Overview of Highway Public-Private Partnerships (P3s) FHWA Office of Innovative Program Delivery Presentation to GBC Transportation & Mobility Committee March 11, 2015
Presentation Outline 2 Part 1 Part 2 Part 3 Part 4 What are P3s? Benefits & Challenges of P3s Federal Financing Tools Legislation Best Practices
Part I What are P3s?
What are P3s? 4 Acronym: Public-private partnerships (P3s or PPPs) Definition: Contractual agreements between a public agency and a private entity that include more than a single phase of a project Most common types: Design-Build Design-Build-Finance Design-Build-Finance-Operate-Maintain Purpose: To allow private participation in the delivery of projects when it could provide greater value and is in the public interest
P3s Involving Private Financing 5 P3 Greenfield Brownfield (primarily toll concessions) Design-Build- Finance Design-Build- Finance-Operate- Maintain* Toll Concession *Focus of FHWA Office of Innovative Program Delivery Availability Payment Concession
Example Toll Concession 6
Example Availability Payment 7
Conventional vs. P3 8 Conventional Projects (design-bid-build) P3 Projects (design-build-finance-operate-maintain) Public sector takes on most risks (except construction) Public Financing (mostly) Risks shared between public and private sector Private Financing (mostly) Lowest bidder Operations and maintenance (O&M) and ongoing rehabilitation (if any) carried out by public agency once constructed Best suited/best value O&M carried out by private sector; ongoing rehabilitation overseen by public sector stewardship of P3 agreement
The Role of Equity 9 Equity can leverage additional funding from a project s revenue stream and help fill the funding gap 120 100 80 60 40 20 Total funding needed Gap that may be filled by equity Amount financeable by debt 0 Capital cost
Typical Cash Flow Waterfall 10 Project Revenues Revenue Fund O&M (Reserve) fund Rehabilitation & Reconstruction Reserve Fund Senior Debt Service (Reserve) Fund Subordinate Debt Service (Reserve) Fund Other Reserve Funds Equity Distributions
Part II P3 Benefits and Challenges
12 Potential Benefits and Drawbacks of P3s Potential Benefits Additional Financial Capacity Accelerates project delivery Conserves public sector debt capacity Lifecycle Cost Efficiencies Reduces costs through integration of phases, lifecycle costing, and management of risk Risk Transfer Budget and cost certainty Improved risk management reduces costs Potential Drawbacks Loss of flexibility of public agency Changing priorities Integration of facility into the wider network Complex procurement process Higher costs for procurement Need for P3 expertise to conduct negotiations Increased financial costs Higher cost for private capital
Challenges in Using P3s 13 Public acceptance Enabling legislation Organizational Capacity Knowledge gap Different oversight/contract management approach required
Challenges in Using P3s (Cont.) 14 Revenue constraints Federal and state toll restrictions Revenue shortfalls due to lower tax receipts Difficulty in predicting traffic and revenue Difficulty in identifying and pricing risk and proper risk allocation Long term nature of P3 Agreements Concern about loss of upside revenue potential to public Inability to anticipate future performance issues or public needs
Part III Federal Financing Tools
16 Federal Financing Tools Supporting P3s TIFIA: Flexible, low-cost lending that mitigates revenue ramp up risk PABs: Allows private sector to participate in tax-exempt market Other Innovative Financing Tools: Grant Anticipation Revenue Vehicles (GARVEEs) State Infrastructure Banks Section 129 Loans Other U.S. DOT credit support programs
P3 Projects in the US 17 Project Type Financial Close Upfront State Grant Debt Equity Tolls During Construction PABs TIFIA Bank Sr. Debt Private Equity East End Crossing Toll/AP 3/28/13 $677.0 $78.0 $755.0 I-95 HOT Lanes HOT 8/1/12 $71.0 $252.0 $300.0 $292.0 $915.6 Presidio Parkway No toll/ap 6/14/12 $150.0 $166.6 $43.0 $359.6 Midtown Tunnel Toll 4/16/12 $309.0 $675.0 $422.0 $221.0 $368.0 $1,995.0 LBJ-635 Corridor HOT 6/22/10 $496.0 $615.0 $850.0 $664.0 $2,625.0 North Tarrant HOT 12/17/09 $573.0 $398.0 $650.0 $0.0 $426.0 $2,047.0 Express Port of Miami Tunnel No 10/15/09 $309.8 $341.0 $341.0 $80.3 $1, 072.6 toll/ap I-595 HOT/AP 3/3/09 $232.0 $603.0 $781.0 $207.7 $1,823.8 SH-130 Segment V-VI Toll 3/7/08 $430.0 $685.8 $209.8 $1,325.6 I-495 HOT Lanes HOT 12/20/07 $409.0 $589.0 $589.0 $0.0 $350.0 $1,937.0 Sources: Information on these projects was gathered from a variety of sources. For projects that were financed with Private Activity Bonds (PAB), the Official Statements (OS) provided much of the information. OS s are available for download online from the MSRB EMMA database: http://www.emma.msrb.org/. Total
Part IV P3 Legislation
P3 Legislation 19 A growing number of States have or are considering P3 enabling legislation Enabling legislation differs significantly from State to State It is up to each State to determine the appropriate approach to legislation, starting with an understanding of the goals it is trying to achieve Well-crafted and flexible legislation can help incentivize private sector participation in P3s
P3 Legislation 20 Enabling legislation can determine: Which agencies have the authority to enter into P3s The types of P3 agreements into which those agencies can enter The procurement methods used to arrive at P3 agreements The types of funding and financing arrangements that can be applied to those agreements
P3 Legislation 21 The complex nature of projects requires enabling legislation that is flexible enough to accommodate different circumstances P3 enabling legislation can allow for multiple P3 structures, project payment mechanisms (including tolls and availability payments), financing options, and risk allocation approaches
P3 Legislation 22 Legal issues may be addressed through statute, policy, or contract provisions There is no one correct way to address these issues There are tradeoffs associated with some decisions when crafting P3 legislation, particularly where public and private concerns can conflict, such as: The degree of transparency and competition to require in the procurement process The level of public and legislative input to allow in the decision-making process
Contact Information 23 Patrick DeCorla-Souza P3 Program Manager Office of Innovative Program Delivery Federal Highway Administration (202) 366-4076 Patrick.DeCorla-Souza@dot.gov