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FHWA PPP > Innovation Wave > The Growing Use of PPPs in the United States

IV: The Growing Use of PPPs in the United States

Since December 2004, when USDOT delivered the 2004 Report, there has been a dramatic increase of activity in the U.S. PPP market. This increase is primarily evident in (i) the execution of long-term concessions for the operation and maintenance of existing toll facilities, (ii) the procurement of new transportation capacity and capital improvements through long-term concessions for the design, construction, financing, operation and maintenance of such facilities, and (iii) developments at the state and Federal level to remove impediments to PPPs and promote their use. All levels of government in the United States are looking for innovative and creative ways to reform the traditional approaches to transportation funding and procurement and PPPs are an increasingly preferred alternative.

A. Long Term Concessions of Existing Assets

1. Chicago Skyway

In January 2005, after a competitive bidding process, the City of Chicago and a private consortium reached financial close on a $1.8 billion concession to operate and maintain the Chicago Skyway. The Chicago Skyway is a 7.8 mile toll road connecting the Dan Ryan Expressway on the South Side of Chicago with the Indiana Toll Road. The private consortium is made up of Cintra Concesiones de Infraestructuras de Transporte S.A. , a Spanish toll road developer ("Cintra"), and Macquarie Infrastructure Group, an Australian toll road developer and operator (" Macquarie"). The Chicago Skyway PPP was the first long-term concession of an existing toll road in the United States.

The concessionaire paid the City of Chicago the full $1.8 billion upfront and will operate and maintain the toll road for 99 years. In exchange, the concessionaire was granted the right to collect all toll revenue during the 99-year term. The concessionaire will use the toll revenue to pay for operations and maintenance, to repay the debt that financed the $1.8 billion upfront payment, and to provide a reasonable return on its members' contribution of equity. The concessionaire assumed the risk that toll revenues will be insufficient for these purposes. Annual toll rate increases are fixed through 2017 and are capped thereafter at the greater of (i) 2 percent, (ii) the consumer price index, or (iii) per capita gross domestic product.

The City of Chicago used the $1.8 billion concession payment for a variety of purposes. It used $465 million to redeem outstanding indebtedness on the Skyway, $390 million to redeem other City of Chicago debt, $500 million to fund a long-term reserve account, $375 million to fund a mid-term annuity account, and $100 million to fund various City of Chicago programs, such as home heating assistance and assistance for the disabled to make home modifications. According to Mayor Richard M. Daley, transferring the responsibilities and risks of operating and maintaining the Chicago Skyway was a great benefit to the City because "running a toll road is not a core function of City government."

The large upfront payment made by the private consortium highlights the significant amount of private capital available for investment in U.S. transportation infrastructure. The deal also demonstrates that by permitting the private sector to leverage existing and potentially underperforming public assets, public authorities may be able to realize significant returns.

2. Indiana Toll Road

Following the successful financial close of the Chicago Skyway transaction, the Indiana Finance Authority launched a competitive bidding process in the fall of 2005 for a concession to operate and maintain the Indiana Toll Road (the "ITR"). The ITR runs east-west for 157 miles in northern Indiana between the Chicago Skyway and the Ohio Turnpike. A private consortium made up of Cintra and Macquarie won this concession as well, and in June 2006 the concessionaire made an upfront payment for the concession of $3.8 billion. As with the Chicago Skyway, the concessionaire will operate and maintain the ITR for the full term of the concession, in this case 75 years, and has the right to collect all toll revenue during the term. The concessionaire will use the toll revenues for similar purposes, and the toll rates have similar maximum limits.

Unlike the City of Chicago, however, Indiana is reinvesting the full amount of the upfront payment in the State's transportation program. The ITR concession was an important part of Governor Mitch Daniels' plan to address the State's $1.8 billion transportation funding gap from 2006 to 2015. The ITR was an underperforming asset that consistently lost money – the ITR lost money in three of the last five years it was publicly operated, and in 2005, the ITR lost $16 million.[29] The $3.8 billion upfront payment fully funded Indiana's 10-year road improvement plan. In addition, the upfront payment provided funding to each county in Indiana, and the counties where the ITR is located received one time payments of between $40 million and $120 million for local transportation projects. According to the Indiana Department of Transportation, interest on the upfront payment currently earns about $500,000 each day. [30]

The Chicago Skyway and ITR concessions drew attention to the significant amount of private capital that can be raised upfront through long-term concessions of existing assets. The Chicago Skyway and ITR are both mature facilities with existing traffic, which provides comfort to the private sector that there is a group of customers who will continue to use the road and pay tolls. These conditions facilitate a bidding process aimed at leveraging the full value of the facility. However, other long-term concessions for existing toll road facilities have employed a very different model.

Some existing facilities have been in operation for only a few years and do not have a proven customer base that bidders can rely on for toll revenue. These facilities may be having difficulty attracting customers and may not be collecting enough toll revenue to make required debt service payments. Bidders in these circumstances have less comfort that toll revenue will be sufficient to repay the facility's debt and pay for the road's operation and maintenance, let alone provide a reasonable return on investment. As a result, the project owner may explore a PPP not for a large upfront payment, but to help bridge a gap in the project's financing. The long-term concessions for the operation and maintenance of the Pocahontas Parkway and the Northwest Parkway are good examples of this type of PPP.

3. Pocahontas Parkway

The Pocahontas Parkway is a 9-mile toll road bypassing the southeast side of Richmond, Virginia, connecting I-95 south of the city with I-295 to the east. Virginia planned, constructed and financed the Pocahontas Parkway through the Pocahontas Parkway Association ("PPA"), a non-profit entity created to issue and repay construction bonds. The Pocahontas Parkway opened in 2002, but traffic volumes did not generate sufficient toll revenues to service the PPA's debt. As a result, Virginia decided to convert the project from a non-profit structure to a long-term, concession-based PPP.

In 2006, Virginia entered into an innovative 99-year concession for the operation and maintenance of the Pocahontas Parkway with Transurban, a private toll road operator from Australia. The purchase price paid by Transurban for the concession was used to pay off all of the existing PPA debt and to pay for all of the accrued expenses paid by the Virginia Department of Transportation ("VDOT") for the maintenance and repair of the facility. The concessionaire also paid all of PPA's and VDOT's costs associated with the transaction. Transurban assumed the risk that the toll revenues generated by the Pocahontas Parkway, which are capped by the concession agreement, would be sufficient to provide the necessary returns on its investment. To the extent Transurban does realize returns, excess revenues are subject to a revenue sharing arrangement with Virginia.

Transurban also agreed to construct a 1.6-mile toll road (the "Richmond Airport Connector" or "RAC") connecting the Pocahontas Parkway to the Richmond International Airport. Transurban will use a $150 million loan from USDOT's TIFIA program to finance the RAC's approximately $50 million construction. TIFIA, The Transportation Infrastructure Finance and Innovation Act of 1998, established a Federal credit program under which USDOT may provide secured loans, loan guarantees, and standby lines of credit for eligible transportation projects. Approximately $92.5 million of the TIFIA loan is being used to refinance a portion of the bank debt extended to Transurban for the concession of the facility and defeasance of the PPA bonds. Construction of the RAC is expected to begin in early 2008 and to be complete by 2010.

Virginia is accruing significant benefits from this PPP, which reached financial close on the same day as the ITR concession, June 29, 2006. The RAC is being financed and built by Transurban, all of the PPA's debt was repaid, and the costs and responsibilities for operation and maintenance of the Pocahontas Parkway were transferred to the private sector. This deal demonstrates that PPPs are an innovative way to tackle a variety of transportation challenges, not just a tool for attracting private capital.

4. Northwest Parkway

The PPP for the Northwest Parkway illustrates similar advantages. The Northwest Parkway is a 9-mile toll road northwest of Denver, Colorado. The toll road extends the E-470 toll road west and south to 96th Street in Broomfield and is the most recently constructed portion of an incomplete beltway around the Denver area. The Northwest Parkway was developed by a public authority (the "NWP Authority") consisting of three member jurisdictions, the City and County of Broomfield, the City of Lafayette, and Weld County. Ex-officio members are Jefferson County, the City of Arvada, the Regional Transportation District, the Interlocken Metropolitan District, and the Colorado Department of Transportation. The NWP Authority financed the project with non-recourse toll revenue bonds to be repaid with toll revenues. The road opened to traffic in 2003. As with the Pocahontas Parkway, toll revenues on the Northwest Parkway were less than originally forecast and the NWP Authority decided to convert the project to a long-term, concession-based PPP.

After a competitive bidding process in which the NWP Authority qualified 11 private sector groups to submit proposals, the NWP Authority entered into a 99-year concession on August 29, 2007, with a consortium made up of Brisa Auto-Estradas de Portugal, S.A., a Portuguese toll road operator, and Compania de Concessoes Rodoviarias, a Brazilian toll road operator ("Brisa/CCR"). Like the concession for the Pocahontas Parkway and its refinancing, this PPP incorporated innovative features that addressed local needs. The NWP Authority did not "simply accept the highest bid," but rather provided "strong final values for [its] multiple member jurisdictions."[31]

The total price of the concession paid by Brisa/CCR was $543 million. The majority of this money was used to pay off existing NWP Authority debt and to make a $50 million upfront rent payment to the NWP Authority. In addition, to facilitate the further extension of the Northwest Parkway, the price included $40 million to be placed in escrow and released to the NWP Authority if the Northwest Parkway is extended within a specified period of time. Brisa/CCR also promised to pay an additional $60 million towards the extension of the Northwest Parkway if the extension is completed on time. Brisa/CCR is required to share revenue with the NWP Authority after certain revenue levels are reached.[32]

By committing to local transportation improvements that benefit the region, the private partners in both the Pocahontas Parkway and the Northwest Parkway transactions demonstrated the ability of PPPs not only to shore up the financial status of struggling facilities, but also to facilitate local solutions that benefit both the public and private sectors.

