Mayer Brown LLP APPLYING THE TOLL ROAD PRIVATIZATION MODEL TO OTHER ASSETS John Schmidt & David Narefsky NYU Wagner Rudin Center for Transportation Policy & Management March 25, 2008

Mayer Brown LLP 2 CHICAGO SKYWAY AND INDIANA TOLL ROAD CHICAGO SKYWAY AND INDIANA TOLL ROAD First privatizations of major U.S. toll roads-transactions done in 2005 and 2006 First privatizations of major U.S. toll roads-transactions done in 2005 and 2006 Sparked wide interest in U.S. privatization Sparked wide interest in U.S. privatization New infrastructure funds/commitments by pension funds have created pool of $400B+ for U.S. infrastructure investment New infrastructure funds/commitments by pension funds have created pool of $400B+ for U.S. infrastructure investment

Mayer Brown LLP 3 LARGE VALUES RECEIVED BY PUBLIC ENTITIES $1.85B to City of Chicago for 99 year lease of Chicago Skyway $1.85B to City of Chicago for 99 year lease of Chicago Skyway $3.8B to State of Indiana for 75 year lease of Indiana Toll Road $3.8B to State of Indiana for 75 year lease of Indiana Toll Road

Mayer Brown LLP 4 VALUE FROM 2 SOURCES: 1. Value of asset increases in private hands 1. Value of asset increases in private hands * Private operator will raise tolls regularly * Private operator will raise tolls regularly * Capital costs significantly reduced * Capital costs significantly reduced * Lower after-tax financing cost * Lower after-tax financing cost

Mayer Brown LLP 5 2. Public recovers its equity in the asset * Equity increases with overall value * Equity increases with overall value * Long-term equity in U.S. infrastructure * Long-term equity in U.S. infrastructure has enormous value in world market has enormous value in world market

Mayer Brown LLP 6 MAKES SENSE IF PUBLIC HAS BETTER USE OF CAPITAL Public capital not needed in operating roads—can be redeployed to other uses Public capital not needed in operating roads—can be redeployed to other uses Chicago created $500M reserve, paid off $400M city debt—raised bond rating + significantly reduced financing costs Chicago created $500M reserve, paid off $400M city debt—raised bond rating + significantly reduced financing costs Indiana put $3.8B into transportation infrastructure—only fully funded U.S. transportation program Indiana put $3.8B into transportation infrastructure—only fully funded U.S. transportation program

Mayer Brown LLP 7 OTHER ELEMENTS OF MODEL * Long-term lease shifts all financial risks to private operator Any debt is subordinate to lease obligations of maintenance/capexAny debt is subordinate to lease obligations of maintenance/capex * Operating standards assure quality ●Independent engineering inspections— strong remedies for violation

Mayer Brown LLP 8 TRANSPARENT COMPETITIVE BID PROCESS IS ALSO KEY No politics - professionally run No politics - professionally run Open to all qualified bidders - no local or national xenophobias Open to all qualified bidders - no local or national xenophobias Bidding based on fixed contract with decision based solely on price Bidding based on fixed contract with decision based solely on price

Mayer Brown LLP 9 MODEL CAN BE USED FOR OTHER TYPES OF ASSETS Assets must be revenue-producing Assets must be revenue-producing Infrastructure investors want stability and predictability—ideally monopoly or quasi- monopoly element Infrastructure investors want stability and predictability—ideally monopoly or quasi- monopoly element Private operators must bring added value to get substantial returns—increase political support Private operators must bring added value to get substantial returns—increase political support

Mayer Brown LLP 10 CHICAGO UNDERGROUND PARKING SYSTEM 9000 spaces—4 connected garages-- underneath Grant Park/Millennium Park in downtown Chicago 9000 spaces—4 connected garages-- underneath Grant Park/Millennium Park in downtown Chicago Owned by City and Chicago Park District Owned by City and Chicago Park District After competitive auction, leased in 2006 to Morgan Stanley Infrastructure Fund for $563M After competitive auction, leased in 2006 to Morgan Stanley Infrastructure Fund for $563M

Mayer Brown LLP 11 ASSET VALUE INCREASED UNDER PRIVATE OPERATION Private operator could raise parking rates—stop subsidizing suburbanites and others driving downtown Private operator could raise parking rates—stop subsidizing suburbanites and others driving downtown Flexibility to take advantage of special events— develop relationships Flexibility to take advantage of special events— develop relationships Substantially reduced cost of major reconstruction of one garage Substantially reduced cost of major reconstruction of one garage Improved signage--new revenues from advertising, concessions Improved signage--new revenues from advertising, concessions

Mayer Brown LLP 12 CITY COULD REDEPLOY CAPITAL TO OTHER NEEDS Used partially to pay off Millennium Park bonds that were drain on city revenues Used partially to pay off Millennium Park bonds that were drain on city revenues Most proceeds used for capital improvements at neighborhood parks Most proceeds used for capital improvements at neighborhood parks Chicago Park District had no prior capital program—enormously popular result Chicago Park District had no prior capital program—enormously popular result

Mayer Brown LLP 13 Street parking--Chicago is now privatizing street parking system--asset of every city Street parking--Chicago is now privatizing street parking system--asset of every city Airport parking--Puerto Rico is privatizing San Juan Airport Parking—has ideal “monopoly” elements Airport parking--Puerto Rico is privatizing San Juan Airport Parking—has ideal “monopoly” elements Private operators can maximize revenues, bring efficiencies—cities or airports can use capital for other purposes Private operators can maximize revenues, bring efficiencies—cities or airports can use capital for other purposes OTHER PARKING POSSIBILITIES

Mayer Brown LLP 14 Illinois and Indiana Governors proposed lottery privatizations in 2007—no legislative approval yet in either state Illinois and Indiana Governors proposed lottery privatizations in 2007—no legislative approval yet in either state State lotteries vary enormously in per capita revenues—uneven management State lotteries vary enormously in per capita revenues—uneven management Private operator can bring best practices and increase revenues substantially Private operator can bring best practices and increase revenues substantially States can redeploy capital—to education in Indiana, capital projects in Illinois States can redeploy capital—to education in Indiana, capital projects in Illinois LOTTERIES

Mayer Brown LLP 15 Port of Corpus Christi proposing to build new terminal facility on privatized basis Existing terminals being privatized in Portland Virginia just established commission to study privatizing Virginia Port Authority Large-scale U.S. need for expanded port facilities—private capital essential PORTS

Mayer Brown LLP 16 TRANSIT Generates revenue, but no profit— requires ongoing subsidy Generates revenue, but no profit— requires ongoing subsidy Can still be privatized to reduce subsidy Can still be privatized to reduce subsidy BART undertaking privatized Oakland Airport connector BART undertaking privatized Oakland Airport connector Denver Regional Transportation District proposing privatized light rail system Denver Regional Transportation District proposing privatized light rail system