In a previous post, we reported that the American Society of Civil Engineers ("ASCE") released its 2013 Report Card for America's Infrastructure. America's cumulative GPA for infrastructure was a D+. One of the categories in this report focused on ports, which received a C grade. Now a new report goes into more depth on one particular part of our infrastructure: Ports. The question, it seems, is: CapEx or Capsize. More, after the jump.
There is no doubt that Public-Private Partnerships will play an integral role in improving this country's infrastructure in the coming years. By leveraging private investment, P3s have the ability to bridge the funding gap in many state and local governments. States are slowly recognizing that they can tackle critical infrastructure needs by partnering with the private sector. Some states, however, are still hesitant to commit to P3s.
Pillsbury's P3 practice has created a chart that lists which states have enacted significant P3 enabling legislation. This P3 Enabling Statutes chart is available on Pillsbury's P3 practice homepage. The statutes include links to the full text of the enacted legislation so that you can learn more about how you can take advantage of these P3s. In addition to listing the agencies and types of projects authorized, the chart also lists whether the statutes encourage unsolicited proposals. To promote ingenuity and entrepreneurialism, P3 legislation should continue to welcome unsolicited proposals from the industry.
We will of course continue to update this chart as more states pass P3 enabling legislation.
One of John F. Kennedy's best quotes was noting that "Washington is a city of Southern efficiency and Northern charm." When it comes to Public Private Partnerships, things have turned around in the last 50 years. The South leads the way in P3's with Virginia, Florida and Texas being notable standouts. The conventional wisdom has been that strong unions in northern states would continue to fight against more private involvement in state infrastructure. But the pressures of constrained state budgets are proving too strong.
So, earlier this year we saw Maryland almost pass a new P3 statute (alright, Maryland is South of the Mason-Dixon Line, but it's still a blue state with heavy union activity). Then Pennsylvania actually passed a law, and now New Jersey has entered the fray with a new law targeting colleges.
We'll take a look at the new Pennsylvania and New Jersey laws, after the jump.
Maybe this is the ying to the yang of the American Society of Civil Engineers report that Paul Levin blogged about earlier this week. The Urban Land Institute and Ernst & Young just published Infrastructure 2012: Spotlight on Leadership, in which they detail how state and local governments have decided not to wait for funding from the federal government. It has become like Waiting for Godot (or perhaps Waiting for Guffman). In a Presidential election year the federal government is even more gridlocked than normal -- if you can believe that.
But that gridlock doesn't slow down the rate of decay of our infrastructure, so state and local governments are finding ways to get'r done. These range from old fashioned taxes and bonds to Public Private Partnerships. Of course, no one likes taxes and some object to public private partnerships as selling off our infrastructure. But remember, when a private company finances a road, they can't roll it up and take it home.
If you don't have time to read the 70 page report, you can see a condensed writeup about it here.
The American Society of Civil Engineers (ASCE) just released a report titled "Failure to Act, the Economic Impact of Current Investment Trends in Electricity Infrastructure" and no, the results are not pretty. According to the report, the gap between the amount actually spent on infrastructure across America and the amount that needs to be spent to maintain the system will reach $107 billion by 2020 and $732 billion by 2040. The Southeast and the Western portions of the country are particularly vulnerable to infrastructure underinvestment, making up approximately half of the country's infrastructure deficit. Furthermore, don't forget about the 2003 blackout across large sections of the East Coast, including New York City, that showed the grid's vulnerability. This report comes on the heels of ASCE giving the United States a grade of "D+" in the Energy category in 2009. D+ seems pretty generous.
The ASCE report predicts that disruption and inconsistent service resulting from faulty electricity infrastructure will lead to a reduction in U.S. GDP of almost $500 billion and half a million fewer jobs in America by 2020. The calculations implicit in this report are simple: if we can spend $100 billion to address this problem over the next decade, the country on the whole will be half a trillion dollars better off. It seems so simple.
However, the crunch of budget deficits at both the federal and state levels means that these profitable long-term investments lose out to short-term cost cutting. President Obama, however, has championed doubling overall infrastructure spending that would also help spur job growth and make up for years of underinvestment, but it is not enough.
Public-Private Partnerships will play an important role in bridging this funding gap by leveraging private investment over the long-term. The private sectors sees this $500 billion in potential savings and the United States needs to think creatively to spur further infrastructure development.
