Streetsblog Capitol Hill

When government types start to talk about expanding infrastructure, you’re likely to hear the phrase “public-private partnership” thrown around a lot. PPPs (or P3s, or 3Ps) are one of the “innovative financing tools” that policymakers love to hold up as a way to expedite expensive infrastructure projects that taxpayers want but aren’t willing to pay for – or that elected officials want to build but won’t take any political risks to support.

In one form of PPP, the government bundles several responsibilities — like the design, financing, construction, and maintenance of new infrastructure — into a single contract, and bids it out to a private company. Essentially, the company provides the infrastructure, and the government pays that company a service fee for each year of the contract, plus interest to repay construction costs.

When successful, a PPP lets government get more bang for its buck, but there are other kinds of PPP, too. One of those other variations, which some experts wouldn’t even consider a “true” PPP, involves taking some piece of publicly-built-and-paid-for infrastructure and leasing it out to a private company. Chicago did this with their parking system in 2008, and got burned, receiving far less from the contractor than the value of the meters would dictate. The main function of the PPP, in this case, was to “outsource to political will” to raise the price of on-street parking.

America is somewhat late to the table when it comes to PPPs, though the idea is gaining traction — and attracting criticism. While some, including President Obama, hope that PPPs are the ticket to infrastructure expansion in a public-spending-averse political climate, others see it as the kind of crony capitalism that made Solyndra a household name. Like Mitt Romney, for example (although, no surprise here, he has personally benefited from PPPs in the past).

Nevertheless, PPPs have managed to attract support from across the political spectrum. The conservative think tank The Heritage Foundation came out with a report this month that suggests:

“P3s have demonstrated the ability to raise substantial sums of money for major infrastructure projects, especially to add needed capacity in congested corridors.”

Compare that to a Brookings report [PDF] from last December:

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“That strip mall just got rezoned for high rise buildings.” “These auto dealerships are going to disappear.”

Those aren’t words you hear very often in suburbia, but if you’re hanging out in Tysons Corner, Virginia, you’d better get used to it. This office enclave, which sits dead center between Washington, DC and Dulles International Airport, is experiencing a rare and dramatic transformation – from traffic-choked “edge city” to walkable urban center.

Fifty years ago this area was dairy farms. But fueled by employment at the headquarters of several major defense contractors, Tysons is now the 12th biggest business district in the country, and the single biggest outside a major city. Even during the recession, office vacancy has stayed comparatively low at 14 percent.

Tysons is also a retail heavyweight, with the fifth biggest shopping mall in the U.S. And no wonder – it sits in Fairfax County, consistently ranked one of the wealthiest in the country.

But even with all these jobs and shopping opportunities, it lacks people. There are 105,000 jobs in Tysons but only 17,000 residents. Nobody lives there.

Almost four years ago, Time gave Tysons this back-handed compliment: “That it is also a strip-malled, traffic-clogged mess does not take away from the fact that it is one of the great economic success stories of our time.”

All of this presents a unique opportunity for planners. How do you take an existing business district — dysfunctional but also thriving in its own way — and re-fashion it into a real urban center? And how do you get community support for a project that’s going to mean decades of disruptive construction and the uprooting of much existing infrastructure?

Fairfax County planner Tracy Strunk admits that re-planning something this big is incredibly ambitious. While they looked to development along the much-lauded Rosslyn-Ballston metro corridor for inspiration, “You get a few blocks from Rosslyn station and you’re in single-family detached. This isn’t going to be single-family detached.”

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White Flint, Maryland, a suburb of Washington, DC, should be a shining example of transit-oriented development. It’s centered on a metro station on the busy red line, sandwiched between the bustling suburban downtowns of Bethesda and Rockville.

But instead, it’s “sprawling suburbia,” covered in surface parking lots and lacking a true road network. “Community members say they’re within spitting distance of White Flint Mall but they have to drive to get there because of the road network,” says developer Francine Waters, who manages the transportation and smart growth program at Lerner Enterprises.

Seeing the wasted potential of the area, Lerner and five other developers that own much of the land in White Flint came together to figure out how to make Rockville Pike, White Flint’s main artery, a destination and not just a thoroughfare. Waters told the story this week at Rail~Volution to an audience eager to learn how public-private partnerships and value capture strategies could work in their neck of the woods.

