Public-Private Partnerships & Tolling: Summer Conference Agenda, State Project Updates and the Debate in Congress
Next month in New York City, InfraAmericas will host its eighth annual infrastructure forum on public-private partnerships (P3s). CSG is a supporting organization for the forum, which brings together state, federal and local policymakers and transportation officials, private sector developers, investors and others for two days of panels focused on the latest trends and projects in the P3 universe and what the future may hold for P3 deals. InfraAmericas wants more state government officials to attend and from what I’ve heard, there remains a great interest in state capitals with regards to how P3s can be used to finance transportation projects. That’s why CSG became involved with InfraAmericas in supporting the conference. Before I head up to the Big Apple (and hopefully some of you do to), I thought it would be a good time to catch up on some recent news and resources in the world of P3s and tolling. Below are some updates on P3 projects in several states as well as a look at how the federal authorization debate could shape how states make use of P3s and tolling in the future. But first I have more information about the InfraAmericas conference agenda and how you can register to attend.
The InfraAmericas U.S. P3 Infrastructure Forum
Among the highlights scheduled for the conference next month is a panel of state department of transportation secretaries talking about how they view P3s and their experiences with success projects. The speakers will include:
- Virginia Transportation Secretary Sean Connaughton, who is the Vice Chair of CSG’s Transportation Policy Task Force. Virginia has been a leader among the states in procurement of P3 agreements to tackle projects like the high-occupancy toll lanes on the Capital Beltway. Last year the state created a new state office (the Office of Transportation Public-Private Partnerships) dedicated to pursuing and overseeing P3 projects.
- Maryland Transportation Secretary Beverly Swaim-Staley, who recently announced she’s stepping down later this summer after 25 years in state government. During the 2012 legislative session, legislation that would have opened up the state’s existing legislation governing public-private partnerships failed to receive a final vote. The measure would have established a more well-defined legislative oversight process for P3 agreements, centralized P3 authority within state government and allowed the state to accept and evaluate unsolicited proposals from the private sector.
- North Carolina Transportation Secretary Eugene Conti. North Carolina is exploring a role for private equity in the construction of a new $650 million, seven-mile-long bridge to the Outer Banks.
Also on the agenda for the InfraAmericas conference:
- A discussion on the near-term outlook for the U.S. P3 market. The Chief Financial Officers from the Massachusetts and Texas departments of transportation are among those scheduled to make remarks.
- Presentations on how U.S. labor union pension plans are investing in infrastructure and the opportunities for direct P3 investments by public pension funds.
- Massachusetts Transportation Secretary and CEO Richard Davey talking about how a state infrastructure bank can leverage private investment in infrastructure.
- The Director of Virginia’s aforementioned Office of Transportation Public-Private Partnerships Tony Kinn joins transportation officials from Florida, Texas and California on a panel to discuss current P3 projects in their states and the next wave of P3 market opportunities.
- James Riley, Deputy Director of Innovative Delivery at the Ohio Department of Transportation, will join a panel on how state and municipal budget shortfalls are influencing thinking about P3s.
InfraAmericas is a news organization that provides in-depth analysis of public-private partnerships. The organization’s eighth annual U.S. P3 Infrastructure Forum 2012 will take place June 19-20 at the Metropolitan Club in New York. The conference provides a great opportunity for public officials to network with the infrastructure investment community and to gain valuable industry insights from their peers. To get a sense of some of those insights, you can read my coverage of last year’s forum here and here. A special registration fee rate of $500 is available for state legislators and other public sector officials (more than $2000 off the regular rate). For more information, check out the conference website here or contact me here at CSG (email@example.com) for a copy of the public sector registration form.
