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California Launches Road User Charge Pilot Study

Posted in News, Policy

This Friday, January 23, 2015, California will take the first step in investigating a road user charge pilot program as an alternative to the gas tax when the CTC convenes the Road User Charge Advisory Committee meeting.  The committee was created last year by SB 1077 which authorizes a pilot study.  California joins a handful of other states that are exploring road user charge pilot programs, including Oregon, Washington, and Minnesota.

The 15 member committee is made up of representatives of local and regional agencies, privacy advocates, auto groups and state officials.  According to the authorizing statute, the committee is to come up with recommendations to the Secretary of Transportation on the design of a pilot program.  Based on the recommendations of the committee, the Transportation Agency would implement a pilot program which would be implemented by January 1, 2017.

University of California Shortlists Three Teams for UC Merced 2020 Project

Posted in PPPs, Social Infrastructure

The Regents of the University of California (the “Regents”), on behalf of the University of California, Merced (UC Merced), announced today that three teams have been shortlisted to submit detailed proposals for the Request for Proposals (RFP) phase of the UC Merced 2020 project.

The three shortlisted teams and their equity members are (in alphabetical order):

  • E3 2020:  Balfour Beatty Investments, Inc.
  • EP2 Developers:  Edgemoor Infrastructure & Real Estate LLC, Plenary Group (Canada) Ltd., and Education Realty Trust, Inc.
  • Merced Campus Collaborative:  Lend Lease (US) Investments, Inc., Macquarie Capital Group Ltd., and ACC OP Development LLC

The Regents received six responses to its Request for Qualifications (RFQ), which was reissued on September 25, 2014.  The three shortlisted teams will now enter the RFP phase, which will solicit detailed proposals for the comprehensive development, design, construction, financing, operations, and maintenance of academic, administrative, research, recreational, student residence, and student services buildings.  The planned campus expansion is intended to support projected enrollment growth from 6,200 current students to 10,000 students by the 2020-2021 academic year.  The project will be developed on a 219-acre university-owned site which includes the current campus and 136 acres of adjacent, undeveloped land.  Proposals are expected to be received in late 2015.

Additional information about the shortlisted teams is available on the project website.

New President Ready to Take the Reins of International Bridge, Tunnel & Turnpike Association

Posted in News

Javier Rodriguez, P.E., Executive Director of the Miami-Dade Expressway Authority (MDX), is ready to begin his role as president of the International Bridge, Tunnel and Turnpike Association (IBTTA) for 2015.  Rodriguez was elected during IBTTA’s 82nd Annual Meeting and Exhibition in Austin, which brought together nearly 1,000 transportation leaders from more than 20 countries to discuss innovative practices, policies, technologies, funding options and business models transforming mobility for drivers worldwide.

As the executive director of MDX, Rodriguez led the charge in converting MDX’s expressways to an all-electronic system.  Before joining MDX in 2007, Rodriguez spent 16 years with the Florida Department of Transportation, including four years as Director of Transportation Development.

“I am honored to lead IBTTA and its members during this critical time for infrastructure investment,” said Rodriguez. “Our economy and mobility depend on the quality of our highways, bridges and tunnels and the tolling industry is front and center providing solutions to address congestion, mobility, interoperability, and the reconstruction of highways.”

Rodriguez will be a key player in IBTTA’s ongoing efforts to obtain flexibility for the states to meet their individual transportation funding challenges, including through the use of tolling on existing Interstate System routes.  Rodriguez will also head up IBTTA’s Moving America Forward public awareness campaign, which IBTTA launched in 2013 to highlight the benefits of tolling to elected officials, policymakers, the media, and the general public.  For more information about the Moving America Forward campaign, please click here.

ARTBA Schedules 27th Annual P3 Conference

Posted in News, PPPs

The American Road and Transportation Builders Association (ARTBA) has announced that it will hold its annual Public-Private Partnerships in Transportation Conference on July 15-17, 2015 at the Hyatt Regency Washington in Washington, DC.  This year’s conference, entitled “P3s in Transition: The Next Chapter”, will again feature a P3 owners-only meeting and interactive sessions, including the continuation of the “Great Debate” series exploring whether unsolicited proposals add value to P3s.

ARTBA’s annual conference is the nation’s premier and longest-standing event for P3s in transportation.  Additional information is available at www.artbap3.org.

Availability Payment or Toll Concession: Is there a hybrid approach?