5. Greenville Southern Connector

The public benefit corporation that developed the Greenville Southern Connector toll road with the cooperation of the South Carolina Department of Transportation recently issued a request for qualifications for the private sector to operate and maintain the 16-mile toll road pursuant to a long-term concession. Like the Pocahontas Parkway and the Northwest Parkway, the Greenville Southern Connector has struggled with toll revenues that have been lower than originally forecasted. While traffic has been improving on the Connector, the Connector recently indicated its expectation that "a private sector Concessionaire may be best able to maximize the financial performance of the [Connector] over the long term, while providing economic value and high quality service for patrons of the road."[33] The Connector's board is currently having an investment grade traffic and revenue study prepared to inform its decision regarding any potential concession.[34]

It is noteworthy that the Greenville Southern Connector was originally financed through a 63-20 not-for-profit corporation. These corporations are named for the requirements of IRS Rev. Rul. 63-20 and Rev. Proc. 82-26. In the context of transportation finance, a 63-20 not-for-profit corporation is a non-stock corporation formed to issue tax-exempt debt on behalf of a public authority, the proceeds of which are used to pay for a private developer to design, construct and/or operate a transportation facility. The governing structure typically includes representatives from both the public sector and the private sector and members of the 63-20 are generally insulated from financial risk. The corporation may not be formed for pecuniary profit and may not provide dividends or distributions to its members so the financing structure does not include any equity investments by the private sector.

Not-for-profit 63-20 corporations received a lot of attention when the Pocahontas Parkway, the Northwest Parkway and the Greenville Southern Connector were originally financed because they allow a project to be developed, designed, constructed, and/or operated by the private sector using tax-exempt debt (tax-exempt debt is typically only available for public projects). Of the handful of projects financed through a 63-20 corporation, however, a number have struggled to reach forecasted traffic and revenue. While it is difficult to say with certainty why these financings struggled, some have argued that 63-20 financings have failed because neither the public nor the private sector has financial liability if the facility cannot repay its debt, only the single-purpose 63-20 corporation does.[35] By contrast, in PPPs, the private sector assumes financial liability for the project through debt financing, long-term warranties and equity investments.

6. Pennsylvania Turnpike and Alligator Alley

As more concessions for the operation and maintenance of existing toll roads reach commercial and financial close[36], more public authorities are considering PPPs.

On May 15, 2008, Pennsylvania Governor Ed Rendell announced that the Commonwealth had selected a $12.8 billion proposal for a concession of the 531-mile Pennsylvania Turnpike. The proposal was submitted by a consortium made up of Citi Infrastructure Investors, Abertis Infraestructuras, a Spanish toll road operator, and Criteria CaixaCorp, a major shareholder of Abertis. The consortium agreed to pay the $12.8 billion upfront for Pennsylvania to invest in a long term fund that would generate significant annual payments to be used for Pennsylvania roads, bridges and transit. Approval of the State legislature is required before Governor Rendell can accept the bid and enter into the concession. In 2007, Pennsylvania's legislature authorized an alternative plan for the public Pennsylvania Turnpike Commission to seek Federal approval to toll I-80, an Interstate highway which runs parallel to the Pennsylvania Turnpike to the north, to raise additional revenue. According to Governor Rendell, the payments from the private concession "would average 13 percent higher than the maximum available under the I-80 tolling plan, assuming investment returns equal to the average earnings of the Pennsylvania State Employee Retirement System over the past 20 years."[37]

On May 5, 2008, the Florida Department of Transportation released a Request for Qualifications for a concession to lease, maintain, operate and receive toll revenue from the 78-mile Alligator Alley toll road on I-75 in South Florida. The RFQ was reissued on June 25, 2008, and the deadline for submitting Statements of Qualification is July 23, 2008. The concession will run for 50-75 years and will include an upfront payment and revenue sharing, as required by State statute. Florida also reportedly may be considering concessions for the Beachline Expressway on FL-527 and the Sunshine Skyway Bridge on I-275.[38]

While it is not clear which, if any, of these proposed PPPs will close, the concessions for the Chicago Skyway, ITR, Pocahontas Parkway and Northwest Parkway establish long-term concessions of existing toll roads as a model for addressing transportation needs and improving operational accountability with respect to existing facilities.

 

PPPs for the Operation and Maintenance of Existing Toll Facilities in the United States
(January 2005 May 2008)
Project Location Status Type of PPP
Chicago Skyway Illinois Closed Long-term concession to operate and maintain 7.8-mile toll road in Chicago
Indiana Toll Road Indiana Closed Long-term concession to operate and maintain 157-mile toll road in northern Indiana
Pocahontas Parkway Virginia Closed Long-term concession to operate and maintain 14-mile toll road outside of Richmond and to build Richmond Airport Connector
Northwest Parkway Colorado Closed Long-term concession to operate and maintain 11-mile toll road outside of Denver and funding commitment for future expansions
Dulles Greenway Virginia Closed Refinancing long-term concession to operate and maintain 14-mile toll road between Leesburg and the Dulles International Airport
Pennsylvania Turnpike Pennsylvania RFQ Issued Long-term concession to operate and maintain 531-mile turnpike (requires legislative approval)
Greenville Southern Connector South Carolina RFQ Issued Long-term concession to operate and maintain 16-mile toll road in Greenville, South Carolina
Alligator Alley Florida RFQ Issued Long-term concession to operate and maintain 78-mile toll road in South Florida

B. PPPs for New Capacity and Capital Improvements

While some state and local authorities are considering PPPs for the operation and maintenance of existing toll roads, many are turning to the private sector to develop, design, construct, finance, operate and maintain new transportation capacity and capital improvements. Some states, such as Texas, Virginia and Florida, are farther along than other states in developing programmatic approaches to using PPPs for these projects, but the variety of states that are currently considering PPPs, and the variety of structures that these states are considering, demonstrate that PPPs have become, in some places, a preferred approach for funding and delivering new capacity and capital improvements.

1. Texas

Texas is considered to be among the leaders in using PPPs for new transportation capacity and capital improvements, in large part because of the many projects that the Texas Department of Transportation ("TxDOT") is in the process of procuring.[39] TxDOT began procuring PPP projects six years ago. In 2002, TxDOT entered into a Design-Build agreement (TxDOT refers to PPP/concession agreements as "Comprehensive Development Agreements" or "CDAs") with a consortium made up of Fluor Corporation, Balfour Beatty Construction and T.J. Lambrecht for the approximately $1.5 billion Central Texas Turnpike (SH-130) toll road project. In 2004, TxDOT entered into a Design-Build CDA with Zachry Construction Corporation for the $167 million SH-45 East toll road project. After executing these two Design-Build CDAs, TxDOT turned to long-term, concession-based PPPs for the design, construction, financing, operation and maintenance of new capacity and capital improvements, including the landmark Trans-Texas Corridor ("TTC") projects.

The TTC is a proposed network of super-highway corridors in Texas that could include separate lanes for passenger vehicles and large trucks, freight and high-speed commuter railways, infrastructure for water lines, and oil and gas pipelines, and transmission lines for electricity, broadband and other telecommunications services.[40] Specific corridors will be determined in line with Texas' transportation priorities and will be completed over the next 50 years. While TxDOT will oversee planning, construction and ongoing maintenance, two of the guiding principles for the TTC are: (i) "The Trans-Texas Corridor must be built with public/private partnerships in order to minimize costs to taxpayers," and (ii) "Government does not have all the answers to the transportation challenges facing Texas and needs the innovation of the private sector."[41] TTC facilities will be delivered using innovative, long-term, concession-based PPPs which include significant private sector responsibility for design, construction, financing, operation and maintenance of the facilities.

On March 11, 2005, TxDOT signed a CDA for the first TTC corridor, TTC-35, with a private consortium made up of Cintra and Zachry Construction Corporation (the "CZ Consortium"). The TTC-35 corridor is a proposed tolled highway running more than 600 miles from the Oklahoma border through Dallas, Austin and San Antonio to Mexico or the Gulf Coast, depending on final alignment. The proposal submitted by the CZ Consortium specified that it would invest $6 billion to design, construct and operate for up to 50 years the portion of TTC-35 between Dallas and San Antonio and that it would make a payment of approximately $1.2 billion to TxDOT for the right to build and operate this segment as a toll facility.

The CDA required the CZ Consortium to produce a $3.5 million master development and financial plan. The CDA also provides the framework for the CZ Consortium to collaborate with TxDOT for the planning of a combination of facilities making up the TTC-35 corridor, and to be responsible for some or all of the development, design, construction, financing, operation and/or maintenance of such facilities. The corridor is to be built in segments and the CDA specified that before any individual segment of the corridor proceeds to development, a "Facility Agreement" would need to be entered into with TxDOT for that particular segment.

The first Facility Agreement entered into by TxDOT for the TTC-35 corridor granted the CZ Consortium a 50-year concession to design, build, finance, operate and maintain Segments 5 & 6 of SH-130. The $1.36 billion, 40-mile project provides two segments of SH-130, an alternative route between San Antonio and Austin, and is a critical connecting facility of the TTC-35 corridor. The deal included a $25.8 million upfront concession payment from the CZ Consortium to pay for other projects in the region and a revenue sharing provision pursuant to which Texas will receive a yearly share in the toll revenues. As discussed in Section IV(D), the project's financing, which includes private equity and a senior bank debt facility, also includes a $430 million secured loan from the USDOT's TIFIA program. The project reached financial close in March 2008 and demonstrates the private sector's readiness to invest in U.S. transportation infrastructure, including major capacity improvements.

