Maryland Announces $456m PPP to Redevelop and Operate I-95 Travel Plazas

Deal a win-win for taxpayers, business, state

Earlier this week, the Maryland Transportation Authority (MDTA) announced that it had approved a 35-year public-private partnership (PPP) for the redevelopment and operation of two I-95 travel plazas. A consortium led by the Areas USA-a domestic subsidiary of the Spanish firm Grupo Areas SA, a major food concessionaire in European and Latin American airports, toll plazas and the like that is currently engaged in similar concessions across the U.S.-will finance the $56 million redevelopment of the state’s Maryland House and Chesapeake House travel plazas along Interstate 95, and upon completion will operate them for 35 years, sharing an estimated $400 million in revenues with the state over that period.

From the MDTA’s press release:

The Maryland Transportation Authority (MDTA) Board today voted to approve an innovative 35-year agreement with Areas USA MDTP, LLC, to redevelop and operate the two aging travel plazas along the John F. Kennedy Memorial Highway (I-95) in northeast Maryland. The agreement is the State’s newest public-private partnership (P3) following the award-winning P3 agreement with a private partner to improve and operate Seagirt Marine Terminal at the Port of Baltimore.

Pending Board of Public Works approval, as well as a 30-day review by the Maryland General Assembly, Areas USA will invest $56 million to redesign and rebuild both the 48-year-old Maryland House and 36-year-old Chesapeake House travel plazas and will operate and maintain the plazas through 2047. The State retains ownership and oversight of the travel plazas, while receiving revenue over the course of the agreement estimated at more than $400 million.

“By joining forces with the private sector we can generate the type of investment needed in these tough economic times that will allow us to build the infrastructure we need and create jobs,” said MDTA Board Member Mary Beyer Halsey, co-chair of the committee overseeing the P3 travel plaza initiative. “In this case, the agreement to rebuild the travel plazas will bring an estimated 400 construction jobs to our State. This is the type of leading-edge concept that the MDTA must pursue as we face the challenges posed by operating and maintaining our eight toll facilities across the State.”

[…] The food and beverage concepts for the Maryland House include Wendy’s, Cosi, Dunkin’ Donuts, Nathan’s Famous, Jamba Juice, Pizza Hut and Baskin Robbins. Concepts for the Chesapeake House include Wendy’s, Qdoba Mexican Grill, Caribou Coffee, Jerry’s Subs & Pizza, Wetzel’s Pretzels and Earl of Sandwich.

Areas USA will keep one travel plaza open throughout the redevelopment to serve customers. The redevelopment plan includes contemporary design, additional bus parking, free WiFi, gas and food services and a staffed Welcome Center. The Maryland House will be rebuilt in exactly the same location, while the new Chesapeake House will be built adjacent to its current site.

Planned facilities to be built by Areas USA under this agreement will be LEED Silver certified and include “green” features such as solar panels to power exterior lighting, high efficiency interior lighting, a “green” roof and drainage systems that will harvest rainwater.

More details on the initiative, the full concession agreement, a set of architectural renderings illustrating the envisioned final facilities and more are all available on the MDTA’s website here. See also recent articles on this PPP initiative by and the Baltimore Sun.

The deal looks like a win-win for the state, taxpayers and private enterprise:

  • The state will benefit from the replacement of two aging travel plazas without having to spend public dollars to do so, and it will retain ownership and control of these assets while benefitting from professional management by a private operator who knows this business. Running travel plaza businesses is hardly a core competency of government and is a better fit for private firms who do this sort of thing for a living.
  • The state-and ultimately taxpayers-will benefit from a revenue sharing plan from day 1 that is expected to bring hundreds of millions to state coffers over the life of the deal. For the privilege of being allowed to operate these plazas, the concessionaire is going to share a 9-15% cut of its various revenue streams every year, with the state’s share increasing as revenues increase. In short, the higher the concessionaire’s revenues, the higher the state’s share. It’s not dissimilar from the way lodging concessions in national parks like Yosemite and the Grand Canyon work, as well as many other types of commercial concessions associated with public assets.
  • The state is sending a strong signal to the PPP market that it is open for business and that there is a political commitment to see initiatives like this through to completion. Interestingly, the MDTA cancelled an earlier procurement for this project last year after vendors offered a tepid response to the original solicitation in late 2010, which was so overly prescriptive that the request for proposals itself totaled over 700 pages. Instead of abandoning the concept, MDTA did the sensible thing by reevaluating and streamlining its procurement approach and using a lesson learned from the first attempt to create a workable, attractive project when it was rebooted.

