Public-Private Partnership Conference Summary

By Greg Kanz, Dave Tallman, Justin Campbell

The LBJ Express includes managed toll lanes using real-time data to adjust toll rates.
The LBJ Express includes managed toll lanes using real-time data to adjust toll rates. With sensors every 1/2 mile, the LBJ Operations center makes sure "customers" have a good driving experience with reduced traffic congestion

Traveling through Dallas on the Interstate 635 corridor is surprisingly smooth. In addition to pristine pavement, traffic flows well above 50 mph at all times despite 250,000 vehicles traveling it daily. The LBJ Express, opened in September 2015, includes managed toll lanes using real-time data to adjust toll rates to reduce congestion. With sensors every 1/2 mile, the LBJ Operations center makes sure "customers" have a good driving experience.

The $2.7 billion LBJ Express project completed in four years is a public-private partnership with a private operator with a 48-year concession agreement. Money from the tolls is used for maintenance and operations for the 17 mile stretch of roadway. Drivers can choose the interstate or tolled expressway to reach their destination. To date, five million drivers have used the express toll road.

The PC3 Conference in Dallas March 7-9th showcased many partnership projects across multiple markets. With over 200 recent public-private partnership projects completed in the United States it has become a growing project delivery option for developers, governments, healthcare and, one of the fastest growing segments, higher education.

Why Public-Private Partnerships?

Public entities and private enterprises are coming together to do projects because of urgent infrastructure needs and lack of public resources. As the federal government struggles with budgets, state and local agencies will shoulder more and more of the burden to fix infrastructure. States like Texas are creating centers for alternative procurement to explore possibilities for state facilities as Texas DOT is doing for roadways like the LBJ Express.

P3s are creating an episodic shift with private enterprise responsible for maintaining and operating assets. Developers provide "best value" for the defined service life by meeting performance requirements including deferred maintenance. When the keys are handed over to the government in 30 or 40 years, it will retain a well-maintained asset according to the agreements.

Institutions of higher education are privatizing student housing, central utilities and real estate assets like parking. For example, Ohio State University plans to outsource the management and upkeep of its energy infrastructure. The Columbus Business First reports, "By privatizing energy operations, the school can save hundreds of millions it would otherwise spend and use those funds to target its academic core."

There is demand in the private sector for investment opportunities. For example, the Union Station project in Denver provided investors a 6-to-1 return. Union Station spurred additional development that continues to strengthen the Denver community.

P3 Examples

Bridges
Pennsylvania bridge projects

The State of Pennsylvania, the second worst state for deficient bridges, has bundled bridge projects to create efficiencies and is projected to save $500 million. The plan is to fix 588 bridges in three years, the first year completed in 2015, entirely with state funds.
 
The benefits of bundling the bridge projects include:
  • Economies of scale & cost savings
  • Efficiencies for planning and design
  • Fast-track schedule
Challenges include:
  • Selecting what bridges to fix among the 2,500 structures in need of help
  • Ten months to procure the construction and maintenance contract
  • Coordination with third-party agencies across the state
So far the benefits are outweighing the challenges in Pennsylvania. Five base bridge designs creates repetition and efficiencies. Cost saving are allowing Pennsylvania to do other needed projects to improve quality of life.

Public Water Infrastructure
Bayonne Municipal Utilities Authority

The Bayonne Municipal Utilities Authority in New Jersey is in a "high tax" area with no money to invest. United Water (now Suez) signed a 40-year agreement to operate the water facility allowing Bayonne to pay off $125M in debt and increase its bond rating.

Capital improvements are built into the agreement along with rate increases guaranteeing Suez a predictable revenue base. This funds yearly improvements of $2.5 million or more, and investment in new metering technology.  The agreement covers operator costs and makes sure the public entity benefits if there was a boon with population growth.

Most important to lenders is revenue stability. They also need confidence in the team to deliver services and meet environmental compliance. Political changes and new officials could also threaten the arrangement. Bayonne Municipal Utilities Authority overcame these barriers to make the deal happen. 

Higher Education
University System of Georgia

With a heavy debt load, the University System of Georgia (USG) had limited options for new student housing projects. The 29 institutions in the USG system serves 18,000 students on 50 campuses. To create quality, safe, affordable housing for students, USG began a P3 initiative.

With advisors for real estate (JLL), finance (Wells Fargo) and legal counsel, USG procured a partnership with Corvias. The agreement helped retire $300 million in debt with a long-term reinvestment plan to ensure funding for major building overhauls or replacements.

Corvias does life-cycle cost management and assumes maintenance and repair risk of facilities. Annual management fees to Corvias are based on student satisfaction, work-order responses, occupancy and building conditions. "Student-facing" services are still done by the University, as its core to the mission of education. 

What is best for your project?

In the United States there is no template for P3; each project is unique. Thirty-three states have legislation for public-private partnerships. Keep a close eye on your state.

Engineers and architects play a critical role in planning for long-term success and considering life-cycle costs. Architects design spaces that are flexible so you can adapt spaces to changing needs. Engineers design efficient systems to maximize your long-term investments and be good stewards of the environment.

Common to all P3 projects, attendees and speakers at the conference shared recommendations for success:

This is all about relationships and trust.
  • Create a solid team from the start.
  • Build trust and robust communications.
  • Let the pros do what they do: developers develop, builders build, designers design and institutions focus on its mission.
  • Communicate with stakeholders to build understanding and support:
    • Legislators and staffers
    • City councils
    • Mayors
    • End users
    • Future elected leaders
    • Media
    • Unions
The keynote speaker of the P3 conference, Colorado Governor John Hickenlooper, reinforced this message about coming together to solve community problems and capture opportunities. With an open mind and lots of dialog, Colorado is another good example of how innovative thinking is building communities and boosting economic growth.

Greg Kanz
Greg Kanz
800.798.0313
gregkanz@shive-hattery.com
  Dave Tallman
Dave Tallman
800.798.7650
dtallman@shive-hattery.com
  Justin Campbell
Justin Campbell
800.798.0227
jcampbell@shive-hattery.com

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