The second TTC corridor being developed is the I-69/TTC corridor running approximately 650 miles from the Texarkana/Shreveport area in northeast Texas through Houston to Mexico. A competitive bidding process was launched by TxDOT for this corridor on April 7, 2006, and two private sector teams were shortlisted to compete on September 28, 2006. On June 26, 2008, TxDOT announced that it had selected a consortium of Zachry American Infrastructure and ACS Infrastructure for the project. As with the TTC-35 corridor, the CDA for this corridor will require the consortium to develop a master development plan and master financial plan for the corridor and will include the right of first negotiation for the consortium to perform work on certain projects. US-77 in the southern portion of the corridor will be the first facility to be developed under the CDA pursuant to a separate Facility Agreement.

TxDOT intends to develop the I-69/TTC corridor using existing highway facilities wherever possible, including US-59, US-77, US-281 and SH-44. TxDOT indicated that the preliminary basis for this decision was its review of nearly 28,000 public comments submitted in connection with the environmental process. This decision is consistent with guiding principles recently adopted by the Texas Transportation Commission, which also reaffirmed that only new lanes added to an existing highway will be tolled. The consortium plans to coordinate with local authorities along the corridor to develop new toll roads to help finance the work required to develop the existing portions of the I-69/TTC corridor to interstate standards.[42]

In addition to the TTC corridors, several additional projects for which TxDOT is considering PPPs are at various stages of procurement. These projects demonstrate TxDOT's commitment to PPPs as a preferred approach to project funding and procurement.

  1. I-635 Managed Lanes: Construct, operate and maintain a corridor of tolled managed lanes from east of Luna Road to north of I-30 in the Dallas- Fort Worth area through a concession-based PPP.

  2. North Tarrant Express: Design, construct, finance, operate and maintain tolled managed lanes, general purpose lanes and related facilities in North Tarrant County through a concession-based PPP.

  3. DFW Connector: Develop, design and construct (and at TxDOT's sole option maintain) tolled managed lanes on the SH-114/SH-121 corridor in the Dallas- Fort Worth area.

While these PPPs are moving forward, the enthusiasm for PPPs in Texas has been tested recently by two separate occurrences. The first, which is discussed in more detail in Section IV(C), was legislation passed in June 2007 that, among other things, (i) gives local authorities additional rights to develop toll roads before they can be procured as PPPs, and (ii) enacts a two-year moratorium on developing new PPP projects (the projects that were already identified for procurement as PPPs were exempted from the moratorium). The second occurrence was the cancelled PPP procurement for the SH-121 project.

Upon completion, the SH-121 project will be a 25.9-mile, all electronic toll road in Collin, Dallas, and Denton counties. In August 2006, despite previously having expressed interest in participating, the North Texas Tollway Authority ("NTTA", a public tollway authority serving the Dallas- Fort Worth area) signed an agreement that it would not bid on the SH-121 project, which was being procured as a PPP by TxDOT. Nevertheless, following TxDOT's approval of a private proposal worth more than $5 billion submitted by a consortium made up of Cintra and JP Morgan Asset Management, the Texas State Legislature enacted legislation directing TxDOT to waive the existing agreement with NTTA and allow the public authority to submit a competing proposal for the SH-121 project. In June 2007, the Texas Transportation Commission, acting at the recommendation of the Regional Transportation Council ("RTC"), approved the award of the SH-121 project to NTTA instead of the competitively selected private consortium.

Following the award to NTTA, the Federal Highway Administration ("FHWA") sent a letter to TxDOT advising them that this procurement process violated two Federal laws.[43] First, allowing NTTA to submit a proposal after the selection process had been completed was a violation of the Federal requirement to conduct a fair and open competitive process. Having had the benefit of analyzing the Cintra-led consortium's publicly disclosed submission the NTTA was given an unfair advantage in the procurement process. Second, Federal regulations specifically prohibit a public entity, such as the NTTA, from bidding against a private entity. While TxDOT and FHWA subsequently agreed to a resolution of these violations whereby TxDOT cancelled the procurement and its approval of the RTC recommendation[44], the SH-121 procurement process raised concerns about the integrity of TxDOT's PPP procurement process. When introducing private sector involvement in transportation projects through PPPs, state and local entities need to be vigilant to ensure that the procurement process is, and is perceived to be, fair and competitive.

2. Virginia

Virginia is another state considered to be at the forefront of states using PPPs as a preferred approach to project delivery.[45] While a number of the early PPP projects procured by VDOT did not include significant private financing or private involvement in long-term operations and maintenance, recent PPP procurements have increasingly been for long-term, concession-based PPPs. In addition to the 2006 concession of the Pocahontas Parkway, which was discussed in Section IV(A), VDOT is in the process of procuring the Route 460 Improvements Project. Three private sector consortia are competing to design, construct, finance, operate and maintain approximately $1 billion to $2 billion improvements to Route 460 between I-295 in Prince George County and the Suffolk Bypass ( US 58) in Suffolk. Route 460 is considered to be a vital shipping, commuting and emergency-response route for southeastern Virginia.

Virginia also expects to procure the Midtown Corridor Tunnel Project and the Southeastern Parkway and Greenbelt Project as PPPs. The Midtown Corridor Tunnel Project involves (i) modifications to the existing tunnel linking Portsmouth and Norfolk, (ii) construction of a new parallel tunnel and (iii) freeway extensions. Three private sector consortia expressed interest in 2005 for the Midtown Corridor Tunnel Project and VDOT issued a Solicitation for Conceptual Proposals for the project on May 30, 2008. The procurement for the Southeastern Parkway and Greenbelt Project is expected to get started after the Record of Decision is finalized. The corridor being studied for this project runs east-west from Chesapeake to the Oceana Naval Air Station in Virginia Beach.

Perhaps Virginia's most innovative PPP effort is a proposed network of high-occupancy toll lanes ("HOT lanes")[46] in northern Virginia south and west of Washington, DC. On December 20, 2007, VDOT and a private sector consortium reached commercial and financial close for a concession to design, build, finance, operate and maintain two HOT lanes on an approximately 14-mile portion of the Capital Beltway (I-495) around southwest Washington, DC (the concessionaire will construct two new general purpose lanes and convert the two innermost existing general purpose lanes into HOT lanes). This portion of the Beltway connects Springfield, Virginia, and I-95 with Tyson's Corner. The private sector consortium is led by Transurban, an Australian toll road operator, and Fluor Enterprises, an American contractor and developer. The concessionaire is using toll revenues to be collected on the HOT lanes to finance approximately $1.4 billion of the project's expected cost of approximately $1.8 billion. The financing includes a $588 million loan from the USDOT's TIFIA program, $589 million of private activity bonds ("PABs") authorized by the USDOT and issued on June 12, 2008, and private equity contributions totaling $350 million from the members of the concessionaire (the TIFIA and PABs programs are described in Section IV(D) with other Federal programs that facilitate PPPs). Approximately $409 million will be funded from Federal-aid and State sources.

Virginia is also pursuing a PPP with the same private sector companies for a 56-mile HOT lanes corridor along I-95 and I-395 south of Washington, DC. This is a heavily congested commuter corridor that links up with the Capital Beltway HOT Lanes Project in Springfield. For this project, the concessionaire will expand the two existing high occupancy vehicle lanes on I-95 and I-395 and construct two new lanes heading further south on I-95, to Massaponax, Virginia. All of these lanes will be converted to HOT lanes. These lanes will also incorporate facilities for bus rapid transit, park-and-rides and bus stations. VDOT expects these HOT lanes to provide an innovative solution to serious congestion problems and to provide new alternatives for carpoolers, vanpoolers, transit riders, motorists, slugs, businesses and communities throughout the northern Virginia area. Taken together, the I-95/I-395 and Capital Beltways HOT Lanes Projects will not only demonstrate the value of PPPs and private sector innovation, but will also demonstrate the value of congestion pricing for traffic management in one of the Nation's busiest commuter corridors.

3. Missouri

PPPs provide substantial benefits for facilities that are not congested as well. Private sector participation is possible on projects for which tolls don't cover all costs and even on projects that do not generate revenue. In these circumstances, bidders can compete on the basis of the lowest level of subsidy they will accept from the public sector to carry out the project.

This approach is being used by the Missouri Department of Transportation ("MoDOT") for the Missouri Safe & Sound Bridge Improvement Project.[47] The project contemplates a private partner bringing more than 800 of Missouri's lowest rated bridges up to satisfactory condition and keeping them in that condition for 25 years. Many of the bridges to be upgraded are in rural areas where there is not enough traffic to support tolls. The project, which has an estimated capital cost of $600 million to $800 million, will be privately financed and bidders competed largely on the basis of the lowest level of availability payments[48] needed from MoDOT to do the work and repay the financing. MoDOT is only required to make the availability payments if the private partner completes the bridge upgrades on time and keeps them in satisfactory condition during the term of the concession. Missouri expects to dedicate federal bridge replacement funds during the term of the concession to make the availability payments. USDOT approved a PABs allocation of up to $700 million to finance the project.

MoDOT selected a winning bidder on December 20, 2007, made up of Zachry American Infrastructure, Parsons Transportation Group, Fred Weber, Inc., Clarkson Construction, HNTB and Infrastructure Corporation of America. On June 5, 2008, the Director of MoDOT told Congress that despite the difficulty of finalizing the deal in the current credit markets, he is optimistic that Missouri will have an agreement soon and work can begin around the State. This project demonstrates that the public sector can utilize PPPs to save money, accelerate project delivery, transfer risk, and provide innovative solutions to pressing infrastructure problems even if projects are not self-sufficient toll facilities.

