NEW YORK. SAM REPORT PROPOSING P3s IN INFRASTRUCTURE

This week a report was released by the New York Commission on State Asset Maximization. You can download the full report here. This Commission was designed by New York´s Governor Paterson to explore innovative financing mechanisms for infrastructure developments. In other words, New York is affected by a critical budget shortfall and the state also has to face growing and growing infrastructure investment needs, so basically they need the private sector to inject money into state assets through "Public private partnerships" (P3s). And this Commision is in charged of detecting suitable candidates for these P3s structures.

I went through this report and I want to share with you some useul information included in it. I am going to focus on Pilot projects and recommended Guidelines for P3s processes.

Recommendation 1. Establish a State Asset Maximization Board to provide a sustainable oversight process for asset maximization initiatives.
Two good examples from Canada are explained that could be used as a "model":
1. Infrastructure Ontario, a corporation of the Ontario government, was established in 2006 to deliver public infrastructure improvements through public‐private partnerships. Infrastructure Ontario uses a PPP project delivery model called Alternative Financing and Procurement (AFP) to strategically involve the private sector in infrastructure projects that yield the best value for money while maintaining appropriate public control.

2. Partnerships British Columbia (BC) is another example of a government‐owned agency with a strong mandate to promote, enable, and implement public‐private partnerships. The company develops standardized transaction documents and processes, thus reducing transaction costs and duration for the benefit of both the public and private sectors. The company also serves as the entry point for the private sector to bring forward ideas and solutions. To date, British Columbia has undertaken the largest number of completed and ongoing infrastructure PPPs of any single jurisdiction in North America.

And then the report sets some possible transortation pilot projects that I present here:
Recommendation 2. Implement a bridge improvement program to replace, rehabilitate and maintain New York’s bridges through a public‐private partnership. These recommendation includes three different programs:

1. Short‐Span Bridge Replacement Program.

Consisting of a bridge replacement program that could restore the superstructures or fully replace approximately 290 State and local short‐span deficient bridges, and potentially provide routine maintenance for a 25‐year period. This would be based on availability payments.
Estimated Project Cost: $275 million. The state of Missouri already developed a similar project.

2. Kosciuszko Bridge.
In 2008, NYSDOT published a Final Environmental Impact Statement (FEIS) identifying a
bridge replacement alternative as the project’s preferred approach. In March 2009, FHWA
issued a Record of Decision for the preferred alternative (BR‐5). While construction is scheduled to begin on this project in 2013 and the project completion scheduled for 2018, availability payments or user demand payments could accelerate the project. Estimated Project Cost: $1.4 billion.

3. Robert Moses Causeway Bridge over Fire Island Inlet.
The 4,100 foot‐long Robert Moses Causeway Bridge over Fire Island Inlet is the fourth largest bridge on Long Island. Built in 1962, the bridge requires major rehabilitation and perhaps a full replacement. The bridge is on the National Highway System (NHS), and currently has a deficient condition rating. Estimated Project Cost: $100 to $250 million.

Recommendation 3. Establish a public‐private partnership for construction of the Buffalo Harbor Bridge.

Recommendation 4. Create a partnership between the New York State Department of Transportation (NYSDOT), private railroad companies, and investors to advance the development of high‐speed rail passenger service on up to three designated corridors within New York.

This is crucial for the state. The Federal stimulus legislation provided $8 billion to help launch a national high‐speed rail system that may be used in combination with private investment.
The 439‐mile Empire Corridor, from New York City through Albany to Buffalo is one of the ten designated corridors disputing to get funding. But not advanced work has been made in order to get a big chunk of these funds, California clearly leads the race as it has already developed EISs and design projects are being carried out.

Recommendation 5. Partner with a private sector entity for the maintenance, repair, and operation of the Gowanus Expressway (I‐278).

Approximately $70 million is spent each year to not only operate, inspect, and repair the
expressway, but also to cover the cost of developing a long‐term solution for its condition.
A potential significant savings to the State could be realized by contracting with one company to operate and maintain this facility and to develop a long‐term plan. The savings would be generated by consolidation of existing contracts and by assigning management responsibility to a single company.

Recommendation 6. Encourage the use of public‐private partnerships by the Metropolitan Transit Authority (MTA) for Transit‐Oriented Development.
Transit‐ Oriented Development (TOD) projects, in which communities cluster commercial and residential development around rapid transit (often urban and commuter rail), offer an underappreciated frontier for partnering with the private sector. Specifically, the State should encourage the use of TOD projects through the MTA that utilize both public and private financing.
The Tappan Zee Bridge / I‐287 Corridor Project (TZ Project)
The Tappan Zee, which spans the Hudson River between Westchester and Rockland Counties, has been open since 1955 and has reached a point of deterioration that demands either full repair or replacement. The Tappan Zee Bridge/I‐287 Corridor Project (a joint effort of the NYSDOT, the NYS Thruway Authority and the Metro‐North Railroad), is a plan to replace the three‐mile‐long bridge and add new transit systems in the thirty‐mile transportation corridor between Port Chester in Westchester County, and Suffern in Orange County. The total cost of the TZ Project is estimated at $16 billion in 2012 dollars. The Commission endorses the TZ Project team’s commitment to working with national and worldwide experts in the area of financing and delivering transportation mega‐projects, with the involvement of the public, to create the smartest, most efficient solution to the monumental task ahead.

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It is interesting to comment on the topic of funding, and for that I want to show you Peter Samuel´s comment on Len Gilroy´s article about this report. (Peter Samuel is the editor of the website "The Toll road News")Peter Samuel June 4, 2009, 6:41pm #

I have to disagree with Len Gilroy's positive read on the New York SAM report.
It proposes a bunch of availability-P3s in which the state will have investor groups raise capital for construction and operations on the basis of fixed payments year by year for assuring the availability the roads and bridges to be built. The report hardly touches on the key issue of funding. Nowhere for example does it suggest the bridges should be toll bridges. It just assumes that somehow the state will in future years come up with funds for the annual availability payments.Free marketeers surely want to see P3s in which it is clearly established that the user pays - through tolls, fares or other fees for use of the facility. They would like to see risk and reward transferred to the private sector. Neither of these two conditions is laid down in the SAM report.Availability payments funded by general taxes are no improvement on the present political boondoggles of tax-and-grant funding. Indeed they are worse.
They are a contrivance for drastically increasing public debt while throwing up a smokescreen of pseudo-privatization.

I agree with him in that the report hardly touches on the key issue of funding but I don´t in his opinion on the availability mechanism. This mechanism is not a very innovative one but it helps administrations to finance big projects. Actually developers and banks feel confident with it as it eliminates the traffic risk from the contract. My favourite type of contract is a mixed one, combining user demand fees (user tolls, shadow tolls don´t transfer the traffic risk to the Administration and funding comes from citizen taxes) and perfomance payments. I assume that if an administration has budget problems it wants to use citizen taxes for other purposes.Actually the funding depend on the projects. For instance, new bridges are good projects to be tolled as alternatives are problematic. Maintenance and Operation contracts are better for performance based mechanisms....Well, that is another big topic to be discussed more in deep later.

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