Posted in Financing, PPPs

At the TRB P3 Subcommittee meeting on January 12, 2015, among the topics discussed is the growth in the U.S. P3 market of the availability payment approach and less use of toll concessions.  Availability payment contracts have the advantage of lowering financing costs, incentivizing high quality performance and keeping toll setting authority with the public owner.  However, there may be a limit to the amount of annual payments a public agency is willing to commit itself to make.  Toll concessions shift demand and revenue risk to the private sector and interest particularly among private lenders in such projects has waned since the Great Recession.

The discussion evolved into whether there is a feasible way of crafting a hybrid P3 contract where some portion of the private developer’s payments would be subject to demand and revenue risk.  This hybrid approach has been used on a limited basis in other countries.  The challenges in putting such a transaction together are daunting:

  • What portion of the payments should be subject to risk?
  • How do you structure the deduction regime?
  • How much construction and project O&M risk could be shifted to the private sector?
  • How would user fees be set?
  • What would be the impact on financing costs and equity requirements?

It seems worth exploring this combined approach if the answer to these and other questions can produce benefits beyond employing just one or the other.

 

California High-Speed Rail Authority Hosts Official Groundbreaking Ceremony

Posted in Design-Build, High-Speed Rail, News

On January 6, 2015, the California High-Speed Rail Authority (the Authority) achieved a significant milestone — the groundbreaking of the only high-speed rail system in the United States.  Gathering at the site of the future train station in downtown Fresno, federal, state and local government officials, as well as hundreds of student, community, transportation, business and labor leaders celebrated the start of construction for the largest infrastructure project in the United States.

California Governor Edmund G. Brown Jr. commented on the importance of the high-speed rail as an investment in the state’s transportation infrastructure to limit congestion Californians must endure as the state grows, while reducing vehicular emissions and related adverse effects on California’s climate and air quality.  “There’s also a really big barrier that puts a limit on how many cars [California can accommodate],” noted Governor Brown, “that’s called congestion. You can only have so many lanes. You can’t keep paving over prime agricultural land. You can’t take property off the tax rolls any more than you have to.”  Given the transit capacity and greenhouse gas reductions the project will provide, Brown further noted of the $68 billion high speed rail investment: “the project is not that expensive! We can afford it! In fact, we cannot ‘not afford’ it, as we look at building a future that really works.”

High-Speed Rail Authority Board of Directors Chairman Dan Richard delivered remarks highlighting the monumental importance of the rail line as an investment in the future of California, stating that it “will forever improve the way that Californians commute, travel, and live.”

The transportation and economic benefits of the high-speed rail program include:

  • Provision of equivalent transportation capacity to construction of a 16-lane highway running from San Diego to San Francisco, while using much less private property;
  • A significant economic boost for the Central Valley, where small local businesses and construction crews are already carrying out work on the rail line and will be responsible for a majority of construction work;
  • The generation of an estimated 20,000 jobs annually for five years; and
  • The addition of an estimated 66,000 jobs annually for 15 years during construction of the entire system, and a yield of approximately 2,900 permanent operation jobs when the project is completed.

The project’s environmental benefits were also touted at Tuesday’s ceremony, including:

  • Estimates of significant reductions in vehicular emissions, as well as improved air quality, by 2029 with Phase 1 of high-speed rail service projected to reduce  NOx ,SOx, particulates, and carbon dioxide emissions in an amount equivalent to taking 17,700 to 53,000 cars off the road;
  • Greenhouse gas reductions by 2029 totaling between  575,000 and 1,000,000 equivalent metric tons;
  • The use of clean, low-emission (Tier 4) construction equipment to build the rail lines; and
  • Permanent preservation of thousands of acres of agricultural land and sensitive habitats.

Nossaman is proud to have supported the California High-Speed Rail Authority in reaching this important milestone.

For more information about the California High-Speed Rail, visit www.hsr.ca.gov, www.facebook.com/CaliforniaHighSpeedRail and www.twitter.com/cahsra.

Photo courtesy of the California High-Speed Rail Authority.

Benefits of P3 Model – Rebuttal of Ontario Auditor General’s Report

Posted in News

Guest post by Mark Romoff, President and CEO, The Canadian Council for Public-Private Partnerships

On December 9, 2014, Ontario’s Auditor General released her 2014 Annual Report, sharply criticizing Ontario’s Alternative Financing and Procurement (AFP or P3) program and suggesting a return to using the traditional method of delivering public infrastructure to achieve savings in taxpayer money.  The report expresses skepticism about the cost-saving benefits of the P3 delivery model, directly contradicting what is widely viewed by P3 players and the Canadian public generally as a powerful tool for delivering much needed public infrastructure in a cost-effective and timely manner.

In particular, the Auditor General’s report paints an inaccurate representation of the P3 model and makes assumptions about the cost of traditional project delivery methods that are not backed by any empirical evidence.

