Table of Contents

executive summary [1](#__RefHeading___Toc413052782)why explore
public-private partnerships? [1](#__RefHeading___Toc413052783)

This study builds on Earlier Efforts [3](#__RefHeading___Toc413052784)

Findings [3](#__RefHeading___Toc413052785)

Scope and Legislation [3](#__RefHeading___Toc413052786)

Public Support And Outreach \-- "Selling" P3
[4](#__RefHeading___Toc413052787)

Financing, Risk Allocation, and the Division of Public and Private
Sector Roles [4](#__RefHeading___Toc413052788)

Relations With Private Proposers [4](#__RefHeading___Toc413052789)

Where do we go from here? [5](#__RefHeading___Toc413052790)

introduction [6](#__RefHeading___Toc413052791)

Study objective [6](#__RefHeading___Toc413052792)

structure of this report [7](#__RefHeading___Toc413052793)

lessons learned [8](#__RefHeading___Toc413052794)

Introduction [9](#__RefHeading___Toc413052795)

Scope and legislation [9](#__RefHeading___Toc413052796)

Maximizing Legislative Flexibility For The DOT
[10](#__RefHeading___Toc413052797)

Solicited And Unsolicited Proposals And Open Scopes
[11](#__RefHeading___Toc413052798)

Using a Two-Step Selection Process for Unsolicited Proposals
[12](#__RefHeading___Toc413052799)

public support and outreach [15](#__RefHeading___Toc413052800)

Garnering Internal Support [15](#__RefHeading___Toc413052801)

Gaining External Support [16](#__RefHeading___Toc413052802)

Financing, risk allocation, and the division of public and private
sector roles [18](#__RefHeading___Toc413052803)

Issues Regarding Public and Private Sector Role Definitions
[20](#__RefHeading___Toc413052804)

Relations with the private sector [21](#__RefHeading___Toc413052805)

Attracting Private Involvement [21](#__RefHeading___Toc413052806)

Maintaining Private Sector Interest [21](#__RefHeading___Toc413052807)

Negotiating With The Private Sector [22](#__RefHeading___Toc413052808)

Conclusion [23](#__RefHeading___Toc413052809)

review of state p3 programs [24](#__RefHeading___Toc413052810)

INTRODUCTION [25](#__RefHeading___Toc413052811)

State by state review [26](#__RefHeading___Toc413052812)

ARIZONA [27](#__RefHeading___Toc413052813)

CALIFORNIA [30](#__RefHeading___Toc413052814)

DELAWARE [32](#__RefHeading___Toc413052815)

FLORIDA [34](#__RefHeading___Toc413052816)

MINNESOTA [36](#__RefHeading___Toc413052817)

OREGON [38](#__RefHeading___Toc413052818)

PUERTO RICO [40](#__RefHeading___Toc413052819)

SOUTH CAROLINA [41](#__RefHeading___Toc413052820)

VIRGINIA [44](#__RefHeading___Toc413052821)

WASHINGTON [46](#__RefHeading___Toc413052822)

FLOW CHARTS OF STATE PROCESSES [51](#__RefHeading___Toc413052823)

OTHER STATES [61](#__RefHeading___Toc413052824)

COLORADO [61](#__RefHeading___Toc413052825)

Maryland [61](#__RefHeading___Toc413052826)

Missouri [62](#__RefHeading___Toc413052827)

New Jersey [62](#__RefHeading___Toc413052828)

NEW YORK [62](#__RefHeading___Toc413052829)

Pennsylvania [62](#__RefHeading___Toc413052830)

Texas [63](#__RefHeading___Toc413052831)

Utah [63](#__RefHeading___Toc413052832)

Table: PUBLIC-PRIVATE PROJECT EXPERIENCE (BY STATE)
[65](#public-private-project-experience-by-state)

case studies [68](#__RefHeading___Toc413052838)

introduction [69](#__RefHeading___Toc413052839)

Virginia [70](#__RefHeading___Toc413052840)

Overview [71](#__RefHeading___Toc413052841)

Dulles Greenway Public-Private Partnership
[71](#__RefHeading___Toc413052842)

Background/Scope and Legislation [71](#__RefHeading___Toc413052843)

Process and Agreement [71](#__RefHeading___Toc413052844)

Project Description [72](#__RefHeading___Toc413052845)

Status [72](#__RefHeading___Toc413052846)

Lessons and Highlights [72](#__RefHeading___Toc413052847)

Public-Private Partnerships Under Virginia's Public-Private
Transportation Act of 1995 [74](#__RefHeading___Toc413052848)

Background [74](#__RefHeading___Toc413052849)

Process [74](#__RefHeading___Toc413052850)

Project Descriptions [77](#__RefHeading___Toc413052851)

Project and Program Status [81](#__RefHeading___Toc413052852)

Lessons and Highlights [81](#__RefHeading___Toc413052853)

washington state: new partners initiative
[85](#__RefHeading___Toc413052854)

Background [86](#__RefHeading___Toc413052855)

Process [86](#__RefHeading___Toc413052856)

Program Development [86](#__RefHeading___Toc413052857)

Scope and Legislation [87](#__RefHeading___Toc413052858)

Initiation of P3 Proposals [87](#__RefHeading___Toc413052859)

Selection [88](#__RefHeading___Toc413052860)

Finance [88](#__RefHeading___Toc413052861)

Project Descriptions [89](#__RefHeading___Toc413052862)

Project and Program Status [92](#__RefHeading___Toc413052863)

Timeline [94](#__RefHeading___Toc413052864)

Lessons and Highlights [94](#__RefHeading___Toc413052865)

Widespread Support in the DOT and in the General Public
[95](#__RefHeading___Toc413052866)

Rate of Return was Regulated but Flexible
[95](#__RefHeading___Toc413052867)

Financial Assistance was Available from the State
[95](#__RefHeading___Toc413052868)

Outreach Should Be A Joint Responsibility
[95](#__RefHeading___Toc413052869)

Public Outreach Efforts Must Use The Right People To Reach The Right
People [96](#__RefHeading___Toc413052870)

Undertaking Six Partnership Projects From Scratch Overwhelmed The DOT
[96](#__RefHeading___Toc413052871)

Transparency Vs. Confidentiality [96](#__RefHeading___Toc413052872)

States May Wish To Guide Proposers To Projects Wanted By Regional
Jurisdictions [97](#__RefHeading___Toc413052873)

E-470: Public-Private Partnership in Denver Metropolitan Area
[98](#__RefHeading___Toc413052874)

Background [99](#__RefHeading___Toc413052875)

process and project description [100](#__RefHeading___Toc413052876)

lessons and highlights [103](#__RefHeading___Toc413052877)

Locally Initiated Programs Need To Involve The State
[103](#__RefHeading___Toc413052878)

Outreach Can Alleviate The Perception Of "Bait And Switch"
[103](#__RefHeading___Toc413052879)

California: San Diego Expressway Project
[104](#__RefHeading___Toc413052880)

Background [105](#__RefHeading___Toc413052881)

Effects of NAFTA [105](#__RefHeading___Toc413052882)

TransNet Program [106](#__RefHeading___Toc413052883)

Process: AB 680 [106](#__RefHeading___Toc413052884)

Scope and Legislation [106](#__RefHeading___Toc413052885)

California Transportation Ventures, Inc. (CTV) Rationale for Proposing
San Diego Project Under AB 680 [107](#__RefHeading___Toc413052886)

Project Description [107](#__RefHeading___Toc413052887)

Timeline for SR 125 Tollway [109](#__RefHeading___Toc413052888)

project Status [110](#__RefHeading___Toc413052889)

Lessons and Highlights [112](#__RefHeading___Toc413052890)

Financial Arrangements Should Be A Function Of The Project's Risk
Profile [112](#__RefHeading___Toc413052891)

Environmental Clearances Should Be Sought To Maximize Flexibility and
Minimize Objections [112](#__RefHeading___Toc413052892)

Any Non-Compete Clause Must Be Clear and Binding
[113](#__RefHeading___Toc413052893)

Using Funds to Support Private Toll Road Projects
[113](#__RefHeading___Toc413052894)

Appendix 1: Individuals contacted for this Report
[115](#__RefHeading___Toc413052895)

Appendix 2: "Role of 63-20 Nonprofit Corporations in Public/Private
Infrastructure Financings" [118](#__RefHeading___Toc413052896)

[]{#__RefHeading___Toc413052782 .anchor}executive summary

[]{#__RefHeading___Toc413052783 .anchor}why explore public-private
partnerships?

Our nation's potential for economic growth hinges on, among other
factors, its ability to provide adequate infrastructure, such as
bridges, roads, rail and port terminals. Indeed, recent empirical
evidence suggests that regional and national transport networks directly
support growth in private-sector economic productivity.[^1] Highway
infrastructure in recent decades has been pro­vided largely with public
funds based on motor fuel taxes and other user fees, channeled through
the Federal Highway Trust Fund and comparable state transportation trust
funds. This system has worked well, providing a reliable source of
development capital to build new roads and rebuild old ones. Public
funds, however, have not kept pace with the demand to maintain and
improve the nation\'s extensive network of roads and bridges.

At the Federal level, fiscal and budgetary pressures have held Federal
aid for highways to gradual, uneven growth. In fact, Federal aid has
declined significantly relative to State and local highway spending over
the period since the Highway Trust Fund was initiated in 1956, not
withstanding periodic Federal tax increases. State and local government
highway programs are feeling these same pressures. Moreover, traditional
sources of funding are no longer sufficient to meet transportation needs
and public resistance to general tax increases is high and growing.
States are thus in a seemingly impossible situation: they cannot afford
to rely on traditional methods to meet their infrastructure needs, and
they cannot afford to wait to meet those needs. As a result, Federal,
state, and local administrations and leg­islatures are exploring many
options for new funding sources. One of the more promising options is to
allow partnerships with the private sector to develop, finance, own,
operate, and maintain highway facilities.

In recognition of the critical importance transportation plays in
supporting and facilitating economic health and growth, states have
begun to make broader use of market-based techniques to supplement
traditional public grants, in particular engaging the private sector in
transportation service provision. While experience is still developing
across the US, public-private partnerships (commonly referred to as P3)
show promise both for attracting private capital to projects
traditionally financed solely by the public sector and for getting
projects built faster.

It is imperative, therefore, that FHWA continue to assist states as they
work to implement P3 programs, helping them to understand not only the
kinds of programs being used across the country, but what lessons can be
learned from these efforts and how they may be applied to their state.
This report is intended to provide that roadmap.

Models of Highway Delivery Through Public-Private Partnerships

A public-private partnership can be built on virtually any mix of public
and private financial sponsorship that departs from the traditional
public highway model. Several prototypical models have developed,
incorpo­rating increasing amounts of private involvement in development
and operations along with the infusion of non-governmental funds. As the
private sector contributes more equity financing and assumes more risks,
the partnership develops more characteristics of full privatization. The
array of potential structures span the continuum from traditional public
to mostly private:

-   *Traditional New Public Highway*. Government owner­ship and funding
    with investment commonly justified by general system-wide public
    needs.

```{=html}
<!-- -->
```
-   *Traditional New Public Toll-Road Delivery*. Public authority
    ownership and operation, using toll rev­enues to finance non-recourse
    or state-backed tax-exempt debt to construct the facility and
    provide interim operating funds.

```{=html}
<!-- -->
```
-   *Innovative Financing for New Public Faci1ities*. Public ownership
    and operation with full or partial reliance on local benefits,
    captured by targeted exactions such as development-impact fees as
    well as tolls.

```{=html}
<!-- -->
```
-   *Blended Public-Private Financing for New Public Toll Road
    Delivery*. Control and direction under governmental oversight,
    usually by a local authority; non­-recourse financing delivers a
    complete, stand-alone project.

```{=html}
<!-- -->
```
-   *Public-Private Partnerships to Deliver New Road Capacity*.
    Substantial private equity participation and a strong private role
    in structure, delivery, and operation; public role tends more toward
    framing the concession agreement, contributing predevelopment costs,
    or assembling rights-of-way.

```{=html}
<!-- -->
```
-   *Privately Supplied New Highway*. Finance provided and risk borne
    almost entirely by private developers and their financial
    supporters; significant at-risk equity combined with the issuance of
    taxable debt or, in some instances, special purpose non-recourse
    tax-exempt debt.

Role for Public-Private Partnerships

The appropriate role for partnerships is evolving. Two essential
determinants are public acceptance and the level of unmet highway needs.
Beyond these are a number of unresolved issues regarding the blending of
public and private roles in project development and finance. It is
clear, however, that partnership development can effectively augment
traditional financing sources for highway construction and
reconstruction. The infusion of private financial participation
necessarily introduces marketplace discipline: essentially, the relative
uncertainty of an attractive return on investment will be required.
Hence, an important feature of a majority of partnership projects is the
imposition of project-related user fees, tolls, development impact fees,
and other exactions associated with value capture from the project.

In essence, project users and beneficiaries will be expected to pay for
use of a given facility in a given location. Where the facilities are
needed and users are willing to bear these direct charges,
public-private partnerships should enable highway development to proceed
more quickly than traditional funding sources. The development of
proposals by private syndicates is also likely to produce some
innovative solutions to transport problems. Reliance on user charges, in
turn, may well moderate the demand for some potential new facilities and
result in more disciplined or realistic highway needs assessments.

[]{#__RefHeading___Toc413052784 .anchor}THIS study builds on Earlier
EFforts

This report builds on a continuous effort on the part of FHWA to educate
and help states as they explore P3 options. Preceding this report, FHWA
has:

-   Sponsored a *Symposium on Overcoming Barriers to Public-Private
    Partnerships* (December 1993);

-   Published the Symposium Summary in the *Searching for Solutions*
    Series (Number 11, September 1994); and

-   Published *Implications of Changes and Procedures and Laws to
    Advance Public-Private Partnerships* (April 1995).

    Since 1995, however, many more states have passed enabling
    legislation or otherwise embarked on P3 programs. The continued
    mixed success of these efforts indicates that a further examination
    of how these programs are structured and what lessons can be learned
    from state efforts is warranted.

    []{#__RefHeading___Toc413052785 .anchor}FINDINGS

In general, state experience with P3 efforts indicate:

-   ***Substantial benefits** \--* Public-private partnerships can offer
    significant benefits to both the public and private sectors,
    lowering costs and speeding project completion while creating and
    expanding business opportunities.

-   ***Mixed success** \--* Implementing partnerships in the US has met
    with only mixed success.

-   ***Movement away from complete privatization towards true
    partnership** \--* As the public and private sector each have
    different advantages, the more successful efforts have involved
    substantial contributions from both sectors.

The path some states have taken reflect a number of specific lessons
that may help other states achieve the potential benefits and establish
successful partnerships. This report focuses on drawing out these
lessons. "Lessons learned" may be characterized in terms of how a state
approaches:

-   Program Scope and Legislation;

-   Public Support And Outreach \-- "Selling" P3;

-   Financing, Risk Allocation, and the Division of Public And Private
    Sector Roles; and

-   Relations with Private Proposers.

    []{#__RefHeading___Toc413052786 .anchor}Scope and Legislation

Most, but not all, P3 efforts have begun with general enabling
legislation that has described a program scope and implementation
process. The success or failure of partnerships under different
legislative structures suggests:

-   Flexibility is critical to negotiate partnerships that meet the
    unique nature of individual proposals, specifically with respect to
    project selection, negotiation, and the overlay between the P3
    legislation and existing laws and procedures for procurement of
    bids;

-   States may wish to think carefully about whether to accept
    unsolicited proposals and under what conditions they are permitted
    as this structure affects other activities such as outreach and
    selection;

-   Some projects lend themselves better to a P3 approach than others
    and states may want to guide or dictate the nature of proposals
    submitted; and

-   The public partner does not necessarily need to be the state \--
    local governments can also play a role.

    []{#__RefHeading___Toc413052787 .anchor}Public Support And Outreach
    \-- "Selling" P3

While there is no single model for implementing P3, all successful P3
efforts share two characteristics:

-   Strong public sector support among the key stakeholders: (i.e., the
    DOT, the legislature, and the Governor's office); and

-   A strong, visible, and continuous outreach effort headed by the
    public sector to the general public (with private participation in
    latter phases).

While many states have understood the importance of the latter, many
have downplayed the critical role played by the former, and in
particular, the importance of internal support: *If the DOT does not
support and want a P3 program (where this support must extend
[beyond]{.underline} the Secretary and designated P3 champion) [the
program will fail]{.underline}*. This is the single most important
"dealbreaker" that exists.

[]{#__RefHeading___Toc413052788 .anchor}Financing, Risk Allocation, and
the Division of Public and Private Sector Roles

Two lessons regarding risk sharing and financial roles stand out:

-   The public partner must first identify and be able to articulate
    their objectives in risk and return sharing; and

-   The financial arrangements need to reflect the nature of the
    project, the financial strengths of the private partner, and the
    project's risk profile.

Even where the public sector's ability to provide direct cash to a
project is limited or prohibited, it can share risk with the private
sector in other ways.

The public sector can:

-   Play a lead role in outreach;

-   Facilitate the environmental and governmental permitting approval
    process;

-   Take complementary planning actions to support the project; and

-   Use their position to provide transparency and consistency to every
    activity.

    []{#__RefHeading___Toc413052789 .anchor}Relations With Private
    Proposers

To take advantage of private participation, the public partner needs to:

-   Attract good teams and good proposals \-- by conducting outreach to
    private proposers and using a transparent and well-defined process;

-   Maintain private sector interest and support \-- by adhering to the
    program developed in terms of purpose and goals, selection, and
    schedule; and

-   Conduct negotiations successfully \-- focusing on the fact that
    conclusion of an agreement is a [joint goal]{.underline} \-- the
    partners will be working together for a long time.

    []{#__RefHeading___Toc413052790 .anchor}Where do we go from here?

There is no single model for success. State efforts have succeeded,
however, where support is widespread, the DOT (or responsible government
entity) has clear goals and has communicated those goals, and private
players have been willing to enter into a real partnership. The lessons
learned presented in this report can help states think about whether
private participation is something that will help meet their goals, and
if so, how to travel down this new path to project development and
finance.

[]{#__RefHeading___Toc413052791 .anchor}introduction

[]{#__RefHeading___Toc413052792 .anchor}STUDY OBJECTIVE

This report is intended to fulfill two objectives:

-   To inform states of current public-private partnership (P3)
    activities; and

-   To provide specific guidance to states considering initiating
    private participation

> in transportation service provision.

It builds on previous efforts by FHWA to keep states abreast of recent
P3 developments and potential barriers to success. This report, however,
is far more specific than prior reports, thus providing a roadmap to
states as they begin the possible journey down the road to private
participation in the provision of public transportation services.

What are Public-Private Partnerships?

Public-private partnerships are a relatively new and rapidly evolving
financing tool already contributing significantly to highway
development. At the Federal level, the Intermodal Surface Transportation
Efficiency Act of 1991 (ISTEA) provides the flexibility to enable
private partners to be part of a Federal-aid project. Likewise, several
states have passed enabling legislation in order to integrate private
funds into their highway programs.

A public-private partnership can be built on virtually any mix of public
and private financial sponsorship that departs from the traditional
public highway model. Several prototypical models have developed,
incorpo­rating increasing amounts of private involvement in development
and operations along with the infusion of non-governmental funds. As the
private sector contributes more equity financing and assumes more risks,
the partnership develops more characteristics of full privatization. The
array of potential structures span the continuum from traditional public
to mostly private:

-   *Traditional New Public Highway*. Government owner­ship and funding
    with investment commonly justified by general system-wide public
    needs.

```{=html}
<!-- -->
```
-   *Traditional New Public Toll Road Delivery*. Public authority
    ownership and operation, using toll rev­enues to finance non-recourse
    or state-backed tax-exempt debt to construct the facility and
    provide interim operating funds.

```{=html}
<!-- -->
```
-   *Innovative Financing for New Public Faci1ities*. Public ownership
    and operation with full or partial reliance on local benefits,
    captured by targeted exactions such as development-impact fees as
    well as tolls.

```{=html}
<!-- -->
```
-   *Blended Public-Private Financing for New Public Toll Road
    Delivery*. Control and direction under governmental oversight,
    usually by a local authority; non­-recourse financing delivers a
    complete, stand-alone project.

```{=html}
<!-- -->
```
-   *Public-Private Partnerships to Deliver New Road Capacity*.
    Substantial private equity participation and a strong private role
    in structure, delivery, and operation; public role tends more toward
    framing the concession agreement, contributing predevelopment costs,
    or assembling rights-of-way.

```{=html}
<!-- -->
```
-   *Privately Supplied New Highway*. Finance provided and risk borne
    almost entirely by private developers and their financial
    supporters; significant at-risk equity combined with the issuance of
    taxable debt or, in some instances, special purpose non-recourse
    tax-exempt debt.

    []{#__RefHeading___Toc413052793 .anchor}structure of this report

This report is composed of three sections. It first describes lessons
that may be learned from individual states' experiences with P3. A brief
review of state programs follows. The report concludes with four
in-depth case studies from which many, but not all, of the lessons were
drawn.

[]{#__RefHeading___Toc413052794 .anchor}lessons learned

[]{#__RefHeading___Toc413052795 .anchor}Introduction

In this section, lessons and highlights of the public-private
partnership process are given. The section is broken up into four parts.
The first describes enabling legislation used in Washington State and
Virginia, considered models for legislation development. Following is a
review of the need for both internal and external support for the
program. Here, examples from several state experiences are given. The
final sections look at the experience of states in financing, allocating
risk, the division of public and private sector roles, and the on-going
relationship with private partners in the process. Examples from several
projects are given, including, for instance, Denver's E-470 and
Virginia's Dulles Greenway projects.

Program highlights and lessons learned are drawn from in-depth research
and interviews with states and project sponsors actively engaged in the
P3 development process. Interviews with representatives from ten states
(Arizona, California, Delaware, Florida, Minnesota, Oregon, Puerto Rico,
South Carolina, Virginia, Washington) form the basis of the majority of
findings presented. These states have developed and at least partially
implemented a statewide process for solicitation, acceptance, and review
of proposals from the private sector regarding surface
transportation-related activities. This section also draws on
information gathered on several other states' initiatives (for instance,
Colorado, Maryland, Missouri, New Jersey, New York, Pennsylvania, Texas,
and Utah) who are just beginning their own programs or considering
program alternatives. Finally, in-depth case studies of two programs
(Virginia and Washington, and two individual projects---Denver's E470
and the San Diego Expressway) provide further lessons. Summaries of the
state programs noted here are provided in the next section of this
report.

[]{#__RefHeading___Toc413052796 .anchor}Scope and legislation

Two states have developed legislation that has already been used by
other states as model legislation: Washington State and Virginia.