We reported last month that Maryland was on the verge of modernizing its statutory framework for P3s, legislation heavily backed by Governor O'Malley's administration. The proposed legislation was projected to increase the State's capital budget by as much as $315 million and create as many as 4,000 jobs.
Unfortunately for Maryland's infrastructure and residents, the bill fell victim to partisan fights over the State's budget and failed to pass before the General Assembly session ended at midnight on April 9th. Although there is a chance Governor Martin O'Malley could call a special session to work on the budget and other measures, the P3 legislation will most likely have to wait another year. It looks like Jeffrey Gans, a partner in Pillsbury's Construction practice and among those leading Pillsbury's P3 practice, will have to return to Maryland's legislature to testify once again on the importance of Maryland taking advantage of P3 opportunities.
Colorado's Regional Transportation District ("RTD"), the public transit provider for the Denver Metro area, is hopeful that public-private partnerships, including unsolicited P3 bids, will accelerate the completion of the FasTracks program. FasTracks, a voter-approved transit expansion program aimed at better connecting the Denver Metro area, includes 122 miles of commuter and light rail, 18 miles of bus rapid transit service, 21,000 new parking spaces, redevelopment of Denver's Union Station and redirected bus services.
With the mantra, "Build as much as we can, as fast as we can, until it's all done," FasTracks is inviting P3 proposals. On its website, RTD asserts that it plans to utilize P3s to implement many of the FasTracks projects, including the light rail extension along Interstate 225. In fact, in a recent press release explaining its plans for the Northwest Rail Line, RTD stated that several FasTracks projects are already being funded and built by P3s, including the Eagle project, which consists of a segment of the Northwest Rail Line, the East Rail Line, and the Gold Line.
Maryland's Lt. Governor Anthony Brown led a joint executive and legislative commission to make recommendations for modernizing Maryland's statutory framework for P3s. The Commission's work led to legislation, designated as SB358/HB576, that passed the House of Delegates this week and is expected to pass the Senate in the coming days. The primary goal of the legislation is to address Maryland's critical infrastructure needs through expertly structured public-private partnerships. The various Maryland departments that oversee capital projects found that increased use of P3s could contribute as much as $315 million to the State's capital budget and create perhaps as much a 4,000 jobs.
Jeffrey Gans, a partner in Pillsbury's Construction practice and among those leading Pillsbury's P3 practice, testified in support of the bill before both Houses in the Maryland General Assembly. "The availability of capital is the most often recognized benefit of a public-private partnership. But as important, is the fact that once the legislation takes effect, Maryland will have at its disposal the ingenuity and entrepenurial spirit that is the life blood of the free market." Mr. Gans' testimony was in specific reference to the language in the legislation that permits unsolicited P3 proposals to be made to any State agency authorized to enter a P3. "The expertise of the best best and the brightest the market has to offer will be motivated to find innovative and profitable solutions to Maryland's infrastructure needs," Gans said.
When we posted yesterday about the RFP for the Tappan Zee Bridge replacement, we perhaps missed the most important aspect of the Instructions to Bidders: No Obligation to Award. (It's on page 40, for those keeping track.) Usually this sort of provision is a safety valve. Here, it might be more. The owner apparently still doesn't know where the money will come from. Bloomberg is reporting that a bill is working its way through the New York Legislature to allow Public Private Partnership funding for . . . the Tappan Zee Bridge Replacement.
On March 8, 2012, the Indiana Finance Authority ("IFA") issued a RFQ to design, build, finance, operate and maintain a tolled bridge facility and associated roadway and facilities (the "East End Crossing") through a public-private partnership agreement. If this piques your interest, the Statements of Qualification are due April 9, 2012.
The East End Crossing will largely be a bridge across the Ohio River that will connect Clark County, Indiana and Jefferson County, Kentucky. A piece of the larger Ohio River Project, the East End Crossing will help improve cross-river transportation needs in the greater Louisville-Southern Indiana region.
You could be forgiven if you've missed some of the news concerning the new Tappan Zee Bridge project. This project is very much on Governor Cuomo's front-burner and is moving right along at an impressive pace. Here is the Reader's Digest version of some (relatively) current events.
In February, four groups consisting of the usual suspects were short-listed to design and build the new span. In a strage twist of fate, one of the short-listed groups includes Dragados which now employs the same Chris Ward who reportedly butted heads with Gov. Cuomo during his time as the Executive Director of the Port Authority.
