1. Introduction to Public-Private Partnerships (P3)
Orlando, FL
May 16, 2013

2. Introduction to Public Private Partnerships (P3)
What We’ll Cover
Introduction to Public Private Partnerships (P3)
The state of Infrastructure
What P3 is (and isn’t)
What makes P3 different in the US than in the UK or Canada?
What is needed for a successful P3 project?
How is P3 valued?
Dispelling the myths of P3

3. State of our Infrastructure and its Economic Impact
The ASCE’s “Failure to Act” (December 2012) paper states investment of $2.7 trillion is needed by 2020; likely funding available, $1.6 trillion.
The Congressional Budget Office says combined federal, state and local spending for roads and bridges now amounts to only $160 billion.
The investment gap between now and 2020 is $39 billion in airports, $16 billion in seaports and waterways, $846 billion in surface transportation, $107 billion in electricity, and $84 billion in drinking water and wastewater.
“Job losses will mount annually, and by 2020 it is predicted that there will be 3.5 million fewer jobs throughout the country,” the paper said.
“The expected impact for every household in the U.S. will be an average loss of more than $3,000 per year through 2020 in disposable personal income . . . due to job cutbacks and declining business productivity.”

4. Infrastructure Deficits by Sector
Texas
Florida
North Carolina
Roads D C D-
Bridges B- B C-
Rail Transit C+
Aviation D+
Schools
Drinking Water
Waste Water
Levees/Flood
Solid Waste B+
n/a
Ports
Energy

5. Population Growth Drives Demand
0% to -0.1%
0.1% to 0.5%%
0.6% to 1.0%
>1%
1.1%
0.8%
0.7%
0.0%
0.8%
2.2%
0.6%
NH 0.2%
0.1%
0.3%
0.4% VT
-0.1%
1.2%
1.6%
0.9%
1.4%
0.2%
1.5%
0.7%
0.3%
MA 0.6%
0.1%
0.0%
0.3%
1.4%
0.0%
0.2%
1.0%
CT 0.1%
RI 0.0%
0.5%
0.3%
1.3%
1.0%
0.3%
0.9%
DE 1.0%
NJ 0.3%
0.8%
1.7%
0.4%
1.1%
1.1%
0.3%
0.4% MD
0.8%
DC 2.1%
0.6%
1.0%
1.2%
HI 1.0%
Source: U.S. Census Bureau

6. What states have P3 Legislation?

7. P3 Projects Around the Country
UCF Convocation Center
Dallas Omni Convention Center Hotel
Washington State Dept. of Information
FAU Innovation Village

8. What is P3?
Definition: A contractual agreement between a public agency and a private entity under which skills, assets, risks, and rewards are shared in the delivery of a service or facility.
NCPPP identifies 18 different legal and financial P3 structures ( based on who owns, finances, designs, builds, operates, or maintains the project.

9. What P3 is NOT?
TANSTAAFL
Equity or debt require a return on capital and of capital
Identify revenue streams
Target alternative funding sources
Explore level of public support

10. “One size does not fit all”
What P3 is NOT?
“One size does not fit all”
Key to Success
Creating a P3 structure that meets the specific financial, legal, and political constraints of the client

11. What makes US P3 models different?
There is no “one” P3 Model or Template to Follow
The US has an estimated 70,000 public entities
Municipalities, school districts, universities, community colleges, courts, public agencies, and authorities
Local statutes, financial constraints, politics
Wide range of projects
Income and non-income producing assets
Horizontal and vertical construction
No uniform P3 contracts
The exception: Military Housing
One client, the DOD
One contract form
Replicable over many projects (50 bases in 26 states)

12. What makes US P3 models different?
Taxable vs. Tax-Exempt
IRC 103(a) - statutory provision excludes earned interest on municipal bonds from federal income tax
IRC 501(c)3 - organized and operated exclusively for exempt purposes and none of its earnings may inure to any private shareholder or individual
63-20 Corporations - power to issue municipal bonds, treated as debt obligations funded on behalf of, but not an obligation of a political entity
Public use and public ownership requirement

13. What makes US P3 models different?
Taxable vs. Tax-Exempt
Tax-exempt status can provide municipalities, public agencies, and not-for-profit institutions a 35% to 40% reduction in cost of occupancy
P3 – Private Equity Model
P3 – Public/Tax-Exempt Model
Developer
Private Ownership and Developer’s Equity at Risk
Fee-Developer, Limited Risk
Use
Public or Private
Public Only
Taxable vs. Tax-Exempt Debt
Taxable Only
Taxable or Tax-Exempt
Financing Structure
Conventional Bank Debt
Construction Loan
Mezzanine/Permanent Debt
Owner’s Equity
Typically 10 year refinance
Municipal Bond Market
Single Financing
Flexible Payment Structures
Up to 40-year term
Higher fixed-costs

14. Case Study - Dallas Omni Hotel
1,001-room city-owned hotel provided necessary economic boost for under- performing 2.1 million SF convention center
Financed by $480 million taxable hotel revenue bonds under the American Reinvestment and Recovery Act’s Build America Bonds saving the City over $3 million per year over 30 years
Team included Matthews Southwest as developer, Balfour Beatty as design-builder, First Southwest as financial advisor, and Omni Hotels as operator
Project delivered 3 months ahead of schedule, substantially under budget, and performing above pro-forma

