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The Win-Win of P3s
Not every project is suited for a P3. You can look at it in a couple ways. It may increase the financing cost over time, but ideally P3s can shift the risk so that cost overruns flip to the private sponsor and frankly, in a lot of cases, the private sponsors, given enough flexibility in the way they’re allowed to bid, can come up with much lower numbers than if the sponsor or the public sponsor had scoped out the project and said that this is what we want you to do. That is one way to look at it.
The other way to look at it is in recognition that private investors need a return. DOT has numerous federal credit programs that are at below market rates, which allow you to offset some of those extra costs if you utilize those federal credit programs. So you can actually get close to cost parity and then you’ve got all the advantages of the P3s outside of that. …
Andrew Curtis Right, executive director, DOT’s new Build America Transportation Investment Center (BATIC), spoke with Steve Anderson, managing director, InfrastructureUSA, about the value of P3s. Right’s comments from the Infra Blog follow:
DOT realizes that each project is unique and some are better suited than others for a P3 structure. Every project sponsor should be able to assess their project’s options and utilize the best delivery method available.
P3s are procurement- and financing-type projects, not necessarily funding-type situations, and so at DOT we are working to provide the training, tools and resources to help sponsors make the assessments that could lead to an increase in the pipeline of potential P3 deals.
Private Capital; Public Projects
[A] P3 really involves a different layer of procuring, risk sharing and financing, where the state or the municipality or the sponsor doesn’t have to pay up front as part of a contract, but they may pay over time in terms of availability payments or they may concession something out.
Ultimately, that is just paying over time or financing, as opposed to funding, because the state or the sponsor still has to find the dollars from somewhere. Now that can come from adding or increasing tolls, or it can come from availability payments that ultimately come out of the state budgets or it could come out of payments from the HTF.
But the point is there’s still a finite number of dollars there today, and you still have to figure out how to get more dollars into it to get these things done. Now you don’t need as many dollars today if you’re going to finance it over time, but you’re still going to need that money to be there over a long term or else you’re not going to be able to put in place a P3 or a financing that’s going to get you the asset built up front.
What Inhibits More P3s?
I think the biggest obstacle really is a lack of comfort with P3s and the increased risk public sponsors perceive with P3s. We’re making a concerted effort here at BATIC to address this through increased training and project-specific assistance.
Another obstacle is being able to assess the value for money proposition and quantify all the non-financial benefits of the P3 structure. Sometimes the lowest bid isn’t the best overall value, so at DOT we’re working on a user-friendly model to help with this kind of analysis.
And finally I would just say it’s going to take some time. As people do one P3 and get comfortable with it, they’ll do another and another—some P3s take five years to even complete. So you really are looking at a multi-decade sort of transition before you start to see P3s, in my mind, becoming really actively used in all the states. The other piece of this is a third of states don’t even have P3 enabling legislation right now, so that’s another issue.
Making Innovation Mainstream
The [BATIC] serves as a single point of contact and coordination for states, municipalities and project sponsors looking to utilize federal transportation expertise, apply for federal transportation credit programs and explore ways to access private capital in public-private partnerships.
BATIC addresses the procedural permitting and financial barriers to increased infrastructure investment and development by intervening earlier in project life cycles, actively helping sponsors navigate and accelerate the often complex federal permitting and procedural requirements, centralizing project coordination and cultivating public private partnerships.
BATIC’s main goals over the next year are to expand, innovate and deliver. We think about that as expanding the use of federal transportation credit programs such as TIFIA and RRIF, innovating new approaches to project development processes and funding challenges, institutionalizing technology and best practices across credit programs and modal teams and delivering streamlined technical and financial assistance to accelerate project delivery.
APTA and AASHTO are co-leaders of the BATIC Institute, which brings attention to the tools and services available through BATIC to facilitate project finance. In this regard, Andrew Right was a featured speaker at APTA’s 2015 Annual Meeting, and Deputy Director Jodie Misiak was a speaker at the Dec. 2 HSIPR Policy Forum. Right, counselor to the DOT secretary, previously was founder and managing partner of Cherry Lane Capital and a vice president in the Infrastructure Investment Group within the Merchant Banking Division at Goldman Sachs.
This “Commentary” originally appeared on the Infra Blog, published by InfrastructureUSA. Edited for length and reprinted with permission.
“Commentary” features points of view from various sources to enhance readers’ broad awareness of themes that affect public transportation.