State P3 Project Updates
A few recent news items that caught my eye with regards to states’ pursuit of infrastructure public-private partnerships:
- Georgia: The Georgia Department of Transportation announced recently that a public-private partnership to add toll lanes alongside Interstates 75 and 575 under the Northwest Corridor is again moving forward, The Northeast Cobb Patch reported. Late last year, Gov. Nathan Deal pulled the plug on the $950 million, 29.7-mile project because he feared the state was potentially giving up too much control of the road and the tolls to the private sector in return for the upfront costs the contractor would pay. Under the revised plan, the state will retain ownership and control of the lanes. The contractor will still be expected to bear some of the upfront costs and the state will repay them out of the tolls. The lanes will have variable tolling, with tolls rising as the interstate becomes more congested, but there will be no high-occupancy requirement for the cars using the lanes as on the high-occupancy toll (HOT) lanes on I-85. Georgia is expected to issue a request for qualifications next month from contractors interested in designing and building the project. The P3 industry likely will be watching closely for any residual effects from Deal’s action last year as the state looks to a construction start date of 2014 and a projected completion date of 2018.
- Illinois: Chicago Mayor Rahm Emanuel makes the case for his “Building a New Chicago” plan to invest $7.3 billion in the city’s infrastructure in a recent op-ed for Politico. The plan includes an infrastructure trust to pool private capital to put towards the investment.
- New York: State officials said this month that plans to finance a $6 billion replacement of the Tappan Zee Bridge across the Hudson River with a public-private partnership have been scrapped. It will be paid for mainly with municipal bonds, Reuters reported. The P3 idea was reportedly dropped on the grounds it would take too long for the state to enact a new law required to enter into such a partnership.
- Ohio: Tollroadsnews reported earlier this month on moves the state Turnpike Commission is making to enhance efficiency and cut costs as the state considers a possible concessioning of the Ohio Turnpike to investors. The article also notes the state DOT’s Division of Innovative Delivery is exploring P3s for some of the state’s largest road projects including a second Innerbelt Bridge in Cleveland, the Brent Spence Bridge project in Cincinnati, the Portsmouth Bypass in Scioto County and an I-71 interchange in Delaware County. Gannett had a story recently on the Brent Spence project.
- Puerto Rico: Officials on the Caribbean island reported recently they’ve narrowed to two the finalists for a public-private concession to run San Juan’s Luiz Munoz Marin Airport for as long as 50 years, Reuters reported. Consortiums Grupo Aeropuertos Advance and Aerostar Airport Holdings were chosen as finalists from among six bidders. The government of Puerto Rico is hoping for a $1 billion upfront payment from the P3 deal, with most of the money targeted for use in paying off debt issued by the U.S. commonwealth’s port authority. For Puerto Rico, the deal represents the territory’s second large P3 deal. Last year, officials undertook a 40-year concession for two roadways on the island.
- Virginia: The Associated Press reported last week that Virginia—a state with significant experience in the P3 realm, as indicated above—will consider whether to turn over the operation of its port terminals to a private company. The state received a nearly $4 billion unsolicited proposal from APM Terminals Inc., a division of global shipping company Maersk, to operate state ports in the Hampton Roads region as well as an inland port for a period of 48 years. The Virginia Department of Transportation has issued a request for alternative proposals with submissions due in July. State officials have expressed frustration that the Port of Virginia, the third-largest East Coast port, hasn’t rebounded from the recession as quickly as other East Coast ports. In an effort to spur growth at the port, Gov. Bob McDonnell replaced 10 of the port authority’s 11 commissioners last year.
Reauthorization & the Future of Tolling and P3s
As U.S. House and Senate conferees began negotiations earlier this month on legislation to reauthorize federal surface transportation programs, two groups of stakeholder organizations fired off dueling letters that seek to persuade conferees one way or the other on including provisions that could impact the ability of states to toll roads and enter into public-private partnerships.
On one side are the Reason Foundation, Bipartisan Policy Center and Building America’s Future, who argue in a letter dated May16:
"In the current era of severely constrained investment resources for surface transportation at all levels of government, states and metropolitan regions should be afforded greater flexibility to fund and finance their transportation facilities and networks. Congress does not seem inclined to raise funding for surface transportation through increasing federal motor fuels taxes or by replacing those taxes with other dedicated funding. In the absence of new funding sources, at a minimum, Congress should provide states and metropolitan regions with the tools to develop and expand their potential sources of revenue and investment capital. To that end, federal barriers to state innovation and flexibility should be substantially reduced, and no new ones should be erected."