The Washington State enabling legislation was basically sound and
incorporated lessons learned in the early partnership efforts in other
states. In general, proposers liked the State's design for the process
and found the State receptive to different proposals and responsive to
the needs of proposers. The Washington State Department of
Transportation (WSDOT) was successful in attracting bids from
experienced teams with the financial and technical capability to fulfill
their proposals. Most observers felt that the selection process was
fair, and resulted in selection of high-quality teams. The proposed
projects solved real problems still facing WSDOT, such as the build-out
of Seattle\'s HOV system.

Similarly, DOTs and private proposers have remarked that Virginia's
legislation was sufficiently flexible and the accompanying guidance laid
out a clear, logical evaluation and selection process. Proposers
initially liked the two-step proposal process as it limited cash outlays
(by requiring an initial payment of \$5,000 for a conceptual proposal
submittal and \$20,000 if the conceptual proposal was accepted and the
team moved to a second phase of evaluation).

Most, but not all, P3 efforts have begun with general enabling
legislation that has described a program scope and proposal process. The
success or failure of partnerships under different legislative
structures suggests:

-   Flexibility is needed to negotiate partnerships that meet the unique
    nature of individual proposals, specifically with respect to project
    selection, negotiation, and the overlay between the P3 legislation
    and existing laws and procedures for procurement of bids;

-   States may wish to think carefully about whether to accept
    unsolicited proposals and under what conditions they are permitted
    as this structure affects other activities such as outreach and
    selection;

-   The public partner does not necessarily need to be the state \--
    local governments can also play a role; and

-   Some projects lend themselves better to a P3 approach than others
    and states may want to guide or dictate the nature of proposals
    submitted.

    []{#__RefHeading___Toc413052797 .anchor}Maximizing Legislative
    Flexibility For The DOT

Public-private partnership enabling legislation needs to satisfy two
requirements. First, it needs to create a process that does not loop
back on itself \-- such that a proposer invests a greater and greater
effort and money into the process, only to have a ruling or veto late in
the process virtually start the process over again. Second, it needs to
give the DOT flexibility with respect to making the final decision, the
ability to determine its role (so that it can tailor its role to the
needs of the project and proposing team), and the ability to enter into
an agreement exempt from selected procurement rules and regulations.
While some state laws must still apply, P3 is not traditional
procurement of services and it should not be thought of as such.
Enabling legislation also may serve to prevent or avoid potential
dealbreakers by prohibiting certain types of projects or financial
structure. This is especially useful if public support is not yet fully
secured.

Loops and Potential Concerns

Following are a few examples of the adverse impact of procedural loops
in the P3 development process:

-   In California, planned integration of the San Miguel Connector into
    the design/build contract for SR-125 requires completion of an
    agreement between the private partner, CTV, and the public partners,
    San Diego Association of Governments and California Department of
    Transportation (cost-sharing responsibilities need to be spelled
    out). These public bodies cannot make a definitive agreement until
    the road is approved, however. At the same time, approval depends,
    in part, on the integration of the San Miguel Connector. This kind
    of loop needs to be recognized and avoided.

```{=html}
<!-- -->
```
-   In South Carolina, while the P3 enabling legislation itself gave the
    DOT maximum flexibility from State Assembly oversight, it requires
    projects over \$150 million to be approved by the affected local
    government. In the case of the Conway Bypass, the selected proposer
    requested that subsequent legislation be passed to permit the
    affected local government to charge a one cent sales tax dedicated
    to the project. This failed to pass, and there was concern that
    every new financial option would similarly be subject to local
    referendum.

```{=html}
<!-- -->
```
-   The Arizona Department of Transportation's (ADOT) enacted process
    also contained an unintentional "feedback loop". Under Arizona's
    legislation, both unsolicited and solicited proposals were
    permitted. In the case of the former, upon receipt of an unsolicited
    proposal, the law required ADOT to issue an RFP for competing
    proposals that "responded" to the unsolicited proposal. Proposers
    could respond to this RFP, and a single proposal would be selected.
    Unsuccessful proposers could then submit their proposal on an
    unsolicited basis, forcing ADOT to respond, even if the proposed
    plan was not of any interest to ADOT. Thus, the process could get
    trapped in a seemingly endless loop.

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-   In Minnesota, any affected community has veto power over any project
    for thirty days after contract negotiations are final, leaving the
    proposer with significant risk until the end of the process.

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-   The Virginia model, in contrast, progressively reduces proposer risk
    over time.

    DOT Discretion

Following are two sides of the coin with respect to the importance of
DOT discretion in P3 program implementation:

-   Virginia's decision to require projects that are "compatible" with
    state and local transportation plans gives the private sector enough
    leeway to propose projects that may not have occurred to
    transportation planners, but also gives the Commonwealth the ability
    to go forward with projects that are in its best interests.

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-   In Florida, enabling legislation requires proposers to meet state
    procurement laws which proposers feel robs them of their proprietary
    rights and hampers their ability to capture efficiencies in service
    provision.

    Dealbreakers

Finally, enabling legislation can be used to prevent potential
dealbreakers from the start. In Virginia, for example, the law prohibits
the tolling of existing roads unless the tolls will go to pay for major
expansion or improvement of that facility; the state regarded these
conditions as a major factor in gaining widespread support. As a result,
Virginia experienced no organized opposition to the statute.

[]{#__RefHeading___Toc413052798 .anchor}Solicited And Unsolicited
Proposals And Open Scopes

Some states have permitted unsolicited proposals. Others have issued a
general solicitation with little or no constraints on scope. Each
structure has raised issues.

-   In Washington, no mechanisms were in hand to assess whether the
    proposed projects were of interest to the individual county and
    regional jurisdictions. Washington had general solicitation, but did
    not use specific RFPs for specific projects; it was an open scope
    structure. The program may have received better local support if it
    had requested or required that proposed projects link directly to
    Metropolitan Planning Organization's Transportation Improvement
    Plans. For example, the Puget Sound MPO had not completed its
    regional plan before the six demonstration projects were accepted.

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-   Arizona has permitted unsolicited projects. Upon reflection, ADOT
    felt the process would have worked better if private proposers had
    focused on smaller projects; initial proposals were too ambitious
    and comprehensive. ADOT would also have preferred to have more
    control over project selection. Although ADOT will continue to
    permit unsolicited proposals, it will attempt to screen them through
    a letter of intent process.

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-   In Virginia, several program issues arose that were related to
    Virginia's decision to pursue a dual approach to P3, with respect to
    permitting solicited and unsolicited proposals and the latter\'s
    subsequent two-step selection process. Permitting unsolicited
    proposals has caused the Department to rethink or alter the program
    regarding:

1)  Whether unsolicited proposals should be limited to certain types of
    projects (e.g. capital or DBOM);

2)  Using a two-step selection process for such proposals \-- in terms
    of clearing up misunderstandings and revisiting the legislation
    pursuant to the selection process;

3)  Proposed schedule for action by VDOT; and

4)  Possible conflicts with Department outreach objectives.

Limiting Unsolicited Proposals to Capital Projects

If a program permits unsolicited proposals, it may cause less disruption
to *existing* operation and maintenance (O&M) contracts with private
providers if such proposals are limited to capital improvements. O&M
(asset management) proposals can then be solicited via RFP.
Alternatively, if a state program permits unsolicited proposals, and if
the state will consider O&M proposals as part of design/build contracts
(i.e., design-build-operate-maintain type of proposals), but does not
wish to consider O&M proposals on their own, it simply needs to make
that clear in the program guidelines.

[]{#__RefHeading___Toc413052799 .anchor}*Using a Two-Step Selection
Process for Unsolicited Proposal*s

*Clearing Up Misunderstandings.* The Virginia Department of
Transportation recognizes that if a state decides to implement a program
that permits unsolicited as well as solicited proposals, the DOT needs
to be very clear about what it wants and does not want in conceptual
proposals. While VDOT thought they were clear on this issue, events have
demonstrated otherwise. VDOT has received very long and technical
"conceptual" proposals that, in their view, went much further than the
conceptual proposal framework had intended, offsetting the time and cost
savings the two-step process was supposed to provide to proposers. One
simple solution is to put in a page limit on conceptual proposals. While
crude, it could solve the problem VDOT has faced (VDOT also noted that
this type of process is really only relevant for two-step programs, and
DOTs pursuing only solicited responses may not gain very much from using
a two-step process at all).

*Re-visiting the Legislation Pursuant to the Selection Process.* VDOT
realized that the Commonwealth's Freedom of Information Act (FOIA)
requirements made the two-step selection process awkward, and
subsequently changed the legislation to exclude such proposals from the
FOIA, subject to a series of tests. VDOT advised that this type of
problem can be avoided if a state's P3 program development is considered
simultaneously with the development of its legislation.

Schedule For Action

VDOT has learned that if a DOT pursues a dual proposal solicitation
approach, it must develop an approach for proposal response. Even if the
timeframe established is long, the bidder must be kept informed of
progress made regarding project selection and approval. This may be as
simple as regularly scheduled meetings upon initial selection.
Participants in the Virginia program have also suggested that states
move away from the dual approach, and simply solicit proposals that
addresses the state's primary obejectives.

Unsolicited Approach Works at Cross Purposes To DOT Outreach

Virginia has been lauded for the extensive outreach carried out by the
DOT both at the start of the program and over time. Indeed, proposers
praised the Department for being the only DOT to stand before local
governments and state that the Commonwealth simply does not have the
resources to fund all the projects its needs. This honesty was strongly
supported and deemed critical.

VDOT has noted, however, that pockets of local opposition remain. VDOT
must, therefore, continue its efforts to educate the general public, as
well as local governments.

At the same time, because Virginia's program allows unsolicited
proposals, VDOT has an incentive to reduce or stop outreach after a
period of time, because the DOT has received more proposals than it
could respond to, in a timely manner. The Department has thus slowed its
education and outreach efforts. As a result, the solution used to
resolve one problem thus prevents VDOT from achieving other program
goals.

Washington State faced a similar problem with its open scope approach.
In hindsight, broad competition with no defined project list meant WSDOT
had to hold business proposals in confidence and restrict disclosure.
Yet, this left it open to the perception that the selection process was
"behind closed doors," with attendant implications.

Any "Responsible Public Entity" May Accept Or Solicit A Proposal

Enabling local governments or authorities to participate directly in a
P3 program may overcome one of the biggest barriers to such programs \--
local support. However, some issues do arise.

Virginia permits local governments to solicit RFPs and enter into P3
agreements. To date, only the City of Chesapeake has done so. The
relationship between Chesapeake and VDOT has been a good one, but VDOT
was surprised at the level of support required on their part and
reflected that other states may want to formalize roles and
responsibilities more than Virginia has. If a state program enables
local governments or authorities to undertake P3 themselves, some
consideration should be given as to how the DOT would work with the
locality through the process. This might include, for example, how (or
whether) to value the DOT contribution as part of the public share in
cost and risk sharing for the project.

VDOT also noted that, to date, no other locality has embarked on a P3
program. While no one knows why, VDOT speculates that they do not
understand the program well enough, possibly coupled with their fear of
replicating some of the problems associated with the Dulles Greenway. If
a DOT wishes to enable local government entities to embark on a P3
program, it may, therefore, want to include education of such entities
in its outreach program and offer upfront assistance to get them
started.

In Colorado, the E-470 project was locally initiated, with little
involvement by Colorado DOT. To some extent, the E-470 Authority that
sponsored the project was reluctant to approach the DOT as there was
concern on the part of the Authority that the state would "take over".
Again, if the process had created roles for both the Authority and
CoDOT, the DOT could have stepped in and helped the process sooner.

In particular, while the E-470 example demonstrates the strengths and
weaknesses of a project grown from local initiative, a clear and defined
state role at the start may have helped secure financing and minimize
costs. As well, an increased state role may have helped to alleviate
some of the political issues that arose and led to costly litigation
motivated by angry developers. At the same time, it could have been able
to allay the Authority's fears about being "taken over."

Capital Vs. Operations And Maintenance Proposals: Suitability to P3

VDOT and participating proposers both reflected that some projects may
be more suited to P3 programs and that there might be some benefit in
identifying these projects at the beginning of the process. In practice
the issues arose in proposal evaluation, trying to determine whether a
proposal provided sufficient value to the DOT.

With respect to capital projects, two issues arose. First, one of the
difficulties in evaluating new capital projects, if they are not already
on the state Transportation Improvement Plan, or five year capital plan,
is that these projects have not been considered and ranked in terms of
their relative priority to the DOT. Where the project is completely
privately financed, this is not an issue, but increasingly, successful
partnerships are seeking a contribution from the DOT, whether equity, a
loan, or in-kind in nature. This creates a situation that, at best,
delays the evaluation, and can stop the process in its tracks.

A second problem that has been identified is the issue of "cherry
picking". Several DOTs have expressed concern that the private sector is
only interested in bidding on projects that can yield them a return,
leaving the DOT with projects that are not viable from a stand-alone
perspective. This logic appears backward: private parties will always
seek a return on their investment as profit motivated entities. The DOT
is not profit oriented, but provides a public service. Given a basket of
projects, some of which could be stand alone and others which could not,
and scarce public dollars to meet transportation needs, many proposers
suggested that the DOT should use its scarce resources to finance those
that are not viable from a stand alone perspective, and use the private
sector to develop those that can. The P3 arrangement can be structured
so that the DOT shares in the return, and uses its cash freed up to
finance more projects than it otherwise could if the private sector had
never gotten involved.

DOTs may wish to look carefully at their long term capital plans, as
these typically represent a "wish list" of projects by local
governments, MPOs, and the state. While unsolicited proposals for
creative new ideas need not be excluded from the process, bidders may be
more interested and willing to respond if the DOT indicates the kinds of
projects it is interested in receiving proposals for, using existing
plans as a backdrop for that request. In addition, in determining which
projects might more logically lend themselves to P3, the DOT may wish to
consider its projects from a market perspective \-- which ones have or
could have elements that would make them viable (or viable with some
state assistance). Given the discussion above, it may be more logical to
solicit interest from the private sector for the latter group.

Also, DOTs may wish to identify P3 projects that are outside the scope
of their core business. For example, VDOT is considering proposals to,
in effect, privatize a ferry service between Jamestown and Scotland,
Virginia. As long as core requirements for service are established, VDOT
seems receptive to allowing private firms to explore the full
commercialization of the service. As facility operation will involve
elements such as marine engineering, shipping, and related issues that
are outside the core expertise of a traditional transportation project,
VDOT identified the service as one that could benefit from a private
firm's resources.

This issue arose in Florida as well. Florida DOT attributed the lack of
completed projects to date to the existence of the Turnpike and local
Expressway Authorities which undertake the same types of projects, in
effect capturing the potential projects away from the private sector.

Less seriously, with respect to O&M proposals, a similar issue arose.
Under O&M projects, the savings is typically based on expected
efficiencies. By definition, therefore, the DOT must be able to
determine what that segment of road would have cost them to operate and
maintain in the absence of private sector involvement. In Virginia, the
DOT did not calculate costs in a way that permitted them to isolate the
costs of operations and maintenance of the pilot section interstate from
overall costs. While these calculations are being made now to permit
evaluation after the pilot contract is completed, it was not
anticipated. This caused delay in the evaluation process.

Where a proposal is solicited, the DOT can prepare such benchmark cost
information ahead of time. The RFP for operations and maintenance of the
Jamestown-Scotland Ferry is one such example where the DOT has separated
out the costs of operating that facility. This issue supported VDOT's
case for soliciting O&M projects.

Other Issues of Scope and Legislation

In Washington, the legislation did not limit the number of proposals or
phase submission. Fourteen proposals were submitted and six selected
within the same timeframe. This overwhelmed the DOT. WSDOT had no
experience with such a program. Further, the proposals introduced tolls,
which were new to the State. Finally, the administrative costs were
higher than anticipated. These activities need a dedicated professional
staff, and they continue for the life of the project. WSDOT may have had
a smoother experience if they had staged the submission or the selection
process.

[]{#__RefHeading___Toc413052800 .anchor}public support and outreach

[]{#__RefHeading___Toc413052801 .anchor}Garnering Internal Support

Following are brief descriptions of three states' experiences regarding
ease with which intended support was achieved:

-   In Washington, the program was initiated by the Transportation
    Commission and the DOT (through its leadership of the subcommittee
    on Public-Private Partnership). This interest led to legislation,
    not the reverse. While legislative initiatives can be successful,
    there have been many instances where the DOT did not support a
    legislatively driven program.

While, in Washington, initial internal support was achieved, public
outreach needs to be a dynamic set of activities that keeps abreast of
any changing conditions between proposal selection and final negotiated
agreement. The audience for outreach may thus change over time and
cannot be prescribed beforehand. Aside from reaching the general public
and public officials in the DOT, WSDOT faced a change in the state
legislature. As opposition arose following the 1994 election results,
and a new legislative leadership came into power, strong support from
the Secretary and the Governor could have been critical. WSDOT needed to
keep the new legislators informed and garner their support, which was
not done.

-   Delaware DOT would have preferred a process that gave them more
    control over project selection, but the political forces (that were
    behind the legislation that drove the entire process) \"boxed\" the
    DOT into an RFP that permitted toll roads \-- the one type of
    project the DOT did not want to pursue. Not surprisingly, the two
    proposals received (not surprising) called for acceleration of a
    partially built toll road. Further, some miscommunication occurred
    between DelDOT and the State's Trust Fund during the project
    selection process, which hampered the evaluation procedure.

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-   In Virginia, the DOT, the Governor's office and the Legislature
    worked closely together to develop the program and to conduct
    outreach. Virginia has been complemented extensively for its unified
    effort.

    []{#__RefHeading___Toc413052802 .anchor}Gaining External Support

Several programs have faced public opposition. In Arizona,
implementation was hampered by public opposition, which some private
proposers attributed to inadequate public outreach in the initial
program. In particular, the public was subjected to a "bait and switch."
The public had accepted a local sales tax increase on the premise that
certain highway facilities would be built. Sales tax revenues, however,
fell short and those same highway facilities were now proposed as toll
roads. The public was not willing to pay tolls in addition to the tax
increase.

Other types of "bait and switch" can take place. If circumstances
require a change after local support has been secured, it is imperative
that the DOT walk the public through the change: why it occurred and
what it means. This concept applies more broadly as well. In the event
the P3 program is generated locally, it is just as important to explain
from the beginning that a private partner is sought and why he is
sought, so that the public is not "surprised" when a private partner
appears. The E-470 project in Colorado is an example.

In California, SANDAG (the MPO) faces a similar issue to that which
arose in Arizona. Here, SANDAG needs to explain why sales tax revenue
must be diverted for the San Miguel Connector. In general, the "bait and
switch" issue needs to be anticipated, recognized, and avoided where
possible or managed where inevitable.

South Carolina officials identified the biggest shortcoming of the
process as a lack of outreach and involvement of local jurisdictions
*over the course* of the process. Residents, while aware that they would
be paying for the new facilities through tolls or fees, wanted to be
more a part of developing the project package, both in the RFP stage and
in the final negotiations with the winning proposer. County and city
councils felt left out of the process, robbing the project of important
local support which comes from a sense of local ownership. The State now
realizes there must be more of a team effort between the State and the
affected localities throughout the solicitation and proposal process. No
one should be left outside the process because this allows them to
criticize from the outside. All stakeholders---even potential
detractors\-- must be brought into the circle through a partnering
process, and they must be brought in at the outset according to the
State. Early on, communication must be established between proposers and
the public.

In Minnesota, a July 1995 RFP deliberately separated the process of
preparing the initial proposal and the community support proposal. As
the RFP states, "the purpose of allowing proposers the option of
splitting their proposals into two parts is to permit the flexibility of
developing an initial proposal \-- an inherently competitive process
among industry members \-- without simultaneously requiring evidence of
community support \-- an inherently public process among community
constituencies."[^2]

In Oregon, extensive public outreach by ODOT resulted in less public
opposition to toll roads than has been experienced in many other states.
The State is conducting its own outreach efforts, which will lay the
groundwork for future P3 arrangements. In addition, consideration of
alternative models of highway development and substantial study
undertaken by ODOT will help gather support for whatever model is
ultimately adopted.

In Washington, the program left much of the outreach to the proposers
and the public at large was not adequately brought into the process (the
new legislators to some extent reflected disgruntled constituents). This
was reflected in a Seattle newspaper from June 1994 which wrote:
\"\[the\] State may like transportation projects, but what about the
public?\"[^3]

As the Washington experience shows, without careful, extensive outreach,
the public is unlikely to:

-   *Recognize the transportation problem.* Before the public will find
    it acceptable to use tolls and P3 to solve a transportation problem,
    they have to believe that there is a transportation problem that
    needs to be solved. In addition, the projects proposed should have
    no overwhelming impediments, such as environmental or ROW issues,
    that would interfere with project development.

-   *Understand the true costs of the needed transportation improvements
    and the funding problem*. Individual project needs were understood,
    but while the transportation fund is adequate for most individual
    projects *taken one at a time,* most of the public did not really
    understand the problems facing WSDOT to assemble funds to construct
    needed transportation projects. Conveying the funding shortfall \--
    both by portraying the high costs of transportation improvements,
    and contrasting it with the inadequate revenues \-- might have
    convinced voters of the real need (just as Secretary Martinez of
    Virginia later did to communities in Virginia). WSDOT bonding is
    limited and gas tax increments have failed six years in a row. If
    WSDOT had been able to convey the concept that project needs were so
    huge that they dwarf gas tax revenues, this recognition might have
    been heightened.

-   *Understand and support the fact that the private sector will seek a
    return on its investment in meeting public transportation needs.*
    This was especially true because, due to financial considerations,
    proposers had concentrated on bridges and other projects that lacked
    viable alternate routes. This improved the financial feasibility of
    these projects, but worsened their acceptability. The public (and
    the DOT) need to understand that "cherry picking" is an element of
    P3. The perception that private firms might profiteer off public
    needs is easy to develop and hard to refute. The key is to
    understand that the private sector, while it needs to make a return
    on its investment, can provide net benefits to the state.

-   *Understand WHY a public-private arrangement may be better than a
    public sector only arrangement.* Partnership projects differ from
    traditional public projects, which have a long planning period and
    are financed with allocations of existing funds. It must be
    understood that the private sector can help enable investment to
    continue to meet growing transportation needs.

[]{#__RefHeading___Toc413052803 .anchor}Financing, risk allocation, and
the division of public and private sector roles

There are two types of issues related to risk sharing and definition of
roles that need to be addressed: (1) who plays what role *within* the
public sector; and (2) how financing is shared *between* the public and
private sectors. Who plays what role will depend, among other things, on
attitude and expectations regarding risk and reward and who has the
economic advantage to secure low cost capital, and to access capital at
critical times. Further, the public partner's role also depends on the
risk profile of the project. In early implementation, many states did
not consider these issues carefully. Following are a few state
experiences:

-   The process used in Colorado, for instance, did not formally involve
    CoDOT, but locally initiated programs should involve the state.
    While the CoDOT offered its services on more than one occasion, the
    E-470 Public Highway Authority did not show much interest in
    accepting help. The Authority board was not familiar with the
    nuances of project finance, but fortunately trusted the private
    partner, Morrison Knudsen's (MK) expertise and familiarity with
    project finance to engage them as financier. Once MK took a more
    formal role in arranging the financing, however, they quickly
    approached CoDOT for assistance.

