Transit
Public-Private Partnerships
in the U.S.
Jonathan L. Gifford, Ph.D.
George Mason University
jgifford@gmu.edu / 703-993-2275
College of Environmental Design
University of California, Berkeley
Berkeley, CA
March 10, 2015
Presentation Outline
• Scope of the presentation
• What is a P3?
• Why the U.S. context makes P3s work differently?
• Four case studies of Transit P3s in U.S.
• Conclusions
• Q&A and general discussion
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Scope: Understanding the Experience of P3s in Transit in
the United States
Policy interest
• How can we increase transit availability?
• How to minimize the risk to the government and citizens?
• How to address problems with forecasting errors & opportunistic behavior?
Academic interest
• Is transit P3 more complex than other transportation P3s?
• What has been the U.S. experience?
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Scope: In the middle of a changing environment
Recent trends affecting transportation
• Demographics: Baby Boomers and Millennials
• Technology: mobile platforms, car efficiency, real-time data
• Preferences: urban life and higher user expectations on
transportation and transit performance
Some expected trends in transportation
• Growing connectivity & synchronization of transportation systems
• Growing use of alternative governance and funding mechanisms
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Scope: In the middle of a changing environment
Challenges facing transit
•
•
•
•
•
•
Tight budgets
Expanding liabilities – pensions, retiree health, infrastructure
Rigid procedures – hiring, work rules, procurement
Stagnant productivity
Eroded political support for raising taxes
Limited physical space
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What is a P3? Why a P3?
Procurement mechanism
• Agreement between public and private partners
• Bundle of services
–
–
–
–
Design-Build
Design-Build-Operate-Maintain
Design-Build-Finance-Operate-Maintain
Lease, etc.
Economic rationale
• Bundling components reduces life-cycle costs
• Allocation of risk to the party that is best able to managecontrol project contingencies
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What is a P3? Some of the Risks
Political
• Changes in laws
Demand
• Insufficient revenue from traffic
Capital expenditures
• Construction cost overrun. Commodity prices and availability
Operation and maintenance
• Operating cost overrun
Financing
• Interest rates hikes
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What is a P3? Advantages and Disadvantages
Advantages
•
•
•
•
•
Accelerated delivery and availability to the public
On-budget, on-time delivery
Utilization of private financial resources
Cost saving through innovative practices of the private sector
Risks are more visible
Disadvantages
• Substantial transaction costs (e.g. legal, financial and technical
consulting service fee, higher interest costs in cases of private
debt-financing)
• Complexity requires highly skilled civil servants
• Government labor unions may perceive this as a threat
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What is a P3? Funding vs Financing
Financing Mechanisms
• How to pay for design, construction, operations, maintenance?
–
–
–
–
Private equity
Bonds, including municipal bonds
Bank loans
Government support (loans)
Funding Mechanisms
• How to pay for the investment?
– Demand risk (fees): Las Vegas Monorail
– Availability payments (taxes): Eagle P3 in Denver
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Why the U.S. Context Matters: Federal System
Federal System
• Coordination is hard to achieve: authority is fragmented
• Experimentation allows innovation: institutional heterogeneity
P3 Example of its relevance
• South Bay Expressway
• The State of California implements the P3 project
• Some Federal agencies oppose the project on environmental
grounds
• A group of Local governments bought the asset
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Why the U.S. Context Matters: State Initiatives
33 States, DC and 1 U.S. territory
(December 2014)
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Why the U.S. Context Matters: Common Law
Common Law
• Relies on legal cases, not on legislation which is subject to
contradictory interpretations.
• Previous experiences shape what may be expected from the
contractual relationship
P3 Example of its relevance
• Elizabeth River Crossings in Virginia
• Project included tolls on pre-existing infrastructure to finance
the project
• Lawsuit contending the tolls were unlawfully imposed taxes
threaten other tolls in the state
• Virginia Supreme Court ruled in favor of the tolls
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Why the U.S. Context Matters: Political Environment
Political Environment
• Highly contested environment – mistrust in authorities
• P3 projects in a pipeline, are made public very early in the
process
• Litigation, by citizens, is an important avenue to oppose
political and bureaucratic decisions
P3 Example of its relevance
• US presents a huge infrastructure market opportunity, but
political risk is significant.