4. BART Oakland Airport Connector

The San Francisco Bay Area Rapid Transit Commission ("BART") Oakland Airport Connector project is utilizing a hybrid availability payment structure.[49] Teams were shortlisted to bid on a concession to design, build, finance, operate and maintain a 3-mile rail connection between the existing Coliseum Station of the BART rail system and the Oakland Airport. According to the request for qualifications issued to prospective bidders, BART expects that the private concessionaire will be paid with a combination of (i) availability payments, (ii) performance-related payments and (iii) a small percentage of ridership incentive payments, which are payments directly related to actual ridership. BART is generally assuming the risk that the facility will not generate forecasted revenue, and BART will make payments to the concessionaire based on the project's availability and the concessionaire's performance. Nevertheless, in order to align the concessionaire's interests with BART's interests, BART is making a portion of the concessionaire's compensation dependent on actual ridership.

5. Denver RTD

Another major transit PPP procurement currently being developed will be for a portion (or portions) of the FasTracks capital program being developed by the Regional Transportation District ("RTD") in Denver, Colorado. FasTracks is an ambitious 12-year, $6.1 billion plan to improve transit in the Denver area by developing 119 miles of new commuter rail and light rail, transit stations, bus rapid transit, an enhanced bus feeder system, park-and-rides and other parking capacity. RTD is considering using a PPP structure for the development, design, construction, financing, operation and maintenance of two or more of the rail corridors that will make up the project. RTD has selected a financial advisor to help it examine its innovative financing options and to help establish a procurement process for these PPP projects. RTD expects to get public input on a draft Request for Proposals for the PPP procurement of the East, Gold Line and Commuter Rail Maintenance Facility by the summer of 2008.[50] Among the benefits of a PPP structure for RTD is that it would "allow a private entity to borrow funds and repay costs over time, enabling RTD to spread out large upfront costs and preserve cash in the early years of FasTracks implementation."[51]

6. Florida

The Florida Department of Transportation ("FDOT") is using an availability payment structure to deliver the Port of Miami Tunnel project.[52] The project, which will cost more than $1 billion, is a concession-based PPP for the design, construction, financing, operation and maintenance of a tunnel connecting the Port of Miami on Dodge Island with Watson Island and I-95 on the mainland. Port traffic currently uses local streets in downtown Miami to access I-95. Tolls will not be used to finance this project and the concessionaire will not assume traffic risk. Instead, availability payments will be made to the private concessionaire by FDOT once the tunnel opens and will continue throughout the concession. If the concessionaire does not perform in accordance with the standards specified by FDOT in the concession agreement, the concessionaire will not be entitled to a full availability payment. The PPP structure for this project, which will take advantage of a USDOT PABs allocation of up to $980 million, is designed to transfer the risk of construction cost overruns and overruns in the long-term cost of operations and maintenance to the private sector. The availability payment mechanism aligns the interests of the concessionaire with those of the public: efficiency and high-quality construction, upkeep and user services.

In addition to the Port of Miami Tunnel, FDOT has two more PPP projects for new road capacity that it is in the process of procuring. First, on December 7, 2007, FDOT shortlisted four of the six teams that submitted qualifications to compete on the approximately $1.5 billion I-595 Project.[53] The bidders are competing for a 35-year concession to design, build, finance, operate and maintain improvements on the I-595 corridor between the I-595/I-75/Sawgrass Expressway interchange and the I-595/I-95 interchange in Broward County. The improvements include reversible express lanes in the median of I-595 which will be variably priced. Toll rates will be controlled by FDOT. Second, on December 4, 2007, FDOT issued a request for potential bidders to submit qualifications to bid on a long-term concession to develop, design, construct, finance, operate, maintain and toll the First Coast Outer Beltway.[54] The First Coast Outer Beltway will be a limited access toll facility outside of Jacksonville that includes the St. Johns River Crossing Corridor in St. Johns and Clay Counties and the Branan Field-Chaffee Road (SR 23) project in Clay and Duval Counties.

With these three projects, PPPs are becoming a mainstream approach to project delivery in Florida. Florida also recently passed legislation enabling long-term concessions for the operation and maintenance of existing toll road facilities (other than those owned by the Florida Turnpike Enterprise). As noted in Section IV(A), on May 5, 2008, FDOT released a Request for Qualifications for a concession to lease, maintain, operate and receive toll revenue from the 78-mile Alligator Alley toll road on I-75 in South Florida (the RFQ was reissued on June 25, 2008 and the deadline for submitting Statements of Qualification is July 23, 2008), and Florida is also reportedly considering concessions for the Beachline Expressway and the Sunshine Skyway Bridge.[55]

7. Georgia

Georgia is also beginning to develop a PPP program, with four PPP projects in various stages of procurement.[56] The first two projects being developed by the Georgia Department of Transportation ("GDOT") as PPPs do not include significant assumption of risk by the private sector in the financing and/or long-term operations and maintenance of the projects. The second two projects being procured by GDOT would be long-term, concession-based PPPs similar to the long-term, concession-based PPPs that are becoming more prevalent in other parts of the United States.

On May 18, 2006, Georgia signed its first PPP agreement with a consortium made up of Bechtel Infrastructure Corporation and Kiewit Southern Co. The agreement is a Developer Services Agreement for the Northwest Corridor (I-75/I-575) Project. The agreement provides the procedural framework for the consortium to examine the development of new, fully electronic, express toll lanes on I-75 and I-575 northwest of Atlanta.  The consortium is also analyzing the development of bus rapid transit lanes ("BRT lanes") for the corridor and may also examine truck-only toll lanes ("TOT lanes") on I-75, which trucks would be required to use. When these services are complete, Georgia expects to enter into a Design-Build contract with the consortium. In its press release from May 2006 GDOT indicated that using a Design-Build approach rather than traditional procurement approaches will reduce the time it takes to complete the design and construction of the facility from an anticipated 15 to 20 years to as few as 6 years.[57]

The second PPP project GDOT is considering is the GA-400 HOT Lanes Project. GDOT received a revised unsolicited proposal for this project from a consortium led by Washington Group International on November 21, 2005, but has not yet voted to approve the proposal. The project involves the design, construction, operation and maintenance of HOT lanes on GA-400 to compliment improvements to I-285 to be undertaken by GDOT. The project will also include increased usage of bus rapid transit. As with the Northwest Corridor Project, the consortium is proposing to accelerate construction with a Design-Build arrangement and is also proposing to operate and maintain the completed toll facility. While the consortium is not proposing to invest private equity or to assume the risks of the financing, the consortium would guarantee the cost and opening date through the Design-Build arrangements.

GDOT is also currently evaluating proposals for what could be its first long-term, concession-based PPP, the I-285 Northwest TOT Lanes. GDOT received an unsolicited proposal to develop this project from a Goldman Sachs-led consortium on May 18, 2006. While the initial proposal was subsequently withdrawn, GDOT received four competing proposals from interested private consortia. The proposals contemplate a PPP for the design, construction, financing, operation and maintenance of TOT lanes on I-285 to complement the TOT lanes which may be constructed as part of the Northwest Corridor Project. The TOT lanes on I-285, which is the beltway around Atlanta, would begin immediately south of where the proposed Northwest Corridor TOT lanes would empty into I-285.

On July 19, 2007, GDOT announced its first Notice of Intent to Solicit a PPP. The proposed I-20 Managed Lanes Corridor would add two managed lanes along the I-20 Corridor from east of I-285 to Turner Hill Road, approximately nine miles. The notice also contemplates the maintenance of three general purpose lanes along the corridor. The solicitation followed shortly after the Georgia State Transportation Board decided on May 18, 2007, to temporarily postpone its acceptance of unsolicited proposals beginning June 1, 2007.   Each of the three projects described above, and one project which was cancelled, the SR-316 toll road project, were the result of unsolicited proposals. The Transportation Board resolution and the solicitation for the I-20 Corridor signal a shift in Georgia 's policy away from unsolicited proposals (the projects already under procurement are not affected by the resolution).

8. Alaska, Mississippi and North Carolina

While Alaska has not created a statewide PPP program, it has authorized the use of a PPP structure for the delivery of the Knik Arm Crossing Project. The State passed legislation authorizing the Knik Arm Bridge and Tolling Authority ("KABATA") to utilize a PPP to finance, design, construct, operate and maintain the Knik Arm Bridge.[58] KABATA issued a request for qualifications on December 13, 2006, and shortlisted two consortia to compete for the project on March 15, 2007. The RFQ contemplates the design, construction, financing, operation, and maintenance of the Knik Arm Bridge through a 55-year concession. The Knik Arm Bridge would connect Anchorage with the Mat-Su Borough over the Knik Arm of the Cook Inlet. On October 29, 2007, USDOT conditionally approved KABATA's application for a $600 million allocation of PABs to be used by the winning bidder for the financing of the project. KABATA would act as the conduit issuer of the tax-exempt PABs which the concessionaire would be obligated to repay from toll revenues.

Mississippi released a request for qualifications on June 2, 2008, for its first PPP, a new 12-mile toll road called the Airport Parkway which will connect the east side of downtown Jackson with the eastern suburbs of Jackson and the Jackson International Airport. Also in June 2008, the North Carolina Turnpike Authority released a request for qualifications to enter into a pre-development agreement for the Mid-Currituck Bridge, which will be North Carolina's first PPP. The proposed new bridge over Currituck Sound will connect Currituck County on the mainland with the Outer Banks.

