States Diversifying Use of Public-Private Partnerships in Infrastructure
When U.S. Secretary of Transportation Anthony Foxx finished his remarks at the recent InfraAmericas conference on public-private partnerships, or P3s, in New York City, Kentucky state Rep. Leslie Combs was first to the microphone for the Q&A. “We just passed P3 legislation in Kentucky,” said Combs, who this spring authored the legislation that allows Kentucky, like 33 other states, Puerto Rico and the District of Columbia, to enter into P3s to build infrastructure projects.
“One of the great barriers to getting more (P3s) done in the country is the fact that we still have a third of the states that don’t have P3 enabling legislation and so thank you in Kentucky for taking that step,” Foxx responded. “It’s going to make life easier for you and your infrastructure.”
But Kentucky’s first announced infrastructure P3 is not a toll road or a major bridge project. In fact, at the behest of anti-toll interests in the northern part of the state, Kentucky’s legislation specifically prohibits the use of tolls on any P3 project connecting Kentucky and Ohio, such as a potential replacement for the functionally obsolete Brent Spence Bridge. Instead, the commonwealth’s first P3 project is KentuckyWired, a partnership to create a statewide, open-access fiber optic broadband network.
Another speaker at the conference, Mitch Daniels, who as governor of Indiana from 2005 to 2013 helped the Hoosier State pioneer its approach to P3s with projects like the 2006 Indiana Toll Road privatization and the Indiana portion of the Ohio River Bridges Project, wasn’t in New York necessarily to talk about toll roads or bridges either. Daniels, now the president of Purdue University, spent part of his keynote touting a P3 to redevelop the State Street corridor on Purdue’s West Lafayette campus.
Indeed many of the infrastructure P3 projects garnering the buzz at this year’s InfraAmericas forum were somewhat different from those the U.S. P3 industry has become accustomed to over the last decade. The conference highlighted projects at major U.S. airports and on university campuses. There were transit project P3s, alternative fuel, highway lighting and water infrastructure projects and a variety of social and civic infrastructure projects—public buildings and the like—in the spotlight as well.
The District of Columbia, which approved P3 legislation in 2014, plans to make its first forays into P3s with social infrastructure projects. Seth Miller Gabriel, director of the D.C. Office of Public-Private Partnerships, said projects to do streetlight modernization, build a new correctional center, and remodel a historic but rundown police headquarters building are on their short list. Social infrastructure makes the most sense for D.C., Gabriel said, because the District is an urban jurisdiction with limited highway miles and an inability to impose significant tolls, which could be viewed as a commuter tax on the workers who come in from neighboring states and double the District’s population on a typical workday. But Gabriel also believes it’s important that people quit differentiating between social infrastructure and other types of infrastructure projects.
“This idea that there is this division between transportation and everything else makes no sense to me,” he said. “I’ve never worked on a P3 project or an infrastructure project that didn’t have elements of everything. Generally, you don’t build a road to nowhere. … There is generally a building at the end of that road. And if you build a new facility, you need some sort of transportation mechanism to get people to that building.”
A variety of innovative P3 projects around the country were highlighted during the InfraAmericas conference, including:
LaGuardia Airport: The Port Authority of New York and New Jersey has entered into a P3 to replace the central terminal building of the Queens airport. It’s a complex project that requires keeping the existing terminal open during construction, negotiations with eight different airlines and a port authority run by two different states. But if successful, industry analysts say it could open up the potential for terminal development and other types of P3 projects at other airports around the country.
Purple Line: This 16-mile light rail transit project in Maryland that will connect Montgomery and Prince George’s counties reached financial close on June 17. The state is partnering with three private-sector developers and equity investors on the project, which is expected to begin service in 2022.
University of California—Merced: Vice Chancellor Daniel Feitelberg used his remarks at the InfraAmericas Forum to announce that the research university in California’s San Joaquin Valley will partner with Plenary Properties on a project to add 1.2 million gross square feet of classroom, laboratory, student life, housing, administrative and faculty office space by 2020.
