Ben Brubeck Director of Labor and Federal Procurement Associated Builders and Contractors (ABC) brubeck@abc.org

NCPPP’s P3 Connect Conference Denver, July 29, 2014 The Tortoise and the Hare? Federal and State P3 Legislation and Policy Developments Overview of Presentation: Federal Policy Update (Legislative and Executive Branch) Barriers to P3 Growth in Federal Market Legislation/Concepts to Watch in 2015 State P3 Policy Current State of Play Legislatively What happened in 2014 What to watch for in 2015 Does the Tortoise and the Hare narrative work here? NCPPP’s P3 Connect Conference Denver, July 29, 2014

Federal P3s: The Tortoise? Slow Progress is Still Progress

House Transportation & Infrastructure Committee Special Panel on P3s Chaired by U.S. Rep. John J. Duncan, Jr. (R-TN). U.S. Rep. Michael Capuano (D-MA) serves as the ranking member. Special panel has held nine roundtables in 2014. What’s the end game? Roundtable Policy Discussion on Public Private Partnerships for America’s Waterways and Ports, 7/10/14: http://transportation.house.gov/calendar/eventsingle.aspx?EventID=386880 Roundtable Policy Discussion on Ways the Financial Community Can Invest in Infrastructure Using Public-Private Partnerships, 6/16/14: http://transportation.house.gov/calendar/eventsingle.aspx?EventID=384126 Roundtable Policy Discussion on Innovative Approaches to Delivering Public Buildings, 6/10/14: http://transportation.house.gov/calendar/eventsingle.aspx?EventID=383496 Roundtable Policy Discussion on Opportunities for Aviation and Public Private Partnerships, 5/20/14: http://transportation.house.gov/calendar/eventsingle.aspx?EventID=379986 Roundtable Policy Discussion on The State Experience with Public-Private Partnerships, 4/30/14: http://transportation.house.gov/calendar/eventsingle.aspx?EventID=377504 The International Experience with Public Private Partnerships, 4/8/14: http://transportation.house.gov/uploadedfiles/2014-04-08-p3_panel_ssm.pdf Overview of Public-Private Partnerships for Water Supply and Treatment, 3/25/14: http://transportation.house.gov/calendar/eventsingle.aspx?EventID=373518 Overview of Public-Private Partnerships for Highway and Transit Projects, 3/5/14: http://transportation.house.gov/calendar/eventsingle.aspx?EventID=370773 Roundtable on Case Studies in Public-Private Partnerships, 2/11/14: http://transportation.house.gov/calendar/eventsingle.aspx?EventID=369204 T&I P3 Panel Announcement: http://transportation.house.gov/news/documentsingle.aspx?DocumentID=367010