 

PPPs for New Build Highway and Transit Facilities in the United States
(January 2005 – May 2008)
Project Location Status Type of PPP
TTC-35 Texas Concession Awarded Concessionaire responsible for preparation of master development plan and for some or all of the development, design, construction, financing, operation and/or maintenance of an approximately 600-mile corridor from Mexico to Oklahoma
SH-130 Segments 5&6 Texas Closed Concession to design, build, finance, operate and maintain approximately $1.3 billion facility as first segment of TTC-35 project
I-69/TTC Texas Preferred Bidder Selected Concessionaire responsible for preparation of master development plan and for some or all of the development, design, construction, financing, operation and/or maintenance of an approximately 650-mile corridor from Mexico to Texarkana/Shreveport
I-635 Texas RFP Issued Concession to design, build, finance, operate and maintain tolled managed lanes in Dallas/Fort Worth area
North Tarrant Express Texas Bidders Shortlisted Concession to design, build, finance, operate and maintain tolled managed lanes and general lanes in North Tarrant County
DFW Connector Texas Bidders Shortlisted Concession to develop, design, construct (and at TxDOT's sole option maintain) tolled managed lanes on the SH-114/SH-121 corridor in Dallas/Fort Worth area
Capital Beltway HOT Lanes Virginia Closed Concession to design, build, finance, operate and maintain HOT lanes on a 14-mile stretch of I-495 in northern Virginia
I-95/I-395 HOT Lanes Virginia Interim Agreement Executed Concession to design, build, finance, operate and maintain HOT lanes on a 56-mile stretch of I-95/I-395 in northern Virginia
US Route 460 Virginia Bidders Shortlisted Concession to design, build, finance, operate and maintain $1 billion to $2 billion improvements to Route 460 in southeastern Virginia
Midtown Corridor Tunnel Virginia Solicitation Issued Concession to modify the existing tunnel linking Portsmouth and Norfolk, construct a new parallel tunnel and extend freeway
Port of Miami Tunnel Project Florida Preferred Bidder Selected Concession to design, build, finance, operate and maintain a tunnel providing access from the Port of Miami to the Florida mainland
I-595 Improvements Florida Bidders Shortlisted Concession to design, build, finance, operate and maintain improvements on the I-595 corridor between I-75 and I-95
First Coast Outer Beltway Florida RFQ Issued Concession to design, build, finance, operate and maintain a limited access toll facility outside of Jacksonville
Northwest Corridor Georgia Development Agreement Executed Concession to develop, design and construct express toll lanes, BRT lanes and possibly TOT lanes on I-75 and I-575 northwest of Atlanta
I-285 Northwest TOT Lanes Georgia Evaluation of Proposers Concession to design, build, finance, operate and maintain TOT lanes on I-285 and I-20 northwest and west of Atlanta
GA-400 Crossroads Region Georgia Evaluation of Proposal Concession to design, construct, operate and maintain HOT lanes on GA-400 north of Atlanta
I-20 Managed Lanes Georgia Pre-Solicitation Concession to design, build, finance, operate and maintain two managed lanes on the I-20 corridor east of Atlanta
Missouri Safe & Sound Bridge Program Missouri Preferred Bidder Selected Concession to upgrade, finance, operate and maintain more than 800 bridges in Missouri
Knik Arm Crossing Project Alaska Bidders Shortlisted Concession to design, build, finance, operate and maintain a bridge connecting Anchorage with Mat-Su borough
The Airport Parkway Mississippi RFQ Issued Concession to develop, build, finance, operate and maintain a parkway from downtown Jackson to the airport
Oakland Airport Connector California RFP Issued Concession to design, build, finance, operate and maintain the Oakland Airport Connector
Denver RTD Colorado RFQ Expected Concession to design, build, finance, operate and maintain the East, Gold Line and Commuter Line Maintenance Facility in the Denver area
Metro Solutions Phase II Texas Bidders Shortlisted Facility Provider will be responsible for design and construction of civil works; furnishing and installation of equipment; initial operations and maintenance; and financing services for Light Rail projects in Houston
I-73 South Carolina Request for Conceptual Proposals Concession to design, build, finance, operate and maintain the 80-mile portion of I-73 connecting Myrtle Beach with the North Carolina border
Mid-Currituck Bridge North Carolina Bidders Shortlisted Concession for new 7-mile bridge over Currituck Sound connecting mainland and the Currituck County outer Banks south of Corolla

In addition to the projects identified above, PPPs have been considered for several other projects. For some of these projects decisions were made not to proceed with a PPP, or not to proceed at all with the project. For others, the procuring agency is still considering a PPP and may solicit proposals. These projects include, among others:

C. State and Federal Encouragement

Under the federal system of government in the United States , the Federal government provides funding for highway and transit projects, but these projects are owned and operated at the state or local level. [59] For this reason, express authorization to engage in a PPP for a particular transportation project has to be provided by the relevant state and/or local legislative authority. Since the 2004 Report eight states have enacted legislation authorizing PPPs for highways and transit projects.

While the Federal government's role is generally limited to providing funding for surface transportation projects, the Federal government has been actively encouraging and facilitating PPPs through Federal programs, including credit assistance programs. The Federal government has provided this support from programs that existed prior to the 2004 Report, but also from programs that were enacted in the most recent surface transportation reauthorization bill, the 2005 Safe, Accountable, Flexible, Efficient, Transportation Equity Act: A Legacy for Users ("SAFETEA-LU").

1. State Legislation Authorizing PPPs

There have been several developments at the state legislative level since the 2004 Report. These developments include passage of new legislation authorizing PPPs in states where PPPs were not previously authorized and the refinement of existing legislation in States that already had PPP programs. Currently, 25 states have statutory authority to enter into highway or transit PPPs. It is important to note that the extent and type of legislation enacted varies widely from state to state, among other things, in the types and amounts of projects that are authorized and in the breadth of the authorization delegated by the legislature to state or local transportation agencies.[60]

a. Creating New PPP Programs

Since the 2004 Report, five states that did not previously authorize PPPs for transportation projects enacted authorizing legislation. The legislation passed by two of these states provides fairly broad authorization to use PPPs for roads and other toll facilities while the legislation passed by the other three states only authorizes specific projects or is limited to PPPs that are specifically approved by the legislature.

Mississippi enacted authorizing legislation in April 2007.[61] Mississippi's legislation provides a good example of the types of issues that states consider when authorizing PPPs. Like most states with PPP programs, Mississippi did not limit its authorization to Design-Build projects, but extended authorization for private involvement to all major components of project delivery, authorizing concession-based PPPs for design, construction, financing, operation and maintenance of toll roads or toll bridges. To insure that PPP facilities are just as well built and maintained as public facilities, the law requires that any facilities built through PPPs must be built and maintained in accordance with the minimum highway design, construction and maintenance standards established by the contracting government entity for such facilities, and facilities are subject to inspection during the term of the concession. Failure to comply with the required standards may result in termination of the contract. When a contract terminates or expires all of the concessionaire's interests revert to the State and the collection of tolls ceases.

Mississippi's law authorizes the solicitation of proposals for PPPs from the private sector or the acceptance of unsolicited proposals. The procurement process must be competitive and the project must be awarded to the bidder offering the best value to the contracting government entity. To protect the users of the facilities from monopolistic pricing, PPPs are only authorized if other, toll-free transportation options exist and increases in toll rates are subject to government approval after public notice and hearings. The law also indicates that concessionaires may be required to share excess revenue, and the law limits the length of concessions to a maximum of 30 years. Tolls are not permitted on existing roads.

Some of these provisions are more restrictive than similar provisions in other states. For example, in other states the term of the concession may be 50 years or more, toll rates may be increased pursuant to a negotiated schedule, and PPPs may be allowed in areas where there are no competing transportation facilities. Nevertheless, as is evident from the recent legislative amendments passed in Texas and Florida (see below), determining best practices is an evolving process and is dependent on the circumstances of particular states. A state like Mississippi, which has never had toll roads, is likely to take a different approach than states like Texas and Florida which have more extensive experience with toll roads.

Utah enacted legislation in March 2006 authorizing the State to enter into PPP road projects.[62] Like Mississippi, Utah's legislation provides broad authorization for private concessionaires to design, build, finance, maintain and operate toll roads and to impose and collect tolls pursuant to concession agreements. Utah may solicit proposals and accept unsolicited proposals. Utah's legislation relies on the Utah Department of Transportation ("UDOT") to negotiate several important provisions for each facility, including the private sector's profit and any revenue sharing arrangements, toll rates or other user fees, safety and policing standards, and other applicable engineering, construction, operation and maintenance standards. Concession agreements must give UDOT a right to repurchase the facility from the concessionaire at an agreed price. If the agreement is terminated, the facility must be returned to UDOT in satisfactory condition. The legislation requires UDOT to engage outside consultants and counsel to provide guidance, assist with the evaluation of risks and benefits, and help negotiate the terms of the concession agreement.

Before any concession agreement is executed (or amended or modified) it must be approved by the Utah Transportation Commission, an independent advisory committee appointed by the Governor. Also, UDOT may only toll an existing State highway with the approval of the Transportation Commission and the State legislature. To develop HOT lanes on existing State highways or to develop toll lanes on new State highways or on any added capacity, UDOT needs the approval of the Transportation Commission, but not the State legislature.

Neither Utah nor Mississippi identified any particular projects in their legislation as projects that would be developed as PPPs. Other states, rather than passing broad legislation authorizing PPPs for transportation projects generally, have passed limited legislation authorizing only specific projects to be developed or operated as PPPs.

Indiana Governor Mitch Daniels obtained statutory authority in 2006 to enter into a long-term concession for the operation and maintenance of the Indiana Toll Road after receiving binding proposals from private sector bidders. The enabling legislation also included authorization for the Indiana Department of Transportation to enter into a PPP for the construction, financing, operation and maintenance of an extension of I-69 from Indianapolis to Evansville, Indiana (the I-69 extension project has not been developed as a PPP).[63] The legislation did not include authorization for any other PPP projects. In late 2006/early 2007, Governor Daniels tried to get legislation authorizing two more PPP projects, the Indiana Commerce Connector and the Illiana Expressway, but was unsuccessful. The Indiana Commerce Connector was a proposed 75-mile bypass south and east of Indianapolis and the Illiana Expressway would connect Indiana with Illinois south of Chicago.