Long Beach Courthouse and Civic Center: The Judicial Council of California partnered with Meridiam Infrastructure on a P3 agreement to design, build, operate and maintain a new 530,000 square-foot courthouse, which opened in 2013. The state will repay costs with availability payments over a 35-year period. This year the city of Long Beach announced plans to move forward with P3 procurement and financing for a more than $530 million civic center project that will include a city hall, library, park and port headquarters.
While the diversification of P3 infrastructure projects is seen by many as a positive sign for the industry, some remain concerned that the U.S. P3 market continues to develop slowly and experience periodic setbacks and that the pipeline of P3 projects still is not as strong as it could be.
“I think that we still have a tremendous need for education within the public sector,” said Jane Garvey, the former head of the Federal Aviation Administration who now serves as North American chairman for Meridiam Infrastructure. “I don’t think it’s a lack of interest and it’s certainly not lack of available capital. But the technical expertise, the political challenges … may be some things holding them back.”
But Garvey noted the federal government, led by the White House and the Treasury Department, has taken positive steps to promote technical expertise and best practices.
Foxx touted the work of the U.S. Department of Transportation in that regard as well.
“Two years ago, President Obama charged the department to create something called the Build America Transportation Investment Center,” he said. “The primary goal of the BATIC is to streamline public-private partnerships, to help advance and accelerate P3s through our own federal processes, to give states and municipalities and project sponsors an institutionalized point of contact to come directly to where we lay out our best practices, to help with model legislation, modeling the structure of projects and even model contracts. We established the BATIC to be a central location to access resources like our federal credit programs… (and) to provide information on ways to access private capital.”
Foxx points to the BATIC’s success in working with the state of Pennsylvania on its Rapid Bridge Replacement Project.
“The state sought to establish a unique public-private partnership that would bundle replacement of 558 small bridges together and allow its private partner to complete one environmental process for all 558 bridges,” Foxx said. “The BATIC supported the streamlined review process by negotiating a waiver from the Federal Highway Administration. … This saved what could have been decades of time and … additional cost. (USDOT) also provided the project with private activity bonds as part of getting the project done.”
Garvey expressed surprise, however, that despite interest from other states, Pennsylvania’s bridge bundling P3 has yet to be replicated elsewhere.
Others at the conference noted that continuing political concerns about tolling in some states could be heralding a slowdown in that P3 sector. Texas, for example, has seen a toll backlash in recent years that now has the state considering whether to do away with tolling entirely, a prospect that could cost as much as $30 billion. Additionally, Texas does not have the legislative authority to do projects financed with the promise of long-term availability payments paid by the state to a private contractor, which limits the state’s ability to do non-toll, non-revenue risk P3 projects.
But optimism remains that the U.S. P3 market could still take off in the years ahead.
“The pipeline today looks a lot better than it did 12 months ago and when I draw the comparison to the Canadian market, I see a lot of the same aspects of momentum coming into the U.S. market that were in the Canadian market five years ago,” said Jim Wierstra, managing director at Macquarie Capital, an infrastructure investment firm.
Daniels, the former Indiana governor, said all the factors that were in place 10 years ago as his state was considering having the private sector assume operations and maintenance on the Indiana Toll Road are still there.
“The capital is still there,” he said. “The market logic is still there.”
Daniels believes practicality will win in the end and states will recognize that P3s “are a better means to rebuild America.”
CSG served as a media partner for the InfraAmericas U.S. P3 Infrastructure Forum 2016, which was held June 15–16 in New York City.
Capitol Research Brief: “Evolution of the Public-Private Partnership Pipeline.”
Capitol Comments Blog Post: “Kentucky and Tennessee Latest States to Explore Public-Private Partnerships for Transportation—Within Limits.”
“Bridging the Gap Together: A New Model to Modernize U.S. Infrastructure,” Bipartisan Policy Center, May 2016.
Build America Transportation Investment Center (BATIC), U.S. Department of Transportation.