The 'P3' dilemma: Bridge initiative promises savings and efficiency
August 12, 2014 12:25 AM
View of the Sixth Street Bridge looking toward the North Side and PNC Park .
By Len Boselovic / Pittsburgh Post-Gazette
The third of a four-part series.
Pennsylvania has ambitious plans to use a public-private partnership to erase its dubious distinction of having more structurally deficient bridges than any other state in the nation.
Before the end of the year, state Department of Transportation officials are expected to select from one of four interested consortiums to design, build and finance about 600 of the nearly 4,200 state-owned bridges in dire need of replacement.
More than 100 bridges in Allegheny County and the rest of Western Pennsylvania are being considered for the project. Construction of 50 to 100 of the bridges is slated to begin next year. At the end of the contract, which is expected to last 25 to 35 years, the private investors will turn over the bridges to PennDOT. The investors will be penalized if the bridges aren’t in good condition.
Pennsylvania will pay the winning bidder a yet-to-be determined amount based on how fast the bridges are replaced and how well they perform. Funding will come from current and future PennDOT budgets. State officials expect that over the 25- to 35-year life of the project, annual costs will not exceed $100 million, or 5 percent of the $2 billion the state spends each year on road and bridge projects.
Savings are anticipated because the bridges are small and can share common design features. That will allow the winning bidder to streamline design, mass produce beams and other components, and build the bridges faster. PennDOT estimates the work would take 15 to 20 years to complete if done conventionally. Moreover, since payments to the private investors will depend on how well the bridges perform, the winning bidder will invest more upfront to design and build them to last longer, something governments typically cannot do because of chronic funding shortages.
“This project is a prime example of how investment in the public sector empowers stronger partnerships with the private sector, leading to increased safety, good-paying jobs, and better services for all Pennsylvanians,” PennDOT secretary Barry Schoch promised in December.
Pennsylvania‘s rapid bridge replacement project was made possible by 2012 legislation that authorized PennDOT, other state agencies and municipal authorities to use public-private partnerships, or P3s, for transportation projects.
More than 30 other states have adopted similar legislation. States like Indiana, Virginia and Texas are leading the way.
Many P3s are not living up to the expectations of investors, the governments that sponsored them, and the public. Additionally, there are concerns lawmakers and the public are not getting enough information about the terms of the contracts.
But the 2012 legislation marked a step forward in a state that has been reluctant to embrace public-private partnerships. Pennsylvania rejected former Gov. Ed Rendell’s plan to turn over the state turnpike to private investors for 75 years in return for an upfront payment of $12.8 billion. Last year, Gov. Tom Corbett’s idea of handing over the state lottery to a private operator under a $34 billion, 20-year proposal was turned down.
P3 pick up
PennDOT is taking on several other P3s, including turning over its 511 traffic and travel information program to Information Logistics, a Pennsauken, N.J., company that provides similar services in West Virginia and New Jersey.
PennDOT believes turning over the system to the company will give motorists with mobile phones access to technology sooner than if the state had developed the system on its own. The contract, awarded in 2013, was expected to save PennDOT $1.2 million in its first year over the previous system. After that, savings were forecast to increase to $1.5 million annually, the state department said.
Other governments across Pennsylvania are embracing privatization.
Harrisburg’s Capital Area Transit wants to use a P3 to replace a repair shop built in 1904 with a modern maintenance facility that would include a PennDOT service center where truck drivers will obtain licenses and renew vehicle registrations.
In March, Philadelphia Mayor Michael Nutter announced plans to sell Philadelphia Gas Works, a natural gas provider the city has owned for 176 years, for $1.86 billion to UIL Holdings, a New Haven, Conn., utility. City officials expect to contribute $424 million to $631 million of the proceeds into Philadelphia‘s underfunded pension plan.
Recently enacted federal legislation gives the U.S. Army Corps of Engineers authority to experiment with using P3s for water infrastructure. That’s good news for groups frustrated by the Corps’ reluctance to consider their offer to privately finance the operation of federally owned locks and dams on the upper Allegheny and Monongahela rivers. Government funding shortfalls have forced the Corps to close the facilities most of the time.
“This is 2014 and if we want it done, we have to be responsible for getting it done,” said Linda Hemmes, president of the Allegheny River Development Corp.
The nonprofit is offering $150,000 to fund operations at four Allegheny River locks in Armstrong County over a period of about six months, primarily on summer weekends and Memorial Day, the Fourth of July and Labor Day. It is supported by builders and developers who saw land values fall when the locks were closed. Businesses that rely on recreational boaters also are backing the effort.