• Several projects that have been canceled or nearly canceled:
Maryland Purple Line, U.S. 460 in Virginia, U.S. 36 in Colorado,
etc.
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Case 1 – Eagle P3 - Denver, Colorado
Agency
Regional Transportation District’s
(RTD) FasTracks
Mode
Commuter Rail Transit
Concessionaire
Denver Transit Partners
Financial close
Aug. 2010
Operation start:
Jan., Mar., and June 2016
Revenue source
Availability payment
Contract type
DBFOM
Original cost (US$) 2.09 billion
Final cost (US$)
2.04 billion
Length
Total 36 miles
Funding Sources
Funding ($ million)
FTA New Starts Full Funding Grant Agreement
1,030.4
Private Activity Bonds
396.1
TIFIA loan
280.0
RTD Sales Tax Revenue
128.1
Others
208.50
Total
2043.1
Ratio
50.4%
19.4%
13.7%
12.4%
16.50%
Source: Federal Highway Administration
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Case 1 – Eagle P3 - Denver, Colorado
Main events
1994
Regional Transportation District (RTD) transit oriented communities initiative
1996
Colorado passes the Public-Private Initiatives Program Act
2007
RTD requests to join the Federal Public-Private Partnership Pilot Program
2008
Request for Qualification (RFQ)
2009
Request for Proposal (RFP) sent to three qualitying bidders
2010
Concession agreement (34 years) signed between RTD and Denver Transit
Partners; commercial and financial close on August 10th
2010
Phase 1 construction began (East Rail)
2011
Phase 2 construction began (Gold Line & Northwest Rail Line)
2015
Request for Proposal under revision
2016
Service expected to begin (Jan – East Rail; Mar – Northwest Rail Line; July –
Gold line)
Case 2 – Hudson-Bergen – New Jersey
Agencya
New Jersey Transit
Concessionaire
21st Century Rail Corporation - URS Washington &
Itochu Rail Car and Kinkisharo USA
Financial close
1996
Revenue source
MOS-1: 2000. MOS-2: 2002-2006.
MOS-3: 2011
Fares, motor fuel tax, and others
Contract type
DBOM
Operation began:
Original cost (US$) Final cost (US$)
$2.3 billion
Length
20.6 mile
Funding Sources
Funding ($ million) Funding ($ million) Funding ($ million)
MOS I
MOS 2
MOS 3
FTA New Starts Full Funding Grant Agreement
604.1
500.0
?
Grant Anticipation Notes (GANs) (backed by
281.7
passenger fares)
?
State Transportation Trust Fund (motor fuel tax
106.4
receipts)
530.4
58.4
Others (Urbanized Area Formula & PANYNJ)
185.0
?
16100.0
Total
992.2
1,215.4
Case 2 – Hudson-Bergen – New Jersey
Main events
1984:
Planning starts
1995:
Request for Qualifications (RFQ)
1996:
P3 agreement is reached
2000:
First minimum operable segment (MOS-I) operations begin
Following renegotiations extend agreement to MOS-II
2002
First phase of MOS-II starts operations. Final phase opens in 2006
2011
Last phase of MOS-III starts operations
2014:
Proposals to extend Hudson-Bergen 12 more miles (on going), currently
estimated at $900 million
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Case 3 – Las Vegas Monorail – Las Vegas, Nevada
Agency
Clark County
Concessionaire
Las Vegas Monorail Corporation
Financial close
2000
Operation began: 2004
Revenue source
Fares and advertising
Contract type
DBOM
Original cost (US$) 350-400 million
Final cost (US$)
649.1 million
Length
3.9 mile
Funding Sources
Current interest bonds
Capital appreciation bonds
Current interest bonds
Subordinate bonds
Funding ($ million)
352.7
98.7
149.2
48.5
Total
649.1
Ratio
54.3%
15.2%
23.0%
7.5%
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Case 3 – Las Vegas Monorail – Las Vegas, Nevada
Main events
1993:
MGM Grand-Bally´s Monorail starts as a free-of-charge private project. Others:
Mirage – Treasure Island (0.2 mile)
GM Grand – Bally (0.7 mile)
Monte Carlo – Bellagio (0.4 mile)
Mandalay Bay –Excalibur (0.5 mile)
1997:
Intense lobbying process to hand over operations to Nevada or Clark County.
