Emerging Policy Trends For Innovative Project Delivery

1. Emerging Policy Trends For Innovative Project Delivery Christopher D. LloydDBIA Water & Wastewater/Transportation Joint ProgramApril 21, 2010

2. Presentation Overview • America’s Infrastructure Crisis • Historical Solutions • Public Policy Barriers and Opportunities • Emerging Statutory Frameworks • Recent Project Examples

3. America’s Crumbling Infrastructure

4. America’s Crumbling Infrastructure

5. America’s Crumbling Infrastructure

6. America’s Crumbling Infrastructure

7. America’s Crumbling Infrastructure • Public complains but has no interest in increasing taxes/fees/tolls to pay for it • Politicians talk infrastructure, but it is always the first to item to go when money gets tight • Cost of maintaining existing infrastructure is eroding construction budgets • Failing infrastructure is harming US competitiveness

8. Why Use Alternative Procurement? • Faster, better, cheaper (sometimes) • Single point of responsibility • Shift of risk away from public sector • Distances rate making/price setting decisions from the political sector • Lack of faith in the public sector

9. Virginia in the Vanguard • Virginia PPTA (1995) and PPEA (2002) legislation seen as model statutes • Virginia has done 100+ deals • Range from $1.5 million - $5 billion+ • Provides fast track to design-build, predictable process

10. PPEA: Process • Public entity solicits for proposals or accepts unsolicited proposals • Minimum of 45 day open competition period for unsolicited proposals • FOIA protections for confidential information are negotiated • Conceptual proposal outlines team qualifications, proposed cost, proposed scope and public benefits • Public entity may levy a proposal review fee on both solicited and unsolicited proposals • Proposal review fee is used to cover procurement costs

11. PPEA: Process • All competing proposals are reviewed, followed by a downselect • Detailed proposals are requested – often relies on recommendations of outside/inside advisors • Detailed proposals start to lock in project scope, costs, schedule • Leads to an interim or comprehensive agreement with one firm • Significant requirements for public notification and hearings

12. Evolution of Virginia’s PPEA • Creation of interim agreement concept • Increased public input and transparency • Development of “best practices criteria” • Creation of legislative oversight panel • Expansion to technology projects and services

13. Creating the Ideal Procurement Law • Allows solicited and unsolicited proposals • Open to all financing vehicles • Ensures transparency and public participation • Fairly balances public and private risks • Provides for sufficient competition • Adequate public staffing to speed project approvals

14. Barriers to Public Private Partnerships - 2010 • Stimulus promises diminished public sector appetite for creative approaches • CIP budgets were first cuts to meet government fiscal challenges • General distrust of Wall Street/corporate America • Public sector layoffs create staffing/evaluation challenges

15. Support for Public Private Partnerships - 2010 • Stimulus “list making” exercise shows need for infrastructure • Lack of funding causing public sector to be more open to creative financing/development opportunities • Construction price declines/increased competition • Failure of other alternatives leaves few options • Appetite for “asset maximization”

16. Recent Transactions (post-Lehman) • Several major players have exited the market (RBS, Babcock & Brown) • Several major deals faltered (Midway Airport, PA Turnpike) • Despite financial crisis, some deals are being done • Infrastructure funds are still successfully raising money • Era of cheap equity has ended (for now) • Market expects major public participation – risk aversion

17. I-595 Florida • 10.5 mile, $1.8 billion project • Creates new express lanes, BRT • Financial close March 2009 • ACS Dragados as equity investor with bank consortium • $800 million bank debt, $600 million TIFIA, $232 million FDOT, $200 million equity • First “availability payment” scheme in US - $63.98 million per year for 30 years, FDOT controls toll revenue and rates • Additional information at http://www.i-595.com/default.aspx

18. SPSA Waste to Energy • Sale of waste-to-energy plant to Wheelabrator/Waste Management • Provides for substantial rehabilitation to neglected facility • $150 million cash infusion lowers SPSA debt/tipping fees • Allocation of PAB’s lowers costs – merges public and private financing vehicles

19. Recent Transactions – Market Reaction • Private sector looking for more legal certainty, traffic track record, public financial participation • Public sector looking for stronger parent guarantees, additional sweat equity, assistance in building public support for project • Increased interest in “social” infrastructure projects • Strong interest in energy-related infrastructure

20. Future Opportunities and Issues • How will SAFETEA-LU reauthorization impact the development of new infrastructure? • Will the availability of new bond vehicles dampen desire for non-traditional financing? • How much flexibility will states/feds have to raise taxes to develop/maintain crumbling infrastructure? • Will governments be able to deliver on funding and matching commitments in a challenging fiscal environment? • Will new environmental/safety/labor requirements restrict infrastructure development?

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