On the Mon, the Upper Mon River Association wants to use $40,000 in private money to fund operating Corps locks in Morgantown and Fairmont for 28 days.
The Port of Pittsburgh Commission is pursuing a P3 that would bring broadband communications to the region’s river industry. The project would allow barge operators, water and sewer authorities, environmental monitoring groups and others to exchange data wirelessly — something they currently cannot do.
Local governments, school districts and municipal authorities would be authorized to use P3s for water and sewer projects, school buildings and other government facilities under legislation proposed by Rep. Eli Evankovich, R-Murrysville,
Bridging funding gap
The state’s P3 bridge initiative is patterned after a $685 million project in Missouri that repaired or replaced 802 bridges in 3 1/2 years. State officials expected the work to take more than five years. More than 550 of the bridges were placed under a single contract that used primarily Missouri contractors. During construction, contractors were allowed to close roads rather than realigning them to allow traffic to continue to cross while the work was being done.
“It made the workplace safe for them and it also allowed them to work faster,” Missouri DOT spokesman Bob Brendel said.
Unlike Pennsylvania, where private operators could be responsible for the bridges for three decades or longer, Missouri took over its bridges once they were completed.
Four investor groups are under consideration for Pennsylvania’s bridge project. Each venture’s partners include companies with P3 experience in other states: Plenary Group, an Australian company awarded a 50-year concession to build and operate a toll road between Denver and Boulder; Fluor, an Irving, Texas, engineering and construction firm that invested in two express toll lane projects in the Virginia suburbs of Washington, D.C.; and Meridiam, a French infrastructure developer that built and is operating a court house in Long Beach, Calif. under a $495 million, 35-year P3 agreement.
Yassmin Gramian, an executive with transportation infrastructure firm HNTB, said standardizing the design and streamlining construction methods means the Pennsylvania bridges will be built twice as fast as they would if the contract was done conventionally.
The winning bidder will be motivated to work fast and efficiently because they will get paid as the bridges are completed, she said. Moreover, since the winning bidder’s pay will be based in part on on how well bridges perform over decades, the contractor won’t build cheap bridges that will be more expensive to maintain down the road, Ms. Gramian said.
Leonard Gilroy of the Reason Foundation, a libertarian group that supports P3s, said putting the private sector on the hook for making sure the bridges are well constructed means “they will be thinking of the end game from the beginning ... which is something governments don’t do.”
If Pennsylvania’s bridge project works, ”that would be a huge demonstration of the viability of this idea,” Mr. Gilroy said.
Plenty of people believe giving the private sector more performance-based incentives will produce more efficiency and savings.
“We’re going to save taxpayers a lot of money when we get the private sector involved in doing projects, maintaining projects,” U.S. Rep. Lou Barletta, R-Hazleton, said at a recent House Transportation Committee hearing.
Pennsylvania’s P3 law
About 30 states adopted P3 legislation before Pennsylvania did, giving state lawmakers here a chance to benefit from their experience. The bridge project will be the first test of the 2-year-old law, which set up a Public Private Transportation Partnership Board to oversee the projects.
The panel includes the secretaries of transportation and the budget, someone appointed by the governor, and four members selected by the state Legislature. PennDOT’s P3 office is headed by Bryan Kendro, who managed the 2010 congressional campaign of U.S. Rep. Pat Meehan, R-Delaware, and was a former aide to U.S. Rep. Jim Gerlach, R-Chester.
The law gives the board the authority to review and approve P3 proposals before they are put out to bid. For projects involving state-owned transportation facilities, the state Legislature has either nine working days or 20 calendar days to veto the proposal.
The law also specifies that partnerships can last as long as 99 years and gives investors an opportunity twice a year to submit unsolicited proposals for projects. Critics say unsolicited proposals can result in projects that make more sense to investors taking precedence over work that better suits the public interest.
Pennsylvania’s law is very well thought out, according to Steve Park, an attorney for Ballard Spahr in Philadelphia. The law firm advised Philadelphia on the sale of its gas utility.
“It allows for flexibility for PennDOT, but there’s also a good measure of safeguarding to protect the public interest,” Mr. Park said.
Former Pennsylvania Turnpike Commissioner and attorney Tim Carson had a hand in the initial drafting of the legislation, which he said took five or six years. Mr. Carson, who now works for Dilworth Paxson and advises government clients on public finance issues, said the law is good and gives the state one more tool to address its infrastructure needs.
However, it’s a tool that needs to be used wisely, he cautions. P3s do not make sense for every type of project and telling a good P3 from a bad one “is a bit of an art form,” Mr. Carson said.
“They are not a panacea,” he said. “I’m firmly of the belief that there are good ones and bad ones. Each deal has to be looked at.”
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