Revisions to Federal Transportation Project Grant Program Encourages Use of P3s

The federal grant program that provides funding for freight and highway projects throughout the country has been revised to support projects that use funding from the private sector or other nonfederal sources.

The Fostering Advancements in Shipping and Transportation for the Long-Term Achievement of National Efficiencies (FASTLANE) program has been renamed the Infrastructure for Rebuilding American (INFRA) program, the U.S. Department of Transportation’s Build America Bureau announced recently. Congress authorized FASTLANE to receive $4.5 billion over five years under the Fixing America’s Surface Transportation (FAST) Act of 2015 to provide competitive grants or credit assistance to nationally and regionally significant freight and railway projects beginning in 2016.

The INFRA program will provide approximately $710 million in FY 2017 and up to $855 million in FY 2018, according to a July 5 Federal Register notice. The INFRA program will evaluate projects using updated criteria to ensure that they meet national and regional economic vitality goals and encourage the use of nonfederal funding and innovation in the project delivery and permitting processes, including P3s. The program’s revisions could provide some insight into the approach President Trump could take in proposing a $1 trillion infrastructure funding package later this year, reported The Hill.

Each large project that is selected for funding will receive at least $25 million; each small project will receive a minimum of $5 million, and 10 percent of available funds will be reserved for small projects for each fiscal year of funding. The INFRA program preserves the FAST Act’s statutory requirement that at least 25 percent of funding be reserved for rural projects.

Projects eligible for funding include reconstruction, rehabilitation, property acquisition, environmental mitigation, equipment acquisition and operational improvements that affect system performance.

Applicants can resubmit previously submitted FASTLANE applications but must explain how these projects competitively address the INFRA grant criteria. Applications are due Nov. 2.

This week in Congress.

The Senate will consider resolutions of disapproval under the Congressional Review Act (CRA) and confirmation of the president’s appointees to federal agencies. The House will be taking up litigation reform legislation and appropriations legislation to fund the Defense Department through the remainder of fiscal year 2017. The highest profile activity in Congress this week, though, is expected to take place in the House which plans to mark up the legislation to begin to repeal and replace the Affordable Care Act.

The Senate will return on Monday afternoon, when votes are expected on two resolutions of disapproval of federal regulations issued in the final months of the Obama administration under the CRA. The first vote will be on H.J. Res. 37 to disapprove a rule from the Department of Defense, the General Services Administration, and the National Aeronautics and Space Administration revising provisions of the Federal Acquisition Regulation to require federal contractors to disclose findings of noncompliance with labor laws. The Senate is then scheduled to vote on the motion to proceed to H.J.Res 44, a resolution of disapproval of the Bureau of Land Management’s Resource Management Planning rule, finalized in December 2016. The regulation establishes the procedures used to prepare, revise or amend land use plans pursuant to the Federal Land Policy and Management Act of 1976, but congressional Republicans, state and local governments, and affected property owners have argued that the new process creates more confusion and greater uncertainty. The White House has announced support for both resolutions of disapproval, indicating the president would sign them into law upon Senate passage (both resolutions have already been approved by the House).

Senate floor activity for the remainder of the week is uncertain. It is possible the majority leader will initiate action on the nomination of Seema Verma to serve as Administrator of the Centers for Medicare and Medicaid Services. The nomination was advanced by the Senate Finance Committee last Thursday on a straight party-line vote.

On the other side of the Capitol, the House will return to legislative business on Tuesday, when members will consider seven bills, including five measures under the jurisdiction of the Transportation and Infrastructure Committee, under suspension of the rules.

On Wednesday, House members will consider three additional bills under suspension of the rules, all reported by the Natural Resources Committee.

