Infra Insight Blog : written by Nossaman LLP Infrastructure attorneys, covers infrastructure project delivery, including Public-Private Partnerships, Operations & Management Agreements, policy, and news.

Included in New Jersey’s Economic Stimulus Act of 2009  are provisions to allow the use of PPPs to design, build, finance, operate and maintain higher education facilities.  Is this the start of a trend for developing social infrastructure in the US?

Social infrastructure includes housing, educational, recreational and law and order facilities that support the community's need for social interaction.  As reflected by several projects in Canada, this is not a new concept for North America.  Along with the recent use of a PPP for development of the Long Beach Courthouse, New Jersey’s authorization of PPPs for higher education projects may indicate that the US market is warming to the idea as well.

Under the  new law, a State or county college may enter into a PPP that permits the private entity to assume full financial and administrative responsibility for the on-campus construction, reconstruction, repair, alteration, improvement or extension of a building, structure or facility of the institution.  The project must be financed in whole by the private entity, and the State or institution of higher education retains full ownership of the land upon which the project is completed.

Proposals for higher education PPP’s must be submitted to the New Jersey Economic Development Authority within 19 months of the law’s July 2009 enactment for review and approval.  In order to be considered, proposals must include, at a minimum:         

• A public-private partnership agreement between the State or county college and the private developer; 
• A full description of the project;
• The estimated costs and financial documentation for the project (including a long-range maintenance plan);
• A timetable for completion of the project extending no more than five years after consideration and approval; and
• Any other requirements that the Economic Development Authority deems appropriate or necessary.

With budgets stretched to the limit across the country, we’ll be watching to see if other states look to PPPs  to develop much needed social infrastructure.

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USDOT is weighing 1400 TIGER grant applications (11 of which requested TIFIA funding) totaling $57 billion in funding requests. The TIGER (Grants for Transportation Investment Generating Economic Recovery) program provides for $1.5 billion in discretionary grants to high impact transportation projects, and could fund up to $200 million in TIFIA assistance. 

Applications were due on September 15. Secretary LaHood has assembled a team to expedite application review, and plans to announce grants in January 2010 – a month ahead of the statutory deadline.  

The program gives priority to “shovel ready” projects that can be completed on or before February 17, 2012. Selection criteria favor high-impact projects that lower life cycle costs, and enhance safety, sustainability, livability, and economic competitiveness. Grants can range in size from $20 – 300 million.

USDOT is required to ensure an equitable geographic distribution of funds, and may adjust its list of recommended projects after applying the program selection criteria described above. No state can receive more than $300 million in funds, and multi-state applications must allocate project costs to assist USDOT in determining funding levels for each participant.

TIFIA could significantly boost the program’s impact. TIFIA offers credit assistance (loan guarantees and direct loans) to states and their partners, and can leverage funding and help attract private investment as a way to fill a gap in the financial system between the risk-averse municipal bond markets and the high-interest loans available to the private sector. 

The Federal Highway Administration has estimated that allocating the full $200 million in TIGER TIFIA grants could support $2 billion in credit assistance, more than tripling the funding outcome for the TIGER program. While USDOT has not released an official estimate of TIGER TIFIA funding requests, fully utilizing the TIFIA allocation would amplify the TIGER program’s impact by drawing on infrastructure investment in high-traffic congested urban corridors, consistent with the program’s focus on high impact projects. 

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Infrastructure Investor, a trade publication, examined how the proposed extensions to the transportation authorization could pull money from states through rescission. Monday’s article, “US states face $9bn in transportation funding cuts,” discusses the looming rescission of budget authority required by SAFETEA-LU, as well as the proposed extensions of program authority moving forward in the Senate. The article extensively quotes Ed Kussy, former Federal Highway Administration Deputy Chief Counsel, and current Nossaman partner. Excerpts from the article follow.

…the rescission was worked into the bill as a way to get the bill to “score”, or cost less. The bill’s sponsor, Republican Alaska Representative Don Young, wanted a higher score, while the Bush administration wanted a lower score, Kussy recalls.

By requesting that $8.7 billion in unspent contract authority be given back, the rescission allowed the bill to score lower and get the president’s approval. “So both sides got what they wanted. Well, now it’s come time to pay the piper,” Kussy said.

The rescission would not take money away from projects they’ve already contracted out, Kussy explains, but it would crimp their ability to obligate further projects.

Kussy said the extensions do not address the rescission, which he believes was meant as an “inducement to make Congress pass the next [transportation reauthorisation] bill on time”.

