Extended Interview: Jodie Misiak, Maryland Department of Transportation

InfraAmericas logoJodie Misiak is the Assistant Director for Innovative Finance at the Maryland Department of Transportation. I spoke with her by telephone during the week of April 28, 2014. Some of these comments appear in the May 8, 2014 edition of the Capitol Ideas E-Newsletter. She discusses Maryland’s pursuit of a public-private partnership (P3) to build the Purple Line, a proposed 16-mile light rail line that will connect Montgomery and Prince George’s counties. I also asked her whether she expects transit project P3s to become more commonplace in the United States, what other P3 projects Maryland has on the horizon and about the state’s acceptance of unsolicited P3 proposals. She also addresses her upcoming appearance at the InfraAmericas U.S. P3 Infrastructure Forum in New York City. It was at last year’s forum that Maryland Lt. Gov. Anthony Brown officially announced the Purple Line P3.

CSG: With regards to the Purple Line project, how unusual is it to be doing a transit project as a public-private partnership in this country?

Misiak: “There are other similar types of delivery methods that have been used in transit in the past—not necessarily including the financing. So you have the DBOM (design-build-operate-maintain) model that has been employed on certain transit lines and then obviously the Denver Eagle was the first in the United States to do the DBFOM P3—the Design-Build-Finance-Operate-Maintain. That’s the first time that you really saw the full range of functions with a finance (component) happening for transit in the United States. That being said, outside of the country in Canada we’re looking at several models that have employed this and either have implemented it and they’re under construction, or (they’re) in various points of development. So there’s definitely a precedent for this. For this particular approach … funding and financing transit is something that has been evolving over the years. As we were thinking about both the Purple Line and (Baltimore’s proposed) Red Line (project), we thought these were both models that were worth considering and then as we dug more deeply into the characteristics of the Purple Line and the unique nature of where it’s sited and how it should be developed, it seemed more and more advantageous to do the DBFOM model. The Red Line was still under consideration for a potential P3 along those lines or sort of a hybrid approach to it but for the Purple Line it became very clear that some of the benefits of P3s were very much in alignment with what we were trying to achieve.”

CSG: What stage are you all in now with the Purple Line?

Misiak: “We’re roughly in the middle of the solicitation process. In November of 2013, we received approval to move forward with a P3, which by our legislation is required that we have to receive approval from the Board of Public Works to designate a project as a P3 and move forward with a P3 solicitation process. That happened in November. We immediately issued an RFQ (request for qualifications) after that approval and we’ve been pursuing the process basically as we originally scheduled. So we’ve shortlisted bidders, which happened at the beginning of this year. We have four very strong proposer teams that have been shortlisted in January and we’re now progressing through an RFP (request for proposal) process with them that will last on through the summer and early fall and then their proposals will be due around October-November of this year at which point we will be making our selection and planning to move forward with one of the proposers as the preferred concessionaire around the beginning of 2015 with commercial close and then financial close. Given the nature of the financial tools that we’ll be using with TIFIA and PABs (private activity bonds) and anything else that the proposers end up bringing to the table, we expect the financial close to follow around the springtime of 2015. So we’re very much in the middle. We’re in the peak of document development and ongoing discussions with the four proposer teams about how this can be best and most efficiently structured for a 35-year term.”

CSG: What have you heard from the private sector as you’ve gone about this process of getting the project up and running and has there been a learning curve or lessons learned on both sides?

Misiak: “I think we’ve received from the very beginning very strong feedback. It was this time last year that we were planning an industry forum for the Purple Line, which was held in May of last year. There have been ongoing discussions with the private sector and with this overall industry in general—other states that are in the P3 industry as well—to get a good sense of what preparation needs to be done before you enter into the solicitation process, how well developed you need to have your arguments and your political situation and your financial situation and your funding situation so the private sector is comfortable entering into what is a very lengthy and expensive solicitation process for a P3. If it’s lasting from January on through the fall of this year, this is a major commitment for them. So they wanted to make sure that we were fully invested in it ourselves and we were fully committed to bringing it to a successful close. So a lot of the work that was happening last year was building that confidence, making sure that we were truly convinced that this made sense as a delivery method. And we had looked at other projects that had faltered and a lot of times it was because a lot of that diligence had not happened before releasing an RFQ or an RFP and then things had to get changed midstream and we really wanted to avoid that. And we definitely didn’t want to slow down the process or create unnecessary delays just because we had to figure it out midway. So we did a lot of figuring out of things and making sure everyone was on board and making sure we understood that there was a market appetite for the project well in advance of issuing the RFQ and I think we’re benefitting from that now because both the six proposer teams that originally proposed and then the four that we ended up shortlisting, all of them seemed very dedicated to the project, invested in the project and recognized the full extent of what we were trying to do with the availability payment as they were going into it. It was clear that they were bringing good teams to the table and were willing to go forward with a rigorous process and I think that would have been probably less so if we had been less thoughtful heading into it from the beginning. We would have probably had trouble attracting good teams and convincing people that this made sense because quite frankly it is, as you said before, an unusual approach for the United States. So you really want to make sure that everyone knows that you have your ducks in a row before you ask the private sector to get involved, which we think we’ve proven and we think that people are continuing to trust that we’re moving forward with a strong process.”

CSG: Do you think we are going to see more transit P3s in the future as a result of the Maryland experience? Have other states or transit agencies or other folks consulted you all about their own projects and do you think the private sector has an interest in doing more transit P3s?