The Water Resources Reform and Development Act of 2014 (H.R. 3080) P3 pilot program for 15 water-related projects in the USACE construction backlog. (Section 5014). Authorizes $175 million for pilot financing program known as the Water Infrastructure Finance Innovation Act (WIFIA). (Section 5021). The Water Resources Reform and Development Act of 2014 (H.R. 3080), commonly known as WRRDA, became Public Law 113-121 on 6/10/14. The House and Senate passed version of the bill so it went to conference. P3 Pilot Program Section 5014 of the final bill contains a water infrastructure P3 pilot program that would authorize the use of P3s on at least 15 water-related projects in the United States Army Corps of Engineers construction backlog. This language was contained in Section 114 of the House WRRDA bill (Section 114 of H.R. 3080) but was not in the Senate version of the bill. WIFIA Section 5021 of the agreement includes Senate language that would establish a pilot financing program referred to as the Water Infrastructure Finance Innovation Act, or WIFIA. The program is designed to better leverage private sector project financing for water infrastructure projects by providing secured loans to project sponsors, including state and local governments, corporations, partnerships and state infrastructure financing authorities. WIFIA is modeled after a similar surface transportation program, known as TIFIA, that provides credit assistance to nonfederal project sponsors in the form of secured loans, loan guarantees and lines of credit that could be used to secure additional nonfederal financing. The bill establishes WIFIA as a low-interest loan program administered by EPA, with a parallel program administered by the Corps of Engineers for flood control projects. The agreement would authorize a total of $175 million for the program spread over five years, starting with $20 million in fiscal 2015 and increasing to $50 million in fiscal 2019. The agreement would reserve 15 percent of the funds made available to the program for assistance to small communities -- defined as those with fewer than 25,000 individuals. Small communities would be required to secure $5 million in nonfederal funding and all other communities would be required to secure $20 million. GAO would be required to issue a report on the program’s performance within four years of the measure’s enactment. Pros: Introduces a new federal financing tool into municipal utilities. Cons: Not much money “Modest Proposal”. “Double Dipping” rules prevent combining WIFIA with tax-advantaged debt on the same project, public or private such as private activity bonds (PABs), public-purpose municipal bonds, tax-credit bonds. You can thank the Joint Committee on Taxation (JCT) for that. EPA involvement and expertise. See page 10 of Public Works Financing at registration. More: https://www.bgov.com/us_legislation/2749447689852803127 http://www.awwa.org/Portals/0/files/legreg/documents/WIFIA_summary_PB.pdf

White House President Obama signed a Presidential Memo July 17, launching the Build America Investment Initiative. Creates the Build America Transportation Investment Center, housed at the U.S. DOT. (There is already a center at DOT’s FHWA). Build America Interagency Working Group with P3 stakeholders. Infrastructure Investment Summit on September 9, 2014. President Obama signed a Presidential Memorandum July 17 to launch the Build America Investment Initiative, a government-wide initiative to increase infrastructure investment and economic growth by engaging with state and local governments and private sector investors to encourage collaboration, expand the market for public-private partnerships (PPPs) and put federal credit programs to greater use.  Starting with the transportation sector, this initiative will harness the potential of private capital to complement government funding. As part of the Initiative, the Administration is launching the Build America Transportation Investment Center:  Housed at the Department of Transportation, this center will serve as a one-stop shop for state and local governments, public and private developers and investors seeking to utilize innovative financing strategies for transportation infrastructure projects.  Additional details are below. Build America Interagency Working Group: To expand and increase private investment and collaboration in infrastructure beyond the transportation sector, a federal inter-agency working group, co-chaired by Cabinet Secretaries Lew and Foxx, will do a focused review with the best and the brightest from the public and private sector.  This group will work with state and local governments, project developers, investors and others to address barriers to private investments and partnerships in areas including municipal water, ports, harbors, broadband, and the electrical grid. The effort will include a particular focus on improving coordination to accelerate financing and completion of projects of regional and national significance, particularly those that cross state boundaries. Infrastructure Investment Summit:  As part of the drive toward innovative infrastructure solutions and to highlight the opportunities for infrastructure investment, the Treasury Department will host a summit on Infrastructure Investment in the U.S. on September 9, 2014.  This session will bring together leading project developers and institutional investors with state and local officials and their Federal counterparts, and will focus on innovative financing approaches to infrastructure, and highlight other resources that support project development. http://www.whitehouse.gov/the-press-office/2014/07/17/fact-sheet-building-21st-century-infrastructure-increasing-public-and-pr Analysis: http://www.nationaljournal.com/policy/insiders/transportation/our-old-friend-public-private-partnerships-20140721