Not only are the White Flint developers looking to include more mixed-use development in the community, they want to build new local streets to fill in a viable street grid and redesign the eight-lane Rockville Pike into a “21st century boulevard” with wide sidewalks, bike lanes, six rows of trees, and dedicated transit lanes. They want to fill those lanes with bus rapid transit to take short-haul commuters off of the at-capacity red line.

The infrastructure total is estimated to cost $601 million – and the federal government isn’t picking up a dime of it.

White Flint is at the forefront of a new kind of infrastructure financing – one which involves the private sector more than the government. As federal funds dry up, all eyes have turned to public-private partnerships, but the topic is still often the subject of much head-scratching and hand-wringing in Congress. Indeed, some have rung the alarm bell about over-reliance on the private sector when it comes to building high-speed rail, saying the public often bears too much of the risk while the private developers carry off all the profit.

Through an extended series of community consultations, White Flint’s developers appear to have gained the public’s trust, and now they’re charging forward with ambitious plans to remake an auto-centric suburban sprawl zone. And by bypassing federal aid, they’re also bypassing the reams of paperwork and bureaucratic processes that come with it, which often add years and millions of dollars to total project cost.

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House Transportation Committee Chair John Mica (R-FL) is moving forward with his plan to hand over the Northeast Corridor to private companies, despite (or because of) the fact that such a move could write Amtrak’s obituary.

Is privatizing the corridor a good move? Mica and Rep. Bill Shuster (R-PA) say that with the participation of private companies, they can build “real high-speed rail on NEC – less than two hours between WDC and NYC” and they can “double total intercity rail traffic on NEC.” They claim they can do all that for far less than Amtrak’s proposed price tag of $117 billion.

Commuter Rail

But some say that’s “not a rational plan.” One Hill staffer working on transportation issues said that Mica’s idea “just doesn’t work.” After all, she says, as long as commuter rail shares the track with intercity rail, there’s no way to double intercity service and run it at 120-mph speeds while still accommodating local train service. She says unless their plan is to raise fares exponentially to gather funds to build a whole new parallel track, it’s impossible to meet Mica’s goals under the terms he’s setting.

A 2006 GAO report [PDF], foreseeing the GOP attack on Amtrak, found that an “abrupt Amtrak cessation” would be severely disruptive to transit agencies up and down the corridor. “Seven of the nine commuter rail agencies in the Northeast operate over Amtrak-owned portions of the Northeast Corridor,” the GAO found. “According to officials from these agencies, access to Amtrak’s infrastructure is essential to their services.”

Even if services kept running but the management switched to a private company, the GAO warned that the transition “would take months, not weeks” and would involve complex labor and liability issues. “So we’re just putting everyone through all this upheaval to essentially put in the exact same thing, just under a different name,” said the staffer.

All We Are Saying is Give Amtrak a Chance

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The “Tom and Rich Show” continued on Capitol Hill yesterday. Chamber of Commerce President Tom Donohue and AFL-CIO President Rich Trumka joined up for yet another event to show that business and labor, which don’t agree on anything, agree on a major infusion of federal investment for infrastructure.

They weren’t the only strange bedfellows there. Democratic Senator Barbara Boxer and Republican Congressman John Mica were practically holding hands through the entire press conference. Los Angeles Mayor Antonio Villaraigosa (a Democrat) found common cause with Mesa Mayor Scott Smith (a Republican).

“We have Democrats, Republicans, House, Senate, labor, business, lambs, lions, cats, dogs lying down together,” said Mayor Smith. “But there’s no apocalypse on the horizon. There’s a new dawn.”

In the past, even as other leaders in Boxer’s party have called for an infrastructure bank, she has hesitated to join them, expressing support for a strengthened and expanded TIFIA loan program instead. She’s said that rather than create a new federal bureaucracy, she’d rather stick with an existing program with a proven track record. But now she’s saying those approaches can each work in conjunction. “They’re definitely complementary,” she said yesterday. “I’m supporting the infrastructure bank, a strengthened TIFIA, and the Wyden approach [to renew the Build America Bonds program]. They’re all complementary. It’s all about leverage, leverage, leverage.”