Missouri is taking the same approach, authorizing PPPs on a project by project basis. Missouri Governor Matt Blunt signed legislation on September 5, 2007 enabling the Missouri Department of Transportation to enter into a PPP for the Safe & Sound Bridge Improvement Program.[64] While not directly authorizing the bridge program, the legislation authorized the Missouri Highways and Transportation Commission to modify bonding requirements for "design-build-finance-maintain" PPP projects with a concession period expected to exceed 25 years. The bonding requirements that were modified by this legislation would have prevented the bridge program from moving forward. As noted in Section IV(B), the concessionaire for the bridge program will repair or replace more than 800 bridges in Missouri within five years and maintain these bridges in satisfactory condition for 25 years.

Missouri also passed legislation in 2006 authorizing a PPP for the proposed Mississippi River Bridge connecting St. Louis with Illinois.[65] The legislation authorizes the Missouri Department of Transportation ("MoDOT") to solicit proposals or accept unsolicited proposals for the bridge. In February 2007, MoDOT announced that it had received an unsolicited proposal from Zachry American Infrastructure and ACS Infrastructure Development to design, build, finance, operate and maintain the bridge and to collect variable tolls, which would be higher for trucks and during peak congestion periods.

In March 2008, West Virginia enacted PPP enabling legislation providing authorization for private concessionaires to design, build, finance, maintain and operate toll roads and to impose and collect tolls pursuant to concession agreements. [66] Each concessionaire is required to perform its responsibilities in accordance with the engineering standards applicable to other projects operated or maintained by the Division of Highways and its performance is subject to monitoring by the Division of Highways. Concession agreements must specify a reasonable maximum rate of return on the concessionaire's investment and may include a schedule of the initial user fees, if applicable. Increases in user fees must be approved by the Commissioner of the Division of Highways. The authority granted by West Virginia's legislation has certain limits, however. Concession agreements must be entered into prior to June 30, 2013 and concession agreements must be approved by the legislature through the adoption of concurrent resolutions and must be approved by the Governor.

b. California

California has a new pilot program for PPPs. California was one of the first states to authorize PPPs in the late 1980s but California allowed its legislation to lapse in 2003. Before the legislation lapsed, California developed two projects as PPPs. First, California completed the privately financed 91 Express Lanes project as a PPP. The project involved building, financing and operating 10 miles of express lanes in the median of SR-91 in southern California. The project was the first fully automated toll facility in the world and the first application of value pricing in America. The concession for the 91 Express Lanes was subsequently purchased from the concessionaire by the Orange County Transportation Authority because a non-compete provision prevented the construction of competing capacity, but under public ownership the project is still a success with toll revenue exceeding expectations. Second, California granted a concession for a private concessionaire to design, build, finance, operate and maintain the 10-mile South Bay Expressway toll road in San Diego as a PPP. The South Bay Expressway opened to traffic in November 2007.

California passed new enabling legislation in May 2006.[67] As with its earlier law, the new California law did not provide broad authorization for PPPs, but rather limited authority for certain pilot projects. The new law permits the development of four projects as PPPs, two in southern California and two in northern California. Each of the authorized PPPs must be for a project that improves the movement of goods in California. Commercial vehicles may be tolled, but non-commercial vehicles may not be tolled. Toll rates must be fixed in the concession agreement and increases must be approved by Caltrans following a public hearing. Concession agreements must be submitted to the State legislature for approval and at least one public hearing must be conducted before the legislature provides approval.

California's new legislation also provides specific rules with respect to competing facilities. Non-compete provisions, which prevent the construction of any transportation alternatives that would compete with the toll facility, are prohibited. A concession agreement may entitle a concessionaire to compensation for lost toll revenue if a competing facility is constructed, but this provision would not apply if a competing facility is part of a regional transportation plan, is a safety project, is an improvement providing only incidental increases in capacity, is a HOV lane project, or is a project located outside the boundaries of the PPP project, as defined in the concession agreement.

c. Texas

Texas has had specific statutory authority to enter into PPPs for toll roads since 2003.[68] On June 11, 2007, Texas Governor Rick Perry signed legislation enacting a two-year moratorium on new toll road PPPs.[69] The legislation allows all of the toll road PPPs currently being procured to proceed, but prohibits the development of new toll road PPPs during the two-year moratorium period. A more restrictive version of the legislation had been passed by the legislature earlier in 2007, but Governor Perry vetoed that legislation and threatened to call a special session of the legislature if it was passed over his veto. In addition to establishing the moratorium, the legislation that was eventually passed refined Texas' PPP program in two important ways. First, the legislation codified certain terms pursuant to which TxDOT can enter into long-term concession agreements. Second, the legislation gave local toll road authorities a first option to develop new toll roads.

With respect to long-term concession agreements (TxDOT refers to PPP/concession agreements as "Comprehensive Development Agreements" or "CDAs"), the legislation requires that CDAs entered into with the private sector be limited to terms of no more than 50 years. The term of the concession is important to the private sector because investors need sufficient time to recoup their investments. In addition, the length of a concession also affects the concessionaire's ability to depreciate the value of the facility for income tax purposes, which can reduce the concessionaire's cost of capital. On the other hand, the interests of the private sector need to be balanced with the public sector's interest in reclaiming its asset. The new legislation also requires that CDAs specify the State's future buyback cost, should the State buy back the facility during the term of the concession. Under the new rules CDAs must clarify that competing roads may not be built within four miles on either side of the subject toll road, and CDAs must require that revenue generated for the State through the CDA be used only in the region in which it was generated.

The legislation also gives local toll road agencies the first option to build and operate any new toll roads. Before TxDOT develops any new toll road as a PPP, TxDOT and the local toll road authority must agree to certain business terms, including toll rates, and a market valuation study must be performed to determine the toll road's value. Only if the local toll road authority is unwilling to pay the market value determined pursuant to the valuation study may TxDOT open the project to bidding by the private sector as a PPP. Local toll authorities were also given the authority to propose that State roads be built as toll roads.

d. Florida

Florida broadened its legislation in 2007 to authorize long-term concessions for existing assets, and to refine certain aspects of its PPP program.[70] Florida has had statutory authority to enter into PPPs at the State and local level since 2002. The new legislation authorizes FDOT to enter into long-term concessions for existing toll roads.[71] The legislation requires upfront payments at closing and revenue sharing during the term of any such concession. PPPs are permitted to develop new facilities or to increase capacity on existing facilities.

Pursuant to Florida's amended legislation, regulations governing toll rate increases and provisions requiring revenue sharing need to be included in the concession agreement. PPPs in Florida must comply with all requirements of (i) Federal, State, and local laws, (ii) State, regional, and local comprehensive plans, (iii) FDOT rules, policies, procedures, and standards for transportation facilities, and (iv) any other conditions which FDOT determines to be in the public's best interest. FDOT is also specifically authorized under the legislation to enter into PPPs that utilize a payment structure based on the availability of the facility or based on the level of traffic using the facility. Concessions are limited to terms not exceeding 50 years, unless the secretary of FDOT authorizes a term of up to 75 years. Any term in excess of 75 years must be specifically approved by the Legislature.

The following exhibit highlights the states that have legislation enabling PPPs and describes the legislation in these states.

States with Legislation Enabling PPPs

U.S. map indicating states with legislation enabling public-private partnerships. See table below for detail.

 

Broad authorization to use PPPs for toll roads and other toll facilities

 

Authorization to use PPPs is limited to specific projects, pilot programs, projects approved by the legislature, or otherwise

 

Authorization to use PPPs for certain transportation projects, but not for toll roads

 

States with Broad Legislation Enabling PPPs
1. Colorado Authorizes solicited and unsolicited proposals for PPPs and provides PPP authority to CDOT for specific projects including turnpikes and HOT lanes.
2. Georgia Authorizes GDOT to both receive and solicit proposals for PPPs.
3. Florida Authorizes solicited and unsolicited proposals for PPP toll roads at the State and county levels and authorizes FDOT to lease or increase capacity on existing toll facilities through PPPs.
4. Mississippi Authorizes solicited and unsolicited proposals for PPP toll road and bridge projects.
5. Oregon Authorizes ODOT to solicit and accept unsolicited proposals for PPP tollway projects.
6. South Carolina Authorizes SCDOT to enter into PPPs for turnpike facilities.
7. Texas Authorizes TxDOT and regional mobility authorities to accept solicited and unsolicited proposals for PPPs.
8. Utah Authorizes UDOT to accept solicited and unsolicited proposals for PPPs involving tollway facilities.
9. Virginia Authorizes solicited and unsolicited proposals for PPPs at the Commonwealth and local levels.