The letter notes that as the Senate was passing its authorization bill, S. 1813 (also known as MAP-21), an amendment was introduced to extend the Federal Highway Administration’s tolling and highway user pilot programs and to expand the number of eligible participants. It was ultimately withdrawn.
More from the letter: “This means that several states that wish to fund the reconstruction of aging and deteriorating Interstate highways with tolls under existing pilot programs will be unable to do so. Additionally, it will limit the ability of states to utilize some of the innovative tolling programs that would assist in managing traffic congestion, such as establishing high-occupancy tolled (HOT) and variable priced or managed lanes …”
“In failing to include such provisions in MAP-21, the Senate has denied states and metropolitan regions the ability to create innovative and flexible programs to finance their transportation needs, as federal funding stagnates or declines.”
The letter goes on to express concern that “certain provisions incorporated into MAP-21 could discourage states from partnering with the private sector and from developing innovative tools to attract private capital to transportation investment, for fear of losing a percentage of federal funding …” (see my earlier blog post on those provisions here).
“While we respect the intent to protect the public interest that motivated these provisions, we are concerned that, as currently drafted, they do not respect the ability of states and localities to make such determinations of the public interest on behalf of their citizens and would make it more difficult to attract important new sources of investment capital for transportation infrastructure.”
[Former Pennsylvania Gov. Ed Rendell, now a co-chair of Building America’s Future (one of the letter’s signatories), also penned a recent op-ed on the subject for Politico].
Weighing in on the other side of these issues was a coalition of groups called Americans for a Strong National Highway Network (it includes AAA, the American Trucking Associations and others). In a May 24 letter to transportation bill conferees they write:
“We believe that Congress has an obligation to ensure that the public interest is protected. With this in mind, we would like to thank the House and Senate for not expanding states’ authority to toll the Interstate Highway System, while addressing some of our concerns regarding a trend towards privatization of existing highways.”
The letter points to the examples of the Chicago Skyway and the Indiana Toll Road, two facilities that were leased to private concessionaires in return for one-time payments.
“Toll rates on the Skyway have already doubled and will continue to escalate for the remainder of the 99-year lease. Equally troubling is that rather than investing in projects that would benefit transportation system users, the concession payment was diverted primarily to a one-time general government debt relief payment for the city … In the case of the Indiana Toll Road, the state leased the highway to a foreign concessionaire for 75 years in return for a one-time payment of $3.8 billion. Just six years later, toll rates on the highway have doubled and continue to increase annually. Not only has nearly all of the money from the lease been spent, but the majority of the funds were diverted for road improvements off of the corridor where the tolls were collected. Therefore, drivers will continue to be charged an increasingly higher toll for the next seven decades to pay for six-years-worth of projects on roads that will largely not benefit them.”
The letter goes on to express support for MAP-21’s P3 provisions.
“MAP-21 removes from a state’s federal funding formula half the lane miles that have been leased or sold to a private operator, and half the miles traveled on those lanes. States that remove highways from their balance sheet through long-term lease agreements (and with it the cost of maintaining those roads) should have those costs covered through the lease terms,” the letter reads.
The arguments over the P3 provisions also were aired in two recent op-ed pieces in The Washington Post. U.S. Sen. Jeff Bingaman, who authored the amendment to MAP-21 to include the revised funding formula for states with leased highways, writes in his op-ed published May 4:
“This year, Indiana received nearly $900 million in highway maintenance funds — the same amount it would have received had it never made the deal with the Indiana Toll Road Concession Co. And if the funding formulas remain unchanged, it’s possible that Indiana could lease all 1,200 miles of its interstate highways to a private company and still receive nearly $900 million each year from the highway fund. Does this make sense? I don’t think so. To be sure, Indiana has not put forth a proposal to privatize all of its highway system. But that it could do so without losing federal highway funds illustrates the problem Congress needs to fix.”
Bingaman goes on to express his understanding of why “selling off” public roads might be tempting for states struggling to meet infrastructure needs.
