Taking the lead

“You know, one of the worst things you could ever do is to admit that you are the leader in anything; it’s dangerous,” Tony Kinn says, referring to the risk that comes with being complacent. However, while one can understand his point, the facts speak for themselves.

When it comes to making the most of public-private partnership (PPPs; P3s) in advancing projects for the much-needed upkeep and upgrade of the state’s aging transportation infrastructure, Virginia slides easily into first place among the 50 states. It has delivered more P3 projects than any other state in the past five years and has 22 such projects in the pipeline – more than all other states combined. The estimated value of the seven projects delivered during that timeframe amounts to $8.1 billion, with 2012 accounting for about $6 billion of the total.

But it’s not just about the numbers. Whether talking to transportation officials from other states, investors, or other industry insiders, Virginia always comes up in conversation as a role model that has a lot to teach other states. It’s also why Virginia was invited as a participant in a recent forum organised by the Washington, DC-based Brookings Institution, titled “Can-Do States: A new era for infrastructure investment,” on the sidelines of which this interview took place.

Committed

There are various factors that have led to Virginia’s success and, as Kinn discussed them in detail, it becomes evident why he was the best person for his job. He is both extremely knowledgeable and committed to what he does. His warmth and straightforwardness also make it easy to imagine how effective he could be in bringing various stakeholders on board with P3 projects.

The first factor mentioned is the Public-Private Partnership Act (PPTA), the enabling legislation adopted in 1995 that put the necessary legal framework in place to encourage private sector investments.

Another is the creation of the Office of Transportation Public-Private Partnerships in 2011, a dedicated P3 authority that reports directly to the Secretary of Transportation.

“It’s critically important to have an independent office because it sets you up to work very closely with the individual sister agencies – I mean very closely – but you are not married to the sister agencies. If you are part of that agency, I think there tends to be a strong possibility that you will be overly influenced by that agency,” Kinn says, explaining the benefits of having an office dedicated to P3s.

“Your job is to provide them with the best – the best – options that you can,” he adds, banging the table with his hand for emphasis, another indication of his passion for what he does. In summary, two factors are critical for the P3 authority: it has to be a strong agent for the sister agencies and it has to produce and realise the goals and objectives of the Secretary of Transportation and the Governor.

Then there is education. “You have to educate – not just your private sector partner, but you have to be able to educate the legislature – to say ‘these are the social, economic, and transportation benefits for your constituents and these are the reasons why we need your support.’ Because if you don’t do that and if you don’t have that, then you’re really in trouble,” Kinn warns.

In this aspect, Virginia is lucky. “We have an excellent, proactive Secretary of Transportation; we’ve got a pro-business Governor, and we’ve got a pro-business legislature,” he says, noting how important it is to have each of these components on board.

There is also, and maybe foremost, the general public and the importance of reaching out them – explaining what P3s are and what they are not. For example, they are not ‘free money’ for the private sector; they are not about transferring a state asset to a private entity, according to Kinn.

“It really is about risk transfer – transferring the risk in a fair and equitable way to your private sector partner to make this a favourable project for both sides. There has to be a reasonable rate of return to the state and its citizens and there has to be a reasonable rate of return to the private sector for accepting these risks,” he explains.

Recognising the importance of raising public awareness and gaining public support, Kinn’s office has focused heavily on outreach efforts in the past year. They included creating a working group and bringing in various stakeholders: senators, state delegates, private sector partners and public sector partners from different agencies with a number of meetings held throughout the year.

Getting down to business

Educating the public about the benefits of P3s, such as economic development, job growth, and reduced traffic congestion was of course not the only thing that kept OTP3’s staff – which Kinn describes as “small, but very talented” – busy in 2012.

Last year saw the opening of the Interstate 495 (I-495) Express Lanes, a project valued at $1.7 billion. Construction of the I-95 Express Lanes project, valued at $925 million, began, and a contract was awarded for the $1.4-billion Route 460 corridor improvement project.

The decision to integrate the state’s five transportation operation centres into one centralised system was also taken last July and a six-year, $355 million contract was awarded to Serco in May this year.

OTP3 proposed the integration of the five centres to the Virginia Department of Transportation (VDOT), managed by one concessionaire which would be charged with curating innovation within the system.

“It’s certainly a VDOT [Virginia Department of Transportation] project, but again, it’s trying to maximise the assets of the commonwealth for the benefit of everybody,” Kinn elaborates. “And that to me is pretty exciting, because it’s a joint effort with VDOT and I don’t think anybody in the country has it.”

Another project Kinn finds exciting is the one relating to air rights development that was announced in early July. The Commonwealth of Virginia owns or possesses air rights over seven metro stations in Washington DC and over Route 66 in Rosslyn. A Request for Information (RFI) was issued for the development of mixed-use facilities at two sites: the East Falls Church metro station above I-66 and at the Rosslyn metro station in Arlington County.

“By leasing airspace above certain transportation facilities owned by the Commonwealth, we can better utilise our existing infrastructure to generate additional revenues to fund future transportation improvements, while at the same time attracting new jobs and economic development,” Governor Bob McDonnell had said in the statement announcing the project.

While this is a first for the state of Virginia, air rights development projects have been successful in generating revenues in other states. McDonnell offered Massachusetts as an example, whose Department of Transportation (MDOT) generated $40 million in fiscal year 2011 through leases and with long-term lease income projected at $868 million.