Tom Donohue’s persistent, at times strident calls for strong federal infrastructure investment have been at odds with the calls from the fiscal conservatives the Chamber helped elect. While many in the House are bracing for a smaller reauthorization bill than hoped for – possibly even smaller than the last one, passed in 2005 – and calling for increased public-private partnerships to pick up the slack, Donohue knows that’s not going to cut it. He’s calling for a big bill, funded with a significant increase in the gas tax, which everyone in the transportation industry supports and everyone in Washington shuns.

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When it comes to creative transportation financing in an age of rising red ink, public-private partnerships (PPPs) are one of the most popular ideas on the table in Washington. Rail planners in Denver and Dallas are exploring the strategy to speed progress on new lines, and the White House's proposed $4 billion infrastructure fund could provide seed money for PPPs all over the country.

But at a House transport committee hearing today, both lawmakers and witnesses raised questions about the success of existing federal involvement in PPPs, suggesting that more transparency and a streamlined process could be needed before a new infrastructure fund would be created to leverage private investment in infrastructure.

Rep. Pete DeFazio (D-OR), chairman of the committee's highways and transit panel, wondered aloud whether Congress should leave aside the Obama administration's $4 billion "I-Fund" and simply expand an existing U.S. DOT program that offers loans and lines of credit for local planners to sway more private funding -- the effort known as TIFIA, or the Transportation Infrastructure Finance and Innovation Act.

"Maybe all of it should just go into TIFIA right now," DeFazio said.

Chris Bertram, chief financial officer at the U.S. DOT, defended the I-Fund plan by noting that it could provide more up-front financing than TIFIA, which is now limited to covering one-third of any transportation project's total cost. 

Yet the hearing offered several examples of scattershot progress on existing federal PPP programs, including TIFIA. Eugene Conti, North Carolina's state transportation secretary, said his state had decided to move forward on its Yadkin River Bridge replacement using federal GARVEE bonds after winning a federal stimulus TIGER grant that covered only one-thirtieth of the project's total cost.

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The House transportation committee is holding a hearing today on "innovative financing" for infrastructure projects -- a topic near and dear to lawmakers who continue to hunt for a politically feasible, sustainable strategy for funding a new six-year federal transport bill.

Meanwhile, in the Denver and Dallas metro areas, planners are edging toward public-private partnership agreements to pay for new rail lines, a prospect all but ruled out in a November analysis by the Government Accountability Office that cast significant doubt on the potential for private-sector transit funding.

Denver officials hope to accomplish the tricky feat of wooing private capital to transit by executing a deal directing sales-tax revenue to the winning bidder, which would provide immediate financing and collect operating profits. From yesterday's Dow Jones report:

Denver's transit agency hopes to skirt the dilemma by using a portion of its dedicated sales-tax revenue to essentially lease the completed rail lines, vehicles and maintenance facility from the winning investment group under a 40-year agreement, in exchange for the up-front investment and ongoing operation.

If the plan comes to fruition, the agency will maintain ownership of the project and control over fares, but provide the investors with a profitable, long-term revenue stream. ...

The arrangement, known as "availability financing," is relatively commonplace in Europe but has been used only rarely in the U.S., where privatization of public infrastructure and services in general has been much slower to catch on.

In Dallas, the local transit agency is weighing a plan to expedite construction of a new rail line with no upfront contribution from the public. The proposed link between Fort Worth and Wylie, Texas, known as the "Cotton Belt," would be paid for using "value capture" taxation methods that aim to harness the economic benefits of rail for local businesses.

But as the Dallas Morning News noted last week, the new financing pitch "would most likely include much steeper fares for the Cotton Belt [and] paid parking." From Michael Lindenberger's local report on the transit expansion:

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In a must-read piece for the Center for Public Integrity (CPI), Matt Lewis digs deeper into the network of cities and towns that employ D.C. transportation. He begins with a thought-provoking anecdote:

A ribbon-cutting in Dubuque, IA, for IBM's new tech center. (Photo: Gazette)

Last September, city fathers in Dubuque, Iowa, lured three members of the White House cabinet to the banks of the Mississippi River on the same day they welcomed officials from one the world’s biggest corporations, IBM. ...

