Category Archives: Public/Private.Partnerships

Public-private project to improve truck access to Joliet hub

Source: Associated Press, July 11, 2016

Illinois Gov. Bruce Rauner says state and local governments are partnering with a private company to relieve traffic congestion and provide easier access to a major commercial transport hub near Joliet. Rauner announced the agreement Monday at CenterPoint Intermodal, a rail and truck freight transport center near Interstates 80 and 55. It’s considered the nation’s largest inland port. Under the agreement, Illinois will spend $21 million to improve the Houbolt Road exit off Interstate 80. CenterPoint will spend about $170 million to build a toll bridge over the Des Plaines River and extend Houbolt Road south to the facility. …

Amid Building Boom, Debate over Publicly Funded Stadiums Goes On

Source: Elaine S. Povich, Pew Charitable Trust, July 11, 2016

Missouri and St. Louis tried mightily to keep the NFL Rams from decamping for Los Angeles, offering $400 million in state and city money for a new stadium. To justify the public expense, officials argued that the team, which moved from Los Angeles to St. Louis two decades ago, was an economic engine for the region. They offered to put up the money even though the Rams’ billionaire owner, Stan Kroenke, could afford to build a new stadium on his own. … Two other NFL teams, the San Diego Chargers and the Oakland Raiders, also are eyeing a move to the nation’s second largest city. But Nevada is hoping to grab the Raiders for itself, by dangling a $1.4 billion stadium that would be paid for, at least in part, by the taxpayers. Meanwhile in Atlanta, construction is underway on a new $950 million stadium for the NFL Falcons, to be financed partly through bonds secured by extending a tax on hotel and motel rooms. Amid all the jockeying, a decadeslong debate rages on: Does it make economic sense for cities and states to use public money to build sports facilities? …

… But many economists maintain that states and cities that help pay for new stadiums and arenas rarely get their money’s worth. Teams tout new jobs created by the arenas but construction jobs are temporary, and ushers and concession workers work far less than 40 hours a week.  Furthermore, when local and state governments agree to pony up money for stadiums, taxpayers are on the hook for years — sometimes even after the team leaves town. St. Louis, for example, is still paying $6 million a year on debt from building the Edward Jones Dome, the old home of the Rams that opened in 1995, despite the team’s move to California. The debt is financed by a hotel tax and taxes on “game day” revenues like concessions and parking. …

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New stadiums cost more than just money
Source: Yousef Baig, The Weekly Calistogan, July 29, 2015

…The first place to start is with the financing. A few years ago, a Harvard urban planning professor named Judith Grant Long put out a book called “Public/Private Partnerships for Major League Sports Facilities” that shed some light onto what these deals really cost taxpayers and the subsequent spillover effect into other areas. … The average public/private partnership has the cities forking over 78 percent of the costs, and the teams themselves just 22 percent. Additionally, she added, taxpayers spent about $10 billion more than originally estimated on the construction of all 121 stadiums that were in use during 2010. Ownership groups (made up of billionaires) tell city officials that they can’t afford the hundreds of millions of dollars required to erect these modern coliseums. They talk about the boon it will bring to the surrounding area, the increase in tourism, and the creation of jobs, while in the same breath, threatening to leave for another city if they don’t oblige. …

Hamilton County, which took on stadiums for both the Cincinnati Bengals and Cincinnati Reds in the mid-1990s, has been crippled with debt ever since. In 2013 alone, annual stadium expenses totaled $43 million. Since these two stadiums were built, a public hospital was sold, mass transit investments were put off, and the tiny amount of private development along the Ohio River, which was a big selling point to get an increase in sales tax approved, has still required additional public subsidies. …
To afford the $720 million required to build Indianapolis’ Lucas Oil Stadium, the city raised hotel, restaurant and rental car tax rates. Five months after it opened in 2008, a first-year deficit of $25 million was projected to jump to $45 million a year later. In June 2013, the city of Detroit, amid a financial crisis and filing for bankruptcy, stayed the course with its $444 million hockey arena for the Red Wings. A $450 million bond with a 30-year term fit the average arrangement mentioned in Long’s book, leaving taxpayers responsible for $283 million of it. …