“But I do not believe states that privatize existing public roads should be allowed to get more than their fair share from the highway fund, at the expense of federal taxpayers in other states,” he concludes.
Responding to Bingaman in a May 10th letter to the editor in the Post was Indiana Gov. Mitch Daniels, who took issue with the Senator saying Indiana “sold” its toll road:
“The state still owns the road. We have simply converted it to a regulated utility, under a 432-page agreement that tightly controls everything from toll rates to how long the operator has to remove dead animals from the roadway.”
Daniels also writes that the lease agreement allowed the state to make investments both on and off the toll road corridor.
“In addition to generating nearly $4 billion in cash for the state, our transaction committed the road’s operators to an additional $4.4 billion in improvements to the road itself. It now has electronic tolling, new lanes to reduce congestion, 25 additional state troopers and other enhancements that have brought it to the best condition and service levels in its history.”
Daniels argues that far from being a seller in the transaction, Indiana has become a buyer, investing billions in new long-term public assets. In addition to the road project spending, the state set also set aside $500 million in a Next Generation Trust Fund, which is accruing interest that will help the state augment future highway budgets as needs require.
Daniels also refutes Bingaman’s premise that the federal government is “paying twice” for the Indiana Toll Road, once to build it and again for its maintenance.
“In fact, no federal dollars built the road. Indiana borrowed money to construct it, and tolls paid for the principal and interest. By the senator’s illogic, Indiana should have been sending the federal government a bill every year for creating an interstate without a dollar of federal gas tax funds. Nor have federal taxes paid for maintenance. Toll revenue, not federal dollars, has funded maintenance, although poorly. Before our lease was finalized in 2006, the toll road was in substandard condition. After 50 years, it still had a large debt and was losing money.”
Daniels goes on to say rebuilding the nation’s infrastructure should be a rare point of mutual agreement between the political parties and that Indiana’s approach should be welcomed and not squelched.
“There is a Washington mentality — which I have experienced firsthand — that cannot bear the thought that any highway funds might flow without its ring being kissed first. But territoriality should not block progress. Instead of castigating a state that has vigorously addressed its share of this national problem, senators should encourage innovation and more partnerships with the private sector, where tens of billions of dollars stand ready to be invested, ensuring our nation the strongest possible economic backbone.”
And the Indiana Toll Road may be just the start of the Hoosier State’s reliance on public-private partnerships to finance its future transportation needs.
The Bond Buyer reported recently on the three major privatization deals Indiana has in the works, including a new Ohio River bridge, an expressway connecting to Illinois, and a major revamp of a highway north of Indianapolis. While the three deals would finance new assets rather than leasing existing ones, state officials have not ruled out future leases, the article noted. Indiana Department of Transportation spokesman Will Wingfield told the public finance newspaper the P3 deals and the state’s overall P3 program are designed to help offset future reliance on traditional infrastructure financing.
More States Look to Tolling
An Associated Press article last week looked into an increase in the use of tolling around the country, despite some perceived drawbacks including less efficiency and fairness when compared to gas taxes.
“(Tolling) can increase traffic on side roads as motorists seek to evade paying,” writes the AP’s Joan Lowy. “Some tolling authorities—often quasi-governmental agencies operating outside the public eye—have been plagued by mismanagement. And some public-private partnerships to build toll roads have drowned in debt because of too-rosy revenue projections. Tolls are hardly a perfect solution. But to many states and communities, they’re the best option available.”
Joshua Schank, president of the Eno Center for Transportation, a Washington think tank tells Lowy: “It’s very hard in this environment for states to add capacity without charging a toll because they can’t afford to do it. They’re barely able to maintain what they’ve got, and there is an urgent need for capacity.”
Other Recent Reports and Resources
- The Reason Foundation recently came out with its “Annual Privatization Report” on Surface Transportation for last year. It includes updates on P3-enabling legislation in several states, reports on the status of major P3 projects around the country and lists of the largest infrastructure equity funds and top P3 transportation infrastructure companies. You can read the full 38-page report here.