Air Traffic Control Reform – Is It an Idea Whose Time Has Finally Come?

President Trump kicked off “infrastructure week” on Monday, June 5th, by proposing to “corporatize” the U.S. air traffic control system, shifting about 35,000 workers, including unionized traffic controllers, technicians, and others, off of the government payroll, and removing the Federal Aviation Administration from its role operating the business that it regulates.  It’s an idea that has been in the national discourse since at least the 1980’s, and is supported by the major U.S. airlines and other key industry players, including the union representing air traffic controllers.

Under the administration’s proposal, some of the FAA’s current responsibilities would be shifted to a newly formed federally-chartered private nonprofit corporation.  The shift would be a reorganization, not an asset sale, with assets transferred to the new nonprofit corporation at no charge, over a three-year transition period.  The nonprofit corporation would be governed by an 11-15 member board comprised of representatives of aviation stakeholders, including airlines, airports, ATC employees, private-plane groups, and others.  Funding for air traffic control currently is reliant on the vagaries of the government’s budgetary process, with taxes collected on fuel and airline tickets.  Under the proposal the taxes would be eliminated and the corporation would be funded based on a customer user-fee model to be established by the board.  Proponents argue that the nonprofit corporation would be better able to enter into long tem commitments because it wouldn’t be dependent on annual appropriations, which would expedite modernization of the system, help address the shortage of air traffic controllers, improve safety, and reduce costs.

In part, the proposal is inspired by NAV CANADA, the world’s first fully privatized civil air navigation service provider, created in 1996 through the combined efforts of commercial air carriers, general aviation, the Canadian government, employees and unions.  NAV CANADA is the world’s second-largest air navigation service provider, managing 12 million aircraft movements a year for 40,000 customers over 18 million square kilometres.  NAV CANADA’s revenues come from aviation customers, not government subsidies.  It aims to keep customer charges stable and improve safety and flight efficiency by investing in operations and controlling costs.  Its services encompass air traffic control, flight information, weather briefings, aeronautical information, airport advisory services and electronic aids to navigation.

NAV CANADA’s 15 member Board of Directors is elected by key stakeholders, all of whom are Canadian citizens and member s of the company: four elected by commercial carriers through the National Airlines Council of Canada; one elected by business and general aviation through the Canadian Business Aviation Association; three elected by the government of Canada; two elected by employee unions; four independent Directors elected by the Board; and the CEO.  The corporation has a 20 member advisory committee of aviation professionals elected at its annual meeting.

In announcing the administration’s plan to spin off U.S. air-traffic control from the FAA, the president’s top infrastructure adviser, D.J. Gribbin, said “You have what is in essence a technology business embedded in a governmental agency.”  NAV CANADA’s success in developing and marketing its suite of products and services illustrates Mr. Gribbin’s point. NAV CANADA developed its own advanced air traffic management (ATM) technology, NAVCANatm, including integrated ATM products, applications and services that is sold internationally and deployed at more than 100 sites worldwide.

Canada is only one of many jurisdictions that have effectively privatized air traffic control.  Other successful examples include Austria, Germany, New Zealand, and Switzerland.  A 2005 study in the Journal of Aviation/Aerospace Education & Research  determined that privatization of those systems into quasi-governmental corporations resulted in increased flight safety.  As of 2005, three out of four of the countries experienced an increase in efficiency.  Two of the countries indicated a decrease in ATC operating cost, while one experienced an increase in ATC operating cost.  Results suggested that applying corporate personnel management techniques increased safety and efficiency.  All of the subjects indicated that increased safety resulted from quicker equipment modernization that was not possible under previous bureaucratic governmental procurement policies.  Corporate procurement procedures for equipment reduced operating cost.  The study concluded  that reduced cost and increased safety would result from applying those models to the U.S.

“Privatization” and “corporatization” of the U.S. air-traffic control system may be an idea whose time has finally come.  Variations on the idea have been successfully implemented around the world.  However, the U.S. is not Canada, and whether or not, and to what extent, these models successfully translate to the vast network of the ATC System that the FAA operates all 50 states, Guam, American Samoa, Panama and Puerto Rico, may soon be demonstrated.

Recycling an Idea to Fund Infrastructure Improvements

Among other policy initiatives, the Trump Administration has advocated for the need to improve the nation’s infrastructure in order to maintain America’s economic competitiveness. In its recently released 2018 proposed budget, the Administration included $200 billion in outlays related to its infrastructure initiatives.  The Administration’s budget also focuses on leveraging private sector involvement as part of the overall solution to reform and change how infrastructure projects are regulated, funded, delivered and maintained.