White House Pt. 2 U.S. Rural Infrastructure Opportunity Fund $10 billion from anchor investor, CoBank USDA will act as a matchmaker White House Rural Council’s Rural Opportunity Investment Conference U.S. Rural Infrastructure Opportunity Fund Created Last week, The White House Rural Council recently announced the creation of the new U.S. Rural Infrastructure Opportunity Fund through which private entities can invest in job-creating rural infrastructure projects across the country. An initial $10 billion has been committed to the fund by its anchor investor, CoBank, a national cooperative bank and a member of the Farm Credit System. The Farm Credit System, a nationwide network of banks and lending associations specifically chartered to serve agriculture and the U.S. rural economy, is an essential provider of credit to agriculture and rural America. Target investments will include hospitals, schools and other educational facilities, rural water and wastewater systems, energy projects, broadband expansion, local and regional food systems, and other rural infrastructure. Capitol Peak Asset Management will manage the new fund. The U.S. Department of Agriculture (USDA) and other federal agencies will help to identify rural projects that could be potential beneficiaries of financing through this new fund and other private sources. “This fund represents a new approach to our support for job-creating projects across the country,” said Tom Vilsack, U.S. Department of Agriculture Secretary and Chair of the White House Rural Council. “USDA and other agencies invest in infrastructure through a variety of federal initiatives, but our resources are finite and there are backlogs of projects in many parts of the economy. We know where investment opportunities exist, so we are in a position to help promote these projects among investors. With new efforts like this we can move beyond existing programs and help encourage substantial private investment in projects that grow the economy and improve quality of life for millions of Americans.” The Rural Infrastructure Opportunity Fund will allow America’s rural economy to continue its forward momentum by enhancing access to capital for rural infrastructure projects and speeding up the process of rural infrastructure improvements. The fund is immediately open for business and more investors can now add to the initial $10 billion in available capital. The fund will allow a wide variety of new participants, including pension funds, endowments, foundations and other institutional investors that have not traditionally had access to these markets to invest in rural development. In some cases, projects may be funded entirely through private-sector dollars. In others, private dollars may be leveraged with and extend critical government loan and grant programs. The new Rural Infrastructure Opportunity Fund and the White House Rural Council’s Rural Opportunity Investment Conference are part of the Obama administration’s ongoing efforts to spark additional private investment in rural communities through private-sector sources or through public-private partnerships like the new fund announced today. For example, USDA announced the $150 million Rural Business Investment Company (RBIC) earlier this year, which allows the USDA to help facilitate private equity investments in innovative agriculture-related businesses. This public-private partnership will have a tangible positive impact on the rural economy and can be a model of how government can serve as a catalyst for private investment in rural America. “Meeting the world’s needs for food and farm products, as well as the growing demand in areas like renewable energy, local food, and the bioeconomy will require continued investment in rural places,” Vilsack said. “Many major investors in urban centers aren’t always aware of the significant investment opportunities in rural communities. If the White House Rural Council can help facilitate even a small portion of the enormous amount of available investment capital into rural places, we can grow key industries and create jobs in rural and urban areas from coast to coast.” http://www.whitehouse.gov/administration/eop/rural-council http://www.whitehouse.gov/the-press-office/2014/07/23/fact-sheet-increasing-investment-rural-america

Federal Agencies Multiple agencies are utilizing P3s and other innovative finance and delivery tools beyond traditional procurement methods to meet needs within restrictive budgetary and regulatory framework. GSA: Swap Construct Program (Section 412), the ESPCS programs, outleases and ground leases, and the land port of entry donations. Panels on Military Installations and another one on National Security, yesterday. Federal Energy Development on Federal DoD Installations. September 16 in Washington, DC. http://www.ncppp.org/events/federal-energy-workshop-and-defense-energy-partnership-forum/ Still room for Growth.