MK realized that the commercial bond markets would look for state
support of a large revenue bond issue, especially where there was no
precedent for this kind of financing. Over the 1992-1993 period, MK
secured a \$20 million loan from CoDOT that required a \$20 million
local match. The value of the loan was not as important as the
demonstration of state support for the project that the cash loan
provided. While providing less than 3 percent of project cost, the loan
went a long way to reassure investors of the public sector's commitment
to E-470 and the viability of the endeavor. This kind of state support
is critical to re-assure investors that a project of this magnitude is
both needed and encouraged by the administration.

-   In Virginia's Greenway project, since greenfield development costs
    may be higher relative to other types of projects, public sector
    assistance may be needed upfront. No state support was to be drawn
    upon under legislative terms, however, requiring significant private
    equity at the outset.

Other greenfield projects may need special assistance, such as
back-stopping credit support. Toll revenue estimates for Virginia's
Greenway project were based on projected real estate development beyond
Dulles which slowed in the recession. A state line of credit might have
helped.

-   In South Carolina, on the Conway Bypass RFP, some outside private
    sector firms felt that the proposer was being asked to do what was
    really the state's responsibility: identifying and implementing tax
    structures and revenue sources.

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-   Washington DOT had the foresight to make the maximum rate of return
    to the private partner negotiable; it was not established
    beforehand. Within this rate of return, the developer was free to
    establish and modify tolls and fares. Incentive rates of return
    could also be negotiated, allowing increments to the baseline
    maximum rate of return, if the developer met certain safety or
    demand management goals.

> Washington was willing to engage in direct financial participation to
> "address risk private capital markets are unable to accept."[^4] A
> revolving fund of \$25 million was established. Both revolving fund
> loans and any additional state funds, however, would need to be
> appropriated by the legislature. The State was also willing to deploy
> staff and facilities for development of the project, but expected to
> be fully reimbursed for all of these expenses from project generated
> revenues. This permitted the DOT to share in the early risk period
> where political risk was highest.

Building a new road is a long-term process, with very uncertain results.
California's SR-125 was granted its franchise under AB-680 in 1991,
after 1-2 years of application effort. In early 1997, this project is
very near to financing and construction, but by no means are these steps
assured. While the private partner, CTV, has (along with the real estate
developers who donated land) been willing and able to sink considerable
equity into this venture, the long lead time inherent in a greenfield
road has increased the risk to the private partners considerably. This
has several implications:

-   *Other firms in the same situation may not have been willing or
    financially strong enough to take such a position*. Risk sharing
    needs to consider the nature of the risks involved and the profile
    of risks over time. Where a DOT or local government feels this type
    of project is very important, it can reduce the risk to the private
    party by sharing some of this upfront risk, or by recognizing it in
    negotiations over rate of return. To some extent this has happened:
    SANDAG has recently decided to fund the San Miguel Connector
    up-front through direct reimbursement to CTV (instead of over time
    as initially proposed);

-   *The rate of return may need to be re-negotiated or structured as a
    function of different outcomes.* The rate negotiated between
    CTV/SDELP and Caltrans was 18.5 percent. Based on today\'s
    risk/reward profile, this limited return permitted to CTV/SDELP
    under its franchise may not be adequate, compared to the continuing
    possibility (in 1997) of a complete loss of significant equity
    capital expended (since 1989). Note that a portfolio investment in
    NYSE stocks has earned about 25-35% annually for the past two years.

-   *The state's contribution may need to reflect the type of project.*
    Under AB-680, Caltrans cannot deploy state funds. Given the
    project's greenfield nature, this may have been an unrealistic
    restriction that precludes good projects from getting done. Indeed,
    start-up financial assistance may be necessary to keep private
    players interested. SR-125 has required major up-front equity over
    about eight years so far, with no revenues in sight before about
    2001.

Where cash support is not possible, other kinds of support can be
provided by the public partner, such as a promise not to build competing
roadways, or in-kind contributions. One of the key issues that arose in
Colorado during financial consideration of the E-470 project was related
to land use jurisdiction and planning. CoDOT's assistance here was
crucial to maintain objectivity between competing interests.

Requiring private ownership of land may impose unnecessary risks on the
private party. The state can contribute to a project up-front by using
its powers to acquire ROW. Virginia land acquisition for the Greenway
proved difficult to finalize without any "taking" authority.

The "non-compete" clause must be clear in setting local priorities.
California's SANDAG recognizes the need for SR-125 when it states: \"The
relocation of the commercial port of entry to Otay Mesa and the
NAFTA-related traffic growth is overwhelming the existing border
transportation infrastructure.\" SANDAG has been supportive but it also
has many competing priorities that make desert build-out of less than
compelling urgency. For example, the widening of Otay Mesa Road to six
lanes by 1998 was recently scheduled, evidence that both SANDAG and Otay
Mesa recognize the urgent need to upgrade the major East-West SR 905 to
serve border traffic. Otay Mesa Road currently serves as an extension of
SR 905 and is feeding traffic to/from I-805 and I-5, the two major
North-South Interstate roads through San Diego. While this improvement
could stimulate further area growth, SR-905 also provides a free,
indirect route into/out of the border crossing area competitive with
SR-125. Caltrans is restricted from developing competitive facilities,
but in fact CTV has only limited non-compete protection as SANDAG moves
forward with this expansion of SR 905.

[]{#__RefHeading___Toc413052804 .anchor}Issues Regarding Public and
Private Sector Role Definitions

Three additional issues related to the designation of appropriate roles
relate to; (1) who should conduct outreach efforts; (2) the
appropriateness of private partners carrying out EIS-realted activities;
and (3) the potential role of 63-20 corporations. Each are discussed
below.

Outreach

Even before outreach can be conducted, a state must determine who will
conduct it andwho will take the lead. In Washington, some felt that the
public outreach needed to be conducted entirely by public agencies.
Requiring proposers to conduct outreach as part of the RFP process
created contradictory goals. Proposers were competing with each other
and did not want to share too much information about their plans and
their features. On the other hand, the proposers are trying to gather
support. The proposers were generally successful at gathering support
from local leaders, but not the public. When surveys, focus groups,
etc., from the private sector were released, they were perceived as
biased, because they were conducted by the private entity that stood to
gain from the project.

EIS-Related Activities and Studies

Experience has shown that there are some roles and risks that the public
partner should take. In Washington, when funding was provided to the
State to conduct engineering and environmental studies on the Tacoma
Narrows Bridge, the state hired the proposer \-- United Infrastructure
\-- to perform the studies. Some regarded this as a conflict of
interest, because the company that stood to benefit from the project
would be conducting the EIS and other critical studies, and might be
tempted to change any negative results. Others felt that having UI do
the environmental and engineering work was logical, because they would
be undergoing the risk of having the project development halted if the
studies were inadequate.

In California too, there was some outcry over an initial suggestion that
CTV undertake the EIS, as community residents felt that the EIS would be
biased. Caltrans is now undertaking the EIS. CTV officials suggested
that this is one area of risk and cost that the public partner can and
should assume as the state has a natural advantage here: the value of
the risk it saves the private partner is worth more to that partner than
what it costs the state. Thus it can be valued as a contribution in
excess of what it actually costs the state to undertake (effectively
capturing some or all of the rent for the state).

Finally, the state should take a broad view in seeking clearances.
Environmental clearances are difficult, lengthy in duration, costly, and
often a stumbling block. States and private entities should seek a way
to minimize the possibility for local, state, or federal objections and
seek to obtain the highest clearance possible if there is any chance
federal funds will be used at any time in the process.

In California, for instance, participants had assumed SR-125 would be
privately funded with some support from SANDAG's TransNet program. Once
they realized federal border crossing funds (and possibly credit
support) will be needed, Caltrans had to revisit the EIS effort.

States may also want to include a calendar "cut-off" date to limit
late-stage environmental challenges.

63-20 Corporations

Several project sponsors, including Chesapeake, Virginia, are
considering using a so-called "63-20 corporation" to structure
public-private financing. Here, projects can be financed with tax-exempt
bonds, while attempting to maximize the benefits for both public and
private participants by establishing a not-for-profit corporation to
issue the debt. These corporations, named for Revenue Ruling 63-20, are
not formally under the control of either the government entity or the
private partner. Therefore, it is essentially important that
public-private partners keep their interests in mind when crafting 63-20
arrangements. A fuller description of 63-20 corporations is included in
the appendix of this report.

[]{#__RefHeading___Toc413052805 .anchor}Relations with the private
sector

Related to the definition of project roles between public and private
parties is the ongoing relationship with private partners. Issues
related to attracting, maintaining, and negotiating terms of private
sector involvement are discussed below.

[]{#__RefHeading___Toc413052806 .anchor}Attracting Private Involvement

Proposal-related costs should be controlled and set with an
understanding of associated risk. The private sector appreciated
DelDOT's and Virginia\'s graduated fee structure, which reduced
development costs. In Florida, however, private proposers were asked to
pay \$50,000 upfront.

Time to prepare a proposal is a real cost too. Virginia intentionally
selected a 30-day period for competing proposers. This allowed proposers
to put together a proposal if they were already considering the same
project, but not enough time for competing proposers to "steal" an
original concept developed by another firm.

Finally, the DOT needs to show real commitment to the P3 process
upfront. Arizona\'s legislation required full reimbursement for public
services, such as police. Proposers felt this reflected a mixed level of
commitment by the DOT.

[]{#__RefHeading___Toc413052807 .anchor}Maintaining Private Sector
Interest

To date, in Florida, there have been six proposals, none of which have
been approved. Two are still pending completion. In several cases, the
proposals never went beyond the first step of the process, because they
were never completed. In some cases, this was because local support was
lacking. Other proposals have not made it past step two (usually when a
more detailed proposal is submitted). Sometimes, proposers were not
willing to pay the additional costs incurred by the State to review
their proposals, often because they sensed a lack of commitment by the
state. The State has thus lost some credibility because the process is
so loosely defined and not adhered to.

One factor that helped California's AB-680 process succeed was continued
assurances of commitment by Caltrans and the Governor. Caltrans placed
facilitators in each major urban district to facilitate proposal
preparation. Franchise agreements were negotiated by high-level state
negotiators, who had the authority to approve contracts. Individual
projects were helped by demonstration of local commitment \-- for
example, the Orange County Transportation Authority's financial
commitment to SR-91 helped move the project forward.

[]{#__RefHeading___Toc413052808 .anchor}Negotiating With The Private
Sector

The negotiations process can make the difference between a successful P3
initiative and one that is a complete failure. Early procedural
definition is a key supporting element as well. Virginia, for instance,
invested a significant amount of administrative time in developing its
first agreement, but expects that future agreements will benefit from
this investment. Following are several key elements to effecting
producing a productive negotiation framework.

Establish A Framework For Evaluation and Selection

The key to negotiation appears to be flexibility: creating a framework
that permits the private partner to achieve its goals, *taking advantage
of its ability to do things differently from the DOT.* Using performance
standards allowed VDOT to establish a level of service required and
minimizes the oversight necessary. At the same time, it lets the private
partner determine how it achieves required service levels.

The concept applies to Design/Build contracts as well. Here too, it is
critical to construct an agreement that evaluates the private party by
its results, not the process or efforts employed to reach those results.
In practice, this means moving away from the traditional audit of
activity during a billing period, where the private partner must
demonstrate what was done to secure payment for services rendered. It
may be more helpful to spell out what results must be achieved by what
dates, and to allow the private partner to determine the method by which
it achieves those results.

In South Carolina, although the recommended proposal was identified
during the selection process, the rank of the remaining three proposals
was purposefully not revealed. The goal was to eliminate the influence
of politics in the Commission's decision. If the negotiations were to
fail, the panel would then re-present the remaining three to the
Commission, with the original runner-up as the new recommended proposal.
This process gave the State negotiating power with the chosen team,
because it allowed them to break off negotiations without abandoning the
project. Each of the remaining three teams believed that they were
runner-up because the ranking was never revealed. This kept the other
teams prepared to re-enter the process if negotiations with the winner
were to fail.

Establishing A Fee Structure

It becomes important to negotiate a payment structure that provides
stability to the private partner. This can be done many ways, including
partially divorcing the timing of payments from that activity of audit.

Trust

Both sides must realize what is critical to the other party. While there
are no rules for establishing this trust, one private firm suggested
that the initial negotiations take place privately between the DOT (and
Attorney General's office) and the team. Once there is an initial
agreement, each party should then turn to their respective legal teams
to determine whether the agreement is satisfactory. This clarifies the
respective roles: the private partner and the DOT negotiate an
agreement. The legal counsel's job is to make sure a negotiated contract
is binding and fits within existing law.

[]{#__RefHeading___Toc413052809 .anchor}Conclusion

This section highlighted key issues encountered with developing
partnerships between the public and private sectors for the provision
and maintenance of highway infrastructure. Primarily, a wide base of
support, effective coordination, and consistant communication are
central to the success of P3 initiatives. Without support from the
affected locality, general public, and business sector, the project
\--even one that creates significant benefits under a P3 structure\--
may not be able to overcome negative attacks initiated by internal or
external forces.

With the necessary base of support, the ability to structure agreements
between public entities and private parties codifying the basic
framework of standards, assurances, warranties of performance,
completion dates, and other commitments by either party becomes a more
achievable challenge. Achieving a workable agreement that is acceptable
to all parties, stands the scrutiny of regulatory control, and survives
the test of financial marketablility is the final hurdle for developing
public-private partnerships.

[]{#__RefHeading___Toc413052810 .anchor}review of state p3 programs

[]{#__RefHeading___Toc413052811 .anchor}INTRODUCTION

Over the last several years, a number of state transportation agencies
have established processes for soliciting and accepting proposals from
private firms to develop, operate, maintain, and even own surface
transportation projects and services. As of this writing, ten states
have developed and at least partially implemented a statewide process
for solicitation, acceptance, and review of proposals from the private
sector for provision of surface transportation related services:

-   Arizona

-   California

-   Delaware

-   Florida

-   Minnesota

-   Oregon

-   Puerto Rico

-   South Carolina

-   Virginia

-   Washington

This overview examines key aspects of these states' processes,
including:

-   Legislative History;

-   Types of Arrangements Permitted;

-   Procedures for Project Initiation and Selection;

-   Fee Structure;

-   Assistance Available from the Sponsoring State;

-   Rates of Return and Other Terms;

-   Public Involvement Provisions; and

-   Lessons Learned.

Following the state by state review is a series of flow diagrams that
illustrates each of the ten states' solicitation and review process.
Additional information was gathered about eight states that have not
adopted a statewide process or are in the beginning stages of such a
process:

-   Colorado

-   Maryland

-   Missouri

-   New Jersey

-   New York

-   Pennsylvania

-   Texas

-   Utah

Because the information gathered about these states' processes was less
detailed, these states are covered in an abbreviated format. Also, by
the fact that a number of these states are actively in the process of
developing programs, the information presented here will become outdated
but is still instructive. Maryland, for instance, is now crafting a
statewide program to accept non-highway proposals.

This section is followed by a summary table of recent or active P3
projects for the states included in this study. The table includes a few
projects not directly addressed in this report, but for which
information was available and
informative.[]{#__RefHeading___Toc413052812 .anchor}

STATE BY STATE REVIEW

[]{#__RefHeading___Toc413052813 .anchor}ARIZONA

The State of Arizona initially passed enabling legislation in 1992,
allowing ADOT to enter into partnerships with private entities for the
identification and development of up to four toll-roads and other
transportation projects. In response to a 1992 RFP, the State received
ten proposals from seven developer consortia, including a comprehensive
proposal from the firm, HDR, Inc., for a series of planned highways
around Phoenix. Three of these proposals were selected for further
development and negotiation; in response to significant public
opposition, however, all three ultimately were canceled. Another
unsolicited toll road proposal was also received from HDR in November,
1992, but ultimately was withdrawn by the developer after a dispute over
whether the proposal met requirements established by the legislation and
associated guidelines.

In February, 1996, ADOT issued an RFP for one of the projects in their
long range plan, VUE-2000, for the South Mountain Freeway. In addition,
the State received another unsolicited proposal from HDR in August, 1996
for construction of automated high-occupancy toll lanes in eastern
Phoenix (including most of the roadways from the earlier proposal, with
the exclusion of the South Mountain Freeway). The State is currently
attempting to negotiate to develop the South Mountain Freeway project as
a public-private partnership.

**Legislative History:** Arizona in the 1980s was faced with rapid
development in the Phoenix area. Adding to the transportation funding
gap was the fact that growth outpaced the collection of sales tax
revenue, and sufficient funds were not available for construction of
planned highway projects in Phoenix. Arizona determined that private
involvement, specifically in toll roads, would enable faster development
of highway projects. The 1992 legislation was amended in 1995 to remove
a provision that made the State responsible for any default on the part
of the proposer, and to increase opportunities for local government and
public involvement. The amendments also permit the State to acquire the
ROW on behalf of the private sector, and to fund construction of
complementary highway interchanges.

**Arrangements Permitted:** Under the revised enabling legislation,
there are two separate tracks. Under Article 1, the transportation
facility will be owned by the State. Under Article 2, the facility may
be privately-owned or State-owned, depending on the arrangement
negotiated.

**Initiation of P3 Proposals:** Under Article 1, the State must solicit
proposals for private construction/operation of any transportation
facility. Under Article 2, the State may request proposals, or private
operators may initiate proposals.

**Selection Process & Selection Criteria:** Under both Article 1 and 2,
the Arizona review process is two-tiered. The first review is conducted
by a panel of in-house technical experts from ADOT plus financial
experts, citizens, and representatives from all affected jurisdictions.
Each proposal is reviewed for three basic criteria: technical
feasibility; financial feasibility; and political/social desirability
(includes environmental and economic issues). After reviewing the
proposal, the panel makes its recommendation to the Management Review
Committee (MRC). The MRC, in turn, studies and accepts, rejects, or asks
the proposer for additional information. They, in turn, make the final
recommendation to the State Transportation Board. With Board approval,
negotiations with the developer can begin. Final Board approval,
however, is contingent on public support.

**Fee Structure:** No fees are specified in either the legislation or
the RFPs issued by ADOT; however, under both Articles 1 and 2,
applicants are required to reimburse ADOT for administrative expenses
after a contract is signed.

**Assistance Available from the State:** Under Article 1, the State may
exercise eminent domain, undertake liability, and provide law
enforcement and inspection services as with any other transportation
facility. Under Article 2, the State is not permitted to exercise
eminent domain; the private entity must obtain local agreements and
conduct public outreach on its own. If the private entity owns the
facility, it must also purchase its own insurance, and contract with
state and local government for law enforcement services.

**Rate of Return and Other Terms:** The State is not involved in setting
rates of return, and plans to allow market forces to determine toll
rates. The State and the private partner will also negotiate the term of
the agreement; no limitation is specified. Under Article 1, no uses for
excess toll revenue are specified: under Article 2, excess toll revenue
must be used for improving roadways affected by the facility.

**Public Involvement Provisions**: The process requires the proposer to
consider public support from the beginning. The RFP requires a broad,
general public participation plan to be submitted with the proposal. A
public involvement strategy is then negotiated between ADOT and the
proposer. Concurrent with negotiations between the State and the
developer, the developer must put into effect the negotiated public
involvement strategy. During this period, approvals from the affected
jurisdictions must be obtained. If public support is not forthcoming,
the State Transportation Board approval of the project becomes null and
void, terminating the project (each MPO also has the right to vote to
concur or oppose, but their vote is advisory, not binding).

The legislation itself was also used to overcome public opposition. It
included a clause permitting any user of a toll facility developed under
this process to seek a refund of gas taxes paid while using this
facility. It is not clear what impact this provision has had on
potential P3 arrangements, but it appears to be unique. ADOT's
legislation also includes a clause requiring any toll roads proposed to
have a "reasonable free alternate route". While private respondents did
not specifically mention this provision as a problem, it will likely
reduce the financial feasibility of some roads because users inevitably
would have access to alternate routes to avoid paying the tolls.

**Lessons Learned:** Initially, implementation of P3 legislation in
Arizona was hampered by public opposition, which some private proposers
attributed to inadequate public outreach in the initial program. Public
opposition was also heightened by a shortfall in local sales tax
revenues, which were initially intended to fund the construction of many
of the highway facilities now proposed as toll roads. The public had
accepted the tax increase on the premise that the promised facilities
would be built, and were not prepared to pay tolls in addition to the
tax increase. In addition, local contractors were concerned about
projects being awarded to large, out-of-state firms.

ADOT felt the process would have worked better if private proposers had
focused on smaller sections; initial proposals received from private
developers were too ambitious and comprehensive. ADOT would also have
preferred to have more control over project selection. Although ADOT
will continue to permit unsolicited proposals, ADOT will attempt to
screen them through a letter of intent process. ADOT has also worked
with the private sector to develop a set of guidelines clarifying
expectations regarding proposals. ADOT and private respondents also felt
that proposers should be educated as to the extensive federal and state
environmental and legal requirements, so that proposers will recognize
the time and effort required to bring a proposal into reality.

The private sector found the local jurisdiction veto clause to be a
"deal breaker" because it introduced a serious element of risk even
after the final approval had been obtained at the state level. Some
proposers felt that ADOT's process also contained an unintentional
"feedback loop". Proposers could respond to an RFP, and one would be
selected. Unsuccessful proposers could then submit another unsolicited
proposal, which the law would require ADOT to issue another RFP even if
the DOT was not interested in the project. ADOT would have preferred to
have had the flexibility to initially evaluate the proposals before
having to issue an RFP.

Private respondents also felt that the 60-day period allowed for
responses to RFPs issued in response to unsolicited proposals was too
short, although it is consistent with response periods for other RFPs
issued by ADOT. Finally, private respondents also felt that required
reimbursement for public services, such as police, reduces the sense of
commitment from the public sector.

[]{#__RefHeading___Toc413052814 .anchor}CALIFORNIA

The State of California passed enabling legislation in 1989 (*Assembly
Bill 680*), one of the first such laws in the country, allowing the
State to enter into partnerships with private firms for the development
of privately financed transporation projects. The stated purpose of AB
680 was to get private capital into public projects for highways, and to
get roads built faster than could have been done with public funds.
Under the law, the State would allow no more than four P3 projects, and
required at least one in both the northern and southern parts of the
State. As of December, 1996, one project was completed, and three are in
various stages of development.

**Legislative History:** The California Department of Transportation
(Caltrans) was the major proponent of the AB 680 legislation which
passed in July, 1989. Although the legislation itself did not enjoy
broad support, it was attached to a larger piece of legislation with
strong backing, and thus passed easily.

