Transportation Policy Academy Pt. 9: National Council for Public-Private Partnerships’ Richard Norment

In October 2011, CSG hosted an invitation-only Transportation Policy Academy in Washington, D.C. for a group of 11 state legislators from around the country, many of whom serve in leadership positions on transportation-focused committees in their states. In addition to providing an opportunity for these state leaders to meet with their members of Congress about the future of transportation policy, CSG also invited a group of policy experts, public officials, advocates and observers to speak to the group about the policy landscape, what may lie ahead for states in transportation and what some states are doing in the absence of federal action. In the interest of sharing their insights and expertise with a broader CSG audience, this series of blog posts will feature extended excerpts from their remarks on a wide variety of transportation policy issues. Richard Norment is the Executive Directorof the National Council for Public-Private Partnerships (NCPPP), a non-profit organization of representatives of both the public and private sectors, working to promote the use of public-private partnerships for improved delivery of public services and infrastructure. During his remarks to policy academy participants, Norment discussed the reasons states are exploring public-private partnerships to fund transportation projects and his six keys to successful partnerships.

Here are some excerpts from his remarks:

Growing Interest in P3s

Norment: “Starting in the (20th Century) more and more responsibility was being transferred to the public sector. The most classic example of it is federal government, state governments began building highways … More and more things got transferred to the public sector. Then Eisenhower comes along with the Interstate highways … What has happened in the last couple of years is the financial brick wall that we’ve all run into … We’ve been deferring maintenance for way too long and it’s catching up with us now. Simultaneously we’ve got the budget crunch. Simultaneously we’ve got a growth in population and needs. So what we have seen in the last three years is a phenomenal growth in interest in public-private partnerships as one means of tapping into the resources the private sector has.”

“I hear numbers everyday and no two of them agree as to how much money in the private sector is available for infrastructure … The one common point of agreement: it’s in excess of $2 billion, maybe $4 billion that’s available as capital for investment in infrastructure.”

“Somewhere between 15 and 20 percent of all infrastructure projects now are being done as public-private partnerships.”

Six Keys to Successful Partnerships

  1. Proper Statutory and Political Environment: Norment: “That environment is a combination of legislation …You need to have an environment where the private sector comes in and says ‘okay, if we sign a contract, there’s a legislative hook to hang that contract on. We’ve got legislative authority.’ That’s sort of half of the environment. The other half is there has to be somebody in the public sector that’s recognized as a leader in this area to serve as the champion.
  2. Public Sector’s Organized Structure: Norment: “I’m glad (Virginia Secretary of Transportation) Sean Connaughton was here because he has one of the better examples around of having within the public sector an organized body of people who manage this process from concept all the way through to final execution … I happen to live in Northern Virginia, which means that every morning … I have to drive through one of the largest public-private partnership projects in the country--$1.8 billion of money to add some HOT lanes—toll lanes—to the Washington Beltway. They have a team of people within VDOT that had clearly defined a need long before but they couldn’t find an answer. Fluor, Transurban and 312 companies altogether offered an unsolicited proposal… The first thing Secretary Connaughton’s group of people did, they looked at it and said ‘do we really need this? If we don’t, throw it away …’ So they took a look at the unsolicited proposal and they managed the process where under state law you’ve got to put it out for competitive bids … And they have to negotiate and square away the financing. And this takes a team of expertise that many public sector people don’t have … The contracts are complex. The Indiana Toll Road (contract) … is enormous. But it’s got some performance details and stuff in it that need to be in the contract … You’ve got to have a team of people that can manage this process … That becomes a challenge because this is a new and different thing for many people, the skill sets are not there all the time.”
  3. Detailed Business Plan (Contract): Norment: “There are a variety of approaches state to state. Some have requirements that say ‘you’ve got to go for lowest price…' But when you’re looking at these infrastructure projects, you need to look instead at what’s the best value and consider the full lifecycle cost. It may cost you a bit more in year one but what’s it going to cost you when you get through 20 years … Secondly, don’t try to design it. Let the private sector design it but define what you need in the way of performance standards … If (the private sector has) an equity investment in the property, that’s a very strong motivator to build it right and build it on time. And that seems to show up in public-private partnerships consistently.”
  4. Guaranteed Revenue Stream:  Norment: “There’s got to be a source of money. This is not philanthropy … This is a contractual business arrangement. But there’s a lot of different ways in which that revenue stream can be generated. The first thing everybody thinks about is user fees—tolls, water rates, etc. But there can be a whole series of other ways … tax increment financing, tax districts, a whole variety of tools.”
  5. Stakeholder Support:  Norment: “When they first announced the HOT lanes project (on the Capital Beltway), local press, local groups, etc. went ballistic, negative, horrible idea. ‘My tax dollars paying for gas and everything and Eisenhower and DOT and VDOT—they paid for that road already and you’re going to add a toll to my beltway. First polls indicated 75 percent opposition to the project … VDOT and their private partners very quickly realized what they needed to do was a very aggressive public education, stakeholder communication program … No, we’re not taxing the existing beltway. We’re adding capacity and that added capacity will have a toll on it. If you want to drive at 2 o’clock in the morning, it’s only going to be a 50 cent toll. If you drive in the middle of rush hour, it’s going to be a $5 toll—variable pricing. … Within six weeks, they went from 75 percent opposition to 65 percent support.”
  6. Pick Your Partner Carefully: Norment: “Make sure the private partner knows what they’re doing, has got the skill sets to do the project and has got deep enough pockets to do this.”