Barriers to More P3s in Federal Market Washington effectively shut down until 2015 starting Aug. recess. Full campaign mode and extra lame duck if Senate flips. No Viable Legislative Solution Dysfunctional Congress Short term needs vs. Long term vision OMB’s 1991 Appendix B of Circular A-11 Op-Ed from Dorothy Robyn, former head of the GSA’s Public Buildings Service, in the 5/2/14 edition of the Washington Post on A-11: http://www.washingtonpost.com/business/capitalbusiness/commentary-the-government-has-a-problem-with-real-estate/2014/05/02/e976ad90-cefd-11e3-b812-0c92213941f4_story.html “A-11 sets criteria for distinguishing a capital lease, for which the net present value of the total cost of the lease must be recorded (scored) in an agency’s budget in the year the lease is entered into, from an operating lease, which can be scored on a year-by-year basis.” Lacking the budgetary resources to meet genuine facility requirements, federal agencies have resorted to practices more costly — and no more transparent — than the ones A-11 was designed to combat. One such practice is reliance on short-term operating leases to meet long-term federal facility requirements. Since 1990, GSA’s inventory of federally owned space has increased only slightly, while its leased inventory has doubled in size (measured by the number of square feet). Leasing is generally more expensive than ownership, and short-term leases are more expensive than long-term leases. GSA Administrator Dan Tangherlini recently told Congress that it costs the federal government twice as much to lease as to buy or build a facility. # Op-Ed from Michelle Mrdeza in the 6/13/14 Roll Call on scoring/budget rules preventing private investment in federal infrastructure: http://www.rollcall.com/news/want_to_fix_americas_old_infrastruture_fix_old_budget_rules_commentary-233959-1.html - NCPPP Scoring Issue Event in October or November

Legislation/Concepts to Watch Next Congress T&I P3 Panel Recommendations/Actions. Highway Bill. Performance Based Building Coalition’s (PBBC) mission is to increase P3s by creating a new category of exempt facility bonds for public buildings. The Partnership to Build America Act (H.R. 2084/S. 1957) by Rep. John Delaney (D-MD) and Sen. Bennet (D-CO). What will come of House T&I P3 Panels? Is long term Highway Bill next year (after temporary band aid in 2014) a viable vehicle? PBBC: PPP projects qualify for Exempt Facility Bonds because they are publicly owned and for a public purpose. No federal financing vehicles exist to facilitate private investment in the replacement and renovation of public buildings. Performance Based Building Coalition’s (PBBC) mission is to increase P3s by creating a new category of exempt facility bonds for public buildings. Public Buildings Event, November 17-18, in Miami, FL http://www.ncppp.org/events/inaugural-public-buildings-p3-summit/ The Partnership to Build America Act, H.R. 2084, was introduced by Rep. John Delaney (D-MD) in the House of Representatives on May 22, 2013 and Sen. Michael Bennet (D-CO) in the Senate on January 16, 2014. This bipartisan legislation has over 60 cosponsors from both Republicans and Democrats for the House bill and 14 cosponsors for the Senate version, S. 1957. It provides a unique way to fund infrastructure projects in the United States without government spending. It would create an American Infrastructure Fund (AIF) capitalized by selling 50 year bonds to U.S. Corporations repatriating overseas earnings at a lower tax rate (approximately $4 of their overseas earnings tax free for every $1 they invest in the bonds) for a total of $50 billion. Rep. Delaney estimates this initial capital could be leveraged 15 to 1, providing loan capacity of up to $750 billion to rebuild U.S. infrastructure.  The AIF will provide loans or loan guarantees to states and municipalities to finance transportation, energy, communications, water, and education infrastructure projects. The AIF will establish a standardized process for states and municipalities to apply for loans and use market rates The legislation says at least 25 percent of the projects financed through the AIF must be P3s, for which at least 20 percent of a project’s financing comes from private capital using a P3 model. The bill’s P3 provisions have some imperfections and it faces an uphill battle in Congress. It would need to pass both the Ways and Means Committee and the Transportation and Infrastructure (T&I) Committee. T&I Committee Chair Bill Schuster (R-Pa.) is not likely to advance this measure. This bill will be monitored closely as it is an innovative approach to funding infrastructure outside of the federal budget process and it would increase the use of P3s. http://delaneyinfrastructurebill.com/

State P3s: The Hare?