The project is being developed by VDOT in cooperation with OTP3, the Department of Rail and Public Transportation (DRPT), the Washington Metropolitan Area Transit Authority (WMATA), and Arlington County.

I-66 improvement is another important project that advanced to the procurement stage with an RFI being posted in late June. “Interstate 66 is a major route and is an opportunity for tremendous innovation and an opportunity to solve the transportation needs of the populace in that project, which are significant,” Kinn says.

The project, which is valued at around $2 billion, involves upgrades on a 25-mile section of the highway to alleviate traffic congestion. A Request for Qualification is expected to go out in early spring 2014, followed by a Request for Proposal possibly in 2015, OTP3 programme manager Jackie Cromwell said during a webinar in July which sought to provide an overview of Virginia’s P3 programme and its 2013 Draft Pipeline.

The Draft Pipeline lists 10 candidate projects – two of which are the air rights development and I-66 improvements now at the procurement stage – as well as 10 conceptual projects.

One of the conceptual projects is availability payments. “We’re working with the Treasury in the Commonwealth of Virginia to prove the concept that we can do availability payments,” Kinn explains. “If we can prove the concept, if we can do the last step in Treasury on availability payments – we will come out with Route 64 and probably Route 85,” he adds.

Asked how long before the other nine conceptual projects will stay on the list before moving up to the candidate stage or off the list completely, Kinn replies: “We’re working on several of them. Last year air rights and availability payments were on the conceptual list. I can’t give timelines because it’s too early in the process, but they’re not going to be years down the road, I can tell you that.”

A bump on the P3 road

What he couldn’t comment on was the Portsmouth Circuit Court’s decision in May which has put the brakes on the Downtown/Midtown Tunnel project, which connects Portsmouth to Norfolk. This $2.1 billion project, which OTP3 describes as a ‘top transportation priority’, reached financial close in April 2012. It includes a new immersed tube tunnel facility at the Midtown crossing, tunnel rehabilitation at the existing Midtown Tunnel and two Downtown tunnels, as well as extending the Martin Luther King (MLK) Boulevard to I-264.

The court ruled that charging tolls on an existing facility for the construction of a new one was the equivalent of raising taxes, something VDOT is not authorised to do and is therefore in violation of the state constitution.

However, according to Secretary of Transportation Sean Connaughton in remarks he made to the House Appropriations Committee in June, HB 3202 passed in 2007 “provided that the Downtown and Midtown Tunnels were to be considered a single transportation facility and that both tunnels could be tolled if improvements were made to either facility”.

Furthermore, the federal government was involved extensively during VDOT’s development of the project. Part of that involvement included the signing of a cooperative agreement between the US Department of Transportation’s Federal Highway Administration (FHWA) and VDOT in September 2009, which permits tolling during construction.

What’s more, tolls collected at the existing Downtown Tunnel completed in 1952, were used to help fund the Midtown Tunnel which was completed 10 years later.

The decision is under appeal and will be heard by the State Supreme Court, most likely in September. Should the Supreme Court uphold the lower court’s decision, it will potentially cost the state of Virginia about $700 million which it will have to pay to Elizabeth River Crossings Opco (ERC) – the private sector partner responsible for the financing, design, construction, tolling, ongoing operations and maintenance of the project over a 58-year term. It may also negatively impact other P3 projects.

What’s next?

The pending Supreme Court ruling aside, OTP3 has announced its short- and longer-term plans.

“We’re going to advance four projects through the identification selection process in 2013,” Jackie Cromwell told webinar participants in July. “The…I-64 high occupancy vehicle (HOV) lanes conversion to high occupancy toll (HOT) lanes; the second I-495 Express Lanes extension up to the American Legion Bridge; the 460-58 connector at Hamptons Road; and a portion of the I-64 peninsula improvement.”

Longer-term plans include building a business and financial case and project development on the Hampton Roads Crossing improvements – a project that will be a joint effort between OTP3, DRPT, VDOT, and the Hampton Roads metropolitan planning organisation (MPO).

Kinn describes the next steps in more general terms. “We’re going to pursue every new business opportunity that we can. We’re going to do our homework to make sure it fits into the goals and aspirations of our Governor, our Secretary of Transportation, our legislature. And if they do, I go back to our mission statement: close the deals, grow the business.”

Closing deals and growing the business is something Kinn knows much about considering that most of his career he has focused on new business development. He has found that his previous role as director of the Commonwealth’s Department of Economic Development’s International Division under then-Governor Douglas Wilder, has been very helpful in his current position.

“Actually for this job it has a lot of benefit, because you’re dealing with different cultures; you’re trying to bring business to Virginia; you’re not selling a tangible product, you’re selling an entity,” he says.

But he has also spent a great part of his professional life in the private sector. He was principal owner in the James A. Weaver Company, the third-largest food brokerage firm in the US and served as executive vice president of the Chicago-based Federated Group. There too he was responsible for the management of new business development.

Having worked in both public and private sectors, he is well qualified to point out the similarities between the two. “In the private sector you worry about deadlines, and you worry about market share, and you worry about points, about salaries and bonuses. In the public sector, you worry about the same things – only you call it benefits to the citizens, you call it ‘are you viewed as a national leader?’ If you’re viewed as a national leader, the investors come. If you’re trying to create new business or new products that makes you more interesting to the private sector.”

He pauses for a minute, thinking of another way to put it and concludes: “It’s almost the same church but a different pew.”