The full article is available online at:

http://www.infrastructureinvestor.com/Article.aspx?aID=0&article=46113

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Two potential public-private partnership transit projects appear closer to leaving the station, after several delays. Denver Regional Transportation District (RTD) recently held a public hearing on the Eagle P3 project and is poised to issue a request for proposals to three prequalified/shortlisted teams on September 30th with proposals anticipated in March 2010. Bay Area Rapid Transit (BART) is on an accelerated schedule for its stimulus-revamped Oakland Airport Connector project, with proposals due in late September and contract award slated for December.

The Federal Transit Administration selected both projects to participate in the Public-Private Partnership Pilot Program or Penta P, a program authorized by SAFETEA-LU to demonstrate the pros and cons of P3s for certain new FTA-funded fixed guideway capital projects. FTA officially launched the program in January 2007, focusing on projects that utilize procurement methods that integrate risk-sharing and accelerate project delivery.

FTA recognized the inherent obstacles in transit P3s in its 2007 “Report to Congress on the Costs, Benefits, and Efficiencies of Public-Private Partnerships for Fixed Guideway Capital Projects,” emphasizing that private partners for transit projects have been reluctant to provide long-term equity investment or assume ridership or revenue risk. Overcoming the challenges to private sector equity investment and assumption of revenue risk for transit projects will be a gradual process, even with Penta P support. Denver’s Eagle P3 project, to be delivered as an availability payment concession, calls for the concessionaire to finance the project, although the RTD will assume the farebox risk. While BART’s initial plans for the Oakland Airport Connector called for the private sector to provide financing and share in the farebox risk, BART has since switched gears; the contractor will now design, build, operate and maintain the project, but BART will fund the project itself, using a combination of traditional funding sources and an injection of stimulus funds.
 

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The Florida Department of Transportation’s I-595 project and its public and private partners won several awards at this year’s American Road & Transportation Builders Association (ARTBA) P3 conference. “It’s pretty much a Florida sweep,” declared Pamela Bailey-Campbell, ARTBA Public Private Ventures Division president, as she announced the recipients of the Project, Public Sector Entrepreneur, and Private Sector Entrepreneur of 2009.

Bailey-Campbell announced three awards at the September 25 award luncheon in Washington D.C. The I-595 project in Fort Lauderdale, Florida received the Project of the Year award. ARTBA called the project, which achieved commercial and financial close in March of this year, a seminal project in public-private partnerships because it is the first availability payment concession highway project in the United States. FDOT Secretary Stephanie C. Kopelousos accepted the award on behalf of the department.

The Public Sector Entrepreneur of the Year award went to Gerry O’Reilly, Director of Transportation Development of FDOT District Four. Secretary Kopelousos credited Mr. O’Reilly - who led the FDOT team on the I-595 project - as the primary individual responsible for the project’s success.

The Private Sector Entrepreneur of the Year award went to Juan Santamaria, Chief Operating Officer of ACS Infrastructure Development, Inc. Mr. Santamaria was the lead representative and negotiator of the I-595 concessionaire team. In accepting the award, Mr. Santamaria thanked ARTBA for being a leading voice and organization in the PPP industry.

Nossaman served as legal advisor to FDOT on the I-595. Jeffrey Parker served as financial advisor and RS&H served as technical advisor.

Photo: Courtesy of ARTBA. Pictured are Juan Santamaria, Stephanie Kopelousos, Pamela Bailey-Campbell (outgoing ARTBA PPV Division President), Brian Howells (incoming ARTBA PPV Division President), and Gerry O'Reilly.

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The House has passed a new bill (H.R. 3617) which extends federal highway and transit programs set to lapse at the end of September, when SAFETEA-LU expires, through the end of the calendar year. 

Yesterday, House Transportation and Infrastructure Chairman Jim Oberstar introduced the bill under an expedited process which waives committee approval and prevents amendment.  The bill does not address the $8.7 billion rescission required under SAFETEA-LU, which will force FHWA to cancel program funding apportioned under SAFETEA-LU (as amended by the EISA) on September 30.   

The rescission is a vital concern for States, which have relied on transportation projects to prop up soft economies and would face devastating losses if the rescission were enforced. AASHTO has warned, for example, that the rescission would cost Missouri $202 million in contract authority and disproportionately impact local bridges and metropolitan planning organizations.  Colorado would lose $115 million in contract authority.  Michigan's share of the rescission is $263 million; approximately a quarter of what that state received for highway and bridge funding through the recovery act.