39 States Enable P3s As of July 2014 Currently, 39 states authorize P3s by statute/regulations or limited partnerships (see map). In these states, P3s may be authorized on specific projects or projects managed by a state agency, and may not be all encompassing. A total of 22 states enable both vertical and horizontal P3s; three states and the District of Columbia enable vertical P3s only; and 14 states and Puerto Rico enable horizontal P3s only. The remaining 11 states do not have statutes or regulations expressly prohibiting or permitting P3s; however, P3s may occur in these states. States with broad P3 enabling statutes for vertical and horizontal P3s are Virginia, Texas, Maryland, and Florida. Some P3s may occur in some states on federal land, i.e., Hawaii with P3s on federal Army base. This is a federal P3 and not a state or local P3 since the partnership is with the USACE. Resources: http://www.fhwa.dot.gov/ipd/p3/state_legislation/state_legislation_key_elements.htm http://www.fhwa.dot.gov/ipd/p3/state_legislation/ http://www.ncsl.org/documents/transportation/PPPTOOLKIT-update-March2012.pdf As of April 16, 2014, 26 states have considered 99 bills related to public-private partnerships this year. Unfortunately, there has been little progress at the state level passing broad P3-enabling legislation. In some states, there usually is not enough time in the second year of a two-year session to fully consider complicated issues such as P3s. For example, Arkansas and New Mexico considered P3 legislation in 2013, but they focused on the budget and adjourned for 2014 without advancing P3 legislation.  Indiana enacted a law (S.B. 225) expanding existing P3 authority. Kentucky’s bill (H.B. 407) authorizing P3s modeled after the Virginia statute was vetoed by Gov. Beshear (D) on April 14 and the House failed to act to override the veto this week.  A similar bill in Georgia (S.B. 255) passed the Senate but failed to pass the House before adjournment.  Missouri’s P3 bill (H.B. 2053) has yet to move out of a chamber, but it still has a chance to do so before the end of May. A general procurement reform bill including P3s in New Hampshire (S.B. 399) was sent to a study committee. In Florida (H.B. 541/S.B. 900) and Pennsylvania (H.B. 1838), bills expanding existing P3 authority are expected to move this year. There is interest to move a P3 bill in the District of Columbia (L.B. 595) and in New Jersey (S.B. 848/A.B. 1417) to authorize the use of P3s later this year.  North Carolina is not in session yet, but a carryover bill (H.B. 887) expanding P3s may move forward. Pending legislation in Michigan (H.B. 4925), New York (multiple bills) and Tennessee (H.B. 883/S.B. 115) likely will not advance this year. See also: http://aiai-infra.info/legislative_workToDo.html Enabling vertical and horizontal P3s to some degree (22 states) Enabling only horizontal P3s to some degree (14 states and PR) Enabling only vertical P3s to some degree (3 states and DC) Note: 39 states authorize P3s by statute/regulations or limited partnerships. In these states, P3s may be authorized on a specific project(s) or project type.

State P3s Laboratories of Democracy Progress compared to federal government Model comprehensive laws in VA, TX, MD, FL and PR No Big Legislative Wins in 2014 (Setbacks?) Will 2015 be a breakthrough year for P3 legislation? The States are way ahead of the federal government. They are the hare. They are front runners. The States are the Laboratories of Democracy when it comes to P3s. The federal government is taking notice. Important laws were passed in 2012 and 2013: PA Transportation Bill, MD, FL, TX. That is where the market and deal flow is right now. VA, TX, MD and FL remain most comprehensive. But there were no big comprehensive legislative wins in 2014. There were event attempts to roll back P3 measures in Colorado. Will this happen in 2015 in TX and VA?

