PPP enabling legislation may become controversial. Contractors and Â鶹´«Ã½ chapters should help shape the debate by lobbying for provisions that protect long-term infrastructure investment and ensure that risks are efficiently allocated. PPPs take shape in the legislative process. It is imperative, however, that PPPs are utilized to supplement public funding, not supplant it. Â鶹´«Ã½ strongly believes that PPPs should be used to bring additional revenue to address our infrastructure needs, not replace current revenue. We recommend that Â鶹´«Ã½ members and chapters make clear to public officials that they do not want PPPs to replace public investment.
State Enabling Legislation - How It Impacts PPPs
When a state or local government wants to utilize a PPP for a transportation project, or other types of infrastructure projects, they must first acquire legislative authority, referred to as state enabling legislation.
This enabling legislation can provide broad authority, or it can be limited to a specific project and provide numerous restrictions or limitations. Some of the key issues that a state legislature will likely consider in this legislation involve the following:
- Are all governmental entities (state, county, city, toll agency, etc.) empowered to enter into PPPs?
- Does the legislation allow broad authority for the governmental entities to enter into a number of PPP projects, or does it limit the number, or even specify a particular project?
- What restrictions, if any, are placed on where any potential revenue that may be derived through a concession agreement can be invested/spent?
- Will the legislation permit both solicited (through an RFP) and unsolicited proposals?
- How will the proposals be evaluated?
- How will the legislation address protecting the bidders’ intellectual property during the competition phase?
- How long is the competition phase?
- Will toll rates and usage fees be regulated?
- Will the rate-of-return be restricted?
- How will they ensure transparency of the process?
- Will the legislation allow each concession agreement to be tailored to the specifics of the project?
Will the length of a concession agreement be limited to the number of years in the statute? - Will the legislation allow or prohibit non-compete provisions?
- Will the legislation require a revenue-sharing agreement that enables the state to share in potential revenue growth?
- How does the legislation allow risk-shifting that differs from traditional design-bid-build or traditional design-build?
- How does the enabling legislation address sovereign immunity and long-term legal liability for contractors working on projects?
These issues and others need to be considered by all affected parties when a state legislature considers PPP-enabling legislation. Many of these issues are of importance to contractors, and they should be influential in the debate.
Use of Proceeds of P3 Transactions
In some cases, PPP transactions yield an upfront payment to a public entity or a revenue sharing agreement whereby the public entity receives revenue from a private entity or consortium. In two early, high-profile examples, the lease of the Indiana Toll Road and the Chicago Skyway, a private consortium paid $3.8 billion and $1.83 billion, respectively, for 75- and 99-year leases of the facilities.
In the Chicago transaction, little, if any, of the money was invested or dedicated to other transportation improvements. Conversely, in the Indiana lease, most, if not all of the money is dedicated to roads and bridges.
Â鶹´«Ã½ strongly believes that the public entity that receives revenues from a PPP transaction should dedicate that revenue to the type infrastructure where it is derived (i.e., surface transportation reinvested in surface transportation, water systems reinvested in water systems). Some governors and other public officials will consider using the proceeds from a PPP to pay off public debt, pay for pensions, or pay for other types of unrelated infrastructure. Â鶹´«Ã½ believes it is important to reinvest the revenue in related/like-kind infrastructure projects. With public infrastructure funds in such short supply, this revenue should not be considered fungible.