There have been reports that one way that the Administration plans to leverage private sector involvement is through an idea known as “asset recycling.” Asset recycling involves a sale or long-term lease of an infrastructure asset owned by the public sector to the private sector.  In exchange, the private sector makes upfront or periodic payments to the public sector which the public sector will use to fund other infrastructure improvements.  The infrastructure asset that is sold or leased must generate its own revenue stream, such as an airport, toll road, parking facility or utility.

Australia is cited as the pioneer of asset recycling, with the Australian federal government offering a “bonus” payment to its local governments if the proceeds of the asset recycling are invested in infrastructure. To incentivize private sector involvement and to help bridge the infrastructure funding gap, the Trump Administration may employ a similar model by having a pool of federal funds available to pay bonuses to states and local governments that use proceeds from asset recycling to make other infrastructure improvements.  This would be consistent with the Administration’s budget objective of leveraging federal funds so that the end result is at least $1 trillion in total infrastructure spending.

Like many ideas, care must be taken in developing and implementing an asset recycling program for public infrastructure assets. Issues to consider include ensuring that the public’s interest is protected and that adequate input is obtained from all affected stakeholders. However, if the right projects are chosen for the right reasons and circumstances, asset recycling can be an effective tool to address some of our infrastructure needs.

U.S. Senate Subcommittee to Hold Hearing on Innovative Solutions for Infrastructure

On Tuesday, May 16, 2017 the Senate’s Committee on Environment and Public Works Subcommittee on Transportation and Infrastructure will hold a hearing titled “Leveraging Federal Funding; Innovative Solutions for Infrastructure.”

The stated purpose of the hearing is for Senators to examine the need for more public sector funding and private sector financing in the Federal Highway Program.  To this end, the Subcommittee has scheduled the following individuals to testify on this topic:

  • Eric Garcetti (Mayor, City of Los Angeles; Chair of U.S. Conference of Mayors Infrastructure Task Force)
  • Tim J. Gatz (Executive Director, Oklahoma Turnpike Authority)
  • Geoffrey S. Yarema (Nossaman LLP)
  • Kevin DeGood (Director of Infrastructure Policy, Center for American Progress)
  • Aubrey L. Layne Jr. (Secretary of Transportation, Commonwealth of Virginia)

The timing of this hearing could not be more appropriate.  Just earlier today, USDOT Secretary Elaine Chao announced at a U.S. Chamber of Commerce event that President Trump will unveil details on the Administration’s $1 trillion infrastructure proposal in the next several weeks, which will kick off the Administration’s collaboration with Congress on this topic.  According to Secretary Chao, the Administration’s proposal will contain $200 billion in taxpayer dollars to leverage $1 trillion worth of overall investment through public private partnerships.

Click here for more information on the subcommittee hearing, including details regarding time and location.

Angels Flight® to Re-Open through Los Angeles P3

The Angels® Flight Railway Foundation, represented by Nossaman LLP and Shumaker Mallory LLP, reached a historic agreement with a team led by ACS Group and including Sener Engineering and Systems, to put the iconic Angels Flight® Railway in downtown Los Angeles back into service by this coming Labor Day.

The agreement utilizes a public-private partnership to restore the Railway to passenger service, through full-scale modernization and state-of-the-art safety improvements, and to operate and maintain it to industry standards for 30 years. Borrowing  a revenue risk concession structure usually employed only for much larger and more  complex projects, the transaction demonstrates applicability on the smaller stage as well.

Known as the “world’s shortest railway,” the Railway is one of the most enduring landmarks in the City. It has operated over 115 years, and has carried more than one hundred million passengers, but it has been shut down since late 2013 due to regulatory requirements.

In addition to being a tourist attraction, the Railway will serve as an important transit connection between the Pershing Square Metro station and the top of Bunker Hill – an area that includes Walt Disney Concert Hall, the Broad Contemporary Art Museum, MOCA and the Los Angeles Music Center, among other cultural institutions. The public-private partnership will ensure the long-term stability of this essential connection for 30 years.

Addressing the crowd at the March 1 announcement of the historic agreement, Mayor Eric Garcetti said “Angels Flight® is a cultural gem that tells an unforgettable story about the history of Los Angeles. Today, we celebrate the rebirth of this iconic attraction — and once the modernization is complete, we will welcome millions of visitors from around the world to experience it with us.”  “It is truly a historic day for one of Los Angeles’ most recognized treasures,” said Councilmember Jose Huizar. “It is our hope that this public-private partnership ensures the new Angels Flight® will be safe, economically sustainable and — once again — a key City of Los Angeles cultural centerpiece for years to come.”

