City Should Consider Using P3s to Bolster Pension Plan and Water System, Observer Says

Last week we wrote that Municipalities’ should Consider Using P3s to Bolster Pension Plans and Water Systems. Lewis Solomon, a professor emeritus at George Washington University Law School in an Aug. 8 Herald Tribune op-ed. says P3s can produce revenues that could keep municipal pension plans solvent.

A solid pension plan should be 80 percent to 90 percent funded but Sarasota Florida’s general plan is only 71 percent funded and is projected to incur a $54 million unfunded liability in the years ahead, wrote Solomon.

To keep its underfunded pension plan afloat, the city is reducing cost-of-living adjustments and other plan benefits and limiting the number of workers who can enroll. The city should instead consider investing the plan’s funds in a P3 project that can serve the dual purpose of producing good returns for the plan while rehabilitating Sarasota’s struggling water and wastewater system, Solomon suggested.

“Rather than these palliatives, Sarasota could monetize its water and sewer system by entering into a public-private partnership for these assets. By providing access to private capital, this approach would quickly help the municipality achieve the general plan’s 80 percent funding target and substantially lessen the millions in current, annual contributions to pay down the plan’s unfunded liabilities,” he wrote.

Robert Poole of the Reason Foundation recently made a similar suggestion, pointing out that pension funds looking for relatively safe investments would do well to consider buying into existing or “brownfield” infrastructure P3 projects than in new “greenfield” ones.

By leasing its water system — representing more than $100 million in water and sewer projects — to a private developer for 20 to 30 years, Sarasota could obtain private financing for and rehabilitation of 175 miles of water pipes and its deteriorating lift stations, Solomon estimated.

More than 2,000 communities use P3s to fund and conduct vital water-related infrastructure projects, Michael Deane, executive director of the National Association of Water Companies has noted.

One example is the Bayonne (N.J.) Municipal Utilities Authority, which leased its ailing water and wastewater system to Kohlberg Kravis Roberts and United Water in 2012 for 40 years, Solomon pointed out. Through the deal, the authority received $150 million from the developer, which also agreed to invest $107 million in the city’s water system and provide technical expertise to rehabilitate it.

“This infusion of capital was critically important to the city because it eliminated $130 million of existing debt and improved both the authority’s finances and Bayonne’s credit rating,” according to a June 10, 2015, article on two successful municipal water P3s published by the Wharton School at the University of Pennsylvania.

Although it is not yet common for pension plans in this country to invest in public infrastructure projects, interest is growing. For instance, the California Public Employees Retirement System announced recently its purchase of a 10 percent share — at least $330 million — of the company that operates and maintains the Indiana Toll Road.

Pension fund managers in Canada have figured this out. Several are invested in such projects internationally and the Trudeau government is encouraging them to do so domestically.

Educating the public on P3s.

We have talk previously about the benefits and problems of Public Private Partnerships

But, the efficacy of P3 projects’; effects and promotion of project benefits to the people they would serve before such projects are awarded is essential to addressing stakeholders’ concerns and forestalling attempts to delay, change or even cancel the projects. Failure to anticipate negative public reactions has hindered the progress of major infrastructure projects in three states, making them difficult or even impossible to pursue.

In North Carolina, for example, although the House of Representatives failed to cancel the Interstate 77 managed lanes project, protests over the project caused the governor to recommend changes in an attempt to appease opponents.

Meanwhile, progress on the Maryland Purple Line light rail project is hindered by fallout from another area rail line’s poor performance.

A judge decided Aug. 3 to delay the start of construction to update a ridership analysis in light of declining ridership and safety issues plaguing the metropolitan Washington Metrorail system.

The Court noted “serious questions” about the “future viability” of the Purple Line. (See: The Washington Post). More than one-quarter of the new system’s passengers are expected to use both rail systems during their daily commutes, reported radio station WTOP-FM. The delay could complicate the project’s logistics and financing enough to jeopardize the entire project, some experts have warned, according to the Washington Business Journal. The state plans to appeal the judge’s ruling.

Maryland canceled plans to hold an Aug. 8 signing of a $900 million dollar federal funding agreement with the Federal Transit Administration because a Court stayed federal funding until the Purple Line ridership issue is settled.  This federal contribution would have covered nearly half of the $2 billion dollar project’s construction funding.

In New York, Gov. Andrew Cuomo changed the scope of the LaGuardia Airport redevelopment project after bids had been solicited, opting for a more ambitious and far-reaching design for the airport’s main terminal, adding to its expense, reported The Wall Street Journal. The change was motivated, in part, by community complaints about the project’s design.

The terminal’s redesign contributed to a hike in the project’s cost from $3.25 billion to up to $5 billion.

The importance of early, persistent and strong grassroots efforts to educate the public on the efficacy of Public Private Partnership projects therefore cannot be prevaricated.

 

 

Two More States Edging Closer to Passing Transportation P3 Legislation

Bills making their way through state legislatures in Tennessee and Kentucky could allow governments in both states to begin developing transportation projects through public-private partnerships. Kentucky’s legislation would allow this procurement method to be used for other public projects as well.

Legislators in Nashville are considering SB 2093, which would authorize local and state governments to pursue P3s and give partners the power to seek loans, purchase rights of way and collect fees. The  bipartisan bill also permits developers to submit unsolicited proposals but includes a 90-day period during which other firms can submit competing proposals.

One project that could be built through a P3 is a $5.4 billion bus rapid transit line connecting Nashville and Clarksville, reported “The Tennessean”. Neither sources of funding nor proposed alternatives have been identified but legislation introduced last year that would allow the metropolitan transit system to charge customers a fuel tax to fund them will be considered this spring.

Kentucky is considering two identical bills that would permit state and local governments to use P3s develop capital projects, such as public roads, bridges and parks. Projects worth more than $25 million would require the General Assembly’s approval, reported CN׀2 Pure Politics.

HB 309 or SB 132 may stand a stronger chance of passing than a similar bill that then-Gov. Steve Beshear vetoed in 2014 because it called for the imposition of tolls to pay for the replacement of Brent Spence Bridge connecting Kentucky and Ohio. The new legislation explicitly prohibits the imposition of tolls on interstate highway projects between the two states.