Legislation is approved - 63-20 corporation to issue tax-exempt bonds
1998:
Franchise agreement. 50 year agreement and 7 new stations.
Initial phase does not include the McCarran Airport
2001:
Construction begins
2004:
January: Initial completion date
July: Opens to traffic. September: closes down due to technical problems
December: reopens
Ridership and revenue problems are evident
2010:
Files for bankruptcy
2012:
Exits Chapter 11. Bondholders lost 98% of their capital and accrued interests,
from $658.6 million down to $13 million
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Case 3 – Las Vegas Monorail – Las Vegas, Nevada
The challenge of demand risk
Ridership: passenger per year
25
20
15
10
5
0
2003
2004
2005
2006
2007
Projected ridership (million)
2008
2009
2010
2011
Actual ridership (million)
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Case 3 – Las Vegas Monorail – Las Vegas, Nevada
The challenge of demand risk
Revenues: US$ million per year
70
60
50
40
30
20
10
0
2003
2004
2005
2006
2007
Projected revenues (million US$)
2008
2009
2010
2011
Actual revenues (million US$)
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Case 4 –Purple Line – Mont. Co. to Prince Georges Co., Maryland
Agency
Maryland Transit Administration
Mode
Light Rail Transit
Concessionaire
-
Financial close
-
Operation began:
-
Revenue source
Availability payments
Contract type
DBFOM
Original cost (US$)
1.9 billion (before July 2014)
2.45 billion (after July 2014)
Final cost (US$)
-
Length
16.2 miles (21 stations)
Funding Sources
Federal: Section 5309 New Starts
State: Maryland Transportation Trust Fund (TTF)
Other 1: TIFIA Loan repaid by private concessionaire from availability payment
(requested 8/9/2013)
Other 2: Private Equity and Borrowed Funds
Total:
Source: Federal Transit Administration, 2014.
Funding
(million)
$900.00
$725.89
$732.00
$70.08
$2.427.97
Ratio
37.1%
29.9%
30.1%
2.9%
100.0%
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Case 4 –Purple Line – Mont. Co. to Prince Georges Co., Maryland
Main events
2011:
Preliminary Engineering (PE) and Final Environmental Impact Statement (FEIS)
2013:
April: Maryland P3 Legislation passed (2013 Md. Law, Chap. 5)
July: MTA report recommends DBFOM P3 approach
August: Former Governor announced to deliver the Purple Line Project as P3
November: Request for Qualification (RFQ)
2014
January: Four private-sector teams shortlisted for the project
July: FTA announce cost increase from$1.9 billion to $2.45 billion
July : Request for Proposal (RFP)
Nov. Election of new Governor.
New Governor criticizes Purple Line but provides $312 million in 2016 Budget
2015:
Bid is delayed from January to March to August 2015
2020:
Services are expected to begin
Conclusion
• New way to deliver transit projects
• New opportunities and new challenges
• Deeper understanding of U.S. experience will help us learn how
to make the most out this opportunity
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Center for Transportation Public-Private Partnership Policy
George Mason University
Expanding the evidence base, enhancing agency
capacity, educating the workforce and
community about P3s
For more information:
Visit us at: p3policy.gmu.edu
Jonathan L. Gifford, Ph.D.
George Mason University
School of Policy, Government, and International Affairs
3351 Fairfax Drive, Arlington, VA 22201 USA
jgifford@gmu.edu / +1(703)993-2275
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