Texas Enacts New Infrastructure PPP Law, Expands Use Beyond Transportation

Over the last decade, Texas has been a pioneer in using private sector financing and project delivery to deploy new transportation infrastructure through public-private partnerships (PPPs). Though the issue has been a policy rollercoaster in recent years—a paradoxical mix of groundbreaking PPP megaprojects in Central and North Texas proceeding at the same time as agency turf battles over PPPs, opponent grandstanding and even a four-year legislative moratorium on their use. However, the steam seems to have released from the kettle this year, as the state legislature has recently re-embraced transportation PPPs in Senate Bill 1420, authorizing their use for roughly a dozen new transportation projects through 2015.

Less discussed—but an even more potent signal of the re-emergence of PPPs in Texas—is that the same day Gov. Perry signed the transportation bill into law two weeks ago, he also signed into law Senate Bill 1048, significantly expanding the Lone Star State’s ability to tap infrastructure PPPs for more than just transportation projects. In fact, Texas can now use PPPs to deliver nearly any type of public infrastructure, including schools, water & wastewater projects, transit, ports and other public use facilities.

In the U.S., transportation has generally been the leading-edge of the PPP policy space and seen the most interest in the states to date. However, using PPPs across infrastructure categories beyond just transportation is commonplace internationally, and as I wrote elsewhere recently, Virginia and Puerto Rico are among the leaders pioneering the concept domestically in the states:

Global PPP leaders like the U.K. and Canada have long used partnerships to develop hospitals and schools, in addition to transportation projects. Domestically, Virginia has passed two separate PPP laws used by the state to deliver infrastructure across a variety of sectors, including highways, road maintenance, education facilities, telecom and psychiatric hospitals. Similarly, Puerto Rico adopted legislation in 2009 inviting private investors to modernize or develop new roads, schools, ports, water systems and energy plants. In addition, the California court system is currently using a public-private partnership to finance and build a new, $492 million courthouse to replace an aging facility in Long Beach. Given the Golden State’s budget woes, a PPP was the only realistic option to deliver such a costly, but nonetheless important, project.

With its growth and infrastructure modernization needs, Texas is smart to join this mix. As noted in SB 1048’s legislative intent language:

[…] there are inadequate resources to develop new education facilities, technology and other public infrastructure, and government facilities for the benefit of the citizens of this state, and there is demonstrated evidence that partnerships between public entities and private entities or other persons can meet these needs by improving the schedule for delivery, lowering the cost, and providing other benefits to the public […]

“Demonstrated evidence” is an understatement. Texas has over $7 billion worth of privately-financed transportation projects under construction right now, so it was only a matter of time before the sheer magnitude of that investment prompted policymakers to seriously consider what might be possible if similar mechanisms could be tapped for universities, schools, medical facilities, public buildings and the like.

To their credit, Texas policymakers have done well by modeling closely Virginia’s Public-Private Educational Facilities Infrastructure Act (PPEA), which has been used extensively by agencies in the Commonwealth to deliver a wide range of projects since it’s enactment in 2002.

Like Virginia’s PPEA, Texas’ SB 1048 allows for both solicited and unsolicited proposals from private firms to develop infrastructure projects across a broad spectrum (excluding transportation, which is addressed elsewhere in state law, and telecommunications projects). Further, the law establishes a Partnership Advisory Commission to provide legislative review and oversight to projects advanced. In Texas, qualifying projects under the law include, but are not limited to:

[…] any ferry, mass transit facility, vehicle parking facility, port facility, power generation facility, fuel supply facility, oil or gas pipeline, water supply facility, public work, waste treatment facility, hospital, school, medical or nursing care facility, recreational facility, public building, or other similar facility currently available or to be made available to a governmental entity for public use, including any structure, parking area, appurtenance, and other property required to operate the structure or facility and any technology infrastructure installed in the structure or facility that is essential to the project’s purpose. […]

Kudos to the Governor and legislature for providing Texas with new tools to deploy private sector capital to deliver new public infrastructure projects, reducing the reliance on traditional funding sources and shifting major risks from taxpayers to the private sector. For more details on this important legislation, check out the full text of SB 1048 and the legislative bill analysis.