John Oliver: How Sports Teams Are Ripping Us Off
Source: Marlow Stern, Daily Beast, July 12, 2015

After a week off, John Oliver and his award-worthy HBO program Last Week Tonight are back, and this time, they’re targeting one of America’s favorite pastimes: pro sports….. “The vast majority of stadiums are made using public money,” said Oliver, citing a report from 2012 stating there’s been “$12 billion spent on the 51 new facilities opened between 2000 and 2010.” “Which begs the question: Why?” he asked…… But the theory that building a new stadium boosts a city’s economy is, according to an economic study cited by Oliver, a total myth. “A major review of almost 20 years of studies shows economists could find no substantial evidence that stadiums had increased jobs, incomes, or tax revenues,” he said….Recently, Hamilton County, Ohio, spent more than $50 million on stadium debt service and other costs in 2014 for the Cincinnati Bengals and Reds, even though the county has had to sell a public hospital, cut 1,700 jobs, and delay payments for schools because of budget gaps.

Stadiums
Source: Last Week Tonight with John Oliver, July 12, 2015

Cities spend massive amounts of public money on privately-owned stadiums. Cities issue tax-exempt municipal bonds that — wait, don’t fall asleep!

Public-Private Partnerships for Major League Sports Facilities
Source: Judith Grant Long, Routledge, ISBN-13: 978-0415806930, 2012
(purchase required)

This volume takes readers inside the high-stakes game of public-private partnerships for major league sports facilities, explaining why some cities made better deals than others, assessing the best practices and common pitfalls in deal structuring and facility leases, as well as highlighting important differences across markets, leagues, facility types, public actors, subsidy delivery mechanisms, and urban development aspirations. It concludes with speculations about the next round of facility replacement amidst rapid changes in broadcast technology, shrinking domestic audiences, and the globalization of sport.

Do Economists Reach a Conclusion on Subsidies for Sports Franchises, Stadiums, and Mega-Events?
Source: Dennis Coates and Brad R. Humphreys, Econ Journal Watch, Vol 5 no. 3, September 2008

From the abstract:
This paper reviews the empirical literature assessing the effects of subsidies for professional sports franchises and facilities. The evidence reveals a great deal of consistency among economists doing research in this area. That evidence is that sports subsidies cannot be justified on the grounds of local economic development, income growth or job creation, those arguments most frequently used by subsidy advocates. The paper also relates survey evidence showing that economists in general oppose sports subsidies. In addition to reviewing the empirical literature, we describe the economic intuition that probably underlies the strong consensus among economists against sports subsidies.

States Diversifying Use of Public-Private Partnerships in Infrastructure

Source: Sean Slone, Council of State Governments, May June 2016

When U.S. Secretary of Transportation Anthony Foxx finished his remarks at the recent InfraAmericas conference on public-private partnerships, or P3s, in New York City, Kentucky state Rep. Leslie Combs was first to the microphone for the Q&A. “We just passed P3 legislation in Kentucky,” said Combs, who this spring authored the legislation that allows Kentucky, like 33 other states, Puerto Rico and the District of Columbia, to enter into P3s to build infrastructure projects. … But Kentucky’s first announced infrastructure P3 is not a toll road or a major bridge project. In fact, at the behest of anti-toll interests in the northern part of the state, Kentucky’s legislation specifically prohibits the use of tolls on any P3 project connecting Kentucky and Ohio, such as a potential replacement for the functionally obsolete Brent Spence Bridge. Instead, the commonwealth’s first P3 project is KentuckyWired, a partnership to create a statewide, open-access fiber optic broadband network. …

… Indeed many of the infrastructure P3 projects garnering the buzz at this year’s InfraAmericas forum were somewhat different from those the U.S. P3 industry has become accustomed to over the last decade. The conference highlighted projects at major U.S. airports and on university campuses. There were transit project P3s, alternative fuel, highway lighting and water infrastructure projects and a variety of social and civic infrastructure projects—public buildings and the like—in the spotlight as well.

