UNITED STATES DEPARTMENT OF TRANSPORTATION REPORT TO CONGRESS ON PUBLIC-PRIVATE PARTNERSHIPS December 2004 Report to Congress on Public-Private Partnerships Table of Contents TABLE OF CONTENTS Page ACRONYM LIST ................................................................................................ vi DEFINITIONS ...................................................................................................... viii EXECUTIVE SUMMARY .................................................................................. 1 CHAPTER I: INTRODUCTION ........................................................................ 6 CHAPTER II: PUBLIC-PRIVATE PARTNERSHIPS – HISTORY AND INITIATIVES.............................................................................................. 9 A. Public-Private Partnership Defined................................................................... 10 B. History of Public-Private Partnerships.............................................................. 15 i. Highways .............................................................................................. 15 ii. Transit ................................................................................................... 17 C. FHWA Initiatives to Promote Public-Private Partnerships............................... 18 i. Innovative Contracting – Special Experimental Project (SEP-14)....... 20 ii. Innovative Finance Program – Test and Evaluation Project (TE-045).. 22 iii. Innovative Management of Federal Funds ........................................... 23 1. Flexible Match .......................................................................... 23 2. Toll Credits ............................................................................... 24 iv. Grant Anticipation Revenue Vehicles (GARVEEs)............................. 25 v. Federal Credit Assistance ..................................................................... 27 1. Section 129 Loans..................................................................... 27 2. State Infrastructure Banks (SIBs) ............................................. 28 3. Transportation Infrastructure Finance and Innovation Act (TIFIA)............................................................................... 30 vi. Workshops and Conferences................................................................. 32 vii. Safe, Accountable, Flexible, and Efficient Transportation Equity Act of 2003 (SAFETEA)........................................................... 33 viii. FHWA Public-Private Partnership Task Force..................................... 33 D. FTA Initiatives to Promote Public-Private Partnerships................................... 34 i. Private Contracting............................................................................... 34 1. Revenue Service........................................................................ 35 2. Vehicle Maintenance ................................................................ 35 3. Non-Vehicle Maintenance........................................................ 35 4. Administrative and Support Services........................................ 35 5. Systems Development............................................................... 35 ii. Joint Development ................................................................................ 36 iii. Turnkey Procurement............................................................................ 37 iv. Grant Anticipation Notes or Bonds....................................................... 39 i Report to Congress on Public-Private Partnerships Table of Contents CHAPTER III: VALUE OF PUBLIC-PRIVATE PARTNERSHIPS ............. 41 A. Public-Private Partnerships Can Result in Significant Cost Savings................ 41 i. Measuring Cost Savings from Innovative Contracting Methods.......... 42 ii. Cost Savings from Design-Build Contracts.......................................... 45 iii. Cost Savings from Warranties .............................................................. 46 iv. Cost Savings from Long-Term Performance Contracts for Maintenance and Rehabilitation ........................................................... 48 B. Public-Private Partnerships Enable States to Build Projects Sooner ................ 48 i. Time Savings Through Private Sector Investment and Sponsorship.................................................................................... 49 ii. Time Savings from Design-Build......................................................... 52 iii. Time Savings from Cost-Plus-Time (A+B Bidding)............................ 54 C. Cost and Time Savings from Innovative Project Management ........................ 57 i. South Carolina 27 in 7 Peak Performance ............................................ 57 ii. Louisiana “TIMED”.............................................................................. 58 D. Public-Private Partnerships Allow for the Allocation of Risk to the Party Best Able to Manage Risk ............................................................................... 59 E. Public-Private Partnerships Encourage Innovations and Incorporation of Life-Cycle Costs which Leads to the Delivery of a Higher Quality Transportation Facility...................................................................................... 62 F. Risks and Challenges of Public-Private Partnership Procurement ................... 65 G. International Public-Private Partnerships and Private Finance Initiatives........ 67 i. The United Kingdom ............................................................................ 68 ii. Norway.................................................................................................. 68 iii. New Zealand ......................................................................................... 69 iv. Australia................................................................................................ 70 v. Germany................................................................................................ 70 CHAPTER IV: IMPEDIMENTS TO THE FORMATION OF PUBLIC- PRIVATE PARTNERSHIPS..............................................................…………. 72 A. State Laws and Policies..................................................................................... 72 i. Traditional Procurement ....................................................................... 72 ii. Restrictions on Design-Build................................................................ 74 iii. State Enabling Laws ............................................................................. 75 iv. Public-Sector Leadership...................................................................... 77 B. Local Opposition............................................................................................... 78 C. Private-Sector Concerns.................................................................................... 81 i. Financial Viability ................................................................................ 82 ii. Land Acquisition................................................................................... 85 iii. Environmental Expertise....................................................................... 86 iv. Tort Liability......................................................................................... 88 v. Contractor Concerns ............................................................................. 89 D. Federal Funding ................................................................................................ 91 E. Federal Financing Concerns ............................................................................. 92 i. Limitations on Tolling .......................................................................... 92 ii. No Tax Exemptions for Private Activity Bonds................................... 93 ii Report to Congress on Public-Private Partnerships Table of Contents iii. Federal Credit Policies.......................................................................... 94 1. TIFIA ........................................................................................ 95 2. SIBs........................................................................................... 97 iv. Limitations on Commercialization ....................................................... 97 CHAPTER V: COMMENTS ON PUBLIC-PRIVATE PARTNERSHIPS .... 99 A. Environment...................................................................................................... 99 i. Recommended Administrative Changes............................................... 100 ii. Proposed Regulatory Changes .............................................................. 101 iii. Proposed Legislative Changes .............................................................. 102 iv. Planning ................................................................................................ 103 v. Mitigation.............................................................................................. 103 vi. Right-of-Way ........................................................................................ 103 B. Financial Flexibility.......................................................................................... 104 i. Private Activity Bonds.......................................................................... 104 ii. TIFIA .................................................................................................... 104 iii. State Infrastructure Banks....................................................................