Out of Control Policy Blog

Noteworthy PPPs in 2009

A reporter recently asked me about noteworthy public-private partnership (PPP) infrastructure projects that have advanced in 2009. Since this is a question that there's probably a lot of interest in, I thought I'd share my response. There are certainly several to choose from across a variety of sectors (water, prisons, courthouses, etc.), but I focused my response on transportation since there are a few noteworthy megaprojects that really jump out (and should be emulated by cash-strapped states and cities):

I-635 managed lanes project (Metroplex area, Texas): This blockbuster, $4 billion, 52 year concession project will deliver a technically complex mix of new "free" (untolled) lanes and managed express toll lanes. The state is contributing $445 million in public funds, while the concessionaire will bring the remainder of the financing to the table. The project reached commercial close earlier this year, and financial close is anticipated before summer 2010.  Interestingly, the Dallas Police & Fire Pension System is on the investor team, making them the first public pension fund to be direct equity investors in toll road projects in the U.S. 

North Tarrant Express (Metroplex area, Texas): This $2 billion, 52-year concession project, also in the Metroplex area, involves a combination of dynamically priced managed lanes & untolled lanes. The state is contributing $570 million in public funds; the concessionaire will bring the remainder of the financing. Interestingly, the Dallas Police & Fire Pension System is one of the investors, making them the first pension fund to be direct equity investors in toll road projects in the U.S. The project reached commercial close earlier this year, and financial close is anticipated by early 2010. Like the I-635 managed lanes project, the Dallas Police & Fire Pension System is one of the equity investors.

I-595 Express Lanes project (Fort Lauderdale area, Florida): This $1.6 billion project to add express toll lanes to I-595 reached both commercial and financial close in 2009. This is an example of an "availability payment" concession in which the the concessionaire will finance, design, build, operate and maintain the lanes and will be repaid over 35 years through "availability payments" (or payments from the state based on delivering the lanes and keeping them "available" for users). In contrast to the Texas projects, in the I-595 case the state—not the concessionaire—will actually collect the tolls in this project, which effectively means that the state takes on the revenue risk of the project. Counterbalancing that is that these types of arrangements require less upfront equity invested, so they may be easier to finance in today's market, relative to full concessions.

Also of note, the two Dallas-area projects will ultimately total about $6 billion in infrastructure investment to eliminate some of the most congested bottlenecks in the region (and state), and the state will only be contributing roughly $1 billion of that. So the state essentially pays for a can and gets a six-pack. Adding in the state's other toll concession—State Highway 130 segments 5 & 6, where the private sector is delivering all of the financing for the $1.3 billion project—the state is paying about $1 billion to get over $7 billion in investment. By contrast, Texas received less than half of that (about $2.5 billion) for highway improvements from the so-called "stimulus."

Along similar lines to something I've written before, if you really want to see a stimulus, unleash the billions in private capital sitting out there looking for projects like these to invest in.

» Reason Foundation's Transportation Research and Commentary

Leonard Gilroy is Director of Government Reform


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