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Michigan Lege Passes Budget, Advances PPP Concession for New Int'l Toll Bridge

The Detroit Free Press reports today that Michigan legislators have passed the bulk of a Fiscal Year 2010 budget and a temporary budget to fund the state for 30 days. Governor Jennifer Granholm has already hinted that some spending cuts may not survive the veto pen, which effectively means that citizens could expect to be hundreds of millions of dollars in deficit as soon as the budget bills are signed. The same story played out in Arizona this summer, when Gov. Jan Brewer line-item vetoed spending cuts in education, health care and other services before signing the package of budget bills and today the state remains somewhere between $1-1.5 billion in the red, according to various revenue estimates.

Much of the story has yet to be written in Michigan though, as lawmakers are still debating various tax increase proposals, reductions in local aid, accelerating some stimulus spending and a range of other issues that will have significant fiscal impacts.

Over at TollRoadsNews.com, Peter Samuel points out one interesting feature embedded in the budget on the infrastructure front:

Michigan legislators have passed language in their budget for next fiscal year to prepare the way for concessioning a third toll crossing to Canada from Detroit. The budget contains $2.5m for the Michigan DOT to continue to advance preliminary legal, financial, engineering and environmental permitting to prepare for seeking a private sector toll concessionaire to finance, build, and operate the bridge. Ambassador Bridge lobbyists had worked to cut off the funding. The $2.5m will attract 80% federal matching funds, making a total $12.5m available. The project is often known as Detroit River International Crossing (DRIC).

The budget legislation specifically requires an investment grade traffic and revenue (T&R) study for submission by Michigan DOT to the legislature by May 1 next year. The budget language says the legislature intends to pass enabling legislation for a P3 concession, or establish a public toll authority in conjunction with the Canadians by June 1, 2010 if the project is a goer.

Existing fixed crossings are the Ambassador Bridge and the Detroit-Windsor Tunnel (and there is a truck ferry that handles hazmat and large loads). Site for the third fixed crossing has been selected after some years of alternatives selection and environmental permitting. Difficult approaches on the Canadian side are designed in some detail, permitted, and funded.

The bridge is to be about 3km (2 miles) downstream of the Ambassador Bridge. The route makes for a more direct connection between I-75 south of Detroit and the Canadian Highway 401, avoiding congested roadways on the downtown Detroit end and commercial Huron Church Road, a procession of traffic signals, on the Windsor side.

This is consistent with the emerging policies from Gov. Granholm's administration establishing policy guidance and an implementation program for infrastructure public-private partnerships (PPPs). As discussed in Reason Foundation's Annual Privatization Report 2009, Michigan has joined California and New York in being the first states to create centralized authorities to drive infrastructure PPP development:

Michigan is also making a clear push toward PPPs. Having undertaken a scoping project to determine that suitable PPP opportunities exist to justify a detailed, enterprise-wide approach, Governor Jennifer Granholm's administration took the first big step in 2008 by establishing a new Office for Public Private Partnerships within the state Treasury Department. The office is responsible for coordinating, facilitating and providing financial standardization and accountability for state PPP projects across a variety of sectors, including transportation, educational facilities, energy water/wastewater, corrections, public safety and information technology.

The office moved quickly to build expertise, signing a three-year, $3.2 million contract with KPMG for privatization advisory services in January 2009. The firm will provide the state with 12 PPP proposals each year, with a handful likely to be implemented. KPMG's fees are expected to be paid out of PPP transaction proceeds.

At an April 2009 conference of the National Council for Public-Private Partnerships, office Director Joe Pavona told attendees Michigan is considering a wide range of PPP procurement options, including full concessions (asset leases), shadow tolling, availability payments, design-build, design-build-operate-maintain and design-build-finance.

In her executive budget proposal, Granholm called for the creation of a PPP investment fund within the Treasury Department to invest in financing and developing infrastructure and energy PPPs, capital-asset improvements and other types of projects as determined by the state treasurer and the state budget director.

This is consistent with best PPP practices around the world. Partnerships UK (United Kingdom), Partnerships BC (Canada), Partnerships Victoria (Australia), PPP Québec (Canada) and Infrastructure Ontario (Canada) are examples of authorities established to serve as government's central procurement body for PPP project development and implementation. They fulfill a number of valuable functions, including project evaluation and selection, process and contract standardization, value-for-money/public sector comparator analyses, contract monitoring and program auditing, and the dissemination of best practices and lessons learned in PPP project development across agencies.

These are very positive steps for Michigan and, if done well, will provide a critical building block for future economic development in a state that could really use it.

» Reason Foundation's Transportation PPP Research and Commentary

Leonard Gilroy is Director of Government Reform


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