23
Virginia’s Experience with Public-Private Partnerships NCSL Legislative Summit New Orleans July 23, 2008
Virginia’s Experience with Public-Private Partnerships
NCSL Legislative SummitNew OrleansJuly 23, 2008
1
How Has Virginia Used Public-Private Partnerships?
History of P3 projects in Virginia
– Capital construction and renovation – Information Technology– Transportation
Legislative oversight of the P3 program
– Oversight issues– Legislative response– Performance evaluations
2
Public-Private Partnership Legislation
1995 Public Private Transportation Act (PPTA).
2002 Public Private Education Facilities and Infrastructure Act (PPEA).
2005 Revisions to the PPEA to allow interim agreements.
2005 APA study of the Public Private Education Facilities and Infrastructure Act.
2006 Revisions to the PPEA to improve transparency.
2007 Public-Private Partnership Advisory Commission established.
3
Major Non-Transportation Public-Private Projects
Centex/Moseley LLC Site and construct prisonsVarious
Scheer PartnersNorthern Virginia Forensic Lab ($60 million)
2007
GilbaneReplacement of Eastern State Hospital ($58 million)
2006
Northrop GrummanModernization of IT infrastructure ($2 billion over ten years)
2005
Trammel-CrowRenovation of Capitol Square buildings ($120 million)
2004
CGI-AMS“eVa” – electronic purchasing system2000
CGI-AMSNew integrated tax and revenue system
1998Private PartnerProjectYear
4
Lessons Learned from PPEA Projects
Public-private partnerships still require the expenditure of public funds.
– Identify the source of any savings projected to come from the proposals and subject these to rigorous analysis.
– For a large public entity with excellent access to credit markets, it is usually more cost effective to rely on internal financial resources.
The use of developers for most capital projects adds another layer of cost (typically 5%) without adding additional benefit.
– Developers may add value in cases that involve complex site selection, or the development of surplus land for non-governmental purposes.
5
Lessons Learned from PPEA Projects
Private partner should have experience working on a PPEA project:
– Private entity must understand the public entity’s budgeting process, timetable, and constraints – including FOIA.
– Look for a private entity that understands the public entity’s business from an operational perspective.
– Look for a private entity that understands the governing body’s position on the proposed project.
Public entity:
– Need staff (A/E, procurement, legal, communications, other technical) experienced in working a PPEA deal – don’t have it, look to other public entities for assistance or hire a consultant.
6
Northrop Grumman IT Infrastructure Partnership
Virginia partnered with Northrop Grumman in 2005 to provide IT infrastructure.
10-year, $2 billion contract with Northrop Grumman providing up-front capital.
Northrop Grumman responsible for meeting IT infrastructure needs of 85 state agencies.
Oversight of contract by state IT agency and investment board.
7
Public-Private Transportation Act Objective of the program is to be consistent with and complementary of other transportation programs and priorities.
Key consideration: does the PPTA project meet Virginia’s policy goals for transportation?
– To date, Virginia has avoided selling or leasing roadways, bridges or other infrastructure to divert funds for other uses.
Factors influencing the decision to pursue a PPTA project:
– Provide private partners for large-scale, costly projects.– Move a project more quickly.– Allow a lower statewide priority project to go forward,
based on regional priorities.
8
Dulles Greenway (Northern Virginia)
Privately owned 14-mile toll road connecting Dulles Airport and Leesburg
– $350 million cost
Completed in 1995, first private toll road in Virginia since 1816
Operational responsibility returns to State after 42.5 years but investors receive profits until investment recouped
Regulated by State Corporation Commission like a utility
9
Pocahontas Parkway (Richmond)
8.8 mile toll road providing a southern bypass of Richmond opened in 2002
– 1st project under Virginia’s PPTA with cost of $381 million
Construction financed primarily through private bonds issued by non-profit association
Entered 99-year lease for Transurban to manage and operate the parkway
Transurban has assumed responsibility for cost and management, existing debt, and agreed to build airport connector road
10
Route 28 Improvements (Northern Virginia)
Ten interchanges and widening of Route 28 in Northern Virginia which is estimated to carry 200,000 cars by 2012
Most of the $200 million in funding from special district tax revenues supporting tax-exempt bonds
Private construction company responsible for all right-of-way acquisition, utility location, site development, and design and construction
11
Capital Beltway HOT Lanes (Northern Virginia)
14 miles of 2 new lanes in each direction available to carpools, transit, and toll-paying motorists
$1.4 billion construction cost with State contributing $409 million and private partners contributing $349 million
Private partners assumed debt risk, construction risk, and costs of operation and maintenance
– 80-year term with 5 years of construction and 75 years of operation
12
Some P3 Proposals Have not Progressed
Proposal to add capacity on Interstate 81 in western Virginia
– Local opposition– Lack of funding
Proposal to construct a third crossing of Hampton Roads
– Lack of funding
13
Striking the Right Balance
Tension between executive branch and legislative branch over P3 projects.