Meanwhile, back in Albany, the State engaged consultant Jeffrey A. Parker & Associates, Inc. to figure out how to pay the $6 billion price tag. The State has requested $2 billion from the Federal Department of Transportation pursuant to the Transportation Infrastructure Finance and Innovation Act (TIFIA). So, assuming the feds allocate the requested $2 billion (a better bet than an Atlantic City slot machine given President Obama's slection of the new bridge as one of fourteen projects to receive accelerated environment review - and Mr. Cuomo's political affiliation), Mr. Parker must close a $4 billion fuding gap. The administration has mentioned using pension fund investments, bonds and toll revenues. But, unless I missed something, nobody has offically suggested toll increases - yet.
The construction industry is abuzz with talk of alternative funding mechanisms, specifically Public-Private Partnerships, aka PPP, aka P3s. The AGC PPP Task Force recently developed a White Paper to outline issues that contractors will confront with PPPs. Contractors should be knowledgeable about PPPs - not just from a contractor's perspective - but also from an entrepreneurial perspective.
As noted recently by our colleagues in Pillsbury's Global Sourcing group:
"PPPs, if managed well by both SLGs [State and Local Governments] and service providers, can offer significant benefits to both parties, and ultimately the public-at-large. Realizing this potential will require changes in paradigms and behaviors on both sides of the table (SLGs acting more like businesses; service providers acting more like entrepreneurs). Those who are ready to embrace the future will be well-positioned to catch this building wave."
Chances are, you get your water from a public drinking water system, even though approxmiately two thirds of drinking water systems in this counrty are non-community systems -- think campgrounds and schools. And the chances are that the system that provides your water needs an upgrade. The American Society of Civil Engineers has produced the second in a series of reports grading America's infrastructure and has given the United States a grade of "D" for its water systems. You can see an executive summary of the report here and you'll be able to download the entire report when it is released on December 16 at the ASCE's website.
The water systems graded include systems for drinking water, and also water for industrial processes sewage systems. The report highlights the need for major investments in our country's water systems infrastructure and the numbers are staggering. In 2010, the country needed to spend $91 Billion but only spent $36 Billion. That gap is expected to get worse, rising to $84 Billion in 2020 and then $143 Billion in 2040.
Good thing we have lots of extra tax dollars to spend. Oh wait. We don't. Maybe PPP's are the solution.
Virginia announced a $940 million dollar P3 agreement with Flour-Transurban. The agreement calls for the construction of a 29 mile hot lane to ease the Virginia's traffic congestion, especially during rush hour.
The agreement calls for Fluor-Transurban to pay $843 million and Virginia to $97 million. Most of the current lanes will be toll free, as will be HOV-3 vehicles. Other vehicles will pay a toll that will vary in amount depending on the volume of traffic.
The Agreement's Key aspects include:
Fluor-Transurban will design and build the facility; manage and fund all operations and maintenance for a period of 73 years following construction. It will also share revenue with the Commonwealth.
Maintain free access for High Occupancy Vehicles (HOV) meeting state eligibility requirements and buses.
Develop and operate a dynamic tolling system. Tolls will vary based on demand to provide fast, reliable travel times.
All tolls will be paid with an E-ZPass and there will be no toll booths.
Electronic signs will alert travelers to current toll rates so they can make an informed choice whether or not to use the HOT Lanes.
Return the asset to the Commonwealth in good working order at the end of the agreement
A funny thing happened at a recent ENRNewYork infrastructure conference titled Where's the Money? -- they found some. During a panel discussion concerning infrastructure financing, both Robert Dove, Managing Director, The Carlyle Group and Christophe Petit, President, Star America Infrastructure Partners, told the large audience that they had "money to spend" on infrastructure projects. Indeed, both men suggested that they were eager to find an infrastructure project in which to invest.
Interestingly, both men were looking for very different project profiles. Mr. Dove stated a desire to invest in brown field projects only, whereas Mr. Petit wants green field projects. Given the amount of money these two men represent, there is a very attractive opportunity for the promoter of the right project.
In light of this and the money Presidents Obama and Clinton have pledged to raise for infrastructure projects (see Michael McNamara's 11/5/11 entry), perhaps some should be saying Show me the Project!!.