APPLYING THE TOLL ROAD PRIVATIZATION MODEL TO OTHER ASSETS - PowerPoint PPT Presentation

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APPLYING THE TOLL ROAD PRIVATIZATION MODEL TO OTHER ASSETS

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Mayer Brown LLP. APPLYING THE TOLL ROAD PRIVATIZATION MODEL TO ... 9000 spaces 4 connected garages--underneath Grant Park/Millennium Park in downtown Chicago ... – PowerPoint PPT presentation

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Title: APPLYING THE TOLL ROAD PRIVATIZATION MODEL TO OTHER ASSETS


1
APPLYING THE TOLL ROAD PRIVATIZATION MODEL TO
OTHER ASSETS
  • John Schmidt David Narefsky
  • NYU Wagner Rudin Center for Transportation
  • Policy Management
  • March 25, 2008

2
CHICAGO SKYWAY AND INDIANA TOLL ROAD
  • First privatizations of major U.S. toll
    roads-transactions done in 2005 and 2006
  • Sparked wide interest in U.S. privatization
  • New infrastructure funds/commitments by pension
    funds have created pool of 400B for U.S.
    infrastructure investment

3
LARGE VALUES RECEIVED BY PUBLIC ENTITIES
  • 1.85B to City of Chicago for 99 year lease of
    Chicago Skyway
  • 3.8B to State of Indiana for 75 year lease of
    Indiana Toll Road

4
VALUE FROM 2 SOURCES
  • 1. Value of asset increases in private hands
  • Private operator will raise tolls regularly
  • Capital costs significantly reduced
  • Lower after-tax financing cost

5
2. Public recovers its equity in the asset
Equity increases with overall value
Long-term equity in U.S. infrastructure
has enormous value in world market
6
MAKES SENSE IF PUBLIC HASBETTER USE OF CAPITAL
  • Public capital not needed in operating roadscan
    be redeployed to other uses
  • Chicago created 500M reserve, paid off 400M
    city debtraised bond rating significantly
    reduced financing costs
  • Indiana put 3.8B into transportation
    infrastructureonly fully funded U.S.
    transportation program

7
OTHER ELEMENTS OF MODEL
  • Long-term lease shifts all financial risks to
    private operator
  • Any debt is subordinate to lease obligations
    of maintenance/capex
  • Operating standards assure quality
  • ? Independent engineering inspections strong
    remedies for violation

8
TRANSPARENT COMPETITIVE BID PROCESS IS ALSO KEY
  • No politics - professionally run
  • Open to all qualified bidders - no local or
    national xenophobias
  • Bidding based on fixed contract with decision
    based solely on price

9
MODEL CAN BE USED FOR OTHER TYPES OF ASSETS
  • Assets must be revenue-producing
  • Infrastructure investors want stability and
    predictabilityideally monopoly or quasi-monopoly
    element
  • Private operators must bring added value to get
    substantial returnsincrease political support

10
CHICAGO UNDERGROUND PARKING SYSTEM
  • 9000 spaces4 connected garages--underneath Grant
    Park/Millennium Park in downtown Chicago
  • Owned by City and Chicago Park District
  • After competitive auction, leased in 2006 to
    Morgan Stanley Infrastructure Fund for 563M

11
ASSET VALUE INCREASED UNDER PRIVATE OPERATION
  • Private operator could raise parking ratesstop
    subsidizing suburbanites and others driving
    downtown
  • Flexibility to take advantage of special
    eventsdevelop relationships
  • Substantially reduced cost of major
    reconstruction of one garage
  • Improved signage--new revenues from advertising,
    concessions

12
CITY COULD REDEPLOY CAPITAL TO OTHER NEEDS
  • Used partially to pay off Millennium Park bonds
    that were drain on city revenues
  • Most proceeds used for capital improvements at
    neighborhood parks
  • Chicago Park District had no prior capital
    programenormously popular result

13
OTHER PARKING POSSIBILITIES
  • Street parking--Chicago is now privatizing street
    parking system--asset of every city
  • Airport parking--Puerto Rico is privatizing San
    Juan Airport Parkinghas ideal monopoly
    elements
  • Private operators can maximize revenues, bring
    efficienciescities or airports can use capital
    for other purposes

14
LOTTERIES
  • Illinois and Indiana Governors proposed lottery
    privatizations in 2007no legislative approval
    yet in either state
  • State lotteries vary enormously in per capita
    revenuesuneven management
  • Private operator can bring best practices and
    increase revenues substantially
  • States can redeploy capitalto education in
    Indiana, capital projects in Illinois

15
PORTS
  • Port of Corpus Christi proposing to build new
    terminal facility on privatized basis
  • Existing terminals being privatized in Portland
  • Virginia just established commission to study
    privatizing Virginia Port Authority
  • Large-scale U.S. need for expanded port
    facilitiesprivate capital essential

16
TRANSIT
  • Generates revenue, but no profitrequires ongoing
    subsidy
  • Can still be privatized to reduce subsidy
  • BART undertaking privatized Oakland Airport
    connector
  • Denver Regional Transportation District proposing
    privatized light rail system
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