The House will then take up H.R. 1301, the Department of Defense Appropriations Act for FY 2017, subject to a rule. The funding bill would replace the Department of Defense provisions of the current continuing resolution for FY 2017, which is set to expire on April 28, and provide funding through the end of this fiscal year, which ends on Sept. 30. The legislation meets the overall defense spending limits set by law for FY 2017, providing $516.1 billion for base budget needs. The bill also provides $61.8 billion in Overseas Contingency Operations funding, which is the level allowed under current law. These amounts are also in line with the National Defense Authorization Act signed into law by President Obama in December. Unlike the Defense Appropriations bill that passed the House on a party-line vote last summer, this version of the defense spending bill maintains statutory budget limits. As a result, it is likely to garner more bipartisan support for House passage in this session of Congress. Press reports indicate the Trump administration is preparing to request an additional $30 billion in supplemental funding for the Department of Defense in FY 2017, largely for readiness spending, but it remains unclear how Congress will respond to any supplemental appropriations request. It also remains unclear how or when Congress will deal with funding for the 10 remaining FY 2017 spending bills before the continuing resolution expires on April 28.

During the remainder of the week, House members will consider three pieces of litigation reform legislation reported out of the House Judiciary Committee. Each will come to the floor under a rule.

On Thursday, the House will take up two of these measures. H.R. 725, the Innocent Party Protection Act, limits the ability of federal courts to remand cases to state court under certain circumstances. Members will also consider H.R. 985, the Fairness in Class Action Litigation Act of 2017. The bill includes language from a previous class action reform proposal, which passed the House in 2016, to prohibit federal courts from certifying any proposed class under Rule 23 of the Federal Rules of Civil Procedure unless the party seeking to maintain a class action demonstrates that each member of the proposed class suffered an injury of the same type and scope. This version of the legislation also includes some additional provisions related to class action litigation, including disclosure requirements on third-party litigation financing.

The third litigation reform bill will be considered on Friday. H.R. 720, the Lawsuit Abuse Reduction Act of 2017, would amend Rule 11 of the Federal Rules of Civil Procedure to make the imposition of sanctions for violations of the rule mandatory, not discretionary as under current law.

Also this week, House Republican leaders are expected to release their proposal to repeal and replace the Affordable Care Act.  Once the bill is released, committee action is on tap, with markups this week, and prompt floor action can be expected as early as next week.

With all committees now organized, both chambers are facing busy hearing schedules.

 

Trump: Advancing Tax Incentives and Public-Private Partnerships

President Elect Trump has vowed to work with Congress on an ambitious $1 trillion, 10-year proposal staked on tax incentives and private investment to stimulate jobs and rebuild highways, bridges and airports within his first 100 days in office.

To pay for large-scale infrastructure projects, the president-elect is seeking to entice the private sector to get on board with putting up $167 billion of the proposed $1 trillion investment in public-works projects by having the government offer them an 82 percent tax credit.

The plan also relies on increased tax revenues from two revenue streams generated from the new infrastructure projects to offset the tax expenditure: additional wage income from construction workers and contractor profits. Advancing Tax Incentives and Public-Private Partnerships

Trump has vowed to work with Congress on an ambitious $1 trillion, 10-year proposal staked on tax incentives and private investment to stimulate jobs and rebuild highways, bridges and airports within his first 100 days in office.

To pay for large-scale infrastructure projects, the president-elect is seeking to entice the private sector to get on board with putting up $167 billion of the proposed $1 trillion investment in public-works projects by having the government offer them an 82 percent tax credit. The plan also relies on increased tax revenues from two revenue streams generated from the new infrastructure projects to offset the tax expenditure: additional wage income from construction workers and contractor profits.

It is estimated that $300 billion or more in private capital is ready to be deployed for this purpose. This estimated sum exists as investors like pension funds, insurance companies and private equity believe deploying their capital towards infrastructure makes for a sound investment backed by the strength and integrity of local and state governments.

Thus, Trump’s proposal could provide significant and long-awaited opportunities for public-private partnerships, or P3s, to invest in major, high-cost, revenue-supported projects.

P3s to Deal with Excess Property?

Both U.S. and state agencies have used two types of P3 agreements to transfer ownership or control of unneeded property to private developers but a range of challenges hinder their use, the U.S. Government Accountability Office (GAO) has found.

