PUBLIC-PRIVATE PARTNERSHIPS Jim March Federal Highway Administration

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PUBLIC-PRIVATE PARTNERSHIPSJim MarchFederal
Highway Administration
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WHAT ARE PUBLIC-PRIVATE PARTNERSHIPS

• Contractual agreements between public and private
  sector partners to renovate, construct, operate,
  maintain, and/or manage a facility or system.
  While the public sector usually retains ownership
  of the facility or system, the private party may
  be given responsibility for major elements of the
  facility.

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WHY PUBLIC-PRIVATE PARTNERSHIPS?

• Increasing investment requirements
• Aging infrastructure
• Growing congestion
• Increasing construction costs
• Mounting budget pressures
• Revenue growth slowing
• Voter resistance to tax increases
• Increasing needs for innovation to operate
  transportation systems more efficiently

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Shortfall in Revenues to Meet Highway Investment
Requirements

• Projected Federal, State and local highway
  revenues are insufficient to meet estimates of
  future highway investment requirements.

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Trends in Tolling

• Tolls currently about 5 percent of total
  revenues.
• Many States examining potential for tolls to
  supplement traditional highway revenues.

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Toll Activity in the United States
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PRIVATE SECTOR INVOLVEMENT IN TOLL ROADS
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BENEFITS OF PPPS

• Accelerate project start-up
• Accelerate project completion through concurrent
  activities
• Integrate design, construction, and operational
  considerations
• Fix price early in design phase
• Guarantee completion date
• Allocate project risks among parties
• Provide life cycle cost efficiency
• Improve operational efficiency
• Take advantage of each sectors strengths

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PUBLIC-PRIVATE PARTNERSHIP MODELS
Partnership
Ownership Operation Agreement Typical
Model Term
Public Private 3 to 5 years
Operations Only Public Private 5 to
25 years Design/Build/
Operate Private Private 25 years
Design/Build/ Operate/O
wn with possible Transfer
Public Private 50 Long-term
lease
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RISK ASSIGNMENT UNDER PPPS
Traditional Long-Term PPP
Funding Source Highway use taxes Toll revenue bonds, equity
Procurement Process Design, bid, build Design, build, finance, operate
Cost Overruns Taxpayers Investors
Schedule Slips Drivers Investors
Traffic Risk Taxpayers Investors
Maintenance Funds Annual budgets Toll revenues
Maintenance Incentive Public complaints Asset value
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INITIATING PPP PROJECTS

• Solicited proposals
• Initiated by public sector
• Location/project framed by public sector
• Unsolicited proposals
• Private sector initiated
• Location/project framed by private sector
• Relationship to planning process is important
• Greater risks for private sector but perhaps
  greater rewards for both public and private
  sectors
• Both options must proceed through competitive
  selection process

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FHWA PPP Initiatives

• SEP-15
• PPP workshops
• PPP case studies
• Synthesis of PPP enabling legislation and other
  legal documents
• PPP resource team
• PPP professional capacity building effort

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Integrating Transportation and Land Use

• Key Ingredients
• Overall long-term development plan
• Identification of plans components including
  transportation
• Recognition of how components interrelate
• Recognition of public and private sector roles
  for various components, how those roles
  interrelate, and how partnerships can enhance
  benefits to each

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FHWA Programs Focused on Sustainable Development
Issues

• CMAQ
• Transportation, Community System Preservation
  Program
• Transportation Enhancements
• Context Sensitive Solutions

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Houstons Main Street Corridor

• Transportation, Community System Preservation
  Program project
• Transportation objectives
• Improve transit access
• Reduce traffic congestion
• Reduce emissions
• Reduce sprawl
• Increase density
• Enhance pedestrian environment
• Reduce future capital investment requirements

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Transit Joint Development

• Often involves public-private partnerships
• Reduce up-front cost and risk for agency
• Transit agency captures revenue from sale or
  long-term lease of property
• Development parcels or air rights owned by agency

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Public Benefits of Transit Joint Development

• Enhanced station areas and transit accessibility
• Increased ridership increased fare revenue
• Can attract additional transit oriented
  development
• Direct source of revenue for agency
• Lease income
• Sales of surplus land or air rights
• Reduced up-front costs and long-term risks
• Private sector shares cost and risk
• Expedited project delivery

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Washington Metropolitan Area Transit Authority --
Bethesda Metro Center

• Air rights development over Bethesda Metro
  Station
• 370,000 SF office space
• 380-room hotel
• 60,000 SF retail space
• Annual income 1.6 million
• 24 joint development projects regionwide
  generated 6 million for WMATA in 1999

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Metropolitan Atlanta Rapid Transit Authority --
Lindbergh Center

• 51 acres surrounding Lindbergh MARTA station
• 2.7 million SF office space
• 330,000 SF retail
• 566 apartments, 388 condos
• 190-room hotel
• MARTAs revenue from property sale 40 million
• Revenue used to finance MARTA parking structure
• Expected return on investment 10 percent

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Conclusions

• Private sector can bring expertise and innovation
  to a project that can help meet sustainable
  development objectives
• Sustainable development objectives must be clear
  up-front if transportation projects are to make
  their greatest contribution