**Arrangements Permitted**: The legislation allows solely privately
funded Build-Transfer-Operate (BTO) projects.

**Initiation of P3 Proposals:** AB 680 states that "the department may
solicit proposals and enter into agreements with private entities . . ."
for the purpose of developing four demonstration P3 projects. Caltrans
issued Requests for Qualifications in order to solicit responses from
the private sector. Private consortia came forward with projects that
were unsolicited as opposed to identified by the State.

**Review and Selection Process:** Project specifications are reviewed to
ensure they comply with department standards for state projects. A
project's competitiveness will be enhanced by being responsive to the
broadest set of relevant interests, such as commerce, transit,
environmental, local land use, state-of-the-art traffic operations
technology, and similar considerations.

**Fee Structure:** All proposers were required to enclose a check for
\$50,000 with their proposals; however, only the checks for the four
successful proposers were deposited after selection. These funds are for
administrative costs associated with proposal evaluation and
development.

**Selection Criteria and Negotiation:** Proposals were scored on
criteria including innovation, environmental impact minimization, ease
of implementation, local support, etc. Eight proposals were received for
seven projects (two proposers picked the same project). A panel of
Caltrans staff from various disciplines and one outside reviewer
evaluated the applications.

Four proposals were chosen: the SR-91 Project, in operation since
January 1996; the SR-57 project, which has experienced financing
troubles in part because of the bankruptcy of Orange County; SR-125, for
which the State took over the environmental review process following a
community challenge and is nearing completion of the final EIR/EIS; and
the Mid-State Tollway, a new roadway in the San Francisco Bay area,
which has also experienced community opposition.

Final agreements between the State and the winners were signed before
the new Governor entered office. Both Caltrans and the proposers were
concerned that the change of administration might alter the process.

**Assistance Available from the State:** No State funds can be used, and
the State will not provide credit enhancements or risk sharing. The
private partner also must reimburse the State for initial development
costs, such as design, engineering, and environmental review, as well as
ongoing maintenance and policing costs. However, the State did provide
the private partner in the SR-91 project favorable lease terms for the
median right-of-way.

**Rate of Return and Other Terms:** All projects are to be
Build-Transfer-Operate (BTO), meaning that the private firm will turn
the facility over to the State upon completion, lease it back, and
operate it for a maximum of 35 years. Operators can set and collect
tolls. However, profit levels have beeen individually negotiated with
Caltrans, and any toll revenue received in excess of operating costs,
financing costs, and agreed private return, must be paid into the State
Highway Account.

**Public Involvement Provisions**: The AB 680 legislation does not
articulate a specific process for public involvement.

**Lessons Learned:** One factor that helped the AB 680 process succeed
was continued assurances of commitment by Caltrans and the California
Governor. Caltrans placed personnel in each major urban district to
facilitate proposal preparation. Franchise agreements were negotiated by
high-level State negotiators, who had the authority to approve
contracts. Individual projects were helped by demonstration of local
commitment \-- for example, the Orange County Transportation Authority's
financial commitment to SR-91 in the form of subordinated debt helped
move the project forward.

The State's program was also successful because of the widespread public
recognition of the need for improvements, as well as successful outreach
to explain that traditional funding was not available.

[]{#__RefHeading___Toc413052815 .anchor}DELAWARE

The State of Delaware passed enabling legislation in 1995 *(House Bill
No. 177, April 13th, 1995)* permitting the DOT to solicit proposals for
public-private partnerships in any form. DelDOT issued an RFP in March,
1996, and received two responses. Both proposals involved accelerating
completion of a partially completed toll road, SR 1. As of this report,
no further RFPs have been issued, and no further proposals have been
received.

**Legislative History and Structure:** The catalyst behind the
development and passage of P3 legislation was prompted by a group of
developers who recognized the Department\'s desire to shift to full-cost
pricing for transportation services. DelDOT viewed these pricing
policies as more equitable than existing funding means. The State also
sought to expand its financial capabilities over the long term, and
provide critical transportation services in an efficient and timely
manner.

**Arrangements Permitted:** The legislation permits both
Build-Operate-Transfer (BOT) and Build-Transfer-Operate (BTO)
arrangements. Under BTO, the State owns the project upon completion. The
private partner may then lease the project back from the State for up to
50 years. Under BOT, the State retains ultimate ownership of the project
and transfers at least some part of the risk of providing and/or
operating the project to the private partner. DelDOT also was prepared
to consider other arrangements excluding full private ownership.

**Initiation of P3 Proposals:** The Delaware legislation authorizes the
DOT Secretary to "entertain, solicit, evaluate, negotiate, and
administer innovative agreements with the private sector" for up to four
demonstration projects, and requires the Secretary to issue an RFP
requesting proposals for public-private partnerships.

**Review and Selection Process:** The Delaware legislation requires that
projects be selected by a Demonstration Project Committee consisting of
the DOT Secretary, Director of Financial Management, Chief Engineer, and
four other individuals designated by the DOT Secretary. Each proposal is
weighed on its own merits and ranked according to the selection criteria
stipulated in the RFP.

**Fee Structure:** Recognizing that private firms wanted to limit
up-front development costs, DelDOT designed an incremental fee structure
for the proposal process. Under the fee structure, developers were to
pay \$5,000 to submit proposals, and an additional \$10,000 if they were
short-listed. Another \$35,000 would be required if a proposal was to be
carried forward.

**Selection Criteria and Negotiation:** In the March, 1996 RFP, criteria
included: understanding the intent of the RFP; the proposal's value to
Delaware; the project approach; the firm and project team; management
approach to the partnership with DelDOT; and financial strength of the
project team. After selection, proposals must be approved by the local
Metropolitan Planning Organization and the Committee on Transportation,
as well as the Joint Bond Bill Committee and the full General Assembly.

**Assistance Available from the State:** As part of a March 1996
solicitation, Delaware was willing to contribute \$15 million in
financial assistance. DelDOT also stated that it would consider
assisting with upfront, initial development efforts (via monetary and
non-monetary contributions), assisting proposers with rating agency
presentations, in-kind contributions, and high-risk activities such as
environmental assessment or community participation and outreach.

**Rate of Return and Other Terms:** The final agreement could include
alternative rates of return, depending on the proposed partnership
structure. A maximum rate of return is to be negotiated under the
agreement, which can last for up to 50 years.

**Public Involvement Provisions**: Following project selection, a
two-month outreach period occurs to allow DelDOT and the selected
partner to build public support, and incorporate input from the general
public as well as those directly affected by the project. There is no
specific public approval process; however, it is assumed that the vote
in the General Assembly will reflect the opinions of the constituents
represented by the members of the Assembly.

**Lessons Learned:** DelDOT would have preferred a process that gave
them more control over project selection. The two proposals received
called for accelerating the completion of a tolled commuter route, SR1,
designed to shift through traffic off of routes 13 and 113. The same
political pressures that drove the legislation further drove the DOT to
retain an open scope even though they feared they would simply receive
proposals to complete SR1, which is exactly what happened. The DOT would
have preferred to receive proposals related to managed development and
transit. Acceleration of SR1 did not provide sufficient value to the
State relating to in-house development. The requirement of private
*financial* participation that was part of Delaware's enabling
legislation also limited the State's willingness to structure the
arrangement as a 63-20 corporation with access to tax-exempt debt.

In addition, the Secretary did not finalize the members of her selection
committee until well into the process. Earlier discussions between that
group and the P3 working group in the Department may have facilitated a
smoother process.

The private sector appreciated DelDOT's graduated fee structure, which
reduced development costs.

[]{#__RefHeading___Toc413052816 .anchor}FLORIDA

The State of Florida passed enabling legislation in 1991, and had
received several proposals by the end of 1996. For various reasons
(including lack of local support and developer withdrawal), none of the
projects had begun construction. Under the 1991 legislation, FLDOT can
accept proposals for all modes of transportation, and for many P3
arrangements, such as full private ownership, turnkey and
design-build-operate, and contract operations and maintenance.

**Legislative History:** Florida's unprecedented growth has outpaced the
State's ability to keep up with infrastructure needs. As a result of the
need for local bodies to make sure available infrastructure allowed
development and tax-base expansion, local authorities were formed to
establish road financing and respond to other infrastructure needs and
this system has worked well. The 1991 legislation was a formalization of
the process and an attempt to apply statewide rules to the roles of
public authorities. The State amended the legislation in 1994, allowing
the investment of public funds, but only in a case of "overriding public
interest." In addition, the latitude for proposals was broadened to
allow proposals for building, operating, owning, or financing a
facility.

**Arrangements Permitted:** Florida will accept private sector proposals
for building, operating, owning, or financing any transportation
facility.

**Initiation of P3 Proposals:** In Florida, the private sector initiates
all proposals. Any proposer can propose anything at any time, as long as
the complete proposal is received by FLDOT 180 days before the
legislative session begins, for its consideration in that session.

**Review and Selection Process:** The FLDOT rules establish a three
part, open-ended, continuous process. First, the FLDOT must accept a
complete proposal. Complete proposals must be received by FLDOT at least
180 days before the beginning of the state legislative session. The
review committee is made up of FLDOT staff and includes an eight-member
technical review group, a financial review group, and a standing
six-member Executive Review Team (comprised of the District Secretary
and five senior staff from central office) which oversees the technical
teams.

Proposals first undergo a preliminary review, for potential legal
conflicts, proposal content, team qualifications, demand for the
project, project benefits, general environmental impacts and mitigation
measures. The teams also review business and functional plans for the
facility, and ensure that the proposal is consistent with state and
local plans and contains letters of support from local jurisdictions.

Unlike many other states, which have exempted the P3 process from
certain state laws, notably procurement laws, Florida requires proposers
to meet the same legal requirements that the DOT would have to meet if
it were building the facility, unless they can demonstrate that
suspending specific laws in their particular case are "in the best
interests of the public."

The "compliance with all laws" rule includes competitive bidding for
contracting jobs. Pre-selected teams of designers-builders, etc. may or
may not be acceptable, depending on the individual case. Consortia are
allowed, but pre-selected contractors are not. An iterative process
results, in which the State informs the proposer what needs to be
modified in order to meet legal requirements, and then the proposer must
resubmit. This process ends only when the State is satisfied that all
laws are met or the proposer has made a convincing case as to why it is
in the public's best interest to suspend certain legal requirements for
their particular case.

Once the DOT is satisfied with the completeness and legality of the
proposal, detailed review begins to test feasibility and soundness of
the project. The basic test for the proposal is: "Is it in the public's
best interest?" Proposals must not cause any additional cost to
government or service disruptions which might be experienced by the
traveling public. If state funds are to be used in the project, it must
have an "overriding public interest."

The review teams (augmented by external financial and engineering
consultants) make a recommendation to FLDOT's Secretary. After approval
of the Secretary, the legislature must approve the project before it can
go forward.

**Fee Structure**: Proposing firms are required to pay a \$50,000 fee to
cover the expenses state and local governments may incur in reviewing
the proposal. If the costs to the governments exceed the \$50,000, the
proposer is required to pay the difference.

**Selection Criteria and Negotiation:** Negotiations take place
throughout the process. In the proposal process, there is discussion
between the DOT and the proposer about what is legal and what exemptions
might be allowed. There is also negotiation in the crafting of the
legislation, between the proposer's and the State's lawyers. Finally,
the specific implementation negotiation takes place during the franchise
agreement stage.

**Assistance Available from the State:** Grants, assumption of liability
risks, police and other public services may be provided if need is
sufficient. The law allows the State to put actual dollars into the
project, even to take an equity stake, but there is no pool of money set
aside specifically for this purpose. Which party should assume liability
is also negotiable, but policing costs must be reimbursed by the private
entity unless they can prove the State has an "overriding state
interest." The State is also willing to negotiate for the use of its
power of eminent domain.

**Rate of Return and Other Terms:** Rates of return are negotiated, and
the State expects to have some control over the setting of tolls and
fees by fixing them in the franchise agreement. The State also expects
to own the facility after 30 or 40 years or to negotiate a BTO
arrangement.

**Public Involvement Provisions**: In submitting a proposal, a private
firm must provide documentation of public support for the project. This
section of the proposal is used in the evaluation and selection process.

**Lessons Learned:** Three main lessons can be learned from Florida's
experience to date. First, the \$50,000 upfront fee was far too high.
Second, no proposals have been implemented to date. The reasons given
range from developer withdrawal to lack of public support. In reality,
the existence of the local authorities for transportation projects may
mitigate the need or opportunity for private service provision. Finally,
the program's \"compliance with all laws\" provision has acted as a
disincentive and adds time and expense to the overall proposal process.

[]{#__RefHeading___Toc413052817 .anchor}MINNESOTA

The State of Minnesota, following the lead of larger states where
transportation demand had exceeded supply \-- and existing resources \--
began considering private development of toll roads to attract private
capital to the State and to provide needed infrastructure sooner,
without relying on slower, more traditional pay-as-you go financing for
roads. At the close of 1996, four projects had been proposed, all of
which were halted by political or public opposition. One proposal, a
tolled truck-only highway across the northern region of Minnesota, was
rejected outright. The three remaining projects were considered more
feasible, and have been delayed by continuing negotiations.

**Legislative History:** The State of Minnesota adopted P3 enabling
legislation in 1993, creating the "Toll Facilities through
Public-Private Initiative Program". The law established Minnesota DOT's
and other transportation authorities' legal ability to form partnerships
with the private sector. Due to a strong opposition to tolls, the
enabling bill passed in the House of Representatives by a slim, one vote
majority.

**Arrangements Permitted:** MNDOT is willing to consider tolling of new
or existing highways, under any mode of ownership or operation, approved
by the MNDOT Commissioner. Ownership may be with or without reversion of
title; operation may be under lease, management contract, or toll
concession; and may involve Build-Operate-Transfer (BOT) or
Build-Transfer-Operate (BTO) arrangements.

**Initiation of P3 Proposals:** Proposals can be initiated by a public
sector RFP or by the private sector, although to date no unsolicited
proposals have been received. Minnesota published an RFP in July, 1995
inviting firms to propose any kind of public-private arrangement (except
contract operations and maintenance). Five consortia responded (two for
the same project), and one proposal by InterWest, for an 11-mile toll
road from suburban Eden Prairie to southwest Minneapolis-St. Paul, was
accepted for negotiation. One was rejected outright, and as of this
report three others were under consideration.

The proposer must engage in whatever public discourse and outreach they
see fit in order to establish that their proposal is in the public
interest and is supported by the public. If necessary, technical
proposals may be modified following the outreach process. The proposer
must prove public interest and public support to the DOT. Then, the
application will be complete and subsequently reviewed by the State.

The InterWest project, a BTO arrangement which would blend public equity
and toll-backed revenue bonds, cleared the support hearings in three of
the four communities. The fourth community, Eden Prairie, vetoed the
project. The State and InterWest are working to modify the proposal to
meet Eden Prairie's approval. Another project, Highway 212, will
construct a new corridor that passes through largely undeveloped areas
outside the twin cities. Cost is estimated at \$200 million. Over 70
percent of the project financing will come from bonds and subordinated
loans from the State. The remainder may come from public equity.

**Selection Criteria and Negotiation:** Projects are evaluated by a
combination of criteria. A community support proposal must be included
in the project proposal before the State will consider it for
negotiations.

**Fee Structure:** Proposals for projects with anticipated total capital
costs valued at or below \$10 million must pay a fee of \$7,500;
proposals for projects with anticipated total capital costs valued above
\$10 million must pay \$15,000. Upon selection, all proposals must pay
an additional fee of \$20,000.

**Assistance Available from the State:** The terms of Minnesota's RFP
did not detail the degree to which the State would assist the private
firm. Grants, lines of credit, assumption of liability risks, ROW
acquisition, operations and maintenance, police and other services may
all be negotiated. No form of state assistance was prohibited by the
RFP. The RFP also did not specify a term for the arrangements.

**Rate of Return and Other Terms:** The rate of return is subject to
negotiation, but will be based on the relative risks and potential
rewards of the project, current economic conditions, and other factors
that MNDOT deems relevant. The legislation specifically allows toll
rates that vary by time of day, vehicle characteristics and other
factors.

**Public Involvement Provisions:** Any affected community has veto power
over any project for thirty days after contract negotiations are final.

**Lessons Learned:** First and foremost, the provision that allows for
any affected community to have veto power is unacceptable to many firms
because of the obvious risk involved.

In the July, 1995 RFP, MNDOT deliberately separated the process of
preparing the initial proposal and the community support proposal,
recognizing the need for a strong public role in the latter. As the RFP
states, "the purpose of allowing proposers the option of splitting their
proposals into two parts is to permit the flexibility of developing an
initial proposal \-- an inherently competitive process among industry
members \-- without simultaneously requiring evidence of community
support \-- an inherently public process among community
constituencies."[^5]

[]{#__RefHeading___Toc413052818 .anchor}OREGON

Senate Bill 626, passed by the Oregon Legislature in 1995, creates the
opportunity to fund transportation projects with new and innovative
techniques, including public-private partnerships. The legislation
enables the Oregon Department of Transportation (ODOT) to combine local,
state, federal, and private resources to advance projects that may take
decades to complete with traditional funding. It also allows the
operation of tollway facilities as one means of generating revenue to
finance the construction of new roads and bridges.

The legislation does not definitively indicate that the Department will
issue an RFP to private sector respondents. Instead, the legislation
dictates that ODOT will conduct several studies to determine an
appropriate mix of public and private responsibilities and resources.
This analysis includes identification of revenue forecasts (based on
anticipated traffic volumes), conceptual cost estimates based on
facility types, financing options and potential revenue sources, needs
for additional analysis, policies, and/or legislation, ways of using P3
to optimize transportation finance, and the relationship of P3 to the
State's decision-making process. This is intended to help prepare the
DOT to evaluate submitted proposals.

**Legislative History:** Oregon's P3 legislation identifies two projects
for immediate consideration, the Newberg-Dundee Bypass and the
Tualitan-Sherwood Connector. ODOT will have to seek specific legislative
approval to undertake any other projects.

**Arrangements Permitted:** ODOT is considering a variety of
institutional models, including traditional DOT development and
operation; a public franchise, where the DOT enters into a design-build
contract with 100 percent public financing; a private franchise, where
the DOT enters into a design-build and operate agreement with a mix of
public and private financing; or a private franchise with 100 percent
private financing.

**Initiation of P3 Proposals:** The legislation states "tollway projects
may be initiated by the Department of Transportation, by a unit of
government having an interest in the installation of a tollway, or by a
private entity interested in constructing or operating a tollway
project."

**Review and Selection Process:** Projects are reviewed by the DOT and
governments having jurisdiction over the land the toll road crosses. The
legislation states, "the department may award any contract, franchise,
license or agreement related to a tollway project. . . ." under a
competitive process or by private negotiation.

**Selection Criteria and Negotiation:** Factors that will consider in
addition to the proposer's estimate of project cost include quality of
design (structural integrity, future maintenance cost), aesthetics,
capacity, safety factors such as lane width, efficiency of toll
collection, the extent to which small businesses will participate,
financial stability of the proposer, and experience in similar projects.

**Assistance Available from the State:** SB 626 authorizes the State to
use funds in the tollway account to finance preliminary studies and
reports, acquire land, make loans or provide credit enhancement to
private entities, and to pay oversight and administrative costs.

**Rate of Return and Other Terms:** Agreements will limit the tolls that
may be collected by operators, but permit the operators to vary the
tolls for different types of vehicles or users, or for travel during
high or low use hours. Forty years after completion of the tollway,
title must revert to ODOT and tolls must be discontinued.

**Public Involvement Provisions**: ODOT is required to adopt rules that
consider the opinions of units of government encompassing or adjacent to
the path of the proposed tollway project.

**Lessons Learned:** Extensive public outreach by ODOT has resulted in
less public opposition to toll roads than has been experienced in many
other states. The State is conducting its own outreach efforts, which
will lay the groundwork for future P3 arrangements.

In addition, consideration of alternative models of highway development,
and substantial study undertaken by ODOT will help gather support for
whatever model is ultimately adopted.

[]{#__RefHeading___Toc413052819 .anchor}PUERTO RICO

In the 1980s, growth in the San Juan metropolitan area had exceeded the
government's ability to keep up with infrastructure required by the new
development. In particular, traffic between the Port of San Juan and the
San Juan Airport presented serious congestion, inconvenience, delays,
and hazards. The need arose swiftly, and the Puerto Rico DOT was
determined to respond quickly. Instead of relying on the traditional
process, a cumbersome and slow pay-as-you-go public financing,
transportation officials set up a public-private partnership. The
projects were initiated by the Puerto Rico planning board. The planning
board issued RFPs for specific projects. Two partnerships had been
proposed by the end of 1996. One of the projects, a toll bridge in San
Juan, opened to traffic in 1993.

**Legislative History:** Puerto Rico's legislation was passed in 1990,
after Puerto Rico had already issued project RFPs, when bond attorneys
and others saw potential litigation barriers if the projects were to be
undertaken without first establishing the legality of public-private
partnerships.

**Arrangements Permitted:** Puerto Rico legislation allows contracting
with private entities to construct, operate, and maintain bridges,
highways, avenues, and expressways, as well as for project financing.

**Initiation of P3 Proposals:** The legislation does not specify whether
proposals must be solicited; however, projects proposed to date have
been in response to RFPs issued by the planning board.

**Review and Selection Process:** The legislation calls for creation of
an Adjudication Board to award contracts, assure compliance with
regulations, procedures, laws and by-laws, and report to the Governor
and Legislative Assembly on bids and contracts.

**Selection Criteria and Negotiation:** The legislation does not specify
criteria for the Adjudication Board.

**Assistance Available from the State:** The Commonwealth of Puerto Rico
will acquire right-of-way on behalf of the private partner. Otherwise,
no form of assistance is mentioned in the legislation.

**Rate of Return and Other Terms:** The legislation does not specify
restrictions on rates or return or tolls; however, the term of the
contract is limited to 50 years.

**Public Involvement Provisions:** No specific provision for public
involvement is provided for in the legislation. However, the public
interest is represented by the Secretary of Transportation and Public
Works, who must submit an annual report to the Governor of Puerto Rico
and to the Legislative Assembly about the project.

**Lessons Learned:** Puerto Rico passed enabling legislation after the
P3 process had already begun, in order to quell investor fear of
lawsuits and the potential of scaring off bond market investors. This
situation could have been avoided by passing enabling legislation prior
to project implementation.

Tolls on the San Juan bridge were placed at \$1.50. Initially, there
were concerns this was too high and would discourage motorists from
using the new facility. In the first years of the project, traffic was
lower than projected by traffic forecasts used in project planning. By
the end of 1996, however, traffic had risen on the bridge and was
generating expected levels of revenue.