GAO was asked by the Senate Committee on Homeland Security and Government Affairs and one of its subcommittees to review how federal and state agencies have used P3s to dispose of or arrange for private management of excess properties.

The report focuses on two types of P3s: enhanced use leases, through which a private developer manages a government-owned property for an extended length of time, and swap exchanges, through which a private developer assumes ownership of government property in return for building a new asset or completing other construction for the public partner.Enhanced-Use leases have been used in New Jersey with respect to a number of former Military installations.

GAO nevertheless identified several obstacles to using P3s to deal with excess government property. They range from a lack of private sector interest in underused properties that have not been well maintained or require massive environmental remediation to difficulty in assessing both the value of such property and the costs of developing or repairing it.

GAO also pointed out that GSA, which helps agencies to acquire and manage their buildings, needs to obtain experience and expertise in conducting P3s. For example, GSA’s inspector general has expressed concern over the agency’s lack of experience in negotiating P3 agreements in connection with GSA’s proposal to swap the FBI’s dilapidated Washington, D.C., headquarters to developers of a replacement building. P3 negotiations for a similar project, involving the potential swap of several federal buildings in the southwest portion of the city in exchange for construction of a new GSA building, fell through in February.

The need to obtain political support from policy-makers and the surrounding community for private development of public assets is another potential hurdle to using P3s to manage excess government property, noted the report’s authors.

Despite these obstacles, P3s could help governments to divest themselves of underused, superfluous or obsolete properties and transfer the responsibility of maintaining and operating historic buildings and infrastructure that may be needed in the future to private developers, GAO said in its report. The report notes that the National Aeronautics and Space Administration worked with GSA to enter into an up-to-96-year lease with a private developer to rehabilitate, develop new uses for, operate and maintain Moffett Federal Airfield and the historic Hangar One in Mountain View, Calif. The Department of Transportation also is working with GSA to swap unused property near the Volpe Natural Transportation Systems Center in Massachusetts to a private developer in exchange for construction of a new facility.

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.

 

 

P3-friendly legislation taking root.

Recently NJ Senate President Sweeney opined the viability of Public-Private Partnerships.

Political and legislative support is also growing  in states that have already started implementing P3-friendly legislation as well as regulations to control the deliverability on partnership construction projects.

The recent Fixing America’s Surface Transportation (FAST) Act could be beneficial for the development of P3s, setting a positive trend in federal legislation.

A number of states have already taken steps to increase the possibilities for using public-private partnerships for transportation and construction projects.

In California, a recent transportation funding bill could set the stage for the Department of Transportation and regional transportation agencies to enter public-private partnerships for transportation projects beyond the current end date of Jan. 1, 2017. It also would allow the Santa Clara Valley Transportation Authority to use P3s for transportation projects. Bill AB-2742 was held in committee in the Assembly in May.

Louisiana Senate Bill 195 is about to allow the Department of Transportation (DOT) to enter into transportation projects P3s. In June, the governor signed the bill.

In Missouri, Senate Bill 861 would change the existing legislation to allow P3s for construction of public buildings, water facilities, waterways, water supply facilities or pipelines, wastewater or wastewater treatment facilities, and vehicle parking facilities. It does not include highway, interstate or bridge construction, but current legislation already allows for using P3s for pipelines, ferries, river ports, airports, railroads and light rail. The bill was signed by the governor in July.

New Hampshire Senate Bill 549 is another piece of legislation joining the trend. It is bound to allow the Department of Transportation to use public-private partnerships for intermodal infrastructure and transportation projects. This bill was also signed by the governor in June.

In the case of New Hampshire and other states, the new legislation also stipulates the creation of a Public-Private Partnership Infrastructure Oversight Commission. Its mission is to administer P3s, setting contract regulations and bidding criteria.

Thus far, it appears that most states are interested and willing to amend their legislation and to create a healthy environment for public-private partnerships. The trend of introducing regulatory changes is a natural step by state legislators to protect  citizens from unsuccessful P3s.