Misiak: “We’ve definitely heard from other states that are in various stages of thinking about transit and project delivery and P3s involving availability payments. Obviously they’re watching to see how this works out over the next six months to a year. Everyone has looked to Denver as the main case study and the main entity you go to with questions and for advice about this type of approach largely because they were first out of the gate and the one that has been somewhat completed but I think we definitely … as people are seeing us move through the process are understanding how we’ve structured the approach, we are starting to get others interested in asking us how we put it all together. That being said, every state and every jurisdiction if you’re more of a regional entity, has its own unique characteristics. So something that fits within the Maryland approach—and we found this by trying to translate the Denver approach to here was that you have unique approaches to debt, you have unique approaches to structuring documents and procurement and just legislative frameworks and how we deal as a department with other parts of the government. It is unique and every state says we have very different ways of approaching things and we are discovering that. Some things that were going to work in the Maryland context are not going to necessarily work in the Virginia or in the context of some of the other states that are … thinking about transit and availability payments and how it all fits together. But we’re hoping to help them figure that out because we did go through that process ourselves of translating examples from Canada and from elsewhere to what would be the Maryland context. It’s a little tricky but I think people are going to, as you have more and more case studies, take the elements from each to tailor them to the unique cases.”

CSG: What’s next for Maryland in terms of P3s? Are you going to follow the same path with the Red Line for Baltimore and are there other P3s on the horizon immediately?

Misiak: “We’re still doing a pretty thorough analysis of what we need to do for project delivery for the Red Line. We’ve had a couple of industry forums, we’ve had an RFI (request for information). We’re gathering information and working closely with our advisers to make sure we again kind of hit the ground running once we make a decision in any direction. I think we’re in a good place with the funding and approach to the Red Line. So, P3 or otherwise, we’ll probably be making a project delivery decision on that soon. Maybe in a little bit more than six months, you’ll see more movement on that project. For other types of projects, it’s just a function of what we have as major projects in the state happen to be two major transit projects. So those were the ones that we really focused a lot of our efforts on over the past couple of years of figuring out the potential for P3s. But we do also have other assets out there, including a variety of bridge assets that we’re thinking about the need for rehabilitation or replacement (of) that are worth taking a look at. So those are potentially on the horizon. … MDOT is responsible for the full range of the port and the airport and the un-tolled roads and transit and our MVA services. So I think the focus is really on looking at some of the major projects that need to happen within that portfolio over the next few years and really thinking about whether or not the P3 approach is applicable to the things that we need to get done, whether it be more transit… There’s also a bus rapid transit project out in Montgomery County that has floated to the top of the list in many discussions—the CCT, Corridor Cities Transitway, which has potential elements of P3 too but in a very different way from a light rail line just because of the nature of the asset. Bus rapid transit will have just different project delivery approaches in general. So I think we have our hands full trying to figure out what makes sense next but I think we’re going to take the Purple Line experience and really use it to enhance approaches to projects in the future because a lot of the things underlying the P3 approach—the asset lifecycle approach, the idea of a full accounting of both the design-build and the operations and maintenance—it all sort of makes sense. It’s just how you apply it to different projects.”

CSG: One of the things the new (P3 law passed by Maryland in 2013) did was to allow you to accept unsolicited P3 proposals from private investors. Has there been any interest on that front or has that process really gotten underway?

“Not really. Under previous regulations, we were allowed to accept some form of unsolicited proposal but it was always really unclear what we were looking for and how you would put something together. … So the law basically opens it up so that all the other agencies that can do P3s can also have a similar type of process. I think for us (with) unsolicited proposals—and we’ve been clear about this to the industry—we’re looking for something (specific). The way that our regulations are written makes this clear as well. We’re looking for a concept that helps to enhance our program. It helps to drive forward projects that we would most likely be trying to do anyway and that if you can find a better, more efficient, more cost-effective way of delivering it, we’re interested. So I think that that message that we have a whole host of projects we’re really focused on needing to deliver and we’re really looking for solutions to help out with some of those projects that are already on our radar has been a message to the industry that we really have our priorities in line. So if they can bring to the table something that will help that out, we’re all for it. It’s when projects get introduced that may distract from the program or that are not necessarily in alignment with what we need to be doing in our overall approach, that’s when the unsolicited proposal process is less helpful. So we’re trying to not have—and so far we haven’t really had—proposals that take it off track and more feed into the types of project we need to do. I think people are realizing that we have so many ideas for major projects that it’s better to have us focus on those and move them forward than to distract us from the Purple Line and the Red Line and all the other projects that might be coming out. It’s been interesting though. People have asked about that, but at the end of the day they just want to make sure you have a pipeline and if you’re doing it yourself, people are perfectly responsive to that.”

CSG: Last year in anticipation of the InfraAmericas meeting, I asked (Maryland) Lt. Gov. Anthony Brown about what his message was going to be to that audience in New York—many of whom are involved in the P3 industry—and just a few weeks removed from the passage of the P3 legislation he said his message was “Maryland is open for business.” Are you going to have a specific message this year and is there anything you hope to come away from that meeting with?

Misiak: “I think the lieutenant governor had the best message last year. I think that message resonated with everyone and that it was clear that we were putting actions to what we were saying by moving forward the Purple Line I think literally months afterward. So I think (my message this year) would be to just reiterate that it wasn’t just talk then, we’re actually moving forward with pretty sophisticated, complex projects (and) that we will continue to do so but we will also continue to do so in the Maryland way, which is I think pretty thoughtful, making sure that we have everything lined up so that we’re not bringing the private sector in until we’re completely ready to begin a well-designed solicitation process. So hopefully the Purple Line is demonstrating that and just the message is that we’re continuing to do that with other projects.”

Jodie Misiak will be among the speakers at the InfraAmericas U.S. P3 Infrastructure Forum 2014, which takes place June 17-18 at the Grand Hyatt in New York City. CSG is a supporting organization for the conference, which brings together infrastructure developers, investors, financiers, state and federal public officials and regional transportation authorities for a variety of panel discussions on the state of the P3 industry.