Rescissions have been used in all of the recent transportation authorization bills, and are meant to force Congress to enact the next round of authorization. The problem with repealing the rescission is that the extra 8.7 billion cost would be attributed to the extension bill. Oberstar’s spokesman said a repeal of the rescission was excluded from the measure because budgetary scoring rules would require an offset to pay for the repeal through higher taxes or reduced spending elsewhere.

The bill now heads to the Senate, where it will compete with the Senate’s 18-month extension proposal.  The Senate Environment and Public Works committee has approved a different bill (S. 1498) to extend funding until March 2011, which would allow the stimulus transportation funding programs to run their course and delay the funding debate until after the 2010 election cycle has passed. The extension would provide an estimated 50% increase in current funding.

The major obstacle facing any transportation authorization bill is lack of funding. Raising taxes in the wake of the recession may prove difficult politically, though business groups, including the U.S. Chamber of Commerce and a number of blue ribbon panels – including the National Surface Transportation Infrastructure Commission and the National Surface Transportation Policy and Revenue Commission have all advocated increasing the gas tax. 

Congress is clearly motivated to avert an October 1 grinding halt to federal transportation funding, so it is likely that the Senate will follow the House’s lead in expediting review of these bills.  The Senate Finance committee has reported Chairman Max Baucus’ bill (S. 1474) would provide $27 billion in revenue to pay for the 18 month extension, and Senators Barbara Boxer, James Inhofe, and Christopher Bond have pledged that the rescission will be repealed before September 30.

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TRB’s National Cooperative Highway Research Program (NCHRP) division has weighed in on road user fees based on vehicle miles traveled or VMT. Their latest report “Implementable Strategies for Shifting to Direct Usage-Based Charges for Transportation Funding” responds to VMT’s critics who say the transportation funding method would be too challenging and require a lengthy implementation period. The report outlines strategies for shifting to direct user-based charges for transportation funding, focusing on incremental VMT mechanisms which can be fully implemented in the next five years. The discussion is generally limited to the technical aspects of various VMT fee mechanisms, avoiding the thornier issues of public and political acceptance.

The issuance of the NCHRP report adds to a growing body of support for a revamping of the traditional means of funding highway construction and maintenance. In February of this year, the National Surface Transportation Infrastructure Financing Commission issued its final report recommending the use of VMT. Interim and long-term VMT strategies will no doubt have a central role in the upcoming debate over the surface transportation reauthorization measure.

 

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Texas Department of Transportation (TxDOT) officials executed a comprehensive development agreement (CDA) with the LBJ Infrastructure Group to design, construct, finance, operate and maintain the 13-mile LBJ-635 corridor in Dallas County. Following the North Tarrant Express (June 2009), the LBJ-635 is TxDOT’s second toll concession to reach commercial close this year.

Construction is expected to begin by mid-2011 and open to traffic in late 2016. Motorists will have a choice of either using the managed toll lanes or remaining on the improved and rebuilt free main lanes. The new LBJ  highway will feature the following improvements:

• 8 rebuilt free main lanes (a foot wider than they are now)
• Additional shoulders on the outside of the main lanes
• Continuous frontage roads (two or three lanes wide)
• 6 barrier-separated managed toll lanes located between or below all frontage roads

For a state investment of approximately $445 million, these improvements will provide $4 billion of needed infrastructure to the Dallas area, as well as operations and maintenance over the next 52 years.  

The financing plan for the project through project completion includes a combination fo senior bank debt, private activity bonds, a subordinated TIFIA loan and a sizeable equity contribution.

LBJ Infrastrucure Group is a limited liability corporation consisting of:

• Cintra, Concesiones de Infraestructuras de Transporte, S.A (Equity Owner)
• Ferrovial Agroman, S.A. 
• W.W. Webber LLC 
• Bridgefarmer & Associates, Inc. 
• Meridiam Infrastructure Finance (Equity Owner) 
• Macquarie Capital (USA) Inc. 
• Ferrovial Infraestructuras S.A 
• Grupo Ferrovial 
• Meridiam Infrastructure, S.C.A. SICAR 
• Dallas Police and Fire Pension System (Equity Partner)

The presence of the Dallas Police and Fire Pension System within the group is notable as further evidence of public pension funds’ interest in making direct investments in transportation infrastructure.

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The Government Accountability Office (GAO) has endorsed USDOT’s policy of allocating Highway Trust Fund (HTF) apportionments based on total lane miles in each state – including miles of highway built, operated or maintained through public private partnerships (PPPs). 

Each state’s share of the nation’s highway system (quantified as “lane miles”) has factored in federal aid allocations since 1976, though initially this measure excluded tolled facilities. In 1998, Congress greatly expanded the use of the lane mile funding formula with TEA-21, and eliminated the exclusion of toll roads from the allocation formula.

