“Mostly it takes political courage from a Governor to decide that a P3 [public-private partnership] is a way to go,” Karl Reichelt, executive vice president of Skanska Infrastructure Development, said during a recent interview. “And once you get a Governor who understands the value proposition and puts his or her weight behind it, the programme then starts to really evolve,” he continued.
Reichelt, a New York native currently based in Virginia, has no connection with Pennsylvania. Yet his comments could have easily been referring to that state’s Governor Tom Corbett, a Republican who took office in January 2011.
In the three years he has been in office, the Northeast state has enacted enabling public-private partnership (PPP;P3) legislation for transportation projects, standardised its procurement process by publishing a P3 manual, and has launched the tender process for the Rapid Bridge Replacement project, an ambitious programme looking to replace at least 500 of the state’s 4,500 structurally-deficient bridges.
On 12 February, the Pennsylvania Department of Transportation (PennDOT) announced the five teams that had responded to a Request for Qualifications (RFQ) to develop, design, build, finance and maintain the portfolio of bridges.
The teams submitting Statements of Qualifications (SOQs) are:
– Plenary Walsh Keystone Partners: teaming Plenary Group with The Walsh Group;
– Keystone Bridge Partners: comprising InfraRed Capital Partners and Kiewit;
– Commonwealth Bridge Partners: led by John Laing Investments and Fluor;
– Keystone Bridge Builders: comprising Macquarie and PCL; and
– Pennsylvania Crossings: teaming Meridiam with AECOM.
The exact number of bridges to be included in the project and the number of years the winning consortium will be responsible for maintaining them are yet to be determined, the state agency said. A Request for Proposals (RFP) is slated to be issued in the spring of 2014 with the goal of beginning construction in 2015.
PennDOT will continue to own the bridges and will be responsible for routine maintenance such as snow and debris removal.
The Rapid Bridge Replacement project has been expanded by 200 to 300 bridges thanks to a transportation funding bill Governor Corbett signed into law in November of last year. Described by his office as “Pennsylvania’s most comprehensive piece of state transportation legislation in decades,” the law provides an additional $2.3 billion to $2.4 billion for much-needed bridge and road repairs and upgrades.
Specifically, the additional funds will be allocated as follows over a five-year period: $1.3 billion will go to state roads and bridges; between $480 million and $495 million annually is earmarked for public transportation; $237 million is set aside annually for local roads and bridges; $144 million will be allocated annually to a multi-modal fund; $30 million a year will be dedicated to dirt, gravel, and low-volume roadways; and $86 million is set aside annually for Pennsylvania Turnpike expansion projects.
Part of the funding will come from the elimination of a flat $0.12 gas tax and from modernising an outdated transportation financing structure through the uncapping of the wholesale, Oil Company Franchise Tax.
NO EASY ROAD
Like anything in politics, business – or life for that matter – the road to establishing a robust P3 market in Pennsylvania has not always been an easy one.
The state has seen its share of failed attempts to partner with the private sector, such as in the case of the Pennsylvania Turnpike.
Corbett’s predecessor, Ed Rendell, had championed privatising the 537-mile-long turnpike, attracting a $12.8 billion offer for a 75-year concession from a consortium led by Spanish developer Abertis in 2008. However, political opposition prevented the lease and the deal was struck down by the state legislature.
Adding insult to injury was a report by state auditor general Jack Wagner claiming that PennDOT had bankrupted the turnpike.
According to Wagner, Act 44 which was signed into law by then-Governor Rendell in 2007, allowed the State Department of Transportation to borrow $3 billion between 2007 and 2011 on the back of the turnpike. This led to increasing debt on the turnpike from $2.9 billion to $7.3 billion.
Despite Wagner’s audit, the Corbett administration has said it will not reconsider its 2008 decision against privatisation.
Another failed attempt was enough to cause one investor to shun involvement with any state-owned asset. Referring to the failed procurement of a Pittsburgh parking lease this investor told Infrastructure Investor that a lot of people spent a lot of time and money bidding for the project only to have the city council of Pittsburgh pull it a month after a preferred bidder had been selected.
“It’s the type of situation where you may have a few politicians that are really driving it [a P3] but generally in cities and states those few people are not making the decisions,” this person said.
The parking concession would have netted Pittsburgh $450 million. In these and other cases, a lack of a standard P3 framework has been blamed.
SETTING GROUND RULES
Corbett addressed the issue a few months after assuming office by establishing a Transportation Funding Advisory Commission (TFAC) by executive order in April 2011.
The 25-member commission, led by Secretary of Transportation Barry Schoch, was tasked with finding innovative solutions to Pennsylvania’s transportation funding needs.
TFAC delivered its final report to the governor recommending, among other things, involving the private sector in financing transportation projects and passing enabling legislation.
In July 2012, ‘The Public and Private Partnership for Transportation Act’ was signed into law, defining a transportation facility as a road, bridge, parking area, building, seaport or airport. It also encompassed brownfield and greenfield projects. The legislation applies to solicited and unsolicited proposals.
The act, sponsored by State Representative Richard Geist, also provides for a seven-member Public Private Transportation Partnership board to examine and approve potential P3 projects.
The board, which is chaired by the Secretary of Transportation, also comprises the Secretary of the Budget, one member appointed by the Governor and four members appointed by the General Assembly.
The Office of Policy and Public Private Partnership was established within PennDOT to implement the state’s P3 transportation programme.
A few months later, in January 2013, the seven-member board approved a P3 implementation manual, intended to complement the P3 law.
THE ROAD AHEAD
While PennDOT has not announced any other transportation projects aside from the Rapid Bridge Replacement project at present, progress made after the passage of P3 legislation is encouraging.
Another statement by Skanska’s Reichelt would also seem to apply here: “By and large Governors drive the agenda when it comes to transportation infrastructure PPPs and that’s exactly the way it should be because they know best what the priorities are within their state. They can work with their legislature and the localities and they also can use their credibility in Washington to get cooperation from the Department of Transportation for what’s needed.”
To date, Governor Corbett has demonstrated that he understands what his state needs and is capable of working with the state legislature and local authorities to address those needs. Hopefully, that will go a long way towards upgrading the state’s transportation infrastructure, which according to TFAC, could require more than $7 billion by 2020.