City of LA will rack up bigger bill than anticipated for Convention Center: report

Source: Cathaleen Chen, The Real Deal, July 6, 2016

If the City of Los Angeles decides to tackle the overhaul of the L.A. Convention Center by itself, it will be $250 million more expensive than the initial $470 million quote, a new report found. However, there are options. The report, from City Administrative Officer Miguel Santana, offers an alternative to paying $720 million for renovations on the outdated center at 1201 South Figueroa Street: a $1 billion private partnership that would result in greater savings down the road. Under this option, a private developer would design and finance the property and develop it into a mixed-use complex that includes housing, retail and a hotel, L.A. Downtown News reported. … A public-private partnership isn’t unprecedented for L.A. The city has long had a relationship with AEG. The firm currently runs the convention center alongside the city authorities. But this connection may be strained, as the entertainment firm announced last month it was pulling out of the development of a 755-room hotel on Olympic Boulevard next to the Convention Center because of competition form the city’s own on-site hotel.

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L.A. budget chief suggests privatizing Convention Center
Source: Kate Linthicum and David Zahniser, Los Angeles Times, August 6, 2012

After years of pushing for the privatization of more city services, Los Angeles’ top budget official took his crusade to pare down city government a step further Monday with a recommendation that lawmakers turn over management of the Convention Center to a private firm. … Lowell Goodman, a spokesman for Service Employees International Union Local 721, said his group opposes the proposal because it would replace city staff with cheaper workers.

Public-private partnerships: The global debt iceberg?

Source: Tim Jones, Brettonwoods Project, June 29, 2016

According to the World Bank public-private partnerships (PPPs), a catch-all term used widely to indicate investments involving both the public and private sectors, are now responsible for 15-20 per cent of infrastructure investment in developing countries. … The cost to a government of using PPPs to invest is usually higher than if it had simply borrowed the money itself. This is because private sector borrowing costs more, private contractors demand a significant profit, and negotiations are normally weighted in the private sector’s favour, particularly when government familiarity with and capacity to develop favourable PPP contracts are weak, as is often the case in developing countries. A 2015 study by the World Bank’s Independent Evaluation Group found that of 442 World Bank-supported PPPs, no more than three per cent were assessed for their fiscal impact on the country involved.

Research commissioned by the European Parliament in 2014 suggests that PPPs are the most expensive way for governments to invest in infrastructure, ultimately costing more than double financing made through bank loans or bond issuance. According to research by Maximilien Queyranne from the IMF Fiscal Affairs Department, the fiscal risks of PPPs are “potentially large” because they can be used to “move spending off budget and bypass spending controls” and “move debt off balance sheet and create contingent and future liabilities”.

Veolia Inks $500M Wastewater Contract, Largest Wastewater Public-Private Partnership in US

Source: Jessica Lyons Hardcastle, Environmental Leader, June 29, 2016

In what Veolia says is the largest wastewater public-private partnership in the US, the Milwaukee Metropolitan Sewerage District has extended its agreement with Veolia North America to continue managing and operating its collection and wastewater treatment system under a 10-year, $500 million contract. … Veolia says it has also saved millions of dollars for the city of Poughkeepsie, New York, while improving efficiencies throughout the city’s wastewater system and facilities over the course of a 35-year environmental contract. In April Poughkeepsie renewed an agreement with Veolia to continue managing and operating its wastewater system under a 10-year contract. A similar public-private partnership in Washington, DC expects to save between $8 million and $12 million, Paul Whitmore, manager of communications for municipal and commercial business at Veolia North America, told Environmental Leader in an earlier interview.

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Labor unions back Veolia contract extension
Source: Don Behm, Milwaukee Journal-Sentinel, June 13, 2016

A proposed 10-year, $500 million extension of Veolia Water Milwaukee LLC’s contract to operate the Milwaukee Metropolitan Sewerage District’s wastewater collection and treatment facilities was endorsed by labor unions Monday at a meeting of the district commission’s policy committee. The committee referred the proposed extension to the full commission for final action at its June 27 meeting. Veolia Water’s contract expires Feb. 28, 2018. … Each of four unions representing Veolia Water employees favor extending the Paris-based company’s contract as recommended by MMSD staff, according to Earl Matzinger, business agent for Operating Engineers Local 420. The stance is a switch from union opposition to the first private operating contract the district awarded to United Water Services in 1998. …

Contracting could save$5 million, MMSD says / Director to suggest accepting low bid
Source: By DON BEHM, Journal Sentinel(WI), Nov. 20, 2007

The Milwaukee Metropolitan Sewerage District could save its customers in 28 communities about $5 million next year by hiring Veolia Water North America to operate the district’s wastewater treatment system rather than giving the job to itself, district officials said.