P3 Legislative Activity As of July 2014 As of April 16, 2014, 26 states have considered 99 bills related to public-private partnerships this year. Unfortunately, there has been little progress at the state level passing broad P3-enabling legislation. In some states, there usually is not enough time in the second year of a two-year session to fully consider complicated issues such as P3s. For example, Arkansas and New Mexico considered P3 legislation in 2013, but they focused on the budget and adjourned for 2014 without advancing P3 legislation.  Indiana enacted a law (S.B. 225) expanding existing P3 authority. Kentucky’s bill (H.B. 407) authorizing P3s modeled after the Virginia statute was vetoed by Gov. Beshear (D) on April 14 and the House failed to act to override the veto this week.  A similar bill in Georgia (S.B. 255) passed the Senate but failed to pass the House before adjournment.  Missouri’s P3 bill (H.B. 2053) has yet to move out of a chamber, but it still has a chance to do so before the end of May. A general procurement reform bill including P3s in New Hampshire (S.B. 399) was sent to a study committee. In Florida (H.B. 541/S.B. 900) and Pennsylvania (H.B. 1838), bills expanding existing P3 authority are expected to move this year. There is interest to move a P3 bill in the District of Columbia (L.B. 595) and in New Jersey (S.B. 848/A.B. 1417) to authorize the use of P3s later this year.  North Carolina is not in session yet, but a carryover bill (H.B. 887) expanding P3s may move forward. Pending legislation in Michigan (H.B. 4925), New York (multiple bills) and Tennessee (H.B. 883/S.B. 115) likely will not advance this year. P3 Legislative Activity in 2014 State Legislative Sessions

Notable 2014 Developments Kentucky (H.B. 407) (Comprehensive), killed via Gov. Beshear (D) veto. Georgia (S.B. 255) (Comprehensive-ish), out of time. Colorado (SB 14 -197) (A P3 setback averted via veto from Gov. Hickenlooper and E.O. D2014-010). District of Columbia (L.B. 595), developing. Likely 2015. Strong coalition surrounding H.B. 407…comprehensive bill hung up on local politics about tolling on Brent Spence P3 bridge project between Ohio and Kentucky. 2015 prospects unclear. Georgia bill had momentum after 2013 study committee. Ran out of time. 2015 prospects. LEGISLATIVE SUCCESS IN COLORADO The P3 community fought against legislation in Colorado (SB 14 -197) that would have amended the State’s current P3 law. The bill was introduced largely as a transparency bill. However, elements within that bill would have severely amended the state’s current statues and restricting further P3 opportunities in the State. Instead, Governor John Hickenlooper vetoed the bill and issued an Executive Order (D2014-010) that addresses the transparency and accountability that the bill intended to. http://aiai-infra.info/Legislative_Success_in_Colorado.html Will more states push for P3 reforms that will strangle P3 markets in the crib? DC P3 bill is introduced by Mariel Bowser, the favorite to be the next mayor of DC, although David Catania is coming on strong as an Independent. Possible changes introduced this fall. Reintroduced next year.

States to Watch in 2015 Elections have consequences. Not a budget year in most states. Tier 1: Arkansas, New Mexico, Georgia, District of Columbia, Missouri, New Hampshire and Pennsylvania. Tier 2: Kentucky, North Carolina, Michigan, New York and Tennessee. How do we advance P3 legislation at state and federal level? Arkansas and New Mexico considered P3 legislation in 2013, but they focused on the budget and adjourned for 2014 without advancing P3 legislation. Georgia and maybe Kentucky could come back from the dead, as with DC if nothing happens this year. Missouri held some hearings and there may be interest. New Hampshire’s procurement reform bill including P3s (S.B. 399) was sent to a study committee. Could be interest. I’ve heard Kentucky is dead for a while due to politics. But then lawmakers are still talking about doing it next year. Rumblings of efforts in NC, MI, NY and TN. Are there others? Jim and Chris will talk more about perspectives on how to advance P3s. How will this race end?

How Will This End?

Contact information Ben Brubeck Director of Labor and Federal Procurement, Government Affairs Associated Builders and Contractors (ABC) brubeck@abc.org www.linkedin.com/in/benbrubeck/