• Development of internal expertise
• Developed policies and procedures
• Streamlined project selection
• Det

etai ailed led Plannin ing

• Fosters pipeline of future projects
• Guara

ranteed ed Revenue enue Stre reams ms

• 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 the

process of approving transportation P3s, including Key Action Items and associated time requirements

• Flexible, including in the means of financing P3 projects
• Value-for-money analysis used to determine whether a project provides

more benefits to its users and to the Commonwealth when delivered through the P3 delivery process than when delivered through an alternative method

• Transparent and predictable – 30 day public comment period

Keys to Success: Virginia P3

• Public-Private Education Facilities and Infrastructure Act of

2002 (“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 local

institutions in adopting projects -- P3 projects are appropriate under the PPEA “where private involvement may provide the project in a more timely or cost-effective fashion [and] lead to productivity or efficiency improvements in the public entities’ processes or delivery of services.”

• Project is checked for “compatibility with the appropriate local or

regional 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 than

Virginia’s estimate and displaced fewer residents due to its innovative design

• Four new lanes, two

in each direction, along 14-mile stretch

• f the Capital Beltway
• Electronic/dynamic

tolls

• Consolidated

availability payment

PortMiami Tunnel

• Prior to construction of the

tunnel, approximately 16,000 vehicles travelled to and from the seaport daily through downtown Miami, causing severe traffic congestion and indirectly threatening the seaport’s economic position

• One concessionaire
• Payments contingent on

construction, availability, and quality

• Public stakeholder: obligated

to pay $670 million

PortMiami Tunnel

George Deukmejian Courthouse - Long Beach, CA

• Replaced old courthouse

labeled “one of the worst buildings in the state”

• First major civic building in the

U.S. to be delivered through P3

• Represented the California

judiciary’s first “Performance- Based Infrastructure”project

• State paid nothing until

building occupied, and will pay an annual fee of $50 million thereafter for 35 years

• Fee adjusted based on

performance and upkeep

• Additional courtrooms leased

to LA County – revenue stream

George Deukmejian Courthouse Success

• Completed on time

and below budget

• Engagement and
• versight from the

state’s Administrative Office of the Courts

• Projected that the

state saved $26 million through Performance Based Infrastructure

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 (private

concessionaire)

• 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 internet

speeds to homes and businesses

Mixed Results

• Chicago parking meters
• Chicago Skyway
• Indiana Toll Road

Chicago Parking

• Parking Meters
• 75-year concession

agreement for control of city’s 36,000 parking meters for $1 billion

• Revenue to fund Chicago’s

immediate needs

• Later determined that the

city undervalued by approximately $974 million

• Failed to account for rising

rates and costs

• Millennium Garage
• 99 year concession

agreement for $563 million

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 across

northern Indiana

• Owned by the State, but

leased to concessionaire for 75 years – $3.8 billion upfront payment

• Concessionaire filed for

bankruptcy 8 years into lease

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 will

design, construct, operate and maintain project and provide $900 million in financing

• MTA will make annual

availability payments

Florida’s I-4 Ultimate Improvement Project

• Involves the reconstruction of 21 miles of roadway

infrastructure in and around Orlando

• Will add 4 variable toll lanes
• Has received Envision Platinum recognition from the Institute

for 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 to

success:

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 and

implementation integrated in a way that provides some degree of certainty for private parties

Trump Infrastructure Planning – A Way Forward

• 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 to

Modernize U.S. Infrastructure (2016)

Partnership to Build America Act (HR 2084)

• Would create the American Infrastructure Fund (“AIF”),

enabling $750 billion in loan or guarantees to local and state governments 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 2.0

Act”) 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 infrastructure

accelerators

Bridging the Gap Together: A New Model to 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 and

made transparent

• Risk of not investing must be quantified and compared against

costs of action

• Public and private sectors must share these risks

Sector and Regional Planning

• Must integrate federal infrastructure tax credits with a

number of well-developed public finance tools

• Give precedence to projects with detailed supporting

business plans that are regionally based and demonstrate significate 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 Airport and Denver’s Union Station

Conclusion and Recommendations

• Aging infrastructure must be renewed
• Federal departments, especially US DOT and Treasury, must

coordinate with state and local governments

• Prepare detailed business plans for each infrastructure sector

based on expected capital expenditure keyed to the full life cycle of assets comprising each infrastructure system

• P3 not appropriate for all projects
• Bolster the power of federal infrastructure tax credits with

federal, state and local revenues, special tax district taxation, and private capital

• Establish centers of excellence for the study of P3 and

infrastructure delivery and innovation