There’s one other subtle point worth mentioning. Some PPP detractors of a protectionist bent decry deals that involve domestic subsidiaries of foreign corporations, as if signing a PPP contract with them would somehow represent “offshoring” or “not Buying American.” I’ve written on this short-sighted and false thinking here and here, among others. In fact, I would argue the opposite-deals like these represent the “insourcing” of foreign capital, bringing outside investment to states that significantly benefit their economies. Those who would be happy to see Samsung or Toyota build a new plant and create jobs in their state should similarly welcome these sorts of PPP transactions too.

But more specifically, when foreign companies and their subsidiaries invest domestically, they don’t ship in employees en masse from overseas; in fact, they overwhelmingly hire local, just as Starbucks, McDonalds or Apple do when they open retail operations overseas, for example. Regardless of where the company is headquartered, the majority of jobs created are (a) domestic, and (b) more often than not, local.

There’s a great example of this in Maryland’s new PPP project. Again, from the press release:

Areas USA has put together a team to construct and operate the new travel plazas that is dominated by Maryland firms. “We are excited that Areas USA has partnered with some of Maryland’s most dynamic companies to reconstruct our travel plazas,” said MDTA Chairman and Maryland Transportation Secretary Beverley K. Swaim-Staley. “Of 13 members that make up the Areas team, 10 are Maryland-based firms with several being minority-owned or women-owned businesses. This strong Maryland presence reflects a commitment to local companies and recognizes the quality workforce that exists in our State. It is a commitment that will mean more jobs for more Marylanders.”

Areas USA team members working on the travel plaza reconstruction include:

Ayers Saint Gross – Lead designer, Baltimore.
Clark Construction – Contractor, Bethesda, Md.
Cain Contracting, Inc. – Sub-contractor, Columbia, Md. – Minority owned.
WBCM – Civil and traffic engineer, Baltimore.
Fitch – Interior design and architecture, Scottsdale, Ariz.
Aria Environmental, Inc. – Environmental design, Woodbine, Md. – Woman owned.
Cagley & Associates – Structural engineer, Rockville, Md. – Minority owned.
The Lighting Practice – Lighting designer, Philadelphia – Women owned.
L&J Construction – Snow removal, Baltimore – Minority owned.
L&J Waste Recycling, Inc. – Waste management, Baltimore – Minority owned.
4 Evergreen Lawncare, LLC – Landscape maintenance, Baltimore – Minority owned.
NMP Engineering Consultants, Inc. – Water resources engineering, Hunt Valley, Md. – Minority owned.
Sunoco, Inc. – Fuel and convenience store operations, Philadelphia.

Finally, Governor Martin O’Malley and Lieutenant Governor Anthony Brown deserve credit for advancing not only this project, but the concept of PPPs more broadly. In particular, Lt. Gov. Brown has become a real PPP leader in his state:

Today’s announcement comes just days after the Joint Legislative and Executive Commission on Oversight of Public-Private Partnerships, chaired by Lt. Governor Anthony G. Brown, submitted a series of recommendations to Governor Martin O’Malley and the General Assembly. The Lt. Governor will be leading the Administration’s legislation this session to streamline and improve Maryland’s framework for creating public-private partnerships for infrastructure projects.

“Like the Maryland Port Administration’s 2009 contract with Ports America, this partnership is putting our citizens to work by encouraging private investment in our public infrastructure,” said Lt. Governor Brown. “In these difficult economic times, we need to take a creative approach and look at all options for funding our infrastructure needs. Maryland has the potential to advance more job-creating projects through public-private partnerships, and I’m honored that the Governor has asked me to lead efforts to make the P3 process in our State more predictable, transparent and attractive to private investment. On behalf of the Commission, I recognize our transportation leaders for their innovation and for delivering an RFP and P3 process that puts our State at the forefront in public-private partnerships.”

The PPP commission report merits a separate discussion at a later date, but for now, readers can find it here, along with many other presentations and information received by the commission.

Let’s hope that Maryland pols are able to keep the momentum going and advance broad, cutting edge PPP enabling legislation to allow them to build significantly on their early successes. Continued success would be good for government, good for business, good for taxpayers and good for fostering a competitive state economy overall.

Leonard Gilroy is director of government reform at Reason Foundation.