Innovators in Action (September 2014 edition): Building Pennsylvania’s Public-Private Partnership Program

Commentary

Innovators in Action (September 2014 edition): Building Pennsylvania’s Public-Private Partnership Program

The latest interview in Reason Foundation’s Innovators in Action 2014 series focuses on the Pennsylvania Department of Transportation’s rollout of its public-private partnership (PPP) program, authorized in PPP enabling legislation passed in 2012. In the two short years since that law was enacted, the agency has moved quickly to establish a robust PPP program, creating a dedicated PPP office within the department that has already taken projects to market and begun entering into contracts. It recently entered a partnership with State Farm to sponsor PennDOT highway safety patrols, and it has caught national attention for its ambitious project to use a PPP model to replace 558 deficient bridges in one contract-an initiative that is currently in procurement.

I recently interviewed PennDOT Office of Policy & Public-Private Partnerships Director Bryan Kendro on the development of Pennsylvania’s PPP program, the bridge replacement and safety patrol PPP initiatives, other projects in development, and much more. Here’s an excerpt:

Gilroy: Why does partnering with the private sector makes sense for PennDOT?

Kendro: Our public-private partnership (PPP) authorization is very broad, which has allowed us to look not just at your traditional road and bridge projects, but also at other ancillary services and responsibilities of the department. We feel that the private sector can provide value either as a partner or, in some cases, take over all aspects of a program or project.

A good example of that is that we’re going to be announcing a project that will allow a private partner to design, build, finance, operate and maintain compressed natural gas (CNG) fueling stations for transit agencies all across the Commonwealth. Local transit agencies don’t have the expertise or resources-or desire, frankly-to be responsible for operating and maintaining CNG filling stations. If those agencies can provide demand for the fuel-and enough demand exists-and we also allow the private partner to sell fuel to other public and private fleets in addition to those transit agencies, then it would not only allow the transit agency to shed the risk and responsibility of managing stations, but it would also allow us to share in any upside revenue that comes from those other customers that they might be selling to.

The idea of a transit agency designing and building and then continuing to operate and maintain a fueling station doesn’t make sense. This is an activity the private sector has figured out quite well. It just makes a lot of sense for the private sector to make that investment and get in a position where they can recover that investment.

Gilroy: What is the role that your office plays in PennDOT?

Kendro: I’d characterize our office as a project assessment and project delivery office. The PPP office will essentially take a project from first conception through completion over the life of a contract, using both in-house and outside resources, depending on the needs for each specific project. If something gets identified as a PPP project, we’ll identify the right mix of consultants or in-house personnel that have the expertise on that type of project, and we’ll create a project delivery group that will take over managing and delivering that project and then manage the contract throughout its life.

This extends beyond just PennDOT. Other agencies outside the department with transportation-related facilities and services are also eligible to make use of the PPP statute. So our role can be anything from advisory in nature to full-blown project delivery. For instance, if the Pennsylvania Turnpike were to pursue a PPP project, they would obviously have the expertise to run a procurement and manage a road project as part of their core mission, so our role in a project like that would be more or less advisory, making sure that they follow the PPP statute and the processes that we’ve put in place. But if it’s a local transit agency or even a PennDOT project, for instance, then our role would be soup-to-nuts project delivery.

Our office wasn’t created within the PPP legislation in 2012, but it originated from a policy decision in PennDOT. Act 88-our PPP statute-requires us to provide support and administration to the PPP Board. How we did that was a policy decision, and essentially the Secretary and I discussed the different options. We looked at the evolution of PPP programs in states like Virginia, which have a separate office reporting directly to the Secretary, and we didn’t think it would make much sense to place the office in our highways division, for example, since our PPP statute is very broad and covers all modes of transportation. Initially, the PPP office was part of the department’s office of policy as we were getting the program up and running. But now we’re a dedicated office with dedicated staff. This also allows for continuity, so whenever there are changes in administration, there will be an established office-not an ad-hoc office or an office that exists within another.

Check out the full interview here. Other articles featured in the Innovators in Action 2014 series are available here.

Leonard Gilroy is Senior Managing Director of the Pension Integrity Project at Reason Foundation, a nonprofit think tank advancing free minds and free markets. The Pension Integrity Project assists policymakers and other stakeholders in designing, analyzing and implementing public sector pension reforms.