[]{#__RefHeading___Toc413052820 .anchor}SOUTH CAROLINA

Faced with aging infrastructure, growing private sector interest in
highway projects, and increased demand for roads, South Carolina began
looking into the possibility of public-private partnerships. The State
was experiencing rapid growth, particularly in coastal areas where
tourism was booming, and inland, where technology and manufacturing
companies required greater infrastructure supply.

Transportation officials soon realized that the TIP contained several
large projects that, while necessary to accommodate the continued rapid
growth of the State, could not be readily financed with existing revenue
sources. They began to develop the P3 process because the size and
imminent need for six identified projects (collectively worth \$1.7
billion) made it necessary to go outside of the traditional highway
program. The State hoped that a design-build, or turnkey, approach would
reduce the overall costs of developing these projects and result in
faster economic development. The legislation thus identified these six
projects.

The State issued the first RFP for the Conway Bypass, one of six
projects identified in the enabling legislation. After a failed
referendum to impose a one cent sales tax to fund the Bypass and other
roads in the master plan, the project received funding through the State
Infrastructure Bank (SIB) in January, 1998. Ground was broken on January
19, 1998 for the 28.5-mile Conway Bypass project and it is expected to
be completed by the year 2001. This is the first major P3 project to be
constructed in the State and it is also the first project to be funded
by their SIB.

South Carolina also plans to pursue construction of a tolled, 17-mile
Southern Connector loop linking two interstate roads south of Greenville
under a P3 arrangement. The project hopes to issue, using a nonprofit
community development corporation, \$192 million of tax-exempt debt. The
revenue bond financing would be the first by a private highway developer
using a 63-20 corporation (see Appendix 2 for more information on
63-20s). The State will pay \$20 million for development costs as part
of its commitment to the project. Proceeds from the bond financing will
cover the remainder of the project costs.

**Legislative History:** The South Carolina Legislature passed enabling
legislation for public-private partnerships in 1994. The passage of the
law resulted from the funding gap between what the State needed and what
it could afford and the State Legislature\'s request to the DOT to
consider tolling for new construction projects and some existing roads.
Legislators were generally receptive because the idea would help address
needs through financial creativity, without requiring new taxes.

**Arrangements Permitted:** The South Carolina DOT requested maximum
latitude in the legislation to be able to respond to a wide variety of
potential deals which might be offered by the private sector. Although
the projects themselves were pre-determined, the DOT wanted maximum
flexibility for the private sector to be able to propose viable and
creative solutions. The DOT wanted to be able to make negotiation
decisions internally, without having to go to the Legislature for
approvals or accommodations. The State recognized that a process which
required legislative input at the proposal level would discourage the
private sector from proposing. The Legislature agreed to provide maximum
negotiation power to the DOT, passing a broad law which even allowed the
DOT to act as a banker, and to make deals with the private sector which
might include a variety of financing ideas including tolls and
development fees. The State will consider design-build-operate and
turnkey projects as potential P3 arrangements.

**Initiation of P3 Proposals:** Proposals can only be initiated by a
state-issued RFP. South Carolina will not consider unsolicited proposals
from the private sector.

**Review and Selection Process:** A Committee selects proposing teams,
based on financial feasibility, qualifications of management team, risks
associated with the project, and quality assurances. Projects are
selected by merit, and the proposal selection process is designed to
insulate the Committee from political influence. Following approval of a
recommended proposal by the Committee, an agreement is negotiated with
the chosen team.

**Selection Criteria and Negotiation:** The four proposals received in
response to the Conway Bypass RFP were ranked using three criteria: 1)
qualifications of the consortium, 2) relative value of the proposal
(costs and benefits), and 3) speed of construction. The latter was
important because the need for the Conway Bypass was so acute. Once the
Committee had ranked the proposals, they were presented to the public
and the Transportation Commission without revealing which proposals were
made by which proposers.

The proposer selected for the Conway Bypass requested further specific
legislation to allow the affected county to charge a one cent local
option sales tax to be dedicated to the project. The County and the
proposer worked hard to push through the legislation. Under the proposed
legislation, any county would be able to charge a one cent sales tax as
long as a specific transportation project is named by the County as the
beneficiary of the funds, subject to local referendum. The local
referendum failed, however.

**Assistance Available from the State:** All value added and risk
sharing issues were open to negotiation, and the responsibility of the
proposer to suggest. The State feels that it is better suited to acquire
the right-of-way because it has the right of eminent domain, and has
allowed the private sector to make use of this eminent domain through
the P3 process. A contingency fund, established by the developer, the
DOT, and the County, will go to pay for any unforeseen problems (e.g.,
hurricanes, legal injunctions, etc.). If the contingency fund is not
exhausted upon completion of the project, the remaining funds will be
redistributed among the contributing parties. The State will not be
liable for any damages above the contingency fund. Instead, the road
will be given to the State with a three year full warranty, under which
the developer will assume all costs for any rebuilding or repair
resulting from inadequate quality of construction or design. The State
may further agree to assume liability risks, assist with ROW
acquisition, and help with police protection and other services.

In the case of the Conway Bypass, the State was able to contribute the
EIS and various permits to the developer to add value. The State will
also police the completed facility.

**Rate of Return and Other Terms:** No limitations on rate of return,
toll rates, or term of agreement are specified in either the enabling
legislation or the Conway Bypass RFP.

**Public Involvement Provisions**: Any respondent to an RFP must comment
on the public\'s reaction to the project outlined in the proposal.

**Lessons Learned:** Although the recommended proposal was identified
during the process, the rank of the remaining three proposals was not
revealed. The goal was to eliminate the influence of politics in the
Committee's decision. If the negotiations were to fail, the panel would
then re-present the remaining three to the Transportation Commission,
with the original runner-up as the new recommended proposal. This
process gave the State negotiating power with the chosen team, because
it allowed them to break off negotiations without abandoning the
project. Each of the remaining three teams believed that they were
runner-up because the ranking was never revealed. This kept the other
teams prepared to re-enter the process if negotiations with the winner
were to fail.

The private sector viewed the offer of in-kind contributions by the
State as very important both because they indicate commitment, and
because they increase the likelihood of success, thereby reducing risk
for the proposer. However, with regard to the Conway Bypass RFP, some
outside private sector firms felt that the proposer was being asked to
do what was really the State's responsibility: identifying and
implementing tax structures and revenue sources. Other outside firms
were concerned about the referendum process which accompanied the sales
tax request. As is the case with the failed referendum, these
uncertainties were of great concern to private bidders.

Upon reflection, the DOT felt that the lack of outreach and involvement
of local jurisdictions in the course of the process was the biggest
shortcoming. Individuals, while aware that they would be paying for the
new facilities through tolls or fees, wanted to be more a part of
developing the project package, both in the RFP stage and in the final
negotiations with the winning proposer. County and city councils felt
left out of the process, robbing the project of important local support
which comes from a sense of local ownership.

The State now realizes there must be more of a team effort between the
State and the affected localities throughout the solicitation and
proposal process. No one should be left outside the process because this
allows them to criticize from the outside. All stakeholders, even the
potential detractors must be brought into the circle through a
partnering process, and they must be brought in at the beginning
according to the State. Early on, communication must be established
between the proposers and the public. The DOT suggests that proposers
think like developers, not contractors. The developer knows that they
must build what the public wants or the project will not be a success.
This holds true for all transportation infrastructure.

South Carolina believes that the failure to build local support and
bring all stakeholders into the process was one of the two basic
mistakes made by Washington State. The other was not identifying
specific projects. Unless there is a great need for a specific facility,
there will be no sense of urgency among the public and there will be
insufficient momentum for a successful P3 effort. It is the State's
responsibility to know its needs and to identify which projects have the
potential to be successful P3 efforts.

[]{#__RefHeading___Toc413052821 .anchor}VIRGINIA

Virginia passed statewide enabling legislation in 1995 (the
Public-Private Transportation Act of 1995) establishing a procedure for
entering into public-private partnerships for surface
transportation.[^6] To date, the Commonwealth has received at least 16
proposals, of which 11 are for outsourcing of maintenance or operations
of facilities[^7].

**Legislative History**: In 1994, an effort started concurrently in the
DOT and the State Legislature to develop statewide transportation P3
legislation. Although the Transportation Facilities Act of 1994 passed
both houses, the effective date of the law was delayed by Governor
George Allen until 1995 so that the incoming Transportation Commissioner
and staff could review and revise the legislation. Interested parties,
including lawyers, investment bankers, engineers, construction firms and
local government representatives, were all invited to provide input
through public hearings, forums, and comments. The 1995 legislation
streamlined the P3 process, incorporated market forces, and allowed for
non-toll road transportation projects. It also included a requirement
that projects be "compatible" with state and local transportation plans.
The redrafted legislation also eliminated the jurisdiction of the
Corporation Commission over the projects. The new law went into effect
on July 1, 1995.

**Initiation of P3 Proposals**: Both solicited and unsolicited
public-private partnership proposals may be accepted by any "Responsible
Public Entity", provided that that entity already would have the
authority to construct the project under the standard process \-- i.e.,
a city would not be able to accept a proposal to construct an interstate
highway. Virginia has an open structure that allows any private sector
firm to propose anything to any level of government at any time. It also
allows any level of government to issue an RFP for a specific project or
area, or to solicit ideas more formally and in a more competitive
framework. When an unsolicited proposal is accepted, the Commonwealth
posts a notice in major papers, on VDOT electronic bulletin boards, and
in the State's publications geared towards contractors. A 30-day period
follows, in which other firms can submit similar proposals in
competition.

**Review and Selection Process**: Virginia's review process consists of
two steps. First, the proposer submits a "Conceptual Proposal" and a
\$5,000 fee to a committee composed of the DOT's Chief Engineer,
Assistant Commissioner of Operations, and Assistant Commissioner of
Finance. The initial review focuses on the proposer's (and competitors,
if any) qualifications and the proposal's technical and financial
feasibility. Following initial review, the Commonwealth's Transportation
Board, may be asked to approve in concept one or more of the proposals.
A detailed proposal is then developed by the successful proposers and
sent, along with a \$20,000 fee, to the Public-Private Transportation
Advisory Panel (PPTAP), which reviews the proposal in depth for
viability and consistency with state and local goals. The two-step
process allows proposers to avoid giving detailed and proprietary
information until a proposal has passed the conceptual stage, and has a
greater chance of success.

**Selection Criteria and Negotiation**: Once the Public Private
Transportation Advisory Panel makes a recommendation to the Commissioner
on an approved proposal and upon selection by the Commissioner,
negotiations for a comprehensive agreement between the Commissioner and
the proposer can begin. Nearly everything is open to negotiation.

**Assistance Available from the State:** Virginia's position is that a
proposer should not look to the Commonwealth to finance or share
financing, but the State is willing to work hard to reduce the risk and
add value to the process. The Commonwealth is willing to negotiate the
contribution of in-kind work, such as preliminary engineering, EIS
analysis and approvals (if they have not already been obtained), and ROW
acquisition. The Commonwealth is also willing to negotiate how police
costs would be covered. Due to a large default of publicly backed toll
roads in the early 1900s, the State's constitution explicitly prohibits
lending money or taking an equity stake in private ventures. VDOT is
willing, however, to negotiate the loan of federal funds through the
Virginia State Infrastructure Bank (SIB) which is part of the State's
Toll Facilities Revolving Account.

**Rate of Return and Other Terms**: Rate of return, toll levels, and
other issues are all open to negotiation.

**Public Involvement Provisions**: The initial conceptual proposals and
detailed proposals must be sent by each proposer to all "affected
jurisdictions", which have a 60-day comment period after receipt of a
detailed proposal in which to respond. The general public is expected to
comment through their local governments.

**Lessons Learned**: Virginia's P3 law prohibits the tolling of existing
roads unless the tolls will go to pay for major expansion or improvement
of that facility. The Commonwealth regarded these conditions as a major
factor in gaining widespread support. As a result, Virginia experienced
no organized opposition to the statute. Virginia's decision to require
projects that are "compatible" with state and local transportation plans
gives the private sector enough leeway to propose projects that may not
have occurred to transportation planners, but also gives the State the
ability to go forward with projects that are in the best interests of
the State.

Virginia intentionally selected a 30-day competitive period to give
potential competing proposers enough time to put together a proposal if
they were already considering the same project, but not enough time for
competing proposers to "steal" an original concept developed by another
firm.

Virginia invested a significant amount of administrative time in
developing the first agreement under the new legislation, but expects
that future agreements will benefit from this investment.

[]{#__RefHeading___Toc413052822 .anchor}WASHINGTON

Washington State was interested in engaging the private sector through a
public-private partnership process in order to "provide the state with
increased access to property development and project opportunities,
\[and\] financial and development expertise, \[while\] allowing the
state to use its limited resources for other needed projects \[and\]
promot\[ing\] business and employment opportunities for Washington State
residents."[^8] The Washington Legislature unanimously approved a bill
to make these recommendations law, and the bill was signed by the
Governor on July 1, 1993. Shortly following passage, a draft RFP was
drawn up and distributed to 200 interested parties. In January, 1994,
the final RFP was issued concprrently with an extensipe national and
international "solicitation of interest," resulting in the issuance of
the RFP to over 300 interested parties. A pre-bid conference was held in
February and attended by 200 private sector representatives.

The private sector formed consortia consisting of transportation,
engineering, finance, marketing, environmental assessment and traffic
analysis firms which explored many potential projects. Fourteen projects
were finally submitted on May 13, 1994. WSDOT selected six of these
projects for negotiation. Of these six projects, two are no longer under
consideration (S.R. 18 and Puget Sound Congestion Pricing); one (the
Tacoma Narrows Bridge) is undergoing state-funded environmental and
financial feasibility study; two (SR 520 and SR 522) are on hold until
the Legislature appropriates funds for study; and one agreement has been
signed for development of a series of Park-and-Ride lots in King County,
Washington.

**Legislative History:** Washington State began to consider private
involvement as early as 1991, when the Transportation Policy Plan
Steering Committee (an arm of the State Transportation Commission), set
up a Subcommittee on Public Private Partnerships in Transportation. The
subcommittee suggested "the Legislature should authorize a program to
allow the Secretary of the Department of Transportation to pursue and
implement public-private initiatives for transportation capital
improvements."[^9] It also suggested using community redevelopment
financing to increase private sector investment, and the establishment
of a revolving loan fund structured to take advantage of proposed
public-private partnership provisions and funding opportunities under
ISTEA.

The State Transportation Commission surveyed the general public and held
public hearings, finding support for the idea. Combined with the
recommendations of the subcommittee, these findings encouraged the
Commission to establish a second subcommittee to explore the legal,
regulatory and administrative barriers to public private-partnerships.
This subcommittee recommended that WSDOT be "authorized to solicit
proposals from the private sector and select up to six demonstration
projects," to be approved by the Commission and consistent with "plans,
rules, regulations and statutes governing state transportation
projects."[^10] The subcommittee also recommended "cooperation and
consultation with affected jurisdictions,"[^11] and established the
concepts of minimization of state liability and reimbursement for state
services used to support the project. Surveys and public forums
following the efforts of this subcommittee identified continued public
support.

A bill establishing the Transportation Revolving Fund passed both houses
unanimously and was signed into law on March 30, 1994.

**Initiation of P3 Proposals:** The law in Washington State directs the
DOT to solicit proposals and develop six demonstration projects, but
there was no guidance as to what the projects should be as long as they
were "capital-related" and dealt with "the planning, construction,
upgrading, or reconstruction of transportation systems and
facilities."[^12] In fact, the law states, "proposals and demonstration
projects may be selected by the public and private sectors at their
discretion."[^13]

The DOT developed an RFP process which solicited conceptual proposals,
rather than full detailed proposals. The process was designed to act as
a funnel, attracting a number of proposals and narrowing them down to a
few (six at the most) which would be approved for further consideration.

**Review and Selection Process:** Each proposal first underwent a
technical review by a review team of WSDOT technical experts.
Concurrently, a financial advisor was retained to review proposer
financial qualifications and the proposed financial plans for each
project. The analyses by these two groups of each project became its
Technical Evaluation Report. All fourteen reports were submitted to the
Project Review Board.

The Project Review Board consisted of the WSDOT Deputy Secretary, Deputy
State Treasurer, Director of Revenue, and the Program Director. They
reviewed the 14 proposals, the attending Technical Evaluation Reports,
and citizen letters submitted to WSDOT. They also interviewed one
proponent for each project. Using all of this information, the Board
ranked all 14 proposals and recommended 6 to the Secretary for approval.
Following the Secretary's review of the Board's report, the
Transportation Commission was briefed on each of the 14 proposals,
informed of the Secretary's recommended six, and held public hearings.
In the end, the Commission approved the six recommended proposals and
informed the DOT that they should engage the proposers in agreement
negotiations.

The private sector was pleased with the coordinated state effort up to
this point, but noted that supporters of P3 in the DOT, consumed with
project negotiations, did not keep track of important legislative
changes concerning the P3 program. Many in the private sector believe
that if supporters of P3 had briefed new legislators after the projects
were selected to keep them informed and involved, the momentum might
have been preserved.

Unlike many other states, in Washington the agreement between the State
and the proposer is signed based on the conceptual proposal and "does
***not*** give developers a vested right to build and operate the
proposed transportation facilities, \[but rather\] grants an
***opportunity*** to study and design the proposed facility and to
complete the planning process required by law in order for WSDOT and
other agencies to approve whether the facility should be built."[^14] In
other words, agreements, and the final proposals which are subsequently
drawn up, are contingent on various approvals through the normal state
procedures for infrastructure projects.

The agreement does not bind the proposer to build the project, even
after it has been through all approvals. If the proposer wishes to
pursue the proposal, it is at this point that they seek financing for
right-of-way, final planning and specification for actual construction.
If project financing is secured, then construction can commence.

**Selection Criteria and Negotiation:** Washington State's RFP invited
conceptual proposals, to be evaluated and ranked based on four basic
criteria: firm qualifications, including experience and financial
capability to carry out the project (30 points); project
characteristics, including concept, constructability, proposed
financing, and compatibility with existing transportation systems and
needs (30 points); community acceptability, including initial support
and opposition, and plans to involve the public throughout project
development (30 points); and finally, benefits to the state, including
state transportation and economic development goals, and use of women
and minority-owned firms (10 points).

Washington's legislation provided a good deal of latitude to the DOT in
negotiating agreements with project proposers, but established certain
policy principles for the DOT to follow. The State sought to minimize
its liability, resulting in private ownership of the projects during the
construction phase. Ownership, however, would revert to the State upon
completion of the project and would be leased back to the private
concern for operations for up to fifty years. There would be no
guarantee in the agreements that the private firm would recoup its
investment.

**Assistance Available from the State:** Unlike many states, Washington
was willing to engage in direct financial participation to "address risk
private capital markets are unable to accept."[^15] Any state funds,
however, would need to be appropriated by the Legislature. The State was
also willing to negotiate the use of staff and facilities for
development or operation of the project including maintenance, police,
planning, traffic modeling, environmental study, design and right-of-way
acquisition, but the State expected to be fully reimbursed for all of
these expenses from project generated revenues.

To further a project, the DOT was authorized to "lease facilities,
right-of-way, airspace, exercise its power of eminent domain, grant
easements, permits, real property rights, negotiate the acquisition of
right-of-way in excess of appraised value, etc." It was also authorized
to "lease to the developer the airspace above or below their
right-of-way of the transportation facility and grant the right of first
refusal to undertake projects utilizing airspace owned by the State in
the vicinity of the transportation facility."[^16] Non-competition
clauses from other state transportation facilities could be negotiated
provided they were not "unreasonable."

**Rate of Return and Other Terms:** Like most other states, a maximum
rate of return was negotiated. Within this rate of return, the developer
was free to establish and modify tolls and fares. The State would audit
financial statements and appropriate any excess revenues collected above
the negotiated rate of return. Incentive rates of return could also be
negotiated, allowing the developer to exceed the basic maximum rate of
return. The developer would be entitled to the higher rate if they met
certain safety, performance, or transportation demand management goals
which benefited the State or affected locality.

**Public Involvement Provisions**: Public involvement was expected to
take place under the normal public involvement process for state
transportation project development. Following the signing of agreements,
the project must be adopted into Regional Transportation Plans, the
Statewide Multimodal Transportation Plan, and for projects involving any
federal funds, the State Transportation Improvement Program (TIP), as
well as conform with the State Implementation Plan for Air Quality
(SIP). Normal EIS and permitting procedures follow. All of these
procedures involve normal public involvement and government approvals.

**Lessons Learned:** In general, proposers liked the State's design for
the process, and found the State receptive to different proposals, and
responsive to the needs of proposers. WSDOT was successful at attracting
bids from experienced teams with the financial and technical capability
of fulfilling their proposals. Most felt that the selection process was
fair and unbiased, and resulted in selection of high-quality teams.

Some felt that the public outreach needed to be conducted entirely by
public agencies. Requiring proposers to conduct outreach as part of the
RFP process created contradictory goals. On the one hand, proposers were
competing with each other and did not want to share too much information
about their plans. On the other hand, the proposers are trying to gather
support. The proposers were generally successful at gathering support
from local leaders, but not the public. When surveys and focus group
results from the private sector were released, they were perceived as
biased, because they were conducted by the private entity that stood to
gain from the project.

Many in the private sector believe that the State did not play an active
enough role with the private sector in seeking public support or showing
its own commitment to specific projects following project selection.
Washington relied on the standard public involvement process for an
otherwise non-standard project process. Many in the private sector
believe that this resulted in public outreach which was too late, and
too little public education overall.

According to one source, the public reaction could be explained by a
combination of factors:

***The public had not recognized the transportation problem:*** Before
the public will find it acceptable to use tolls and a P3 structure to
solve a transportation problem, they have to believe that there is a
transportation problem that needs to be solved. In addition, the
projects proposed should have no overwhelming impediments, such as
environmental or ROW issues, that would interfere with project
development.

-   ***The public did not understand the true costs of the needed
    transportation improvements.*** Most of the public did not really
    understand the full costs of constructing the needed transportation
    projects. Most of the public regard highways as free, and do not
    know what it really costs to construct, maintain, and operate
    highway facilities.

```{=html}
<!-- -->
```
-   ***The public had not recognized the funding problem.*** In
    Washington, some voters had the perception that DOT was wasting its
    money, and did not really need to be seeking more revenue. Conveying
    the funding shortfall \-- both by portraying the high costs of
    transportation improvements, and contrasting it with the inadequate
    revenues \-- might have convinced voters of the real need.

```{=html}
<!-- -->
```
-   ***The public had not accepted tolls as the correct revenue
    solution.*** In Washington, the perception was "why don't you just
    raise the gas tax," even though increasing the gas tax would have
    met only a fraction of the needs.

