Social Infrastructure Public-Private Partnerships Update

Subsection of Annual Privatization Report 2013: State Government Privatization

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Over the last three decades, a total of 33 states have enacted laws enabling the use of private sector financing and project delivery to deploy new transportation infrastructure through public-private partnerships (PPPs). Over the last decade, states like Virginia, Texas, Connecticut and the Commonwealth of Puerto Rico have each adopted laws to extend the use of PPPs to develop “social infrastructure”-e.g., non-transportation-related public facilities like government buildings, schools, higher education facilities, water and wastewater plants and more. In both transportation and social infrastructure, state and local policymakers are increasingly embracing PPPs as an alternative means to finance, design, construct, operate and/or maintain new or modernized public infrastructure assets in an era of growing fiscal constraints and aversion to taking on new public debt.

Noteworthy developments on social infrastructure PPPs in 2012 include:

  • Texas: The rollout of Texas’s new social infrastructure PPP law brought some growing pains in 2012. As discussed in Reason Foundation’s Annual Privatization Report 2011, the Texas legislature passed social infrastructure PPP enabling legislation (Senate Bill 1048) in 2011, significantly expanding the state and local governments’ ability to tap infrastructure PPPs for nearly any type of public infrastructure, including schools, water and wastewater projects, transit, ports and other public use facilities. The law allows for both solicited and unsolicited proposals from private firms to develop infrastructure projects, and it also established the Texas Partnership Advisory Commission to provide legislative review and oversight to projects advanced.

    The Texas Facilities Commission became the focus of PPP activity in 2012, having received nine unsolicited proposals for PPP projects from private firms for various projects (including several at the Capitol complex in Austin) and identified several other potential PPP projects to develop underutilized land currently used by different state agencies. The Facilities Commission chose to move forward into procurement for one of the unsolicited proposals-which envisions a PPP for a 47-story mixed-use development at the Capitol complex that includes a planetarium, science center, parking, and commercial and residential units-seeking competing proposals from other interested parties, and the state received one competing offer that it was still evaluating at press time.

    However, this project-and future social infrastructure PPP projects in the state-may be on hold, at least until the end of the 2013 legislative session. In early January 2013, the Texas Sunset Advisory Commission-a legislative body that periodically reviews state agencies’ performance and issues recommendations regarding their continued need for existence-recommended a moratorium on unsolicited PPP proposals until the legislature can revisit SB 1048 in 2013, with no provision to continue the PPP projects already in motion. A majority of the Sunset Commission lawmakers bristled at the potential redevelopment of part of the Capitol complex and voiced concerns over transparency in the PPP process, opposition from neighbors adjacent to proposed projects, and a lack of outreach to other state land agencies.1 This comes after the Partnership Advisory Commission modified its PPP guidelines in September 2012 to make unsolicited PPP proposals public within 10 days of being deemed by the Commission to be fully compliant with its standards.

  • Puerto Rico: In August 2012, Puerto Rico’s Public-Private Partnerships Authority (PPPA) and Department of Corrections and Rehabilitation (DCR) announced that they had shortlisted four consortia to compete in a PPP procurement for the design, construction, financing and maintenance of a new, 600-bed juvenile social treatment and detention center to be located in the municipality of Yauco. The proposed PPP is expected to provide estimated savings of approximately $4.1 million annually and is seen by officials as a move to strengthen rehabilitation and social treatment programs for the juvenile population in Puerto Rico. Operations of the new facility would remain in the public sector upon completion.
  • Arizona: After modernizing the state’s transportation PPP enabling legislation in recent years, Arizona policymakers turned attention to legislation granting broad authority to enter into non-transportation infrastructure PPPs in 2012. The Arizona Senate passed Senate Bill 1450 by an overwhelming 28-1 majority in March, and the bill would have allowed PPPs between private entities and state agencies, cities, towns or counties to develop public infrastructure projects, authorizing a range of eligible PPP approaches and setting a 30-year limit on non-transportation PPP contracts. Despite widespread, bipartisan Senate support, the bill failed to receive a hearing in the House prior to the end of the 2012 legislative session.

    Separately, in July 2012, the Arizona Department of Transportation (ADOT) announced that it had selected two firms to enter into continued negotiations for a PPP to develop a new facility for the agency’s Flagstaff-area operations and redevelop prime real estate that houses the agency’s existing facilities today. The facility relocation project was prompted by the city’s road improvement plans (which would impact current ADOT facilities), and the agency sought a PPP model to develop new facilities in a manner requiring no capital project funding. The agency expects to award a contract and commence the relocation project in early 2013.

  • Florida: By a 95-20 vote, the Florida House of Representatives passed a bill to authorize social infrastructure PPPs (House Bill 337) in March 2012, but the legislation failed to receive a Senate committee hearing before the end of the legislative session. The bill-which would create the Florida Public-Private Partnership Act as a complement to the state’s existing highway PPP enabling legislation-would authorize public entities to use PPPs to develop a wide range of facilities including schools, ferries, mass transit facilities, parking facilities, port facilities, power generation facilities, oil or gas pipelines, medical or nursing care facilities, water/wastewater facilities and more. Though originally applicable to both state and local governments, House amendments prior to passage subsequently excluded state agencies from the public entities eligible to use the law.
  • Maryland: Both chambers of the Maryland General Assembly passed different versions of a bill sponsored by Governor Martin O’Malley to overhaul and modernize Maryland’s use of infrastructure public-private partnerships (PPPs), but legislators were unable to reconcile the competing bills into consensus legislation before the end of the 2012 legislative session. Among their provisions, Senate Bill 358 and counterpart House Bill 576 would have authorized state agencies to enter into PPPs for a variety of capital projects, established standardized PPP processes and oversight mechanisms, created a process to accept unsolicited private sector project proposals, and outlined a range of necessary components for any PPP contract (including a 50-year cap on the length of PPP contracts).

    The bill was the outgrowth of the work undertaken by the state’s Joint Legislative and Executive Commission on Oversight of Public-Private Partnerships, which was created under a 2010 law to review and make recommendations on the state’s PPP policy. The PPP commission, led by Lieutenant Governor Anthony Brown, released its final report in January 2012 recommending a set of policy changes and best practices in PPP development that helped guide the Administration’s legislative proposal. Brown believes that PPPs could meet at least 6-10 percent of Maryland infrastructure needs and expects another attempt to enact modernized PPP legislation in 2013, according to an August Associated Press report.2

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1 Laylan Copelin, “Lawmakers: Halt public-private plans for Capitol complex,” Austin American-Statesman, January 9, 2013.

2 Associated Press, “Maryland Lt. Gov. says framework for public-private partners will return to Legislature,” Washington Post, August 18, 2012.