 

States with Limited Legislation Enabling PPPs
10. Alabama Authorizes ADOT and county commissions to license private entities to construct, own and operate toll roads, toll bridges, ferries or causeways.
11. Alaska Authorizes the Knik Arm Bridge and Tolling Authority to utilize a PPP to finance, design, construct, operate and maintain the Knik Arm bridge.
12. Arizona Two pilot programs each allow up to two solicited and unsolicited proposals for PPPs.
13. California Authorizes four PPPs, two for northern California and two for southern California, each of which must improve goods movement – authorization expires on January 1, 2012.
14. Delaware Authorizes PPP projects, including highways and bridges – specific legislative approval required for each project.
15. Indiana Authorizes the Indiana Toll Road lease transaction and a PPP for the extension of I-69 – specifically prohibits the State from entering into PPPs for any other road or project without further legislative approval.
16. Louisiana Authorizes PPPs for toll roads and bridges – any proposal would need the approval of the State legislature.
17. Minnesota Authorizes solicited and unsolicited PPPs for toll facilities – PPP agreements are subject to local veto.
18. Missouri Authorizes PPP for Mississippi River Bridge and for Safe & Sound Bridge Improvement Program.
19. North Carolina Authorizes the North Carolina Turnpike Authority to use PPPs for up to nine toll facilities, including a toll bridge.
20. Puerto Rico Establishes a toll transportation facility authority with broad powers to authorize private participation in public highway projects.
21. Tennessee Authorizes two pilot toll road projects.
22. Washington Authorizes solicited PPPs for eligible transportation projects – requires the State finance committee or the governing board of a public benefit corporation to approve the financing of any public project.
23. West Virginia Authorizes public entities to acquire, construct or improve transportation facilities – requires the State legislature and Governor to approve the concession agreement

 

States with Legislation Authorizing Non-Highway PPPs
24. Maryland Highway projects are not currently authorized under Maryland's PPP law, but a highway PPP program has been established by regulation.
25. Nevada Authorizes PPPs for transportation facilities, but toll bridge and toll road projects are excluded.

2. Federal Programs Encouraging PPPs

Recognizing the substantial benefits of PPPs, the Federal government has undertaken a number of initiatives to increase the role of the private sector in highway and transit projects.

a. Private Activity Bonds

SAFETEA-LU amended Section 142 of the Internal Revenue Code to permit the issuance of private activity bonds ("PABs") to finance privately developed and operated highway and freight transfer facilities. This change to the Internal Revenue Code allows highway and freight transfer facilities to be developed, designed, financed, constructed, operated and maintained by the private sector as PPPs, while maintaining the tax-exempt status of the bonds. PABs are issued by a public entity, which acts as a conduit issuer for the private developer. The private developer is deemed the borrower and responsible for repayment. The law limits the total amount of PABs that may be issued for highway and freight transfer facilities to $15 billion and gives the Secretary of Transportation responsibility to allocate the $15 billion among qualified facilities. These PABs are not subject to the state volume caps that typically apply to other types of private activity bonds.

The authorization of PABs in SAFETEA-LU reflects the desire of Congress to increase private sector investment in U.S. transportation infrastructure. Providing the private sector with access to tax-exempt interest rates helps level the playing the field between public and private sector sources of capital. Increasing the involvement of private investors in highway and freight transfer facilities generates new sources of money, ideas, and efficiency. By encouraging private investment, the PABs program also reduces state and local reliance on Federal transportation grants and fuel taxes, providing new capacity and capital improvements to existing infrastructure at significantly less cost to the taxpayer.

The PABs program for highway and freight transfer facilities has proven to be a valuable investment resource for innovative transportation capital projects. USDOT awarded an allocation of up to $700 million for a private firm to bring more than 800 of Missouri's lowest-rated bridges to satisfactory condition and keep them in that condition for 25 years. A $980 million PABs allocation was awarded by USDOT to a group of private companies that is going to build the Port of Miami Tunnel project, a new tunnel connecting the Port of Miami on Dodge Island with Watson Island and I-95 on the Florida mainland. USDOT also allocated $600 million for the concessionaire that will build and operate the Knik Arm Crossing Project in Anchorage, Alaska, a proposed bridge that will connect Anchorage with the Matanuska-Susitna Borough on the far side of the Knik Arm of the Cook Inlet.

A group of private companies used PABs authority allocated by USDOT to issue $589 million of PABs for the Capital Beltway HOT Lanes Project. This project will introduce congestion pricing to one of the busiest corridors in the Nation. USDOT also allocated $288 million of PABs authority to TxDOT to make available to the winning bidder on the IH-635 managed lanes PPP project. With these and other innovative projects moving forward with PABs, USDOT expects the $15 billion national volume cap to be exhausted by 2009. This expectation is based on the applications that are currently being reviewed and on preliminary discussions with applicants that expect to submit applications. An increased national limitation of PABs authority in the next surface transportation reauthorization bill would help to ensure that PABs continue to play a vital role in providing for transportation infrastructure.

PABs Allocations as of June 2008
Approved Allocations Amount of Allocation
Port of Miami Tunnel, Florida $980,000,000
Safe & Sound Bridge Improvement Program, Missouri $700,000,000
Knik Arm Crossing, Alaska $600,000,000
Capital Beltway HOT Lanes, Virginia (issued 6-12-08) $589,000,000
IH-635 (LBJ Freeway), Texas $288,000,000
Pennsylvania Turnpike Capital Improvements $2,000,000,000
Ambassador Bridge Gateway Project – Phase I $212,600,000
Total Approved Allocations $5,369,600,000

b. TIFIA

As discussed in the 2004 Report, the Transportation Infrastructure Finance and Innovation Act of 1998 ("TIFIA") is another Federal program that provides significant support for PPPs. TIFIA authorizes USDOT to provide Federal credit assistance to major transportation investments of national importance. TIFIA credit assistance is flexible, subordinated to senior debt and may be provided in the form of a direct loan, a loan guarantee or a line of credit. TIFIA credit assistance can be provided for as much as 33 percent of total project costs. Since the passage of SAFETEA-LU, a project can be eligible for credit assistance if it costs more $50 million or 33 percent of the state's annual apportionment of Federal-aid funds, whichever is less. Eligible projects must be supported in whole or in part from user charges or other non-Federal dedicated funding sources.

For direct loans, scheduled repayments may commence up to five years after the date of substantial completion of the project. Final maturity of the loan may be up to 35 years after the date of substantial completion of the project. In the event revenues are insufficient to meet scheduled TIFIA loan payments, USDOT may allow payment deferrals. The flexible repayment and subordination terms of TIFIA credit assistance make it easier and less costly for the private sector to obtain senior debt and to invest in transportation infrastructure. Recently, the private sector has begun to combine TIFIA credit assistance with PABs to obtain favorable senior and subordinated debt packages for complicated PPP transactions.

TIFIA credit assistance has been used for four innovative PPP projects. First, as noted in the 2004 Report, TIFIA credit assistance was used to supplement the financing of the concession to design, build, finance, operate and maintain the 10-mile South Bay Expressway toll road in San Diego, which opened to traffic in November 2007. TIFIA provided $140 million in subordinated debt for the South Bay Expressway.

Since the 2004 Report, TIFIA has provided credit assistance for two PPP projects in Virginia, the Pocahontas Parkway refinancing and the Capital Beltway HOT Lanes project, which are discussed in Sections IV(A) and IV(B), respectively. The Pocahontas Parkway refinancing included a $150 million TIFIA loan to finance the 1.5-mile Richmond Airport Connector and refinance a portion of the outstanding project debt. The Capital Beltway HOT Lanes Project included a $588 million TIFIA loan which is subordinate to $589 million of PABs. Between the TIFIA loan and the PABs allocation USDOT approved a significant portion of the financing for the HOT lanes project. In March 2008, TIFIA closed a $430 million loan with the private concessionaire for the $1.36 billion SH-130 Segments 5&6 project in central Texas. As noted in Section IV(B), this project will provide a new north-south alternative to the congested I-35 corridor between Austin and San Antonio.

c. Tolling Programs for Interstate Highways

SAFETEA-LU created a variety of programs authorizing the implementation of tolling on Interstate highways. While these programs do not require that tolling projects be PPPs, they do facilitate the use of PPPs to implement tolling on Interstate highways and the potential involvement of the private sector in these projects is contemplated by the legislation.

Generally, the imposition of tolls on highways that have received Federal-aid, including Interstate highways, is prohibited by Federal law.[72] By way of background, Federal highway laws typically apply only to highways that have received Federal-aid.  The total highway system in the United States consists of about 4 million miles of roadway, but only a portion of this mileage is subject to Federal law, including laws regulating the use of tolls. The major categories of highways in the United States and their relative mileage are as follows:

Category of Highway Approximate Mileage
Total U.S. Roadways: 4,000,000 miles
Federal-aid Highway System ("FHS"):  1,000,000 miles
National Highway System ("NHS"): 162,000 miles
Interstate Highway System ("IHS"): 47,000 miles

Many Federal laws apply to the entire NHS, of which nearly all 47,000 miles of the IHS is a subset.  Some laws apply only to the IHS components, and still others may apply to the entire FHS.  As a general matter, Federal highway law does not apply to the 3 million miles of non-Federal-aid roadway. For these roadways, authority to implement tolling is a matter of state and local law.

SAFETEA-LU's programs authorizing tolling on Interstate highways are more significant than the relative proportion of mileage classified as IHS would suggest because Interstate highways have heavier traffic than any of the other functional classification of roads in the United States.[73] This is important for two reasons. First, tolling is most viable for projects in which the tolls are expected to provide sufficient revenue to repay project costs. Second, the highways that have the most traffic will benefit the most from the use of tolling and pricing to manage congestion.

Prior to SAFETEA-LU there were exceptions to the general rule that tolling is prohibited on Federal-aid highways, but SAFETEA-LU created three new programs for tolling and expanded a fourth. With the SAFETEA-LU programs there are currently six exceptions to the general prohibition of tolling on the IHS: (i) the Interstate System Construction Toll Pilot Program, (ii) the Interstate System Reconstruction & Rehabilitation Pilot Program, (iii) the Value Pricing Program, (iv) the High Occupancy Toll (HOT) Lanes program, (v) the Express Lanes Demonstration Program, and (vi) Section 129 Toll Agreements.