Canada’s track record on P3s has demonstrated that the transfer of risks to the private sector under the P3 model has real value.  Ontario has over 100 AFP projects in procurement or implementation phases, and a total of 220 P3/AFP projects have been brought to market across Canada.  Managed by Infrastructure Ontario, Ontario’s AFP program is internationally renowned as the “gold standard” for P3 programs.  An independent study recently completed by InterVISTAS Consulting Inc. confirmed the impressive economic impact that P3s have had on the Canadian economy over the past decade, including $9.9 billion in cost savings for tax payers over the traditional procurement method, $7.5 billion in tax revenue to government, and 517,430 total full-time equivalent jobs.

On the other hand, to believe that the public sector can deliver every project on-time and on-budget or even has the capacity to manage multiple, complex projects at the same time, is simply unrealistic.  Taxpayers are tired of projects costing far more than initially budgeted, deficient in design and construction, and depreciation from deferred maintenance, which is why governments have turned to P3s.

However, I do whole-heartedly agree with one recommendation in particular made by the Auditor General, which calls on the government to begin collecting data on the cost of delivering infrastructure under the traditional model.  Traditional procurements should be held to the same high standard of scrutiny as P3s.  I am confident that with full information, the benefits of P3s will be clearly evident.

Emerging Trends in Project Delivery: Design-Build-Maintain Contracting for Surface Transportation Projects

Posted in PPPs

In the modern U.S. history of public-private partnerships, the prevailing project delivery models have been the toll concession and the availability payment contract.  In both cases, the private party raises equity and debt financing and takes responsibility and risk for completing design, constructing and providing long-term operations and maintenance.  The major difference between the two is that in the toll concession the private party takes the revenue risk and secures its debt with project toll revenues, while the public owner takes the project revenue risk under an availability payment contract and gives a contract covenant to pay that becomes the security for the private party’s debt and return on equity.

There are signs, however, that we are witnessing some second thoughts by public owners about entering into long-term toll concessions and availability payment P3s.  The response to this scrutiny is taking the form of what we believe to be the next trend in US P3s – design-build-maintain and design-build-operate-maintain project delivery.  We saw a bit of this type of contracting before toll concessions emerged, such as the DBOM contract for the Hudson-Bergen Line in New Jersey in the 1990s.  But DBM and DBOM remained a pretty quiet tool until recently.  That has all changed with a slew of TxDOT projects deploying DBM project delivery, and it is catching on in other jurisdictions as well.

It started out with TxDOT’s SH 130, Segments 1-4.  After a hiatus of several years, in quick succession, TxDOT procured or is in the process of procuring DBM contracts for the I-35E, SH183, Grand Parkway Segments H, I1 & I2, Harbor Bridge Replacement Project in Corpus Christie, and SH360.  Arizona has followed suit with its Loop 202 South Mountain Freeway project.

Maybe no project exemplifies this evolution more than the Knik Arm Crossing in Anchorage.  A single purpose agency, Knik Arm Bridge and Toll Authority, first sought to deliver the project as a toll concession using tolls as the sole source of revenue.  KABATA abandoned its toll concession procurement in favor of an availability payment P3 when it became clear that the short listed proposers would not proceed without state subsidies of the tolls due to the significant revenue risk in the early years.  The availability payment procurement depended upon further legislation to establish a sound state source for payments subject to appropriations.  While KABATA’s detailed risk-adjusted cost estimates and financial analysis indicated that this was the state’s most beneficial way to deliver and finance the project, the Alaska Department of Revenue had different ideas and prevailed with legislation and appropriations that paved the way for public financing.  The Knik Arm Crossing is now likely to proceed under a DBM delivery model, the third procurement for the project.

So what explains this trend?  We think three principal forces are at play.  The first is value for money.  The cost of funds with tax-exempt public financing is generally lower than the interest rate and rate of return on private sector borrowings and equity investment.  This introduces an important distinction when financial analysts compare the anticipated whole life costs of the DBM delivery method to the whole life cost of a toll concession or availability payment delivery method.  While the latter have their own advantage in terms of private sector efficiencies driven by the transfer of risk to equity, this advantage does do not always make up the difference in the higher financing costs vs. tax exempt bonds, at least in the eyes of public sector CFOs.  There is a growing view that marrying a long-term maintenance obligation with the design and construction obligation, all backed by performance bonds and parent guarantees, provides sufficient motivation for the private sector to focus on life cycle cost efficiency and project performance without the need for an equity investment.  As a result, quantitative cost comparisons between DBFOM P3s and DBOM/DBM P3s sometimes do not produce meaningful differences in risk-adjusted costs to design, construct, operate and maintain.  Any narrow difference in favor of DBFOM is sometimes reversed when the cost of money is factored into the calculation.

