States Look to Private Sector on Infrastructure
By Sean Slone, CSG Senior Transportation Policy Analyst
With states facing growing infrastructure needs and great uncertainty about what the federal commitment to transportation will be going forward, many in recent years have turned to the private sector for help in financing transportation projects.
Thirty-one states have laws that allow them to enter into public-private partnerships, or P3s for short. Virginia officials took things one step further this year when they created the Office of Transportation Public-Private Partnerships to pursue, nurture and manage these agreements with private investors. The offices provides dedicated resources to help the six transportation agencies the secretary of transportation directs to identify, select, evaluate and procure P3 projects.
“Those dedicated resources will, among other things, facilitate timely delivery of P3 projects and help to create a pipeline of projects to meet Virginia’s short-, medium- and long-term transportation goals,” said Ryan Pedraza, a program manager in the office.
Pedraza will be among the speakers at a session on the future of North American infrastructure during The Council of State Governments’ National Conference and North American Summit in Bellevue, Wash., Oct. 21-23.
He said Virginia has already partnered with private investors, including toll road developer Transurban Group and the infrastructure engineering/construction/project management firm Fluor, on projects such as the high occupancy toll—or HOT—lanes on Interstate 495, outside Washington, D.C., which is currently under construction. Also in the works as P3s are HOT lanes on I-95, a major tunnel project in the Norfolk/Portsmouth area and a new extension of U.S. Route 460 between Petersburg and Suffolk.
But Pedraza said his office won’t seek to develop just road projects as public-private partnerships.
“Virginia’s P3 legislation allows Virginia to pursue P3s for a wide range of transportation infrastructure, including roads, bridges, tunnels, ferries, airports, mass transit facilities, parking facilities and ports,” he said. “The breadth of the enabling legislation gives Virginia flexibility when considering which procurement approach fits a particular project.”
Depending on the type of project and the amount of risk and responsibility a state is willing to undertake or cede to a private firm, procurement approaches can run the gamut from basic contracts under which the private firm designs and builds the transportation project to lengthy leases on existing facilities as in the case of the Chicago Skyway and Indiana Toll Road, two high-profile P3 deals that took place in the last decade. Most P3 projects in the United States involve a procurement method in which a private entity not only designs and builds the facility but also finances, operates and sometimes maintains it for a long period of time.
Pedraza said the private sector is looking for the right projects for investments around the world and the right governmental partners they know they can work with.
“Infrastructure developers and investors have many opportunities all over the world, but must weigh a number of factors when considering how to deploy limited resources in pursuit of those opportunities,” Pedraza said. “Those factors include not only the financial and technical risks of a given project, but the business risks associated with a procuring authority’s ability to bring a project to market and close a transaction.”
Pedraza believes his office will give Virginia a leg up on other states and other governments in competing for available private sector dollars.
“The resources offered by a dedicated office, coupled with Virginia’s proven track record for delivering transportation infrastructure improvements via P3s, send the message to industry that pursuing projects in Virginia is a good investment because we have focused our resources, experience and expertise to get deals done.”
Pedraza also hopes a consistent, newly institutionalized approach to these public-private partnerships will allow success to breed success in the commonwealth. A review of the state’s P3 program by the global infrastructure advisory firm KPMG last year said the program lacked a standardized bidding process and involved too many state workers with competing priorities. The firm recommended not only the establishment of the independent office, but also the development of standard processes and methodologies for project screening and prioritization, a programmatic approach to procurement and delivery of P3 projects and a streamlining of the procurement process.
“Virginia’s reputation for transportation infrastructure P3s has helped the commonwealth to attract interest from well-known international developers and contractors,” he said. “With the creation of the P3 office, Virginia seeks to continue this trend and attract interest in future projects from a number of qualified developers and contractors to generate the best value for the commonwealth.”
The panel on the Future of North American Infrastructure will take place Oct. 22 from 10 to 11:30 a.m. PT at the CSG National Conference and North American Summit in Bellevue, Wash. The panel also includes Sean Carlos Cazares Ahearne, deputy director general for Border Affairs in Mexico’s Ministry of Foreign Affairs.