The district and its employee unions cannot fully close such a gap by trimming labor costs, the one expense unions could help control, said Executive Director Kevin Shafer. The gap takes into account a savings of $800,000 gained by shutting down a contract compliance office if a private company no longer operates MMSD’s treatment facilities.

COLUMBUS JUST WON $50 MILLION TO BECOME THE CITY OF THE FUTURE

Source: Aarian Marshall, Wired, June 23, 2016

….. If all goes according to plan, the Ohio capital will soon burst with electric vehicles, autonomous shuttles, platooning trucks, and bus rapid transit, which will sail through smart traffic lights that turn green just for them. Every resident will benefit.  Foxx today declared Columbus the winner of the $40 million Smart City Challenge, a competition that asked mid-size governments to envision how their city could capitalize on growing overlaps in transportation and technology. Announced in December, it’s the first of its kind: a speedy grant process buttressed by public-private partnerships, with money for cities instead of states. Of the 78 cities that competed, seven made it to the final round: Austin, Texas; Denver; Kansas City, Missouri; Portland, Oregon; San Francisco; Pittsburgh, Pennsylvania; and Columbus…. Foxx says Columbus isn’t the only winner here. The six losing finalists can pursue their own plans, with technical and financial assistance from the DOT and its private sector partners, including Alphabet, Mobileye, Autodesk, NXP Semiconductors, and Vulcan. Even those who didn’t make it to the final round now hold detailed plans that could lead to their own equitable transportation futures. Columbus is just the first guy on the dance floor. ….

Bossier City approves public-private partnership for water system

Source: Sara Machi, Shreveport Times, June 21, 2016

More than 40 Bossier City workers will look for new jobs as city council members voted 4-2 Tuesday afternoon to outsource water and sewer services to Manchac Consulting Group and avoid customer rate increases. … Bossier City will pay a little over $1 million to transfer operational management to the private company, but Manchac says the city can then expect an estimated $2.1 million savings in the first contract year. Wallette said those figures don’t add up when you look at fixed costs like chemical and material prices. … Wallette sat with a handful of other water and sewer department employees as the votes were cast. There were heavy signs and disappointment as the talley came up against them. Wallette said he immediately texted another coworker to let him know they’d lost their jobs. …

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Bossier City Council approves outsourcing water, sewer department
Source: Victoria Shirley, KSLA, June 21, 2016

The Bossier City Council has approved to outsource the water and sewer division, cutting about 40 city employee jobs in the process. The issue passed in a 4-2 vote at the council meeting Tuesday afternoon. … In 2013, the council approved of a 41-percent sewer rate increase after a study by Manchac Consulting Group and Burns and McDonnell assured the council another hike wouldn’t be needed for another 10 years if they raised rates. But city leaders now say the enterprise fund is not paying for itself and voted for that same group, Manchac Consulting Group, to take over day-to-day operations. At the meeting, Jeffery Darby pointed out the initial study to raise sewer rates was wrong, causing them to be in this situation. … However in November of 2013, it was two consulting groups, Burns and McDonnell and Manchac Consulting, who presented the study and recommended rate increase to the city council at a Wastewater Financial Planning and Rate Design Public Workshop. … Calhoun is referring to campaign finance reports that reveal Mayor Lo Walker has received $3,500 in campaign donations plus a more than $2,000 fundraising dinner from Manchac Consulting Group and its CEO Justin Haydel. Councilman David Montgomery, Scott Irwin, and Larkin have also received campaign donations from Manchac or its CEO. …

Bossier City Council votes to outsource management of city dept., cut 40 jobs
Source: Victoria Shirley, KSLA, June 7, 2016