The second force at play is a perception of greater public owner flexibility under the DBM method as compared to availability payment P3s.  Public owners are effectively locked into long term payment obligations with availability payments that reflect a required level of performance by the private party higher than what the public owner would typically do.  The cost to exit early is enormous, because the termination compensation must be enough to retire the private party’s outstanding debt and breakage costs and provide a rate of return on the equity investment.  DBM termination compensation is insignificant by comparison.  At a time when public owners are seeing stagnant or declining revenues at both the federal and state levels to pay for highway operations and maintenance, they are reluctant to take on long term payment obligations that can only be cancelled at the price of paying off debt and equity early.

The third factor is apparent private sector acceptance of DBM procurements.  TxDOT first put its toe in the water with optional maintenance terms of five years each up to a total of 15 years.  Subsequently, TxDOT has moved to mandatory maintenance terms as long as 25 years, with termination for convenience rights.  ADOT may push the envelope to 30 years for the South Mountain Freeway DBM contract, as indicated in its RFQ for the project.  ADOT has received five statements of qualifications.

All three factors drove ADOT’s decision to pursue DBM project delivery for South Mountain.  The quantitative part of its value for money analysis slightly favored DBM over a DBFM availability payment alternative.  On a qualitative basis, ADOT could not justify the level of year-in, year-out expenditures that the DBFM model would bind it to on a project that is a lower maintenance priority than the I-10 and other major freeways in the Phoenix area.  Finally, two states away, TxDOT was getting excellent competition and bid results for its DBM projects.

In noting this trend and its possible reasons, we are not implying that DBM is a better project delivery tool than toll concessions and availability payment P3s.  The comparative advantages and disadvantages of each are certainly open to debate and will vary by project.  But it is equally certain that those who believe strongly in the benefits to government from private financing and equity participation will have to sharpen their analytical and persuasive skills if they want to forestall this emerging trend. And only time will tell whether the value to be realized from the incentives created by the toll concession and availability payment P3’s to deliver projects on time and with a high level of performance will be realized in way that makes these tools more attractive than the DBM approach.

Preferred Offeror Named on Marion County Consolidated Justice Center Project

Posted in Social Infrastructure

City of Indianapolis Mayor Greg Ballard announced today that WMB Heartland Justice Partners was selected as the Preferred Offeror to design, build, finance, operate and maintain the new Marion County Consolidated Justice Facility.  WMB Heartland Justice Partners is comprised of equity members Walsh Investors, LLC, Meridiam Infrastructure Indy Justice, LLC, and Balfour Beatty Investments, Inc.

In making the announcement, Mayor Ballard said of the project: “It will solve so many problems, so many problems that contribute to our existing facilities being outdated, inefficient and unsafe.”  And in touting the delivery method, he said: “It is important to know that this payment is performance based, meaning WMB Heartland Justice Partners will be measured on a monthly basis on their ability to meet the agreed upon service, performance and availability standards.”

The 35 year DBFOM project is at the vanguard of municipal availability payment deals in the United States and is the currently the largest social infrastructure availability payment project in North America.  The facility will include:

  • A new criminal courthouse facility for the Marion County superior court, including 28 new courtrooms and 10 hearing rooms.
  • A Marion County detention center with a total of 3,000 beds, including medical and mental health accommodations.
  • A community corrections facility with a total of 960 beds.
  • Office Space to house the Marion County Sheriff’s Office operations.

The estimated cost of construction of the justice center is $408 million, considerably lower than previously speculated construction costs ranging from $500 – $700 million.  The annual service fee is just over $3 million below the City’s affordability limit.  Commercial close is anticipated for March 2015. Project substantial completion is scheduled for May 2018.

The new facility will be sited on 46 acres of brownfield redevelopment land on the western half of the former General Motors stamping plant.

The other two Offerors on the project were:

  • Indy Justice Partners, with equity members Fengate Capital Management Ltd. and AECOM Global Fund I LP
  • Plenary Edgemoor Justice Partners, with equity members Plenary Group USA Ltd. and Edgemoor Infrastructure & Real Estate LLC

More information about the project is available at the project website.

Renderings of the proposed Marion County Justice Center can be found here.

The project’s stakeholders, including the Indianapolis Mayor’s Office, the Marion County Sheriff Office and the Marion County Circuit Court, selected WMB Heartland Justice Partners as the preferred bidding team for the project.