Meanwhile, Dubuque’s private sector guest, IBM, was over at the convention center announcing plans to make the city a living laboratory for its Smarter Planet program. Up to 1,300 new IBM employees will begin fielding tech service calls later this year at the Roshek building, and the company hopes those workers will also be able to enjoy the fruits of a sweeping partnership between IBM and its host city — a partnership aimed at creating an integrated transportation system involving smart new bus routes, pedestrian-friendly streets, and arterial roads to take trucks out of neighborhoods.

It sounds positively idyllic, but there is, of course, a catch.

That catch was a $50 million federal investment -- and though it would be technically correct to say Dubuque was seeking a handout from Washington, it's in good company. More than 650 localities have lobbyists chasing federal transportation funding on their behalf, according to the CPI.

So perhaps Dubuque's quest is simply part of the un-grand scheme by which transportation money flows to states and metro areas. But with the city offering a reported $22 million in incentives to attract a deal with IBM, which has already started work on its new tech service center, is the federal government the right partner for the project?

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As the federal deficit squeezes the Obama administration's options for financing ambitious new infrastructure projects, public-private partnerships (PPPs) are gaining currency as a possible solution. And in an illustration of PPPs' potential, the $86 billion private-equity firm Carlyle Group yesterday struck a deal with the state of Connecticut to run ... 23 highway rest stops.

The $178 million Connecticut deal is the first PPP in the three years since Carlyle began raising money for its $1.15 billion infrastructure group, according to the Washington Post:

[T]he agreement ... will include putting Subway restaurants as well as Dunkin' Donuts locations in the centers, according to a Carlyle spokesman. Dunkin' Donuts is owned by Carlyle.

Meanwhile, the same Connecticut governor who called Carlyle's donut investment "an unprecedented commitment to ... meeting the needs of the traveling public" recently vetoed legislation that would have eliminated the need for significant transit fare hikes.

Is this what President Obama meant when he called for "more creative, new approaches" to fixing "infrastructure that is falling apart"? Let's hope not.

Given that government audits have found existing federal transit regulations riddled with obstacles to attracting successful PPPs, perhaps it's not surprising that Carlyle chose to go the donuts route rather than collaborating on Connecticut transit-oriented development projects in the vein of the New York MTA's Beacon Station revitalization.

But that's no reason for Carlyle to take a victory lap while plans for a National Infrastructure Bank (NIB) remain frustratingly unclear. If the administration follows through on its NIB plans, information-sharing and incentives will be needed to prod private capital into genuinely beneficial projects rather than new fast food joints.

For a taste of how groundbreaking federal infrastructure PPPs could happen on the local level, this presentation [PDF] by the deputy general manager of the Boston area's Massachusetts Bay Transportation Authority is a good place to start.

Virginia Railway Express (VRE), the commuter network that links northwest Virginia to Washington D.C., today refused a challenge by Amtrak to its decision to switch operating providers to the U.S. arm of Keolis, a private French transit company.

Although Amtrak based its challenge on Keolis' inexperience operating American rail lines, the latter company maintains a sizable transit presence as a subsidiary of SNCF, the French national high-speed railway.

Moreover, Keolis submitted a notably lower bid to take over VRE operations, undercutting Amtrak by $500,000 on first-year transition costs and $300,000 in annual operating costs. The French-owned company's winning bid totaled $85 million for five years, offering VRE workers the option of shifting to another Amtrak line or staying on under the new management.

Looking beyond the local implications of VRE's switch to Keolis, the new contract is part of a larger trend toward transit privatization that has seen recent deals struck in New Orleans, Savannah, and Phoenix. The Obama administration is encouraging greater use of public-private partnerships to help fund and operate transport networks, making these agreements something of a portent.

But substantial hurdles remain to the effective participation of private companies in the business of transit. Independent auditors at the Government Accountability Office submitted a report [PDF] to Congress last week after taking a yearlong look at how the federal transit funding process affects the ability of local officials to join forces with the private sector.

And what the GAO found was a whole lot of hurdles, many of them unique to the cumbersome rules of Washington's New Starts transit program. From the report (emphasis mine):

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