A New Breed of Transportation Public-Private Partnerships
By Sean Slone, CSG Program Manager for Transportation Policy
A light rail project in Maryland and a bundle of 600 bridges in Pennsylvania are not just examples of states turning to the private sector to tackle transportation needs in the face of dwindling public revenues.
These projects also represent a new breed of public-private partnerships, also known as P3s, far removed from the toll road concessions that defined the industry in the United States for much of the past decade. They already may be providing important case studies for other states seeking solutions to their own infrastructure challenges.
Maryland’s Purple Line and Pennsylvania’s Rapid Bridge Replacement Project are two of the P3s that will be in the spotlight next month at the annual InfraAmericas U.S. P3 Infrastructure Forum in New York City. CSG is a supporting organization for the conference, which brings together state and federal public officials, infrastructure developers, investors, financiers and regional transportation authorities.
Maryland’s Purple Line P3
Maryland Lt. Gov. Anthony Brown announced at the 2013 InfraAmericas conference that his state would pursue a public-private partnership for the Purple Line, a proposed 16-mile light rail line that will connect Bethesda to New Carrollton.
Jodie Misiak, assistant director for Innovative Finance at the Maryland Department of Transportation, will update attendees about a year during which the state has been moving the complex project forward in a deliberate but thoughtful way.
The Purple Line, expected to cost $2.2 billion, will be funded through a combination of federal, state, local and private funds. Maryland will contract with a private partner who will design, build, operate and maintain the project, as well as help finance a portion of its construction. The state will make annual availability payments to the private partner to cover its financing cost and the project’s operation and maintenance. The public sector uses availability payments in some P3s to compensate a private partner for performance on infrastructure projects that are not expected to generate direct revenue from sources such as tolling.
Denver, Colo., is using a similar design-build-finance-operate-maintain model to construct a commuter rail project. While Canada uses this P3 model for transit projects, the Denver Eagle line is a rare example in the U.S.
Misiak said as the state dug more into the unique nature and location of the Purple Line, the P3 model it is using seemed like a perfect fit.
“It became very clear that some of the benefits of P3s were very much in alignment with what we were trying to achieve with the Purple Line,” she said.
The state Board of Public Works approved the Purple Line P3 in November 2013. Four private sector teams have been shortlisted to move forward with putting together proposals, which are due this fall. One will be chosen as the preferred concessionaire and the project will move toward commercial and financial close early next year. But even before a private sector partner is chosen, Misiak and her colleagues already find themselves doling out advice to other states about transit and project delivery, as well as availability payments.
“Obviously they’re watching to see how this works out over the next six months to a year,” she said.
“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 are starting … to get others interested in asking us how we put it all together.”
But Misiak and her team have learned from studying Denver and others that every state and every project requires a different approach—to debt, structuring documents, procurement and legislative frameworks and dealing with other parts of government.
“Some things that were going to work in the Maryland context are not going to necessarily work … in the context of some of the other states,” she said.
Pennsylvania’s Rapid Bridge Replacement Project
Pennsylvania’s groundbreaking public-private partnership could help the state address its dubious distinction as a national leader in the number of structurally deficient bridges, which now number at more than 4,000.
As the state was considering legislation to authorize P3s in 2012, the private sector approached Pennsylvania officials with the idea to tackle a bundle of bridges together as a P3. While the state had demonstrated something similar could be successful on a much smaller scale, the Rapid Bridge Replacement Project’s use of a P3 would set Pennsylvania apart.
“All the P3 projects to date in the United States have been single asset or at most two mega-bridge type projects,” Bryan Kendro, director of the Pennsylvania Office of Policy & Public-Private Partnerships said. “(Here) you’re talking about essentially 600 discrete (bridge) projects rolled up into one contract. We’re finding that at every turn we’re charting new territory here.”
Kendro, one of the speakers during next month’s InfraAmericas conference, said the P3 approach allows Pennsylvania to tackle many of its bridges 10 or 15 years before they could do so otherwise and in the process, see significant cost savings.
“They’re going to get more expensive just as the price of materials and labor continue to go up,” he said. “So to be able to do it now and not wait, there are savings in that.”
In the long run, he said, the plan will allow the state to do more projects because better efficiency at delivering theses bridges will free up more dollars for other projects that might not fit the P3 profile.
Four design teams have been invited to submit proposals by September 2014. The team with the winning proposal will enter into a P3 agreement with the state to develop, design, build, finance and maintain the project in exchange for periodic availability payments from the state over an anticipated term of 25 to 35 years.
“With a $2 million bridge, we’re not looking for a ton of innovation in the design and construction,” Kendro said. Instead, the state is looking for innovation in the logistics associated with the project and the prefabrication, mass production and , standardization of those 600 bridges.
“It’s more how do they manage the portfolio of projects versus how do they figure out how to build a small, less than 100-foot bridge, which isn’t that difficult,” said Kendro.
And just as in Maryland, Pennsylvania’s unique approach has already garnered the attention of others before a private sector partner is chosen or—in Pennsylvania’s case—the first bridge is replaced.
Other states have reached out to Pennsylvania or have talked to the state’s consultants about the project.
“Especially in this part of the country, you have a lot of facilities that are old and a lot of bridges that are in need of replacement,” Kendro said. “So I think folks are looking to this as maybe the way to address some of those issues and do it in a cost-effective manner.”
Misiak and Kendro 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. U.S. Rep. Sean Maloney, D-New York, a member of the House Transportation and Infrastructure Committee’s Public-Private Partnerships Panel, also will speak. State officials from key P3 states including Arizona, Colorado, Indiana, Massachusetts, Texas and Virginia also will be on hand. The full agenda and registration information are available on the InfraAmericas website.