15. What can P3 do for Public Entities?
Closing Funding &
Timing Gaps
Identify new revenue streams
Housing, Parking, Retail
Mixed Use, Economic Development
Create new tax or fee revenue
Hotel/Motel and Rental Car Tax
User fees and surcharges
TIF Districts
Access alternative funding sources
Government grants
EB5, New Markets Tax Credits
Monetize under-utilized assets
Sale or Lease
Operational savings can increase financing capacity
Not subject to voter referendums or capital budget allocations

16. Case Study - Florida Atlantic University
1,216-bed apartment style on-campus student housing village by BB Capital Group
FAU established a Direct Support Organization (DSO) to be the nominal owner of the facility authorized to issue tax-exempt debt
Waterfall: cash flow from existing student housing flows to new housing enhancing debt, then from new housing to FAU for any purpose
Strong revenue projections allowed FAU to clear $12 million from the housing bond sale to support other on campus infrastructure.
BB Capital invests through a junior debt piece of $3.4 million

17. What can P3 do for Public Entities?
Transfer risk to the party best able to control it
Design risk
Construction risk
Schedule risk
Operating risk
Revenue risk
Financing & interest rate risk
Political risk
Takes advantage of private sector efficiencies and innovations in construction, scheduling, and financing
Provides efficiencies in long-term operations and maintenance (“life-cycle”)
Presents opportunity to combine public and private uses in mixed-use developments to leverage economic development
Risk
Transfer

18. How is a P3 Proposal Valued?
How do we know if a P3 is the best approach?
Public Sector Comparator (PSC)
The “benchmark” of standard public procurement
Costs of procurement and long-term operations
Value for Money (VfM)
Discount rate, “Time Value of Money” includes inflation, interest rates, and risk
What is the value to the public-sector of each risk is transferred?
Design and construction costs
Private sector procurement costs
Value of alternative financing
Value full life-cycle costs (O&M)
“Up to 60% of P3 savings may come from risk transfer”

19. How is a P3 Proposal Valued
Value for Money (VfM)

20. What are the keys to success?
What is needed for a successful PPP
An essential facility needed today
A political champion, leader
Statutory environment (competitive procurement process, transparency, etc.)
Detailed contract (business plan with clear VfM)
Existing or proposed revenue streams
New tax, user fee revenue, or grants
Lease agreement
New revenue through economic development
Stakeholder support
Selection of “best value” partner and team

21. Case Study - WA Dept. of Information
Delivered through a Corp for the State of Washington
Lease/Leaseback 35-year term
Allowed state to avoid substantial front- end costs
Mission Critical facility
LEED® Platinum, 480,000 SF, 6-story building
$225 million total development budget
Developer Wright Runstad provided a maximum lease price for the state
First new building on state campus in over 2 decades

22. Frequently Asked Questions
“I can borrow at lower rates than you can.”
General obligation debt (G.O.), tax-exempt financing vs. conventional private debt and equity
Small premium for accelerating delivery, reducing construction cost, and lowering interest rate risk
“I will lose control of the project.”
P3 is collaborative, transparent, and “open book”
“Off-balance sheet is not off-credit.”
Not considered “debt,” but a moral obligation
“Private partners make excessive returns”
Transparent, “open book” process
Transfer of risk to the party best able to manage it
Revenue sharing provisions
Contract rebalancing provisions
Alignment of interests
Dispelling
the Myths

23. When should P3 be considered?
As Early as
Possible
The P3 process begins with the “need” and the “concept”
Identify and quantify the funding gap
Explore solutions to bridge the gap
The public sector may not be aware of all available funding and delivery options
Staff may not have the expertise to deliver a “once in a generation” facility
Could overlook a more efficient financial, scheduling, and operational solution

24. What are Potential P3 Projects?
Education
K-12 – schools, administration, sports
Higher Education - administration, athletics, student unions, housing, healthcare, parking, laboratories, and multi-use economic development
Healthcare (Public and Non-Profit)
Ambulatory care clinics
Housing, MOB for staff physicians
Parking, central plants
Multi-use economic development
Justice
Jails, detention centers
Courthouses
Energy Retrofit
Financed through savings
Lighting, HVAC, building envelope, water, renewable energy, “net-zero”
Municipal
Civic centers, city hall, administration
Libraries, parking
Police, fire, health, and public safety
Mission Critical facilities
Public Assembly
Convention and conference centers
Performing arts
Arenas and stadiums
Headquarter hotels

25. So What? P3 and the Delivery of your Essential Facilities
Close a Funding Gap
Close a Timing Gap
Transfer Risk
Provide for Future Life-Cycle Costs
“You can’t solve a facilities problem with just a construction solution”

26. How to Increase Infrastructure Investment?
Remove legislative impediments to P3 and other forms of alternative delivery that will provide greater speed to market and greater risk transfer
Assemble top-flight P3 government advisory resources from the private sector (e.g., Partnerships BC, Infrastructure Ontario)
Prioritize projects that have the best P3 potential and issue RFP’s with people authorized to drive the procurement
Require demonstration that P3 has been explored before traditional appropriation or bond financing is requested
Create/fund infrastructure banks to backstop critical projects
Increase federal loan/backstop programs and modify them to include P3 (i.e., MAP-21)

27. Q & A