Somehow, the public also did not fully acknowledge from the original
legislation that it involved tolls (even though supporters claimed it
was very clear). In a sense, residents supported the initiative in
general but did not like the specifics. The public also did not like the
perception that the private sector was profiteering off of the public
transportation needs. This was especially true because, due to financial
considerations, proposers had concentrated on bridges and other projects
that lacked viable alternate routes. This improved the financial
feasibility of these projects, but worsened their acceptability, because
voters disliked not having an option.

Another problem was that some perceived that no attempt was made to
explain why a public-private arrangement was better than a public sector
only arrangement. Voters were not educated as to why these arrangements
made good sense for the State \-- whether the access to private capital
was important, or greater private sector efficiency. Some voters
wondered, "if this is such a great idea, why doesn't the DOT do it
itself \-- what added value are we receiving for the private sector
involvement?"

Some Washington State voters also criticized the process because of the
perception that it was begun "behind closed doors", with WSDOT and
proposers in collusion. For example, the Puget MPO had not yet completed
its regional plan before projects were accepted. The MPO would have
preferred a specific list of projects that could have been targeted to
needs, rather than proposers' interests .

Another issue for voters was that all of the projects were proposed in
Western Washington. Voters in this area perceived the process as unfair
\-- they did not understand why Western Washingtonians should pay tolls
when the rest of the State gets gas tax money. If WSDOT had been able to
convey the concept that project needs were so huge that it would have
dwarfed gas tax revenues, this perception potentially could have been
lessened.

Finally, when funding was provided to the State to conduct engineering
and environmental studies on the Tacoma Narrows Bridge, the State hired
the proposer \-- United Infrastructure \-- to perform the studies. Some
regarded this as a conflict of interest, because the company that stood
to benefit from the project would be conducting the EIS and other
critical studies, and might be tempted to alter or minimize any negative
results. Others felt that having UI do the environmental and engineering
work was logical, because they would be undergoing the risk of having
the project development halted if the studies were inadequate.

[]{#__RefHeading___Toc413052823 .anchor}FLOW diagrams

Exhibits 1 through 9 present flow charts of the state processes reviewed
in the preceding section. Each chart presents the method for soliciting,
reviewing, selecting, and negotiating proposals for public-private
partnerships. Because public outreach is such a critical issue in many
P3 processes, the steps in which public outreach occurs are highlighted
in each flow chart.

![](media/image1.wmf)

![](media/image1.wmf)

![](media/image1.wmf)

![](media/image1.wmf)

![](media/image1.wmf)

![](media/image1.wmf)

![](media/image1.wmf)

![](media/image1.wmf)

![](media/image1.wmf)

[]{#__RefHeading___Toc413052824 .anchor}OTHER STATES

[]{#__RefHeading___Toc413052825 .anchor}COLORADO

While Colorado is home to the E-470 beltway east of Denver, one of the
most prominent P3 projects in 1996, the State DOT has not to date been
active in P3 arrangements. In 1987, Colorado passed the Public Highway
Act. This law was amended in 1993 to broaden the flexibility of public
highway authority boundaries. The Public Highway Act enabled
municipalities to join together to create highway authorities within
metropolitan regions of Colorado for the purpose of financing and
constructing beltways and other transportation improvements. Authorities
may tax residents within a given boundary, in the form of tolls, highway
expansion fees, and special assessment districts. As is the case with
E-470, authorities can enter into contracts with private companies for
design-build contracts.

Under the Public Highway Act, public highway authorities can enter into
agreements with private builders only after the State issues an RFP. The
RFP may be for highway projects or other kinds, such as rail or bus
service. Projects can be turnkey and design-build-operate or similar
arrangements, and cannot be full private ownership or contract
operations and maintenance. The public sector may contribute loans or
credit enhancement mechanisms to the financing of the project, may
assume some liability risk, and assist with ROW acquisition.

Development consortia are chosen to execute a bid based on the strength
of the firms. Authorities consider financial condition, personnel
qualifications, and the experience of the firms.

A referendum of citizens living within a given public highway authority
district have the power to vote on certain tax issues. A referendum is
required for the levying of vehicle registration fees, but no vote is
required before the authority levies expansion fees charged to
developers within the highway district.

[]{#__RefHeading___Toc413052826 .anchor}Maryland

Under Maryland Code (COMAR) 11.07.0, the State allows private firms to
finance, construct, or operate transportation projects that will enhance
the State's existing transportation system. Eligible transportation
facilities include a port, airport, railroad, or transit facility, and
all incidental property rights, materials, structures, and other
facilities related to these transportation facilities. Highways have not
been included for eligibility at this time.

The Maryland Transportation Authority (MdTA) administers the program on
behalf of Maryland Department of Transportation (MdDOT) and related
agencies. Program guidelines specify a two-step selection process, with
an initial review of conceptual proposals followed by a review of
detailed proposals for selected projects. Unsolicited proposals will be
accepted with a provision for competing proposals as well.

[]{#__RefHeading___Toc413052827 .anchor}Missouri

In 1990, the Missouri Transportation Corporation Act and the Missouri
Transportation Development District Act (Senate Bills 479 and 649) were
enacted. The acts enable a group of citizens to request authorization to
establish a transportation corporation to develop a transportation
facility.

[]{#__RefHeading___Toc413052828 .anchor}New Jersey

New Jersey adopted public-private legislation, P.L.1997c.136, on June
27, 1997. The enabling legislation allows the Commissioner of
Transportation to: (1) solicit private sector proposals to plan, design,
construct, equip, operate, finance, improve and maintain, and any
combination thereof; (2) select proposals for the negotiation of
demonstration project agreements; and (3) enter into agreements to
advance transportation projects.

A total of 7 projects may be negotiated, entered into, or solicited by
the Commissioner. The Department issued an RFP and program announcement
in conjunction with passage of the legislation. The submission deadline
for the first round of proposals was September 30, 1997.

Prior to passage of the enabling legislation, New Jersey Transit, in
cooperation with the State's Transportation Trust Fund, participated in
an innovative design-build-operate-manage (DBOM) process for
construction of a new transit line. The project, conducted under
existing authority, may set a precedent for future partnerships. The
Bergen-Hudson project is a \$1.2 billion light-rail line that will be
designed, built, operated, and managed by a consortium called the
Twenty-First Century Rail Company, headed by Raytheon, a Lyndhurst,
NJ-based engineering firm; Itochu of New York City, a Japanese trading
firm; and KinkiSharyo of Boston, a Japanese railcar builder.

The project will be fully funded through an FTA grant and state matching
funds (80/20 ratio). Initially, the RFP for private consortia asked
bidders to come up with construction financing. Then, NJ Transit decided
that they would be better off financing the project on their own, saving
money through issuing tax-exempt short-term instruments, and also by
speeding up the procurement and building process by not having to follow
all federal regulations (because they are going to finance the initial
construction on its own, and seek future reimbursement through advance
construction).

[]{#__RefHeading___Toc413052829 .anchor}NEW YORK

The State of New York has not adopted any general enabling legislation
permitting statewide P3 processes. The State, however, has entered into
numerous financial partnerships with local governments and developers,
making use of impact fees, taxing districts, and other tools to
innovatively finance transportation.

[]{#__RefHeading___Toc413052830 .anchor}Pennsylvania

In May, 1996, a bill was introduced in the Pennsylvania General assembly
to enable public-private partnerships. The legislation (Senate Bill
#1521, *The Privately-Operated Toll Road Act*, May 2, 1996), would
permit private operators to lease highways from the State for up to 35
years, and to charge tolls on existing highways. As of this report, this
legislation has not yet been passed.

[]{#__RefHeading___Toc413052831 .anchor}Texas

In 1991, the Texas Legislature passed enabling legislation (Section 17
of HB 749, Private Participation in Projects) allowing the Texas
Turnpike Authority to enter into agreements with private entities for
construction, maintenance, repair, or operation of turnpike projects.
The Authority may enter into exclusive development agreements with
private entities, and has broad latitude to negotiat terms and
conditions of financing. The Authority may also allow franchises,
leases, licenses, permits, and other devices to enable private
development.

[]{#__RefHeading___Toc413052832 .anchor}Utah

In response to development pressure along Utah's growth-heavy Wasatch
Front, the Utah Department of Transportation issued an RFP for the
largest design-build highway project ever undertaken in the United
States. The project calls for the reconstruction of 17 miles of
Interstate 15 (I-15) in and around Salt Lake City. Construction began in
April, 1997. Completion of the reconstructed I-15 corridor is planned
for July, 2001. The project includes widening of I-15 to 5 lanes in each
direction, plus the addition of an HOV lane, along a 16-mile congested
portion of the highway. Additional I-15 improvements will be better
lighting, aesthetic additions to bridges and walls, wetlands creation,
and advanced traffic management systems (variable message signs,
possible ramp metering).

The project's \$1.6 billion cost is mostly covered under one fixed-price
contract awarded to a single contractor to both design and construct the
project. The project is the largest part of the State's Centennial
Highway Fund -- a ten year, \$2.6 billion fund for construction and
reconstruction of highways in Utah. In additon, the State has requested
\$970 million in Federal funds for the I-15 project as part of its \$4.3
billion request for Federal funding for transportation projects related
to the 2002 Winter Olympic Games. As of October 1997, the State had
received about \$14 million in Federal funds for environmental studies
and land acquisition.

Public-Private Project Experience (By State)

As a summary of the preceding sections and drawing on additional
information available\--from in-depth case studies and
elsewhere\--following is a table of public-private projects going on
across the United States. Projects are categorized in the following
groups:

-   Open or under construction;

-   Pre-Construction: and

-   Stalled or failed.

Project information is provided for all active projects discussed in
this report and for a few additional projects in the states covered by
the report.

