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Non-Traditional Approaches for Solving Budgetary Pressure

Non-Traditional Approaches for Solving Budgetary Pressure. The National Association of State Auditors, Comptrollers and Treasurers Annual Conference. August 2011. Joe Seliga Partner 312.701.8818 jseliga@mayerbrown.com. Public-Private Partnerships for Infrastructure Projects.

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Non-Traditional Approaches for Solving Budgetary Pressure

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  1. Non-Traditional Approaches for Solving Budgetary Pressure The National Association of State Auditors, Comptrollers and Treasurers Annual Conference August 2011 Joe Seliga Partner 312.701.8818 jseliga@mayerbrown.com

  2. Public-Private Partnerships for Infrastructure Projects • Public-private partnerships are being used increasingly by state and local governmental entities for large infrastructure projects. • “Greenfield” projects involve the construction of new infrastructure assets. • Existing asset projects involve the long-term operation and maintenance of existing infrastructure assets.

  3. Greenfield Public-Private Partnerships • Greenfield infrastructure public-private partnerships have been used for the construction of toll road, highway, bridge, tunnel, mass transit and social infrastructure (e.g., courthouse) projects: • Florida Port of Miami Tunnel and I-595 • Virginia Capital Beltway • Texas North Tarrant Expressway and SH 130 • California Presidio Parkway • Denver FasTracks Eagle P3 • Long Beach Courthouse

  4. Greenfield Public-Private Partnerships • Greenfield public-private partnerships take one of two general forms: • Revenue Projects • Private partner takes on revenue risk. • Private partner constructs, operates and maintains the project and obtains revenue from the project up to certain permitted rate of return. • Availability Payment Projects • Public partner retains revenue risk. • Private partner receives payments from the public partner for construction, operation and maintenance to the extent the project is “available” in accordance with terms of contract.

  5. Existing Asset Public-Private Partnerships • Existing asset infrastructure public-private partnerships have been used for the long-term operation and maintenance of toll roads, toll bridges, airports, public parking and maritime ports: • Toll Roads and Toll Bridges: Chicago Skyway; Indiana Toll Road; Northwest Parkway (Colorado); Puerto Rico PR-22/PR-5 Toll Roads • Airports: Chicago Midway International Airport; San Juan Luis MuñozMarín International Airport • Public Parking: Chicago Underground Parking System; Chicago Metered Parking System; Indianapolis Public Parking System • Maritime Ports: Port of Oakland Outer Harbor Terminal; Port of Baltimore Seagirt Terminal; Port of Portland Terminal 6

  6. Existing Asset Public-Private Partnerships • Public partner receives upfront payment and/or ongoing payment and/or revenue share. • Private partner takes on: • Operations risk • Maintenance risk • Construction risk • Revenue risk subject to terms of project agreement that impose legal and regulatory requirements on private partner’s operation of asset.

  7. Existing Asset Public-Private Partnerships • Existing asset PPPs can be used to relieve budgetary pressures. • Should NOT be used to relieve immediate operating budget pressures • Should be used for long-term investment, including to: • Pay off existing debt (e.g., Puerto Rico toll roads and airport) • Create reserve fund (e.g., City of Chicago used $500 million of Chicago Skyway proceeds to create reserve fund that resulted in increase in City’s bond ratings) • Reinvest in infrastructure (e.g., Indiana Toll Road proceeds of $3.8 billion used for State’s 10-year transportation plan; $140 million Seagirt terminal capital reinvestment payment used for other infrastructure in Maryland) • Fund pensions (e.g., Illinois legislation related to Midway Airport transaction requires 90% of proceeds to be used for infrastructure or pensions)

  8. Existing Asset Public-Private Partnerships • Benefits of Existing Asset Public-Private Partnerships • Shift of long-term operation and maintenance to private partner • Efficiencies of private sector operation • Encourages private sector innovation • Future construction to be undertaken by private sector • Shifts revenue (and financing) risk to private sector • Upfront and/or ongoing revenue to public partner • Private partner subject to government regulation under terms of contract (i.e., not a sale, but regulated long-term operation of asset)

  9. Existing Asset Public-Private Partnerships • Policy Issues to be Addressed: • Legal authorization for project • Transparent process for selection of private partner • Incorporating public protections in project contract • Detailed operating standards • Balancing revenue maximization and protection of public interest • Ensuring proper use of project proceeds

  10. Thank You Joe Seliga Mayer Brown LLP 71 South Wacker Drive Chicago, Illinois 60606 312.701.8818 jseliga@mayerbrown.com www.mayerbrown.com

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