The new operator has been formed by strong companies ready, willing and able to deliver safe, reliable and sustainable transit service, and will make significant, at-risk and up-front investments necessary to cover all needed modernization, operations and long-term maintenance in exchange for an interest in the revenues the Railway will generate during the concession period.

The operators have not yet announced their initial fare structure but, owing to an agreement the Foundation reached with the Los Angeles Metropolitan Transportation Authority, the operator will offer Metro TAP Card holders a 50% discount on Railway passenger fares for at least the first three years.  The Railway is expected to operate for public use seven days per week from 6:45 a.m. until 10 p.m., subject to reasonable shutdowns for maintenance and repairs and limited special events, like movie location shoots.

For a historic funicular railway immortalized in hundreds of works of art, books, television shows and movies, most recently the widely acclaimed film and Oscar-winner, “La La Land,” this is truly a red-letter day.

For further information, please visit the Angels Flight® website at https://angelsflight.org/.

OCTA Signs DB Contract for $1.9 Billion Managed Lanes Project in California

Last week the Orange County Transportation Authority executed the design/build contract for the I-405 Improvement Project with OC405 Partners, a joint venture consisting of OHL USA and Astaldi Construction Corporation.  With a contract price of $1,217,065,000 and a total estimated project cost of $1.9 billion, the project, which consists of 16 miles of reconstruction of one of the most congested corridors in the United States including 14 miles of tolled express lanes, is the largest highway project in California currently under development.

OCTA is a multi-modal county transportation agency that, among other duties, administers a multi-billion dollar local transportation sales tax program.  The project will be financed in part with approximately $1.25 billion of local sales tax funds.  OCTA will be applying for a $627 million TIFIA loan to be secured with toll revenue received from users of the express lanes.  Caltrans is contributing another $89 million of funding for the project.  OCTA has operated one of the most successful managed lanes project in the country, the SR91 Express Lanes.  The I-405 Improvement Project is the first use of AB194, a state statute the authorizes Caltrans as well as regional transportation agencies to levy tolls to pay for state highway projects with approval from the California Transportation Commission.  The project is being developed and operated in a partnership with Caltrans, which has entered into a design/build cooperative agreement under which it will exercise project oversight services and a toll period operating agreement giving OCTA the right to operate the express lanes for 40 years beginning on the day the express lanes open to traffic. 

Next steps for the project include separate procurements for a toll systems integrator and back offices services provider for the managed lanes portion of the project.

 

Cap and Trade Auction Credits: Taxes, Regulatory Fees or “Something Else”? California Third District Court of Appeal Hears Argument on AB 32 GHG Reduction Program

A three-judge panel of the California Court of Appeal for the Third District heard oral arguments last week in the longstanding companion cases challenging the legality of AB 32’s cap and trade auctions. (California Chamber of Commerce v. California Air Resources Board and Morning Star Packing Co. v. California Air Resources Board)  The questions most frequently posed by the Justices related to the nature of payments made for greenhouse gas (“GHG”) emission credits, a contributor in the billions of dollars to the state general fund for programs designed to reduce greenhouse gasses.

The plaintiffs in the lawsuits, the California Chamber of Commerce and Morning Star Packing, a processor of bulk tomato products, claimed that the auction scheme created by AB 32, and in particular revenues generated by the auctions, constituted either illegal taxes (since the auction process and revenues had not been approved by the voters or the legislature by the required two/thirds vote) or were illegal regulatory fees under the standards established by the California Supreme Court in its Sinclair Paint Co. v. State Board of Equalization decision (since the State had failed to demonstrate the necessary nexus between the charges and the regulatory purpose of the GHG law.)

While the California Air Resources Board (“CARB”) disputed the plaintiffs’ assertion that the auction revenues violated either Prop 13 or the standards in Sinclair Paint, in a Supplemental Letter Brief to the Court and during oral argument, CARB raised a novel, but not unique, argument that the auction process generated neither taxes or regulatory fees, but rather was “something else,” referred to in the Letter Brief as “compliance instruments” that were neither taxes nor regulatory fees.  Plaintiffs asserted in counter argument and in their Supplemental Letter Briefs to the Court that there were no legal options other than a tax or a regulatory fee under California law as set forth in Sinclair Paint. However, in response to a question from the Court, CARB argued that Sinclair Paint had not established a “binary world,” asserting that the auctions performed regulatory functions such as providing equity and transparency outside the tax/regulatory fee analytical framework.