# **PUBLIC-PRIVATE PROJECT EXPERIENCE (BY STATE)**

+----+-----+---+---+--------------------+----+---+----------+---------------+
| *  | **p |   |   | **Description**    | ** | * |          | **P3          |
| *S | roj |   |   |                    | Co | * |          | Arrangement** |
| ta | ect |   |   |                    | st | P |          |               |
| te | Nam |   |   |                    | ** | r |          |               |
| ** | e** |   |   |                    |    | o |          |               |
|    |     |   |   |                    |    | j |          |               |
|    |     |   |   |                    |    | e |          |               |
|    |     |   |   |                    |    | c |          |               |
|    |     |   |   |                    |    | t |          |               |
|    |     |   |   |                    |    | s |          |               |
|    |     |   |   |                    |    | t |          |               |
|    |     |   |   |                    |    | a |          |               |
|    |     |   |   |                    |    | t |          |               |
|    |     |   |   |                    |    | u |          |               |
|    |     |   |   |                    |    | s |          |               |
|    |     |   |   |                    |    | * |          |               |
|    |     |   |   |                    |    | * |          |               |
+====+=====+===+===+====================+====+===+==========+===============+
| *  |     |   |   |                    |    |   |          |               |
| ** |     |   |   |                    |    |   |          |               |
| Op |     |   |   |                    |    |   |          |               |
| en |     |   |   |                    |    |   |          |               |
| or |     |   |   |                    |    |   |          |               |
| u  |     |   |   |                    |    |   |          |               |
| nd |     |   |   |                    |    |   |          |               |
| er |     |   |   |                    |    |   |          |               |
| c  |     |   |   |                    |    |   |          |               |
| on |     |   |   |                    |    |   |          |               |
| st |     |   |   |                    |    |   |          |               |
| ru |     |   |   |                    |    |   |          |               |
| ct |     |   |   |                    |    |   |          |               |
| io |     |   |   |                    |    |   |          |               |
| n* |     |   |   |                    |    |   |          |               |
| ** |     |   |   |                    |    |   |          |               |
+----+-----+---+---+--------------------+----+---+----------+---------------+
| ** | -   |   |   | -   Design-build   | -  |   | -   Cons | -   Turnkey   |
| CA |  *F |   |   |     contract for   |    |   | truction |               |
| ** | oot |   |   |     28.6 miles of  |  \ |   |          | -             |
|    | hil |   |   |     express        | $1 |   |   10/94. |  Design-Build |
|    | l/E |   |   |     tollways       | .5 |   |     TCA  |               |
|    | ast |   |   |     linking the    |    |   |          | -   Sponsor   |
|    | ern |   |   |     Riverside      |    |   |  secured |     is public |
|    |     |   |   |     Freeway with   |  b |   |     in   |     toll      |
|    |   T |   |   |     I-5, I-405 in  | il |   | vestment |     authority |
|    | oll |   |   |     Orange County. | li |   |          |               |
|    |     |   |   |     Toll           | on |   |  ratings |               |
|    |  Ro |   |   |     operations     |    |   |     and  |               |
|    | ad* |   |   |     concessioned   |    |   |     sold |               |
|    |     |   |   |     to private     |    |   |          |               |
|    |     |   |   |     firm.          |    |   |    \$1.5 |               |
|    |     |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   |  billion |               |
|    |     |   |   |                    |    |   |     in   |               |
|    |     |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   |    fixed |               |
|    |     |   |   |                    |    |   |     and  |               |
|    |     |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   |   variab |               |
|    |     |   |   |                    |    |   | le-rate, |               |
|    |     |   |   |                    |    |   |     ta   |               |
|    |     |   |   |                    |    |   | x-exempt |               |
|    |     |   |   |                    |    |   |     toll |               |
|    |     |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   |  revenue |               |
|    |     |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   |    debt. |               |
+----+-----+---+---+--------------------+----+---+----------+---------------+
| ** | -   |   |   | -   Turnkey        | -  |   | -        | -   Turnkey   |
| CA |   * |   |   |     private        |    |   | Financed |               |
| ** | San |   |   |     development    |  \ |   |          | -             |
|    |     |   |   |     and state      | $1 |   |    March |  Design-Build |
|    |   J |   |   |     operation and  | .4 |   |          |               |
|    | oaq |   |   |     maintenance of |    |   |    1993, | -   Sponsor   |
|    | uin |   |   |     new six-lane,  |    |   |     cons |     is public |
|    |     |   |   |     divided,       |  b |   | truction |     toll      |
|    |  Hi |   |   |     15-mile        | il |   |     to   |     authority |
|    | lls |   |   |     automated toll | li |   |     be   |               |
|    |     |   |   |     road linking   | on |   |     c    |               |
|    |   T |   |   |     I-5 and I-405  |    |   | ompleted |               |
|    | oll |   |   |     freeways in    |    |   |          |               |
|    |     |   |   |     Orange County. |    |   |    1997, |               |
|    |  Ro |   |   |     Toll           |    |   |          |               |
|    | ad* |   |   |     operations     |    |   |  segment |               |
|    |     |   |   |     concessioned   |    |   |          |               |
|    |     |   |   |     to private     |    |   |  already |               |
|    |     |   |   |     firm.          |    |   |          |               |
|    |     |   |   |                    |    |   |   opened |               |
|    |     |   |   |                    |    |   |     to   |               |
|    |     |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   | traffic. |               |
+----+-----+---+---+--------------------+----+---+----------+---------------+
| ** | -   |   |   | -   35-year,       | -  |   | -        | -   Build-Tra |
| CA |     |   |   |     buil           |    |   |   Opened | nsfer-Operate |
| ** | *SR |   |   | d-transfer-operate |  \ |   |     to   |               |
|    |     |   |   |     project to     | $1 |   |          | -             |
|    |     |   |   |     construct      | 26 |   |  traffic |  Design-Build |
|    | 91* |   |   |     10-mile        |    |   |     in   |               |
|    |     |   |   |     all-AVI, four  |    |   |          | -   Private   |
|    |     |   |   |     lane toll road | mi |   |    1996. |     equity    |
|    |     |   |   |     in the Median  | ll |   |          |               |
|    |     |   |   |     of State Route | io |   |          |               |
|    |     |   |   |     91, Orange     | n, |   |          |               |
|    |     |   |   |     County.        |    |   |          |               |
|    |     |   |   |     Congestion     |    |   |          |               |
|    |     |   |   |     pricing for    |  t |   |          |               |
|    |     |   |   |     SOV, transit   | ax |   |          |               |
|    |     |   |   |     and HOV are    | ab |   |          |               |
|    |     |   |   |     free.          | le |   |          |               |
|    |     |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   |          |               |
|    |     |   |   |                    | de |   |          |               |
|    |     |   |   |                    | bt |   |          |               |
|    |     |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   |          |               |
|    |     |   |   |                    |  a |   |          |               |
|    |     |   |   |                    | nd |   |          |               |
|    |     |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   |          |               |
|    |     |   |   |                    |  e |   |          |               |
|    |     |   |   |                    | qu |   |          |               |
|    |     |   |   |                    | it |   |          |               |
|    |     |   |   |                    | y. |   |          |               |
+----+-----+---+---+--------------------+----+---+----------+---------------+
| ** | -   |   |   | -   Design and     | -  |   | -        | -   Tolls     |
| CO |   * |   |   |     construction   |    |   |  Segment |               |
| ** | E-4 |   |   |     of a           |  \ |   |     I    | -             |
|    | 70* |   |   |                    | $6 |   |          |  Design-build |
|    |     |   |   |    circumferential | 94 |   |   opened |               |
|    |     |   |   |     highway around |    |   |     to   |               |
|    |     |   |   |     the eastern    |    |   |          |               |
|    |     |   |   |     perimeter of   |  m |   |  traffic |               |
|    |     |   |   |     Denver.        | il |   |     and  |               |
|    |     |   |   |                    | li |   |          |               |
|    |     |   |   |                    | on |   |    tolls |               |
|    |     |   |   |                    |    |   |     in   |               |
|    |     |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   |    1991. |               |
+----+-----+---+---+--------------------+----+---+----------+---------------+
| ** | -   |   |   | -   Commonwealth   | -  |   | -        | -   Turnkey,  |
| PR |   * |   |   |     issued         |    |   |   Opened |               |
| ** | Lag |   |   |     tax-exempt     |  N |   |     to   |    Operations |
|    | una |   |   |     bonds and      | /A |   |          |     &         |
|    |     |   |   |     financed a     |    |   |  traffic |               |
|    |     |   |   |     consortium to  |    |   |     in   |   Maintenance |
|    | San |   |   |     build a        |    |   |          |               |
|    |     |   |   |     stand-alone    |    |   |    1993. |               |
|    |   J |   |   |     bridge and to  |    |   |          |               |
|    | ose |   |   |     operate and    |    |   |          |               |
|    |     |   |   |     collect tolls  |    |   |          |               |
|    |   B |   |   |     for a lease    |    |   |          |               |
|    | rid |   |   |     period.        |    |   |          |               |
|    | ge* |   |   |                    |    |   |          |               |
+----+-----+---+---+--------------------+----+---+----------+---------------+
| ** | -   |   |   | -   Design-build   | -  |   | -        | -             |
| SC |   * |   |   |     contract for a |    |   |    Began |  Design-Build |
| ** | Con |   |   |     road linking   |  \ |   |     cons |               |
|    | way |   |   |     I-95 and       | $3 |   | truction | -   State     |
|    |     |   |   |     Myrtle Beach   | 60 |   |          |     I         |
|    |   B |   |   |     to carry       |    |   |  January | nfrastructure |
|    | ypa |   |   |     mostly tourist |    |   |          |     Bank      |
|    | ss* |   |   |     traffic.       |  m |   |    1998. |               |
|    |     |   |   |                    | il |   |          |               |
|    |     |   |   |                    | li |   |          |               |
|    |     |   |   |                    | on |   |          |               |
+----+-----+---+---+--------------------+----+---+----------+---------------+
| ** | -   |   |   | -   Reconstruct 17 | -  |   | -   Cons | -             |
| UT |  *I |   |   |     miles of       |    |   | truction |  Design-build |
| ** | -15 |   |   |     Interstate     |  \ |   |          |               |
|    |     |   |   |     Highway in and | $1 |   |    began |               |
|    |  Pr |   |   |     around Salt    | .6 |   |     in   |               |
|    | oje |   |   |     Lake City.     |    |   |          |               |
|    | ct* |   |   |                    |    |   |    April |               |
|    |     |   |   |                    |  b |   |          |               |
|    |     |   |   |                    | il |   |    1997. |               |
|    |     |   |   |                    | li |   |          |               |
|    |     |   |   |                    | on |   |          |               |
+----+-----+---+---+--------------------+----+---+----------+---------------+
| ** | -   |   |   | -   Unsolicited    | -  |   | -   Nego | -             |
| VA |  *I |   |   |     private        |    |   | tiations |    Operations |
| ** | nte |   |   |     proposal for a |  N |   |     c    |     &         |
|    | rst |   |   |     phased program | /A |   | omplete. |               |
|    | ate |   |   |     to share       |    |   |     Work |   Maintenance |
|    |     |   |   |     savings below  |    |   |          |               |
|    |   O |   |   |     a guaranteed   |    |   |   begins |               |
|    | per |   |   |     price for      |    |   |     in   |               |
|    | ati |   |   |     maintaining a  |    |   |     1997 |               |
|    | ons |   |   |     portion of the |    |   |     and  |               |
|    |     |   |   |     Interstate     |    |   |          |               |
|    |     |   |   |     highway in     |    |   |    1998. |               |
|    | Con |   |   |     Virginia.      |    |   |          |               |
|    | tra |   |   |                    |    |   |          |               |
|    | ct* |   |   |                    |    |   |          |               |
+----+-----+---+---+--------------------+----+---+----------+---------------+
| #  | -   |   |   | -   A privately    | -  |   | -        | -   Full      |
| #  |   * |   |   |     owned          |    |   |   Opened |               |
| VA | Dul |   |   |     extension to   |  \ |   |     to   | privatization |
|    | les |   |   |     an existing    | $3 |   |          |               |
|    |     |   |   |     state-owned    | 26 |   |  traffic |   (Build-Oper |
|    |  Gr |   |   |     toll road.     |    |   |     in   | ate-Transfer) |
|    | een |   |   |     Virginia's     |    |   |          |               |
|    | way |   |   |     Corporation    | mi |   |    1995. | -             |
|    |     |   |   |     Commission     | ll |   |          |  Considerable |
|    |   T |   |   |     approved the   | io |   | -   Due  |     private   |
|    | oll |   |   |     project\'s     | n. |   |     to   |     equity    |
|    |     |   |   |     finances and   |    |   |          |               |
|    |   R |   |   |     has control    |    |   |   lower- |               |
|    | oad |   |   |     over rates of  |    |   | than-ant |               |
|    |     |   |   |     return.        |    |   | icipated |               |
|    |   E |   |   |                    |    |   |          |               |
|    | xte |   |   |                    |    |   | traffic, |               |
|    | nsi |   |   |                    |    |   |     the  |               |
|    | on* |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   | Greenway |               |
|    |     |   |   |                    |    |   |     is   |               |
|    |     |   |   |                    |    |   |     c    |               |
|    |     |   |   |                    |    |   | urrently |               |
|    |     |   |   |                    |    |   |     e    |               |
|    |     |   |   |                    |    |   | xploring |               |
|    |     |   |   |                    |    |   |     f    |               |
|    |     |   |   |                    |    |   | inancing |               |
|    |     |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   | options. |               |
+----+-----+---+---+--------------------+----+---+----------+---------------+
| ** |     |   |   |                    |    |   |          |               |
| *P |     |   |   |                    |    |   |          |               |
| re |     |   |   |                    |    |   |          |               |
| C  |     |   |   |                    |    |   |          |               |
| on |     |   |   |                    |    |   |          |               |
| st |     |   |   |                    |    |   |          |               |
| ru |     |   |   |                    |    |   |          |               |
| ct |     |   |   |                    |    |   |          |               |
| io |     |   |   |                    |    |   |          |               |
| n* |     |   |   |                    |    |   |          |               |
| ** |     |   |   |                    |    |   |          |               |
+----+-----+---+---+--------------------+----+---+----------+---------------+
| ** | -   |   |   | -   Turnkey road:  | -  |   | -   Nego | -   IRS 63-20 |
| SC |     |   |   |     16-mile toll   |    |   | tiations |               |
| ** | *So |   |   |     bypass of      |  \ |   |     c    |   Corporation |
|    | uth |   |   |     Greenville     | $1 |   | omplete. |               |
|    | ern |   |   |     between I-185  | 77 |   |          |               |
|    |     |   |   |     and I-385.     |    |   |          |               |
|    |   C |   |   |                    |    |   |          |               |
|    | onn |   |   |                    |  m |   |          |               |
|    | ect |   |   |                    | il |   |          |               |
|    | or* |   |   |                    | li |   |          |               |
|    |     |   |   |                    | on |   |          |               |
+----+-----+---+---+--------------------+----+---+----------+---------------+
| ** | -   |   |   | -   Buil           | -  |   | -   MOU  | -   Build-Tra |
| WA |  *P |   |   | d-transfer-operate |    |   |     A    | nsfer-Operate |
| ** | ark |   |   |     contract for   | \$ |   | greement |               |
|    |     |   |   |     single level   | 70 |   |          | -             |
|    |     |   |   |     parking decks  |    |   |   signed |  Design-Build |
|    | and |   |   |     at transit     |    |   |          |               |
|    |     |   |   |     stations       |  m |   |    3/96. |               |
|    |   R |   |   |     adding 7000    | il |   |     Desi |               |
|    | ide |   |   |     spaces, retail | li |   | gn-Build |               |
|    |     |   |   |     outlets at 23  | on |   |     u    |               |
|    |  Ex |   |   |     existing       |    |   | nderway. |               |
|    | pan |   |   |     park-ride lots |    |   |          |               |
|    | sio |   |   |     in King        |    |   |          |               |
|    | ns* |   |   |     County.        |    |   |          |               |
+----+-----+---+---+--------------------+----+---+----------+---------------+
| ** | -   |   |   | -   New bridge to  | -  |   | -   Pre  | -   Build-Ope |
| WA |   * |   |   |     supplement     |    |   | liminary | rate-Transfer |
| ** | Tac |   |   |     existing       |  \ |   |     nego |     /         |
|    | oma |   |   |     bridge         | $8 |   | tiations |     Build-Tra |
|    |     |   |   |     combined with  | 00 |   |     co   | nsfer-Operate |
|    |   N |   |   |     demand         |    |   | mpleted. |               |
|    | arr |   |   |     management     |    |   |     EIS  | -   Private   |
|    | ows |   |   |     techniques.    |  m |   |     and  |     equity    |
|    |     |   |   |                    | il |   |     MIS  |               |
|    |   t |   |   |                    | li |   |     u    |               |
|    | oll |   |   |                    | on |   | nderway. |               |
|    |     |   |   |                    |    |   |          |               |
|    |   b |   |   |                    |    |   | Regional |               |
|    | rid |   |   |                    |    |   |     vote |               |
|    | ge* |   |   |                    |    |   |     s    |               |
|    |     |   |   |                    |    |   | cheduled |               |
|    |     |   |   |                    |    |   |     for  |               |
|    |     |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   |    1998. |               |
+----+-----+---+---+--------------------+----+---+----------+---------------+
| ** |     |   |   |                    |    |   |          |               |
| *S |     |   |   |                    |    |   |          |               |
| ta |     |   |   |                    |    |   |          |               |
| ll |     |   |   |                    |    |   |          |               |
| ed |     |   |   |                    |    |   |          |               |
| or |     |   |   |                    |    |   |          |               |
| F  |     |   |   |                    |    |   |          |               |
| ai |     |   |   |                    |    |   |          |               |
| le |     |   |   |                    |    |   |          |               |
| d* |     |   |   |                    |    |   |          |               |
| ** |     |   |   |                    |    |   |          |               |
+----+-----+---+---+--------------------+----+---+----------+---------------+
| ** | -   |   |   | -   35-year BTO    | -  |   | -        | -   Build-    |
| CA |     |   |   |     franchise to   |    |   |  Stalled | Operate-Trans |
| ** | *AB |   |   |     build new,     |  \ |   |     due  | fer/Build-Tra |
|    |     |   |   |     four-lane toll | $7 |   |     to   | nsfer-Operate |
|    |     |   |   |     road linking   | 00 |   |     lack |               |
|    | 680 |   |   |     I580 with I-80 |    |   |     of   | -   Private   |
|    |     |   |   |     east of San    |    |   |          |     equity    |
|    |     |   |   |     Francisco Bay  |  m |   | planning |               |
|    | Mid |   |   |     Area.          | il |   |          |               |
|    | -st |   |   |                    | li |   | approval |               |
|    | ate |   |   |                    | on |   |     and  |               |
|    |     |   |   |                    |    |   |     f    |               |
|    |  to |   |   |                    |    |   | inancial |               |
|    | llw |   |   |                    |    |   |     feas |               |
|    | ay* |   |   |                    |    |   | ibility. |               |
+----+-----+---+---+--------------------+----+---+----------+---------------+
| ** | -   |   |   | -   35-year, BTO   | -  |   | -   F    | -   Build-    |
| CA |   * |   |   |     project to     |    |   | ranchise | Operate-Trans |
| ** | SR1 |   |   |     construct 10   |  \ |   |          | fer/Build-Tra |
|    | 25* |   |   |     mile           | $4 |   |   signed | nsfer-Operate |
|    |     |   |   |     north-south    | 00 |   |          |               |
|    |     |   |   |     toll road for  |    |   |    1990, | -             |
|    |     |   |   |     trucks,        |    |   |     f    |  Design-Build |
|    |     |   |   |     tourists, and  |  m |   | inancing |               |
|    |     |   |   |     new residents  | il |   |     in   | -   Private   |
|    |     |   |   |     of planned     | li |   | complete |     equity    |
|    |     |   |   |     towns in       | on |   |          |               |
|    |     |   |   |     southeastern   |    |   |          |               |
|    |     |   |   |     San Diego      |    |   |          |               |
|    |     |   |   |     county,        |    |   |          |               |
|    |     |   |   |     starting from  |    |   |          |               |
|    |     |   |   |     proposed       |    |   |          |               |
|    |     |   |   |     border         |    |   |          |               |
|    |     |   |   |     crossing at    |    |   |          |               |
|    |     |   |   |     Otay Mesa.     |    |   |          |               |
|    |     |   |   |     CalTrans does  |    |   |          |               |
|    |     |   |   |     EIS on cost    |    |   |          |               |
|    |     |   |   |     reimbursable   |    |   |          |               |
|    |     |   |   |     basis.         |    |   |          |               |
+----+-----+---+---+--------------------+----+---+----------+---------------+
| ** | -   |   |   | -   MNDOT          | \  |   | -   A    | -   IRS 63-20 |
| MN |  *H |   |   |     negotiated     | $1 |   | greement |               |
| ** | igh |   |   |     with a private | 00 |   |     with |   Corporation |
|    | way |   |   |     company to     | m  |   |          |               |
|    |     |   |   |     develop a toll | il |   |    State |               |
|    |   2 |   |   |     road on a new  | li |   |     c    |               |
|    | 12* |   |   |     section of     | on |   | ompleted |               |
|    |     |   |   |     highway        | +  |   |     but  |               |
|    |     |   |   |     outside        |    |   |          |               |
|    |     |   |   |     beltway. A     |    |   |  project |               |
|    |     |   |   |     non-profit was |    |   |          |               |
|    |     |   |   |     formed to      |    |   | rejected |               |
|    |     |   |   |     negotiate with |    |   |     by   |               |
|    |     |   |   |     DOT.           |    |   |          |               |
|    |     |   |   |                    |    |   |    local |               |
|    |     |   |   |                    |    |   |     co   |               |
|    |     |   |   |                    |    |   | mmunity. |               |
+----+-----+---+---+--------------------+----+---+----------+---------------+
| ** | -   |   |   | -   Design-build   | -  |   | -        | -             |
| VA |     |   |   |     proposal for   |    |   |  Remains |  Design-build |
| ** | *Ro |   |   |     transportation |  \ |   |          |               |
|    | ute |   |   |     facilities to  | $6 |   |    under |               |
|    |     |   |   |     benefit the    | 00 |   |          |               |
|    |  58 |   |   |     cities of      |    |   |   review |               |
|    |     |   |   |     Norfolk and    |    |   |     by   |               |
|    |  Mi |   |   |     Portsmouth.    |  m |   |          |               |
|    | dto |   |   |                    | il |   |   VDOT's |               |
|    | wn\ |   |   |                    | li |   |          |               |
|    |     |   |   |                    | on |   | Internal |               |
|    |     |   |   |                    |    |   |          |               |
|    | Tun |   |   |                    |    |   |   Review |               |
|    | nel |   |   |                    |    |   |     C    |               |
|    |     |   |   |                    |    |   | ommittee |               |
|    |   & |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   |          |               |
|    |  Pi |   |   |                    |    |   |          |               |
|    | nne |   |   |                    |    |   |          |               |
|    | r's |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   |          |               |
|    |  Po |   |   |                    |    |   |          |               |
|    | int |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   |          |               |
|    | Int |   |   |                    |    |   |          |               |
|    | erc |   |   |                    |    |   |          |               |
|    | han |   |   |                    |    |   |          |               |
|    | ge, |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   |          |               |
|    | and |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   |          |               |
|    | Mar |   |   |                    |    |   |          |               |
|    | tin |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   |          |               |
|    | Lut |   |   |                    |    |   |          |               |
|    | her |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   |          |               |
|    |   K |   |   |                    |    |   |          |               |
|    | ing |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   |          |               |
|    |   F |   |   |                    |    |   |          |               |
|    | ree |   |   |                    |    |   |          |               |
|    | way |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   |          |               |
|    |   E |   |   |                    |    |   |          |               |
|    | xte |   |   |                    |    |   |          |               |
|    | nsi |   |   |                    |    |   |          |               |
|    | on* |   |   |                    |    |   |          |               |
+----+-----+---+---+--------------------+----+---+----------+---------------+
| ** | -   |   |   | -   8-mile         | -  |   | -   Nego | -   Design,   |
| VA |   * |   |   |     connector road |    |   | tiations |     build,    |
| ** | Rou |   |   |     to I-895 near  |  \ |   |          |     operate   |
|    | te- |   |   |     Richmond,      | $3 |   | ongoing, |               |
|    | 895 |   |   |     includes       | 20 |   |     co   |               |
|    |     |   |   |     bridge over    |    |   | nceptual |               |
|    |     |   |   |     James River.   |    |   |     plan |               |
|    | Con |   |   |                    |  m |   |          |               |
|    | nec |   |   |                    | il |   | approved |               |
|    | tor |   |   |                    | li |   |     May  |               |
|    |     |   |   |                    | on |   |     1996 |               |
|    |     |   |   |                    |    |   |          |               |
|    | Tol |   |   |                    |    |   |          |               |
|    | lro |   |   |                    |    |   |          |               |
|    | ad* |   |   |                    |    |   |          |               |
+----+-----+---+---+--------------------+----+---+----------+---------------+
| #  | -   |   |   | -   A four-lane,   | -  |   | -   Nego | -   63-20     |
| #  |   * |   |   |     divided        |    |   | tiations |               |
| VA | Rou |   |   |     roadway along  |  \ |   |          |   Corporation |
|    | te- |   |   |     limited access | $1 |   | ongoing. |               |
|    | 168 |   |   |     right-of-way   | 30 |   |          |               |
|    |     |   |   |     in order to    |    |   |          |               |
|    |  So |   |   |     relieve a      |    |   |          |               |
|    | uth |   |   |     severely       |  m |   |          |               |
|    |     |   |   |     congested      | il |   |          |               |
|    |     |   |   |     10-mile        | li |   |          |               |
|    | Tol |   |   |     section of     | on |   |          |               |
|    | lro |   |   |     highway.       |    |   |          |               |
|    | ad* |   |   |                    |    |   |          |               |
+----+-----+---+---+--------------------+----+---+----------+---------------+
| #  | -   |   |   | -   Buil           | -  |   | -   Pre  | -   Build-Tra |
| #  |     |   |   | d-transfer-operate |    |   | liminary | nsfer-Operate |
| WA | *SR |   |   |     agreement.     |  \ |   |     nego |     with an   |
|    |     |   |   |     10.5-mile,     | $1 |   | tiations |     IRS 63-20 |
|    |     |   |   |     four-lane      | 55 |   |     c    |               |
|    | 522 |   |   |     tollway        |    |   | ompleted |  Corporation. |
|    |     |   |   |     expanding      |    |   |     by   |               |
|    |   i |   |   |     existing road. |  m |   |          |               |
|    | mpr |   |   |     Prime          | il |   |   State, |               |
|    | ove |   |   |     motivation:    | li |   |     but  |               |
|    | men |   |   |     safety.        | on |   |          |               |
|    | ts* |   |   |                    |    |   |    local |               |
|    |     |   |   |                    |    |   |     op   |               |
|    |     |   |   |                    |    |   | position |               |
|    |     |   |   |                    |    |   |     has  |               |
|    |     |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   |  stalled |               |
|    |     |   |   |                    |    |   |          |               |
|    |     |   |   |                    |    |   | project. |               |
+----+-----+---+---+--------------------+----+---+----------+---------------+

[]{#__RefHeading___Toc413052838 .anchor}case studies

[]{#__RefHeading___Toc413052839 .anchor}introduction

The survey of state public-private partnership (P3) programs, summarized
in the previous chapter, provides a snapshot of state progress to date
with P3, and some indication of strategies for success or areas for
concern. This section builds on the broad survey by taking a closer look
at four state experiences, in order to understand the elements of such
strategies and whether any one state's efforts can, and/or should, be a
model to other states considering such programs.

State experiences can be studied from the perspective of the state
process used or, alternatively, from the perspective of an individual
project within that effort. Indeed, some states' entire P3 experience
centers around a single project. The four cases presented in this
section incorporate both methods of analysis. While it prevents easy
comparison across the cases, it may provide better insights overall
regarding any critical path or key requirements for success of P3
programs.

Virginia and Washington State are examined from the state perspective.
Meanwhile, the E-470 project in Colorado and SR 125 in California are
examined as projects undertaken as defining the P3 experience or within
a P3 context, respectively. Finally, the Virginia case study also
contains a stand-alone consideration of the Dulles Greenway project, as
it was undertaken outside the existing P3 program, and should therefore
be considered separately, and because it is unique in structure and
therefore merits a separate analysis in any case.

All of the case studies are based on interviews with state and local
officials, participating private firms, and written materials where
relevant. Despite the two approaches used and the resulting split in the
Virginia case, each case description is structured as follows:

-   *Background* \-- indicating program or project objectives and
    providing historical context;

-   *Process* \-- summarizing the state process used within which the
    project took place, or describing in detail the program developed
    and used;

-   *Project Description(s)* \-- where potential or existing projects
    are profiled and issues highlighted;

-   *Program and Project Status* \-- which indicates the current status
    of the program or the project within a program; and

-   *Lessons and Highlights* \-- that draws lessons that may be learned
    from that state's or project's experience.

    []{#__RefHeading___Toc413052840 .anchor}Virginia

    []{#__RefHeading___Toc413052841 .anchor}Overview

Virginia's public-private partnership program passed, essentially,
through two distinct phases. First, the Commonwealth authorized
development of the Dulles Greenway, under 1988 legislation enabling the
(Virginia Department of Transportation (VDOT) to pursue this
public-private partnership (Section 56-544 of the Virginia Highway
Corporation Act). VDOT and the State Legislature subsequently determined
that a different approach was needed and, working together, developed
new legislation in 1994. This act, the Public-Private Transportation Act
of 1995, forms the backdrop for current and expected public-private
activity relating to all modes of transportation in Virginia.

Because the Commonwealth went through two very different experiences,
and has learned important lessons from both, the two initiatives are
profiled separately and sequentially.

[]{#__RefHeading___Toc413052842 .anchor}Dulles Greenway Public-Private
Partnership

[]{#__RefHeading___Toc413052843 .anchor}Background/Scope and Legislation

Virginia enabling law was adopted in July 1988 for the Dulles-Leesburg
toll road project under a "private corporation act." Section 56-544 of
the Virginia Highway Corporation Act allowed private entities
incorporated as public utility corporations to build, own, and operate
toll roads upon receipt of a Certificate of Authority from the Virginia
State Corporation Commission (a public utility commission).

[]{#__RefHeading___Toc413052844 .anchor}Process and Agreement

Toll Road Investment Partners II (TRIP II) applied under the Act and was
selected to design, build, and operate the toll road (Virginia already
had built a toll road east of Dulles Airport to the Capital Beltway. The
extension runs west of the Airport to Leesburg).

Under the arrangement, TRIP II is regulated by the Virginia State
Corporation Commission (SCC) and overseen by the Virginia Department of
Transportation through the Commonwealth Transportation Board. This
structure treated the project very much like a public utility, giving
the SCC the power to make unilateral decisions with respect to fixing
the fee schedule and rates of return. The project also required TRIP II
to own the land, with all the attendant liabilities involved.

Under the initial plan, tolls were to be the main source of revenue. The
SCC would regulate tolls according to limits on the project's rate of
return on equity. All assets of the toll road must revert to the State
ten years after the debt is repaid. VDOT monitored construction,
operations, and maintenance as spelled out in the terms of a
Comprehensive Agreement between the State and TRIP II. Further, the
project was required to comply with all local land use and zoning
regulations. The State also required that all land be acquired by
donation or fee to assure use in perpetuity after turnover, and much of
the right-of-way was donated by local land developers.

[]{#__RefHeading___Toc413052845 .anchor}Project Description

The Dulles Greenway is a 15-mile, limited-access four lane extension of
the existing State-built Dulles Toll Road (Route 267), extending west
from Route 28 near Dulles Airport to Leesburg, Virginia.

[]{#__RefHeading___Toc413052846 .anchor}Status

This project received all necessary State and local permits to commence
construction and actively sought construction financing over a 5-year
period. The project overcame several barriers to finalize financing of
over \$300 million and break ground in the fall of 1993. It opened for
traffic in September 1995.

After about six months of operations, actual use of the Greenway was
running about 10,000 to 12,000 vehicles per day, substantially below the
forecast levels of 34,000 vehicles per day, and revenues were falling
short by a comparable margin. Net revenues proved inadequate to cover
debt service, and reserves were drawn down. Though the project was not
performing on its debt, there were reports of a standstill among lenders
to allow adjustments to be made by the equity investors. Because the
project was privately financed, without publicly marketed securities,
detailed financial performance information is not available.

In the Spring of 1996, Greenway toll rates were reduced from \$1.75 to
\$1.00, on a temporary basis, and remained at that level throughout the
year. Ridership expanded to about 20,000 vehicles per day, still well
below projected volumes.

In addition, real estate development in the Greenway corridor and around
Leesburg had stalled during roadway development, but has recently
accelerated, in part because compatible electronic tolling devices have
been installed on the Greenway and the State\'s connecting toll road.
Greenway developers have undertaken additional marketing efforts as
well, so there are reasons to expect a continuation of traffic growth.

Operations continue without public evidence of major problems, but the
project revenues are known to be insufficient to cover debt service and
the financial position of the equity investors is known to be tenuous.
As of early 1998, VDOT gave TRIP II an additional six months to pay off
a \$2 million dollar debt to the State after it paid \$500,000 of \$2.5
million due and promised to pay the rest with interest by July 31, 1998.
TRIP II expects to reach a refinancing agreement with lenders by that
time.[^17]

[]{#__RefHeading___Toc413052847 .anchor}Lessons and Highlights

Virginia and the private developers, TRIP II, learned several lessons
from the experience with the Dulles Greenway and Virginia's current
program reflects many (if not all) of these lessons:

-   *Development costs may be higher for "greenfield" projects relative
    to other types of projects.* Development costs associated with
    right-or-way acquisition and State and local interaction regarding
    underdeveloped areas required significant private equity from the
    outset.

-   *The state can contribute to a project up-front by using its powers
    to acquire ROW*. Land acquisition proved difficult to finalize
    without any "taking" authority.

-   *Projects servicing underdeveloped areas may need special
    assistance, such as credit support*. Toll revenue estimates were
    based on projected real estate development beyond Dulles which
    stalled in the recession. The forecasts were overly optimistic, and
    appear to have been technically flawed in addition to the impact of
    stalled development in the area.

-   *The state may wish to retain land ownership as it faces a lower
    risk than the private partner* does. Acquiring necessary
    right-of-way to complete transportation projects can be an expensive
    component of the overall financing of a project. Any last minute
    alignment changes can be quite costly to private developers taking
    part in the joint development of a project. Requiring private
    ownership of land may impose unnecessary operational risks on the
    private party.

-   *The contract must be clear on roles and responsibilities in the
    event of sponsor default*. Agreement on procedures in event of
    default proved difficult here.

-   *The final agreement between the private partner (i.e., Toll Road
    Investment Partnership II) and the State needs to recognize that the
    general public may view the arrangement differently*. To ease the
    transition between the two connecting toll roads, Greenway operators
    agreed to collect the State\'s toll. This made the toll level paid
    on the Greenway visibly higher, even though a portion was simply
    being remitted to the State.

[]{#__RefHeading___Toc413052848 .anchor}Public-Private Partnerships
Under Virginia's Public-Private Transportation Act of 1995

[]{#__RefHeading___Toc413052849 .anchor}Background

The Commonwealth sought several objectives in passing the Public-Private
Transportation Act (PPTA) of 1995:

-   Broad support from stakeholders (the Governor, VDOT, State
    Legislature, contractors, local communities);

-   More flexible regulatory oversight requirements than were possible
    under the Greenway project;

-   Increased capital (relieving the Commonwealth from having to
    increase its debt outstanding);

-   A mechanism by which to encourage creative solutions to Virginia's
    transportation problems; and

-   Acceleration of important projects (across all modes).

VDOT worked with the Legislature and with significant input from
interested parties to draft and re-draft the legislation, which was
signed by Governor George Allen in 1995. VDOT used public forums,
written comments, and public hearings to secure feedback. This activity
also served as an initial education and outreach platform.

