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Non-Traditional Approaches for Solving Budgetary Pressure. The National Association of State Auditors, Comptrollers and Treasurers Annual Conference. August 2011. Joe Seliga Partner 312.701.8818 [email protected] Public-Private Partnerships for Infrastructure Projects.

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Non-Traditional Approaches for Solving Budgetary Pressure

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Non traditional approaches for solving budgetary pressure l.jpg

Non-Traditional Approaches for Solving Budgetary Pressure

The National Association of State Auditors,

Comptrollers and Treasurers Annual Conference

August 2011

Joe Seliga

Partner

312.701.8818

[email protected]


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Public-Private Partnerships for Infrastructure Projects

  • Public-private partnerships are being used increasingly by state and local governmental entities for large infrastructure projects.

    • “Greenfield” projects involve the construction of new infrastructure assets.

    • Existing asset projects involve the long-term operation and maintenance of existing infrastructure assets.


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Greenfield Public-Private Partnerships

  • Greenfield infrastructure public-private partnerships have been used for the construction of toll road, highway, bridge, tunnel, mass transit and social infrastructure (e.g., courthouse) projects:

    • Florida Port of Miami Tunnel and I-595

    • Virginia Capital Beltway

    • Texas North Tarrant Expressway and SH 130

    • California Presidio Parkway

    • Denver FasTracks Eagle P3

    • Long Beach Courthouse


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Greenfield Public-Private Partnerships

  • Greenfield public-private partnerships take one of two general forms:

    • Revenue Projects

      • Private partner takes on revenue risk.

      • Private partner constructs, operates and maintains the project and obtains revenue from the project up to certain permitted rate of return.

    • Availability Payment Projects

      • Public partner retains revenue risk.

      • Private partner receives payments from the public partner for construction, operation and maintenance to the extent the project is “available” in accordance with terms of contract.


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Existing Asset Public-Private Partnerships

  • Existing asset infrastructure public-private partnerships have been used for the long-term operation and maintenance of toll roads, toll bridges, airports, public parking and maritime ports:

    • Toll Roads and Toll Bridges: Chicago Skyway; Indiana Toll Road; Northwest Parkway (Colorado); Puerto Rico PR-22/PR-5 Toll Roads

    • Airports: Chicago Midway International Airport; San Juan Luis MuñozMarín International Airport

    • Public Parking: Chicago Underground Parking System; Chicago Metered Parking System; Indianapolis Public Parking System

    • Maritime Ports: Port of Oakland Outer Harbor Terminal; Port of Baltimore Seagirt Terminal; Port of Portland Terminal 6


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Existing Asset Public-Private Partnerships

  • Public partner receives upfront payment and/or ongoing payment and/or revenue share.

  • Private partner takes on:

    • Operations risk

    • Maintenance risk

    • Construction risk

    • Revenue risk

      subject to terms of project agreement that impose legal and regulatory requirements on private partner’s operation of asset.


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Existing Asset Public-Private Partnerships

  • Existing asset PPPs can be used to relieve budgetary pressures.

    • Should NOT be used to relieve immediate operating budget pressures

    • Should be used for long-term investment, including to:

      • Pay off existing debt (e.g., Puerto Rico toll roads and airport)

      • Create reserve fund (e.g., City of Chicago used $500 million of Chicago Skyway proceeds to create reserve fund that resulted in increase in City’s bond ratings)

      • Reinvest in infrastructure (e.g., Indiana Toll Road proceeds of $3.8 billion used for State’s 10-year transportation plan; $140 million Seagirt terminal capital reinvestment payment used for other infrastructure in Maryland)

      • Fund pensions (e.g., Illinois legislation related to Midway Airport transaction requires 90% of proceeds to be used for infrastructure or pensions)


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Existing Asset Public-Private Partnerships

  • Benefits of Existing Asset Public-Private Partnerships

    • Shift of long-term operation and maintenance to private partner

    • Efficiencies of private sector operation

    • Encourages private sector innovation

    • Future construction to be undertaken by private sector

    • Shifts revenue (and financing) risk to private sector

    • Upfront and/or ongoing revenue to public partner

    • Private partner subject to government regulation under terms of contract (i.e., not a sale, but regulated long-term operation of asset)


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Existing Asset Public-Private Partnerships

  • Policy Issues to be Addressed:

    • Legal authorization for project

    • Transparent process for selection of private partner

    • Incorporating public protections in project contract

    • Detailed operating standards

    • Balancing revenue maximization and protection of public interest

    • Ensuring proper use of project proceeds


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Thank You

Joe Seliga

Mayer Brown LLP

71 South Wacker Drive

Chicago, Illinois 60606

312.701.8818

[email protected]

www.mayerbrown.com


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