Interstate System Construction Toll Pilot Program: This program, which was created by SAFETEA-LU, authorizes tolling on up to three IHS facilities to finance construction of new Interstate highways. Applicant states must demonstrate that tolling is the most efficient and economical way to finance construction of the facility. If tolling is implemented pursuant to this program through a PPP, the state(s) may not agree to prevent improvements or expansions of nearby public roads through a non-compete provision.[74] On August 16, 2007, USDOT announced that South Carolina was awarded a slot in this program to use tolling to build an 80-mile stretch of I-73 connecting Myrtle Beach to North Carolina.[75] The South Carolina Department of Transportation posted a notice on its website requesting conceptual proposals to design, build, finance and operate I-73 using a PPP.[76] The notice indicates that the project will be totally or substantially privately financed.

The allocation of a slot to a facility under this program is not limited to the state in which the facility is located. Thus, USDOT's award of a slot to I-73 would make any state constructing a portion of I-73 eligible to apply and receive authority to toll its portion of I-73.

Interstate System Reconstruction and Rehabilitation Pilot Program: SAFETEA-LU continued this TEA-21 program by authorizing tolling on up to three existing IHS facilities to finance needed reconstruction or rehabilitation of IHS corridors that could not otherwise be adequately maintained or improved. Each of the three facilities must be in a different state and only one slot currently remains open.[77] The key limiting factor of this pilot program is that toll revenues must be used only for re-investment in the facility being tolled, operations and maintenance costs, debt service, or to provide a reasonable return for a private investor.

Value Pricing Pilot Program: Enacted in ISTEA and amended in TEA-21 and SAFETEA-LU, this program authorizes the imposition of tolls as part of any value pricing project and provides grants ($59 million during the SAFETEA-LU reauthorization period) for the implementation and evaluation of value pricing pilot projects that manage congestion using tolling and pricing. The program has 15 slots for individual states and only two slots currently remain open.[78]

High Occupancy Toll (HOT) Lanes Program: SAFETEA-LU authorized the conversion of high occupancy vehicle (HOV) lanes into high occupancy toll (HOT) lanes.[79]

Express Lanes Demonstration Program: This program, which was created by SAFETEA-LU, authorizes public or private entities to implement variably-priced tolls for demonstration projects on selected IHS facilities. The purpose of the demonstration projects must be to manage high levels of congestion, reduce emissions in a nonattainment or maintenance air quality area, or finance additional lanes to reduce congestion. SAFETEA-LU authorizes fifteen projects from 2005 through 2009.[80]

Section 129 Toll Agreements: Tolling is allowed for five types of highway construction activities, including reconstruction of Interstate bridges and tunnels, pursuant to 23 U.S.C. 129. These activities include:

For each of these activities the project sponsor must enter into a toll agreement with FHWA and toll revenue must be used for debt service, a reasonable return on private investment, and the costs of operation and maintenance. Excess revenues may be used for highway and transit purposes authorized under Title 23 if the State certifies annually that the toll facility is being adequately maintained.[81]

While the focus of these programs is tolling and pricing, not PPPs, these programs can be expected to facilitate PPPs because of the ability and willingness of the private sector to assume significant financing, traffic and technological risk on tolling and pricing projects. A number of the tolling and pricing projects that are currently underway around the United States were implemented with a PPP structure because of the benefits that PPPs provide for these types of projects. For example, the SR-91 Express Lanes in southern California was implemented as a PPP and the Capital Beltway HOT Lanes project in northern Virginia is being implemented as a PPP.

d. SEP-15

Special Experimental Project Number 15 ("SEP-15") advances the use of PPPs by allowing states to identify impediments to their use in the statutes, regulations, and policies that govern the Federal-aid highway program and to request exceptions to these requirements in order to test alternative project delivery methods. Experiments may be undertaken in any area of project development governed by Federal highway laws, regulations or policies including contracting, right-of-way acquisition, project finance or compliance with environmental requirements.[82] The purpose of SEP-15 is to permit state and local transportation agencies and the FHWA to identify legal requirements that impede the broader utilization of PPPs and experiment with solutions that could remove, or mitigate, these impediments. The SEP-15 program is administered by the FHWA through an application process that leads to the execution of an "Early Development Agreement," which specifies the scope of any approved experimental features. Several notable PPP projects that are currently in various stages of procurement have benefited from the SEP-15 program.

For example, the SEP-15 program has allowed FHWA to experiment with certain provisions of the TIFIA statute to facilitate a more efficient PPP procurement process. The TIFIA statute requires that applications for TIFIA credit assistance include detailed information about the borrower, the plan of finance, the sources and uses of funds, and other information which is available only after the winning bidder for the project is selected. Requiring that this detailed information be included in the TIFIA application makes it more difficult to use TIFIA credit assistance for PPP projects. Because PPPs aim to achieve financial close as soon as possible after the winning bidder is selected, if the winning bidder did not apply for TIFIA credit assistance during the bidding phase, the winning bidder may choose to forego TIFIA credit assistance because the application process will delay financial close. Alternatively, multiple bidders may apply for TIFIA credit assistance for the same project before any of them are selected as the winning bidder.

To determine whether the TIFIA application process is an impediment to PPP procurement processes, under SEP-15, FHWA authorized a limited number of experiments in which TIFIA applicants may deviate from the requirement that the detailed information be submitted with the initial application. Under the experiment, the procuring agency submits an initial application during the bidding process which contains all of the information about the project that is then available. FHWA can then provide a preliminary approval of TIFIA credit assistance, which is conditioned on the winning bidder submitting the necessary information to complete the application after the selection of the winning bidder is made. Instead of multiple bidders submitting applications for the same project, the procuring agency provides the conditional approval of TIFIA credit assistance, together with a provisional TIFIA term sheet, to all of the bidders for their use in preparing bids. Once the procuring agency selects a winning bidder, that bidder can then finalize the TIFIA application process and loan documentation with FHWA in an expeditious and timely fashion without delaying financial close. FHWA has approved a conditional approval process for TIFIA credit assistance for three projects being procured by TxDOT and for the Knik Arm Crossing Project in Alaska being procured by the Knik Arm Bridge and Toll Authority.

e. Corridors of the Future

On September 10, 2007, USDOT announced six interstate routes to participate in the Corridors of the Future program, a Federal initiative to reduce congestion and improve freight movement across the country.[83] One of the primary objectives of the program is to illustrate the benefits of alternative financial models that involve private sector capital. The selected corridors include: I-95 from Florida to the Canadian border; I-70 in Missouri, Illinois, Indiana, and Ohio; I-15 in Arizona, Utah, Nevada, and California; I-5 in California, Oregon, and Washington; I-10 from California to Florida; and I-69 from Texas to Michigan.

The proposals were selected for their potential to use PPPs, among other innovations, to reduce traffic congestion. The proposals contemplate building new roads and adding lanes to existing roads, building truck-only lanes and bypasses, and integrating real time traffic technology like lane management that can match available capacity on roads to changing traffic demands. USDOT is working with the states to finalize formal agreements that will detail the commitments of the Federal, state, and local governments involved. These agreements will outline the anticipated role of the private sector as well as how the partners will handle the financing, planning, design, construction, and maintenance of the corridors.

f. Penta-P

On January 19, 2007, the Federal Transit Administration ("FTA") published a notice in the Federal Register containing the definitive terms of the Public-Private Partnership Pilot Program ("Penta-P") authorized by SAFETEA-LU to demonstrate the advantages of PPPs for certain new fixed guideway capital projects funded by FTA.[84] The Secretary was authorized to select up to three projects to participate in Penta-P and has selected the BART Oakland Airport Connector and the Denver RTD projects, which are discussed in Section IV(B), and the North Corridor and Southeast Corridor Bus Rapid Transit project in Houston, Texas. 

Penta-P is intended to study whether, in comparison to conventional procurements, PPPs achieve any of the following benefits:

Penta-P was authorized to study projects that, among other things, utilize methods of procurement that integrate risk-sharing and streamline project development, engineering, construction, operation, and maintenance. The amount and terms of private investment to be made were significant considerations in selecting Penta-P projects. The benefits of the program include eligibility for a simplified and accelerated review process that is intended to substantially reduce the time and cost to the sponsors of New Starts reviews.

PPPs utilized in the transit industry have primarily taken the form of design-build and design-build-operate-maintain ("DBOM") procurements, which typically do not involve a significant long-term equity investment by the private partner or require the private partner to take ridership or revenue risk. Design-Build transit projects funded by FTA include five New Starts projects (Denver RTD's T-Rex project; the South Florida Commuter Rail Upgrades; the Minneapolis Hiawatha LRT Line; the BART Extension to the San Francisco International Airport; and the Washington Metro's Largo Metrorail Extension), and one project outside of the New Starts program (the Portland MAX Airport Extension). DBOM projects funded by FTA include the New Jersey Transit Hudson-Bergen LRT and the Port Authority of New York and New Jersey's JFK Airtrain.

The Las Vegas Monorail Project, completed in 2004, is the only urban rail transit project since the 1920s with a significant portion of the financing based on projected farebox revenues. Penta-P is designed to encourage more private risk-taking and investment in fixed guideway transit projects than is found in typical Design-Build and DBOM procurements.

Los Angeles County Metropolitan Transportation Authority ("Metro") is developing a PPP program to identify specific highway or transit projects that could be constructed through PPPs.  Metro's program could potentially provide funding for currently unfunded transportation projects or accelerate funded projects. Projects identified in the 2008 Long Range Transportation Plan Tier 1 Strategic (Unfunded) highway and transit lists are high-priority candidates for PPPs. On April 24, 2008, on a motion made by Los Angeles Mayor Antonio R. Villaraigosa, Metro's Board of Directors approved the issuance of a Request for Information from the private sector with respect to PPP solutions for 18 projects, and on May 12, 2008, Metro issued the Request for Information.[85] As of July 14, 2008, Metro has received 12 responses to the Request for Information.[86]

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