Recent developments at the state and federal levels show encouraging signs that the transportation public-private partnership (PPP) sector not only is capable of accessing financing but is poised to grow in the United States.
Last year only a handful of transportation infrastructure PPP deals reached financial close as the credit markets dried up and the nation entered the current economic downturn. The Texas Department of Transportation's SH-130, Segments 5&6 project, for which Nossaman advised TxDOT, was one of the few PPP deals that reached financial close. TxDOT awarded the $1.3 billion, 50-year concession to the SH 130 Concession Company, a special purpose company formed by Cintra and Zachry American Infrastructure. Financial close for the project occurred on March 7, 2008. The 40-mile toll road project was just named 2008 North American Deal of the Year by Project Finance Magazine.
Despite the paucity of deal closings in 2008, deal flow remains strong and there are dozens of PPP projects in the pipeline across the U.S. Texas alone, even under a partial moratorium on toll roads, has three more projects nearing completion of procurement.
On March 3, 2009, the Florida Department of Transportation's I-595 managed lanes project became the first transportation PPP to reach financial close this year, signaling to the market that transportation infrastructure is still an attractive asset. Nossaman served as legal advisor to FDOT.
A number of promising moves in Washington D.C. have the potential to buoy the transportation infrastructure industry and encourage the use of PPPs. The incoming Obama administration signaled as early as the inauguration that it would spotlight infrastructure. The President called on Americans to build "the roads and bridges…necessary to make this country great again."
The American Recovery and Reinvestment Act, the so-called stimulus package, includes provisions that may improve the outlook for transportation infrastructure in general and PPP deals specifically (for Nossaman's analysis of the Act, click here). The Act nearly doubles the amount of federal funds available in a single year, with $48 billion approved for all modes of surface transportation. $200 million is set aside for TIFIA, to compensate for the current shortfall in federal credit available for the program; that amount can support approximately $1.6 billion in TIFIA loans. A number of bond related provisions, including tax credits, may encourage mutual funds and private equity funds to invest in infrastructure bonds.
The Congressionally commissioned National Surface Transportation Infrastructure Financing Commission's final report, issued February 26, 2009, includes a number of recommendations supportive of PPPs (for Nossaman's analysis of the report, click here). Specifically, the Financing Commission recommended that the federal government:
- facilitate state and local governments' ability to raise their share of needed revenues in ways that also spur efficient use of the system, including through tolling portions of roads and charging premiums for rush-hour travel in heavily used urban corridors (so-called congestion pricing);
- expand existing federal credit programs, including TIFIA and private activity bonds (PABs); and
- develop new incentives for states to tap into private sector capital to address transportation funding shortfalls.
On the day the Financing Commission released its report, the President released the Administration's proposed budget with the following language:
"Surface transportation programs are at a crossroads. The current framework for financing and allocating surface transportation investments is not financially sustainable; nor does it effectively allocate resources to meet our critical national needs. The Administration intends to work with the Congress to reform surface transportation programs to put the system on a sustainable financing path and to make investments in a more sustainable future . . . To do so, the Administration will emphasize the use of economic analysis and performance measurement in transportation planning. This will ensure that taxpayer dollars are better targeted and spent."
Developments at the state level are also encouraging. After several years of futile efforts, in February 2009 California finally enacted PPP authorizing legislation that appears to be a viable legal foundation for tapping the state's great potential to utilize PPPs to deliver transportation projects. Alabama likewise recently enacted PPP authorizing legislation. In Texas, while ultimate outcomes are always hard to predict, there are growing indications that the legislature will allow the current moratorium on comprehensive development agreements to expire. The State of Arizona has several good PPP bills working their way through the legislature, and they enjoy political support from key stakeholders and legislators.
As we move toward the second quarter of 2009, political support from the federal and state levels seems to be lining up behind PPPs. Even in these tough credit market conditions, well-conceived projects and PPP procurements are able to attract equity and debt financing. Once the credit markets loosen, the outlook for increased deal making is likely to significantly improve.
Fredric W. Kessler is an infrastructure attorney specializing in public-private partnerships. He can be reached at fkessler@nossaman.com or 213.612.7829.
Brian G. Papernik is an infrastructure attorney focusing on procuring and developing projects through design-build contracts and public-private partnerships. He can be reached at bpapernik@nossaman.com or 213.612.7858.