P3: OPPORTUNITIES FOR AMERICA S INFRASTRUCTURE. Greg Hummel

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1 P3: OPPORTUNITIES FOR AMERICA S INFRASTRUCTURE Greg Hummel

2 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

3 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

4 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

5 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

6 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

7 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

8 Global Success: Australia Asset Recycling

9 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

10 Global Success: Infrastructure Ontario

11 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

12 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

13 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

14 Successful P3 Projects in the US Virginia I-495 Expressway Expansion PortMiami Tunnel Long Beach Court House Eagle Project (Denver) KentuckyWired

15 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 of the Capital Beltway Electronic/dynamic tolls Consolidated availability payment

16 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

17 PortMiami Tunnel

18 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

19 George Deukmejian Courthouse Success Completed on time and below budget Engagement and oversight from the state s Administrative Office of the Courts Projected that the state saved $26 million through Performance Based Infrastructure

20 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

21 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

22 Mixed Results Chicago parking meters Chicago Skyway Indiana Toll Road

23 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

24 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

25 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

26 Jury s Out Maryland Purple Line Florida s I-4 Ultimate Improvement Project Trump s Infrastructure Plan

27 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

28 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

29 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

30 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

31 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)

32 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

33 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 lifecycle 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

34 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

35 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