On guidance from GAO, Congress has used lane miles as a proxy for need, rather than relying on direct measures of need.  Under a “direct need” model, a state that let its roads crumble might be able to demonstrate a greater need, and garner more federal aid, than a state that responsibly invested in maintenance.   

GAO’s report, prepared for Senator Jeff Bingaman of New Mexico, describes the high level approach Congress has taken, which bases funding decisions on “states' highway system needs taken as a whole, not on direct state highway system construction or operating costs.” Under this approach, states can pursue critical transportation projects through PPPs without fear of diminishing their share of HTF dollars. 

GAO’s ruling recognizes the political and fiscal realities facing state transportation agencies. Denying inclusion of these PPP projects in the HTF allocation calculus would put states that have demonstrated their need for more funds and taken positive steps toward self-help by reaching out to private partners at a disadvantage. 

The report follows on the heels of two new bills introduced by Senator Bingaman, one of which, if adopted, will place a heavier burden on states seeking to deliver transportation projects through PPPs.  The Transportation Equity for All Americans Act (S. 884) would reduce the funding such states receive through their Highway Trust Fund allocation by changing the grant allocation formulas for several programs to exclude privately operated facilities from the state network. The bills are currently before the Senate Committees on Environment and Public Works and Finance. 

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In addition to the recent passage of comprehensive P3 legislation in Arizona and California, the newly created Massachusetts Department of Transportation (MassDOT) has also been authorized to utilize public private partnerships for transportation projects. Provisions for design-build-operate-maintain (DBOM) and design-build-finance-operate-maintain (DBFOM) procurements are included in Senate Bill 2087, commonly known as the "Transportation Reform Act," under which MassDOT was formed. Under the Act, P3’s may be used for a new or existing highway, road, bridge, tunnel ferry, airport, parking facility, seaport, rail facility or other transportation facilities.

Massachusetts has opted to take markedly different approaches to funding DBOM and DBFOM projects. Payments under DBOM contracts must come in whole or in part from funds appropriated prior to award of the contract or must be secured by tolls or other user charges. In contrast, for DBFOM projects, no public funds may be appropriated to pay for the services provided by the contractor.  These restrictions could prove to be a significant hurdle to financing some projects.

Another notable feature of MassDOT’s new P3 program is the establishment of a P3 Infrastructure Oversight Commission which will comment on and approve all requests for proposals (RFPs) for DBOM or DBFOM services. The seven member commission will be composed of experts with experience in the fields of transportation law, public policy, public finance, management consulting, transportation or organizational change. At least one of the commission members will be a representative from the Massachusetts Organization of State Engineers and Sciences.

The P3 portion of the Transportation Reform Act also includes provisions for:

• Asset sales and leases
• Procurement method and evaluation factors
• Stipends
• Funding
• Confidentiality
• Contents of the concession agreement
• Creation of a public-private partnership oversight commission.

Click here to view the entire Tranportation Reform Act.

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It isn’t often that infrastructure makes the Arts pages of the Los Angeles Times.  So the recent publication of glamorous renderings of transit projects that transcend typical configurations of concrete and steel may herald a new golden age for rail and transit. 

HOK's award-winning design for Orange County Transportation Authority’s Anaheim Regional Transportation Intermodal Center  radically transforms the traditional concept of “art in transit” into transit as art; the designers employ a train station and transit hub as the medium to create an iconic visual symbol:

"As the terminus of the California high-speed [rail] line’s first phase, which will also pass through Union Station in downtown Los Angeles, the station will mark a significant entrance to Orange County – and, in the process, perhaps produce the landmark, the symbol of place and character, that the county has always lacked…"

The Anaheim station is not the only cool transit structure in the works in Southern California. The Metro Gold Line Foothill Extension Construction Authority recently selected an artist to design a bridge billed as an “iconic gateway” to the San Gabriel Valley. The bridge will span the 210 Freeway as part of the Gold Line’s extension and “pay homage to the early cultures and at the same time address recent history.”

Interjecting art into transit is not new. This article highlights the history and value of transit art programs. Such programs, however, have traditionally installed multi-media art pieces in transit stations and adjacent plazas, such as these bold creations appearing in Sound Transit’s recently opened Link Light Rail project. What is new is the use of the transit structures themselves as the artistic medium - resulting in iconic structures that could garner community identification and pride and perhaps, lead to increased ridership.

Image: HOK's design for ARTIC as seen in the Los Angeles Times on 8/27/09
 

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