– Executive branch authorized to solicit, negotiate, and implement P3 proposals.
– No traditional role for legislature in the approval process.
How much legislative oversight is appropriate?
When does too much oversight compromise the P3 process? (“Chilling” effect on private partners.)
14
Auditor Concerned with General Assembly’s Lack of Involvement in PPEA Process
Problems with a proposal’s economic or financial feasibility may not come to light until completion of agreement.
Budget flexibility may be lost if long term financial commitment made to private partner.
May require continuation of services at fixed level or involve significant cost increases for service level changes.
Recommended General Assembly have more active role in PPEA oversight.
15
Efforts to Improve Legislative Oversight
Sometimes, the legislative branch must insert itself in the process (can be taken for granted/ignored by executive branch.)
Public-Private Partnership Advisory Commission:
– Established by the General Assembly in 2007.– Allows for General Assembly review of selected proposals
being considered pursuant to PPEA. – The Commission has not yet (July 2008) begun to review
any Public-Private Partnership proposals.
But, not intended for review of transportation projects.
16
Legislative Oversight of PPTA
Virginia’s legislative oversight of PPTA projects has been more informal than that of PPEA projects.
Virginia’s transportation leadership has worked to be open and transparent about projects and the process in order to be responsive to the legislature.
– Ensures that the project is consistent with legislative priorities AND that is has a clear benefit to users.
– Seeks public input on projects – critical to a successful project.
– Briefs legislature either through formal committee presentations or through informal contacts.
17
Legislative Oversight of PPTA
Is the legislature satisfied with this level of oversight?
– Transportation Accountability Commission was created in 2007.
• May play a role in providing legislative oversight for PPTA projects.
– This year, legislation was passed to regulate a private toll road.
• State Corporation gave toll road owner permission to raise one-way fare from $3 to $4.80 over 4 years.
• General Assembly voted to place limits on tolls after 4 years and provide more oversight of toll road.
– Toll increases will be linked to consumer price index.– Recent proposals to expedite review process.
18
Legislative Performance Evaluation of P3 Projects
Virginia’s Joint Legislative Audit and Review Committee (JLARC) evaluated P3 contract for interstate maintenance.
– Lack of data limited ability to assess performance.– Cost effectiveness difficult to determine.
JLARC currently evaluating IT infrastructure partnership with Northrop Grumman.
19
Legislative Evaluation of IT Partnership
Concern expressed regarding the cost of IT
– $236 million per year
Concern regarding quality of services provided
– Lack of understanding regarding business needs – Dependence on Northrop Grumman
Requested to (1) evaluate quality, cost, and value of services and (2) characterize impact to state agencies of partnership with Northrop Grumman
20
Role for Legislative Performance Evaluation
Significance, complexity, and success of project may dictate need for performance evaluation.
Usefulness of evaluation may depend on nature of project and quality and extent of available data.
Determining whether public-private partnership is cost effective may be difficult.
Ability to act on performance evaluation may be limited.
21
Virginia’s Use of PPTA Will Continue
Recent failure by Virginia’s legislature to adopt a comprehensive transportation funding program will keep the pressure on PPTA as an alternative strategy.
– Growing acceptance among members and regions that tolls will play a role in major construction projects.
Concern that PPTA will be used as a “crutch” – have yet to find a way to use PPTA (tolls, concessions) to meet basic maintenance needs of the Commonwealth.
Commonwealth of Virginia
Betsey DaleyVirginia Senate Finance Committee
Hal GreerJoint Legislative Audit and Review Commission