AB 32, enacted by the California State Legislature in 2006, put in place a system of greenhouse gas auctions as a way to facilitate the reduction of GHG emissions in the State by requiring emitters to purchase credits as a way to allow them to exceed GHG reduction targets. Emitters can purchase, through an auction process held quarterly, credits allowing them to emit greenhouse gasses in excess of the allowances permitted to them by the State.  The intent of the program is to reduce allowable emissions over time, forcing emitters to purchase additional allowances, reduce GHG emissions through improved technologies or by finding other ways to reduce greenhouse gasses.

A decision of the Court of Appeal is expected by April 24. Based on the Justice’s questions, observers believe that the Court will affirm the trial court decision allowing the program to continue.

FTA Publishes Buy America Handbook Addressing Rolling Stock

Federal Transit Administration (“FTA”) grant recipients and the firms that work on the projects have a twenty years in the making, updated resource to assist them in one of the more complex areas of FTA projects. The FTA last week published its Buy America Handbook, which contains the FTA’s “best practices” for conducting pre-award and post-delivery audits for rolling stock procurements.  The Handbook replaces the FTA’s 1995 handbooks for both rail vehicles and buses and is a “nonbinding guidance document” for use by grant recipients, auditors, manufacturers and suppliers.

FTA’s Buy America requirements apply to third party procurements conducted by FTA grant recipients. Those requirements, first codified in the Surface Transportation Assistance Act of 1982 and most recently set forth in the 2015 Fixing America’s Surface Transportation (FAST) Act and implementing regulations, require steel, iron and manufactured projects used in a federally funded project to be produced in the U.S.  The FAST Act also required a phasing in of increased domestic content percentage requirement for rolling stock.

FTA grant recipients are required to conduct pre-award and post-delivery audits of rolling stock. Grantees must certify compliance with Buy America and the pre-award and post-delivery audit requirements as a condition to receiving FTA grant funds.  The Handbook presents FTA guidance on processes for both pre-award and post-delivery Buy America audits, as well as methods of calculating domestic content.  In addition, to aid the user, the Handbook includes checklists, sample certification forms, references and reports.  The Handbook, together with FTA’s earlier guidance on implementing the Fast Act’s phased increase in domestic content, are valuable resources for ensuring both compliance with FTA’s Buy America requirements for rolling stock as well as uniform application of FTA’s Buy America program.

A Rise in the Tides for Water Infrastructure

It’s been a productive time for advocates of water in the U.S. with President Obama signing into law the Water Infrastructure Improvements for the Nation Act (WIIN).  WIIN includes the Water Resources Development Act of 2016 (WRDA), together with provisions to authorize critical water projects  and improve drinking water infrastructure, water storage and supply, flood control and waterways across the nation.

A summary of some of WIIN’s key attributes are set out below:

  • WIIN authorizes Congress to provide $20 million for the Water Infrastructure Finance and Innovation Act (WIFIA) in 2017. This the first time the WIFIA legislation, passed in 2014, has received appropriations from Congress with expectations that for each dollar appropriated the Environmental Protection Agency will be able to loan out at least ten dollars to eligible projects.
  • WIIN includes provisions to address California’s ongoing drought including investment in projects for desalination, water storage and supply, flood control and water recycling.
  • WIIN provides much needed funding for Flint, Michigan to treat lead contamination within its drinking water system.
  • WIIN provides for settlement of four long standing Indian water rights claims to water.

For full text of WIIN, see https://www.congress.gov/bill/114th-congress/senate-bill/612/all-actions?overview=closed#tabs

Nossaman Infrastructure Practice Group Chair Named to Board of Cornell Program in Infrastructure Policy

Patrick Harder, Chair of Nossaman’s Infrastructure Practice Group, has been appointed to the advisory board of the Cornell Program in Infrastructure Policy (CPIP), an internationally regarded academic center dedicated to advancing infrastructure through teaching, research and outreach.

Mr. Harder, a veteran infrastructure attorney who focuses on advising public agencies in high profile, complex deals, was one of 10 new board members named at the CPIP annual fall meeting in late October. He joined a field that includes CEOs and other infrastructure leaders from companies and universities in the US and internationally.

Widely known for his leadership in the field of public-private partnerships (P3s) and other innovative delivery methods, Mr. Harder assists clients in delivering projects through cutting-edge approaches, including working with the State of Florida and its advisors to help create a model for the use of availability payment P3s that laid the groundwork for such transactions across the United States.