Dozens of Bossier City employees are on track to lose their jobs, 40 to be exact, now that the city council has taken a big step toward outsourcing their jobs. City workers packed the council meeting to protest the vote and the loss of jobs. Just 2 and a half years after a major sewer tax hike, city leaders insist they now need to make this change to save the city money. … During the meeting, several city workers told the council why they thought the public-private partnership with Manchac consulting was a bad idea. … In 2013, the council approved of a 41-percent sewer rate increase after a study by Manchac Consulting Group and Burns and McDonnell assured the council another hike wouldn’t be needed for another 10 years if they raised rates. But city leaders now say the enterprise fund is not paying for itself and voted for that same group Manchac Consulting Group to take over day-to-day operations. …

Public-private partnership in Bossier City threatens dozens of jobs
Source: Victoria Shirley, KSLA, June 6, 2016

Dozens of Bossier City employees could be fired if the city approves of public-private partnership to outsource the management of a city department.  According to City Spokesman Mark Natale, city leaders believe outsourcing the management and oversight of the water and sewer department to private company, Manchac Consulting, is in the best interest of tax payers. … According to Natale, 40 city positions would be cut if the public-private partnership is approved by the city council, but the agreement would save the city $3.5 million. … According to the Public-Private Partnership Agreement, Manchac Consulting Group would be paid a lump sum of $1,042,755 for the first year. $120,000 will be invoiced upon the execution of the agreement and $83,886.00 for the next 11 months.  The fee for the second year will be negotiated with the city 60 days prior to the end of the first year. The lump sum includes compensation for engineer’s services and services of engineer’s consultants, if any. According to the agreement, appropriate amounts have been incorporated in the lump sum to account for labor, overhead, profit, and reimbursable expenses. …

Valuation of Strategic Options in Public-Private Partnerships

Source: Gabriel J. Power, Mark Burris, Sharada Vadali, Dmitry Vedenov, Real Options, 2013

Abstract:
This paper investigates the feasibility of and develops an economic valuation model for buyout options in Comprehensive Development Agreements (CDAs). A CDA is a form of public-private partnership whereby the right to price and collect revenues from toll roads is leased to a private entity for a finite but lengthy period of time in exchange for providing local and state governments with a quick influx of cash and/or additional infrastructure. Uncertainty associated with such long-term leases is of substantial public concern. In particular, there is a sentiment that the state and/or municipal governments may not be sufficiently compensated for the forfeited development opportunities and a possibility of lost revenue due to higher-than-expected future growth during the lifetime of the lease. An under-studied aspect of the problem is the feasibility and economic value of an option for the government to buy back the leased infrastructure at a future date prior to lease expiration. Such an option would give the public sector additional control over the future use of leased facilities and address potential concerns regarding long-run uncertainty and possible unforeseen windfalls for the private sector. The buyout option valuation model developed in the paper could help transportation policymakers in decisions on leasing public infrastructure. The paper’s contributions include the analysis and feasibility assessment of buyout and revenue-sharing options, an economic consumer demand-based revenue model for purposes of simulation, and the numerical evaluation of the strategic options. The main conclusion is that buyout and revenue-sharing options tend to have a high cost relative to the value of the lease. It is therefore understandable that private sector developers are hesitant to allow such clauses to be included without significant compensation.

Read full report.

NCDOT: Ripple effect of I-77 toll-lanes bill costly, damaging

Source: Erik Spanberg, Charlotte Business Journal, June 13, 2016

Expanding Interstate 77 and canceling the private contract to build toll lanes would cost $800 million — including a $300 million cancellation fee, according to figures disclosed in a letter from the state transportation department to lawmakers. The figure, if accurate, is higher than the $650 million budget to build the 26-mile toll lanes project by private contractor I-77 Mobility Partners. Nick Tennyson, N.C. transportation secretary, sent a letter late last week to the chairs of the state Senate’s transportation committee as part of a campaign to stop a bill that would end the toll lane construction contract with I-77 Mobility Partners. The N.C. House passed the bill by a vote of 81-27 this month. That sent the measure on to the Senate, where two committees — transportation and finance — would have to approve the bill going to the floor for a final vote. … Opponents of the project argue Cintra won’t be able to complete the 50-year contract or repay all of the debt, citing similar toll-lane expansions that wound up in bankruptcy in Indiana and Texas. The state says the Cintra contract provides protection to prevent taxpayers assuming construction debt, an assertion critics say in inaccurate. In addition, opponents argue the toll lanes will do little to relieve congestion and are poorly designed. Backers point to state and regional representatives approving public-private partnerships and toll lanes as a transportation strategy for years leading up to the agreement reached between Cintra and the state in 2014. …

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House Approves Bill To Kill I-77 Tolls
Source: David Boraks, WFAE, June 2, 2016

The state House of Representatives on Thursday approved a bill calling on NCDOT to cancel the I-77 widening project north of Charlotte. The bill now goes to the Senate, where Senate leaders have said they don’t see a need to cancel the project. Gov. Pat McCrory and the DOT have said they’re committed to the $650 million contract with I-77 Mobility Partners, a subsidiary of Spain-based Cintra. The company started grading and other work last November. Bill co-sponsor Charles Jeter of Huntersville says the state has the right to cancel the contract because Cintra failed to disclose lawsuits over similar projects elsewhere.   House Bill 954 passed 81-27. It also would prohibit the state from partnering with a private company on any future toll-lane projects in Mecklenburg and Iredell counties. …

North Carolina Lawmakers Want to Ax State’s First P3
Source: Shelly Sigo, Bond Buyer, May 4, 2016

North Carolina’s first tollway pact with a private developer closed financially a year ago, yet remains so controversial that some want it terminated no matter the cost. Two state lawmakers have filed bills to end the public-private partnership with I-77 Mobility Partners, a move that a state analysis said could cost $300 million or more. North Carolina’s attorney general has opened an inquiry into the P3, whose main backer is Cintra Infraestructuras SA. … Though the deal was inked a year ago, the fate of the $648 million project to add tolled managed lanes to Interstate 77 is shaky despite studies concluding that express lanes would improve severe congestion in the fast-growing Charlotte region. … Under House Bill 950, sponsored by Rep. Tricia Cotham, D-Matthews, the state Department of Transportation would be required to terminate the P3 agreement, and pay damages or monetary penalties from unobligated funds in the agency’s budget. … HB 954, filed by Rep. Charles Jeter, R-Huntersville, also seeks to cancel the agreement. Jeter’s bill appropriates $25,000 from the highway fund to pay legal fees to determine the amount of damages, although it does not designate a funding source to pay any penalty.

NCDOT taking steps to ‘reassess’ Cintra contract after TX road bankruptcy
Source: Nick Ochsner, WSMV, March 2, 2016

The North Carolina Department of Transportation said it is reassessing its contract with the company contracted to build toll lanes along I-77 after another road the company operates declared bankruptcy. A subsidiary of Cintra, the Spanish-owned company that holds the I-77 contract, declared bankruptcy today on a road it operates in Texas. … This is the second road operated by a Cintra subsidiary to declare bankruptcy in the past 18 months. In a short press release announcing McCrory’s decision, NCDOT underscored Cintra’s business model, which lawmakers in other states have warned against. …

Public-private partnership in N.C. to add toll lanes to fastest growing area in U.S.
Source: Peter J. Gallanis, Transportation and Infrastructure Daily, July 20, 2015

I-77 Mobility Partners achieved financial closure for the construction and operations of the North Carolina I-77 Express Lanes project that represents a significant milestone in the redevelopment and expansion of a critical business corridor in the Charlotte region. The $648 million project will extend 26 miles from the I-77 connection with I-277 in Charlotte to just north of Exit 36 in Mooresville. The express lanes are dedicated travel lanes that will run adjacent to the existing general-purpose lanes on I-77. Two express lanes will run on I-77 in each direction between Charlotte and Exit 28 in Cornelius. One express lane in either direction will run from Exit 28 to Exit 36. Motorists will have a choice to use the express lanes, the general-purpose lanes or a combination of both to allow for a more efficient drive. The “pay to use” concept, and the public-private partnership being used by North Carolina for this project is becoming popular as states attempt to make up for a lack of funding from the Highway Trust Fund, due to expire at the end of July…One-hundred eighty-nine million for the project comes from a Federal Transportation Infrastructure Finance and Innovation Act (TIFIA) loan; $100 million in Private Activity Bonds (PABS); $248 million in private equity from investment partners; and $95 million in public funds from the North Carolina DOT.