He has served as lead outside counsel on numerous precedent-setting projects including the Florida Department of Transportation’s I-595 and I-4 Ultimate projects, the country’s first and largest P3 availability payment deals, respectively. Mr. Harder also led the legal team advising the University of California Board of Regents on the UC Merced 2020 Campus Expansion Project, the first university campus expansion in the US to be undertaken using the P3 availability payment model.

Before joining Nossaman, Mr. Harder served as general counsel for two of the world’s largest construction and engineering firms, both based in Japan. He also worked as legal and business advisor on dozens of public and private construction and infrastructure projects around the world including the Petronas Towers in Kuala Lumpur, Malaysia – two of the world’s tallest buildings.

Mr. Harder and the other new members of the 26-member CPIP advisory board join as the organization seeks to expand the reach of its core research and teaching mission. CPIP plans to develop new strategic alliances with other leading academic centers, including the Global Projects Center at Stanford University, to conduct focused study and research on infrastructure issues.

In a statement, CPIP Advisory Board Chair Anthony Ferrari, CEO of Crimson Infrastructure, an infrastructure-focused investment and advisory firm, said the new and existing board members’ “remarkable experience, relationships, and global reach” across the infrastructure sector “positions CPIP to be one of the leading academic centers of infrastructure not only in the US, but on a world stage.”

The new board members, in addition to Mr. Harder, include:

  • Enrique Diaz-Rato – CEO, Cintra (Madrid)
  • Nuria Haltiwanger – CEO, ACS Infrastructure Development (Miami)
  • Javier Fortea Perez – CEO, Globalvia Infrastructure (Madrid)
  • Peter Nicol – President, CH2M Global Water Business Group (Denver)
  • Karl Reichelt – Senior Vice President and Global P3 Leader, AECOM Capital (Washington, DC and New York)
  • Keith Hennessey – Principal Vice President and Head of PPPs, Bechtel (Washington, DC)
  • Ruth McMurrow – Executive Vice President and Head of PPPs, Parsons Enterprises (New York)
  • Jim Reynolds, Jr. – Chairman, CEO and Founder, Loop Capital (Chicago)
  • Thomas Denis O’Rourke – Cornell Professor (Ithaca, NY) and Chair of the International Advisory Group at Cambridge University Centre for Smart Infrastructure

For more information on CPIP, please see: Cornell Program in Infrastructure Policy

 

 

Kentucky Rolls Out its P3 Law in Lexington

The National Council for Public Private Partnerships (NCPPP) and the Kentucky Chamber of Commerce recently concluded on October 28 a very well-attended two day conference in Lexington, Kentucky on the Commonwealth’s new public-private partnership (P3) enabling legislation, the so-called “HB-309.”  HB-309’s chief drafter, Rep. Leslie Combs, was on-hand, participating in nearly every panel discussion, either as a panelist or from the audience.  Rep. Combs reflected on HB-309 “as if she were a proud mama,” and her and fellow Kentuckians’ enthusiasm for its flexibility and broad applicability was evident.  Secretary Don Parkinson, of the Kentucky Tourism, Arts and heritage Cabinet, noted in lunchtime remarks that Kentucky’s border states each had enabling legislation for P3s, and that the time had come for Kentucky to consider this procurement tool as a means by which to grow Kentucky’s economy and solve some of Kentucky’s challenges.

The conference, subtitled “Opportunities and Obstacles,” indeed identified and discussed both.  At once a primer on P3s and collection of government decision-makers revealing their plans, the conference gathered people from all over the country to learn about P3 opportunities in the Commonwealth.  With over 200 participants, representatives from the architects/engineers, construction, development, banking, university, legal and municipal/county communities engaged in active discussions about P3s, what they are, how they work and most critically, how a P3 comes to be in Kentucky.   Active social media participation during the conference (#kyp3) recounts many discussions, insights and perspectives relevant to Kentucky.

HB-309 affords state and local governments in the Commonwealth both to initiate P3 procurements and to entertain unsolicited proposals for P3 projects. A series of processes within the legislation are drafted to support transparency in the process.  The Kentucky Finance and Administration Cabinet recently promulgated amended proposed regulations to implement the law.  On a notable panel, the general counsels from the Kentucky Finance and Administration Cabinet, the Kentucky Tourism, Arts and Heritage Cabinet and the Kentucky Transportation Cabinet discussed candidly their respective Cabinet’s efforts to create internal infrastructure capable of handling unsolicited P3 proposals and organizing for possible P3 procurements.

The Kentucky Chamber and NCPPP anticipate working together to continue to educate interested parties and citizens in the Commonwealth about P3s.

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