The Commonwealth has received 10 qualifying unsolicited proposals to
date; one of which is in the negotiation phase. One contract has been
negotiated with Virginia Maintenance Services, Inc. (VMS), to operate
and maintain a portion of Virginia's interstate under a fixed price
pilot program.

[]{#__RefHeading___Toc413052850 .anchor}Process

Program Development

Concurrent with passage of Legislation, VDOT developed guidance to
direct potential proposers and to provide an internal framework for
action. Here too, VDOT solicited written comments from over 300 parties
that had expressed interest in the program, of which about one third
responded. During this time and following publication of the final
guidelines, the Secretary and Deputy Secretary gave several
presentations around the State, introducing the program, explaining
VDOT's goals, and encouraging support.

Scope and Legislation

The Virginia legislation is broad based and flexible in three respects.
It permits:

-   solicited and unsolicited proposals;

-   any "responsible public entity" to accept or solicit a proposal; and

-   proposals across all modes for capital and/or operations and
    maintenance of a new or existing facility, with very few
    restrictions.

In addition, the legislation permits VDOT (or other responsible public
entities) to negotiate nearly every aspect of the arrangement with the
proposing team, including the partners' respective roles, risk sharing,
financial contribution, and return on investment.

Selection

In response to written comments that expressed proposer concern over a
steep fee, and the cost involved in developing detailed proposals, VDOT
developed a two-step evaluation process, requiring a "conceptual"
proposal and a \$5,000 fee initially, with a \$20,000 payment and a more
detailed proposal if the initial submission is approved. VDOT's Chief
Engineer, Assistant Commissioner of Operations, and Assistant
Commissioner of Finance review each conceptual proposal. If they accept
one, the Chair of IRC takes the proposal to the Transportation Board for
approval of the concept (This step also serves to keep the Board aware
of projects being seriously considered as they will later be involved in
making decisions regarding alignments, impacts on existing
infrastructure, financing, etc.).

When an unsolicited proposal is accepted, the State posts a notice in
major papers, on VDOT bulletin boards, and in the State's publications
geared towards contractors. A 30-day period follows, in which other
firms may submit similar proposals in competition. The period is
designed to prevent other firms from beginning similar complete
proposals, but to provide ample time for firms already working on
similar proposals sufficient time to complete and submit them.

The proposer must also send the conceptual proposal to all "Affected
Local Jurisdictions." This forces the proposer to begin a public
outreach and consensus building process. Concurrent with and extending
beyond the 30-day competition period after detailed proposals are
received is a 60-day comment period during which local governments can
formally respond to the proposals, but are not required to do so. The
State is aware that in some cases the requirement to inform all
localities of the project can be difficult for the proposer, especially
for projects which affect the whole state, but they feel the exercise is
crucial to the success of any proposal. The general public is expected
to comment through their local governments, and is not provided with a
separate forum. Local governments do not have veto power as part of the
selection process. However, local government support has an impact on
the evaluation of the proposal. Further, the proposal must be consistent
with state and local plans.

Upon receipt of a detailed proposal, a Public-Private Transportation
Advisory Panel (PPTAP) reviews the proposal in greater detail. The PPTAP
is comprised of the members of the Initial Review Committee, one member
of the Transportation Board, one member of the academic community
knowledgeable in transportation engineering, and chaired by the Deputy
Secretary of Transportation.

While this creative two-step approach was undertaken to accommodate
proposer concerns, it has not yet worked very well in practice.
Proposers have found that it does not really save them much in the way
of time and money to develop a proposal, as they have to undertake a
critical mass of effort to develop the conceptual proposal. As a result,
they expend effort that naturally would be reflected in the *detailed*
proposal, to make the *conceptual* proposal make any sense.

VDOT has stated that it is receiving proposals for the "conceptual"
submission that are too detailed and lengthy, and would prefer to
receive less information as the IRC, however, only reviews the
information to determine proposer qualifications, a project's technical
merits, and financial feasibility. Thus, the review exercise, which was
meant to be limited at this stage, has taken more department time and
effort than was envisioned. Moreover, it appears that proposers have
started to consider it an unstated requirement that the conceptual
proposal actually be very detailed, either because the research effort
had to be undertaken anyway (so there is little additional effort
involved in including detailed information in the proposal itself)
because they believe it may give them an extra advantage.

The tendency toward overly detailed proposals concerns VDOT as it may
discourage firms that would like to submit creative unsolicited
proposals. Unlike proposers responding to solicited RFPs, these
proposers are taking the risk that the project is not of interest or
importance to VDOT. If they feel required to expend significant time and
money developing a new idea, they may be discouraged from doing so, and
lower their relative risk by selecting a project already on a long-range
plan. VDOT may not, therefore, achieve its program objectives relating
to "creativity".

Disclosure Provisions

The two-step process also led to a 1996 revision in Virginia's
legislation related to information disclosure. Many states have Freedom
of Information Act (FOIA) laws that determine the conditions under which
materials submitted to a government body must be disclosed to anyone who
asks to see those materials, even where the owner of the information
considers their contents to be confidential and proprietary. The
Virginia legislation excludes proposals under PPTAP from standard
procurement law in an effort to provide VDOT with flexibility on
disclosure.

In a standard procurement, FOIA applies after a team is selected, so
information is kept confidential until bidding is complete. Under the
public-private partnership program, however any competing team could ask
to see a bidder's submitted proposal during the 30-day period, and make
use of that bidder's confidential information in their proposal.

While this risk is clearly addressed in the guidelines, many original
proposers were not aware of this possibility and simply stamped their
information "confidential and proprietary", not realizing that such
action would not protect them. Other early proposers split their
proposal contents and left confidential chapters with their respective
lawyers, who were not obligated to release that information to the
public. At the same time, VDOT could still look at the safeguarded
materials as needed. This solution was ad hoc at best, as it required
continuous trips to the lawyers' offices by VDOT personnel.

Virginia has since amended FOIA to explicitly exclude certain parts of
proposals submitted under the P3 program. Under the amended law,
proposers need to meet three tests: (1) the proposer must ask that
certain portions of the proposal be exempt from the FOIA requirements;
(2) material deemed confidential and proprietary must be stamped as
such; and (3) the proposer must explain why those materials should be
exempt. If VDOT accepts the proposer's arguments, these materials are
removed from the master copies VDOT keeps for FOIA requests.

Schedule

VDOT provides a suggested schedule for decision-making in its
partnership guidance. Proposers have found that VDOT has not adhered to
its "suggested" timetable laid out in the guidance, at great cost to the
bidding teams. From VDOT's perspective, they have no control over when
such proposals are submitted, and therefore cannot really plan or budget
time or staff to accommodate a specific timeframe. From bidders'
perspectives, however, the long delays are very costly. VDOT recognizes
that theirs is a new process, this issue is inherent to a process that
accepts unsolicited proposals, and fully expects their turnaround time
to speed up once more projects are in place.

[]{#__RefHeading___Toc413052851 .anchor}Project Descriptions

Under the new legislation, as of late 1997, Virginia has received six
proposals that have been granted (at least) conceptual approval. One of
these has since been successfully negotiated; one was not recommended;
and three were withdrawn from consideration by the proposer. One
proposal is still under consideration. These proposals, including a
project initiated by the City of Chesapeake, are shown in the table
below and are summarized below (excluding the O&M proposal by Rebuild
Inc.):

+-----------+---------+---------+---------+----------------+---------+
| **        | **Type  | **Soli  | **Resp  | **Proposer**   | **Es    |
| Project** | of      | cited** | onsible |                | timated |
|           | Pr      |         | Public  |                | Cost**  |
|           | oject** | **or    | E       |                |         |
|           |         | Unsolic | ntity** |                |         |
|           |         | ited?** |         |                |         |
+-----------+---------+---------+---------+----------------+---------+
| *O        | O&M     | Unso    | VDOT    | Rebuild Inc.   | N/A     |
| perations |         | licited |         |                |         |
| &         |         |         |         |                |         |
| Ma        |         |         |         |                |         |
| intenance |         |         |         |                |         |
| for       |         |         |         |                |         |
| Dulles    |         |         |         |                |         |
| Toll      |         |         |         |                |         |
| Road*     |         |         |         |                |         |
+-----------+---------+---------+---------+----------------+---------+
| *I        | O&M     | Unso    | VDOT    | Virginia       | \$132   |
| nterstate |         | licited |         | Maintenance    | million |
| O&M*      |         |         |         | Services (VMS) |         |
|           |         |         |         |                |         |
|           |         |         |         | Louis Berger   |         |
|           |         |         |         | International  |         |
|           |         |         |         |                |         |
|           |         |         |         | Sverdrup Corp. |         |
|           |         |         |         |                |         |
|           |         |         |         | Dyn Corp./CSC  |         |
|           |         |         |         | (withdrawn)    |         |
+-----------+---------+---------+---------+----------------+---------+
| *         | Capital | Unso    | VDOT    | Fluor Daniel & | \$320   |
| Route-895 | and     | licited |         | Morrison       | million |
| Connector |         |         |         | Knudsen        |         |
| Toll      | O & M   |         |         |                |         |
| Road*     |         |         |         |                |         |
+-----------+---------+---------+---------+----------------+---------+
| *Route 58 | Capital | Unso    | VDOT    | Hampton Roads  | \$600   |
| Midtown   | &       | licited |         | Public-Private | million |
| Tunnel,   |         |         |         | Development,   |         |
| Pinner's  | O & M   |         |         | L.L.C.[^18]    |         |
| Point     |         |         |         |                |         |
| Int       |         |         |         |                |         |
| erchange, |         |         |         |                |         |
| and       |         |         |         |                |         |
| Martin    |         |         |         |                |         |
| Luther    |         |         |         |                |         |
| King      |         |         |         |                |         |
| Freeway   |         |         |         |                |         |
| E         |         |         |         |                |         |
| xtension* |         |         |         |                |         |
+-----------+---------+---------+---------+----------------+---------+
|           |         |         |         |                |         |
+-----------+---------+---------+---------+----------------+---------+
| *Route    | Capital | So      | City of | Parsons        | \$130   |
| 168 South | &       | licited | Che     | Brinckerhoff   | million |
| Toll      |         |         | sapeake | and J.A. Jones |         |
| Road*     | O & M   |         |         |                |         |
+-----------+---------+---------+---------+----------------+---------+

Interstate System Ordinary Maintenance

Final agreement for this pilot program was reached in December 1996. The
proposal submitted by Virginia Maintenance Services (VMS), Inc. will
provide total maintenance of certain portions of the interstate system,
totaling about 250 miles. The pilot program is Virginia's first
initiative to be implemented following enactment of the Public Private
Partnership Act of 1995.

VDOT received the conceptual proposal on October 2, 1995. Two competing
proposals were received during the 30-day period that follows any
accepted unsolicited proposal. All were approved by the Initial Review
Committee and accepted in concept by the Commonwealth's Transportation
Board *for a pilot program only*. VMS and a second firm submitted
detailed proposals in April 1996.

The Public-Private Transportation Advisory Panel recommended that the
Commissioner negotiate with VMS and a comprehensive agreement was
reached on December 19, 1996. The pilot program negotiated with VMS
includes 250 center lane-miles of interstate located in the southwest
and southeastern sections of Virginia for a 5- year time period
following an initial six-month transition period. Full responsibility
for all maintenance activities, including I-77 (except for tunnels)/
I-81 and snow removal, will take place in the later years. The total
cost of the program is \$131.6 million.

The evaluation process and subsequent negotiations were fairly smooth
and uneventful. VMS made several observations, however, that have wider
applicability. VMS recognized that the framework for evaluating the
success of the partnership must be cognizant of where and how the
private partner is able to achieve savings or efficiencies, and not be
structured in a way that prevents the private party from achieving those
efficiencies. The private partner, in turn, has to accept that the
public agency has to protect themselves in substance and perception.
VDOT did recognize the importance of doing so and the contract is
structured in a way that permits VMS to achieve the efficiencies it
proposed.

VDOT also established performance standards as an oversight tool. The
performance outcomes specify the level of compliance with maintenance
standards for each maintainable asset. This permitted VMS to take
advantage of key opportunities possible under asset management, such as
hiring labor as needed, rather than keeping maintenance staff on board
the entire contract length. While some staff is needed on a continual
basis, VMS can determine peak labor periods over a planning horizon, and
contract out during those periods. In addition, instead of receiving an
annual budget and applying that budget toward O&M needs the way VDOT has
traditionally approached maintenance, VMS can take a more holistic view
of the contract over the entire contract period. It can then look at
maintenance options at different time periods, and select a plan that
combines cost efficiencies with safety factors.

VDOT negotiated a pilot program that permits these types of savings.
VDOT established a level of service required and will annually review
outcomes to make sure this level is maintained. *How* it is achieved,
however, is left to the private partner.

VMS echoed many proposers in stating the importance to a private partner
of a stable, predictable cashflow. While there is a need to the DOT to
verify that work is proceeding (whether construction or O&M) as agreed,
it helps to partially divorce the timing of payments from the audit
activity. The VMS contract, for instance, spells out a total return over
the period, split over the 5.5 years and declining in value each year.
While the overall return is the same as it would be if the fee were
split evenly over the period, from a cashflow standpoint, the structure
has the following advantages:

-   It is beneficial to VDOT as it provides greater and greater savings
    each year relative to what it would have cost them in-house, given
    that their yearly payments to the contractor fall each year; and

-   It provides an incentive to the contractor to improve efficiency
    each year, or annual bottom line performance and cashflow will
    suffer.

While, in both cases, the overall gains are the same, the cashflow
difference can be important. Finally, VMS again echoed many private
firms who observed a deep-seated distrust that the public and private
firms feel for one another. Fortunately, VMS was able to build trust
with VDOT. VMS and VDOT began transitioning operations in February 1997.

Route 895 Richmond Connector "Pocahontas Parkway" Project

This unsolicited, conceptual proposal calls for the design and
construction of a Route-895 Connector linking I-95 with I-295 south of
Richmond. The project would serve the growing Henrico and Chesterfield
Counties southeast of Richmond with improved airport access and regional
traffic movement around the greater Richmond metropolitan area. The
proposal, which includes a bridge over the James River, had been under
consideration by VDOT for some time but could not move forward to
construction due to a lack of funding.

VDOT has already allocated \$12 million for the design of a Route-895
Connector from the intersection of I-95 (Richmond-Petersburg Turnpike)
and Route 150 (Chippenham Parkway) to I-295. As well, VDOT looked at
three connector alignments and an environmental impact statement was
approved by FWHA for a favored alignment that required a bridge crossing
at the James River. Proposers will incorporate this work in their
project and perform additional design engineering before construction.

Under their proposal, the team of Fluor Daniel, Inc., and Morrison
Knudsen Corporation propose to commit financial and human resources to a
new company, FD/MK, for completion of the project. Currently, the team
is working together on the E-470 project in Denver. FD/MK's plan is to
construct the Route-895 Connector as a user-pay facility (cars paying a
maximum mainline toll of up to \$2) and use the toll revenue as the
security for non-recourse, tax exempt bond financing issued through a
not-for-profit community benefit corporation. VDOT will take ownership
of the completed facility and FD/MK will serve as the contractor to
operate the new highway. The project is estimated to cost \$320 million.
The not-for-profit entity will issue approximately \$330 million in
project-related debt and have requested a State Infrastructure Bank loan
for the remaining \$18 million.

The unsolicited Route-895 Connector proposal was submitted to VDOT on
November 8, 1995. It was approved by the Initial Review Committee and in
concept by the Commonwealth's Transportation Board on March 21, 1996. No
competing proposals were received and proposers submitted a detailed
proposal in July, 1996. As of May 1997, VDOT, and FD/MK have been
working to negotiate a comprehensive agreement for the project.

Route 58 Midtown Tunnel, Pinner's Point Interchange, and Martin Luther
King Freeway Extension

Eastern Virginia Public-Private Facilities Partners, L.L.C. and the
Hampton Roads Infrastructure Development Group submitted design-build
proposals for transportation facilities to benefit the cities of Norfolk
and Portsmouth, Virginia. The two firms have, subsequently, merged to
form Hampton Roads Public-Private Development, L.L.C. The plan includes
construction of limited access highway facilities at the Pinner's Point
Interchange in Portsmouth, improvements to a strategic interchange in
Norfolk, and the addition of a second Midtown Tunnel facility to expand
Route 58 in Norfolk to four lanes of traffic. Ownership and operation
will rest with VDOT. These facilities are part of the existing regional
transportation plan for improved east-west travel linking Route 58 and
the Western Freeway (Route 164) in Portsmouth to a major interchange in
Norfolk as well as improved north-south travel linking the Western
Freeway to the Martin Luther King Freeway in Portsmouth.

The project team is a consortium of managers, engineers, financiers,
legal advisors, and contract advisors with local and national
experience. Proposers estimate the total cost of the project \--
including design, development, right-of-way, construction, and financing
costs \-- to be \$420.8 million. Since the project builds on existing
(Pinner's Point Interchange) and future (Midtown Tunnel
widening/Brambleton Ave. Interchange) project improvements by VDOT,
proposers reason that the value added by this proposal warrants VDOT's
financial participation in the project. Proposers reason the project
will provide a vital link across the Elizabeth River that will maximize
the effectiveness of VDOT's investment in the Pinner's Point
Interchange. The plan requests that VDOT contribute \$98.6 million
(which is \$19 million less than VDOT's current commitment of \$119 to
construct the Pinner's Point Interchange portion of the project).
Besides the contribution from VDOT, the plan calls for the issuance of
long-term bonds supported by toll revenues from two plazas along the new
facility as well as an initial loan from a private lender of \$10
million. The initial loan is to be repaid from the proceeds of the bond
issuance.

This conceptual proposal was submitted to VDOT on October 18, 1996. A
competing proposal was received a month later and, to date, both remain
under consideration by the Initial Review Committee.

Route 168 South "Battlefield Boulevard Bypass" Toll Road

The City of Chesapeake would like to build a four-lane, divided roadway
along limited access right-of-way in order to relieve a severely
congested 10-mile section of highway (State Route 168). The existing
two-lane highway currently carries three times the traffic it was
designed to handle. Need for this new roadway is well demonstrated by
strong local, regional, and state support. The primary obstacle in
completing the project has always been inadequate funding to complete a
project of this magnitude.

Traffic build-up along this two-lane stretch of highway has severely
constrained commerce between Virginia and North Carolina, especially in
late Spring, Summer, and early Fall, as the bulk (80 percent) of the
traffic on this route is travelers using the highway to reach the Outer
Banks resort area of North Carolina. This traffic competes with local
residents. The new road will be constructed at a new location leaving
the existing roadway (with some improvements) free to serve local
citizens.

Virginia is the only state to date that has explicitly permitted local
governments to engage in P3 activities. While VDOT does not require the
local government or authority to follow VDOT guidance, it encourages
them to establish some guidance to ensure a consistent, transparent
process.

Pursuant to the PPTA of 1995 legislation, the City of Chesapeake
developed a project RFP and guidelines allowing both solicited and
unsolicited proposals to be submitted. Overall, VDOT is pleased with the
process Chesapeake has used. One unexpected outcome has been the degree
to which VDOT has been involved with Chesapeake's program. While this
has worked, VDOT recognizes that it may have caused problems if several
localities had moved forward with P3 efforts simultaneously and had all
turned to VDOT for technical support.

A pre-proposal conference was held in March 1996 with approximately 50
people in attendance. Two conceptual proposals were received and
approved in April and, after oral interviews from the two proposers, the
development team of Parsons Brinckerhoff and J.A. Jones (PB&J) was
selected. If a comprehensive agreement is negotiated and selected, PB&J
will be responsible for program management, design, and construction of
the project under a guaranteed price and guaranteed schedule.

The total cost of the Route 168 project is estimated at \$130 million.
The plan of finance has yet to be finalized pending the outcome of a
feasibility study. However, it is intended that the highway will be a
tolled facility using a two- or three-tiered fee structure. The City
plans to use \$25 million of their State Urban Allocation grant money
along with a \$34 million loan from the Virginia Toll Facilities
Revolving Account which will be repaid using toll revenue.

The proposal calls for the formation of the Chesapeake Expressway
Corporation (CEC), a non-profit corporation that will be comprised of
three members appointed by the City, one member each appointed by the
Chairman of the Commonwealth Transportation Board and the Commonwealth
Transportation Commissioner, two at-large members from the Circuit
Courts of the City of Chesapeake, and one non-voting member appointed by
PB&J. The CEC will be authorized by the City to issue tax-exempt bonds
secured by toll revenue in the amount of \$50 million and will own and
operate the facility upon completion. It is anticipated that PB&J may
provide a \$5 million subordinated developer note and that \$27 million
in federal funds may get used to make up the shortfall in needed
financing.

[]{#__RefHeading___Toc413052852 .anchor}Project and Program Status

To date, only the VMS contract has been signed with VDOT, although
several are still under consideration and look promising. Of the six
proposals that passed the initial review, the Route 895 project is the
only proposal currently in the negotiation phase.

Of greater significance has been VDOT's moratorium on O&M proposals
unless specifically solicited. Several factors contributed to this
decision. In part, the Rebuild proposal illustrated a broader problem.
Because VDOT is currently expanding (widening) the Dulles toll road, it
has more than its normal number of active contracts for various services
on the road. Most likely because of the visibility of this project, the
Department realized that, although it did project savings, this proposal
disrupted existing activities: contractors were concerned about
contracts being canceled; existing workers were concerned about losing
their jobs; and morale was generally low.

VDOT recognizes that the issue illustrates a problem inherent in O&M
proposals: unless they are for a new facility, the proposals themselves
can disrupt existing activities, often unnecessarily (as the proposal
may not even be approved). At the same time, VDOT realized that they
wanted to steer the P3 program back toward capital projects, based on
its original objectives. VDOT thus has determined that the program
should limit unsolicited proposals to capital improvements and permit
O&M (asset management) proposals only under a solicited framework.

[]{#__RefHeading___Toc413052853 .anchor}Lessons and Highlights

Program Scope and Legislation

[Solicited and Unsolicited Proposals]{.underline}

Several program issues arose that were related to Virginia's decision to
pursue a dual approach to P3, with respect to accepting unsolicited
proposals and the subsequent two-step selection process applied to such
proposals. Allowing unsolicited proposals has caused the Department to
rethink or alter the program regarding:

1)  Whether unsolicited proposals should be limited to certain types of
    projects (e.g. capital or operating);

2)  Proposed schedule for action by VDOT; and

3)  The concern that unsolicited approach works at cross-purposes to DOT
    outreach.

*Limiting Unsolicited Proposals to Capital Projects.* If a program
permits unsolicited proposals, it may cause less disruption to existing
O&M contracts if such proposals are limited to capital improvements. O&M
(asset management) proposals can then be solicited via RFP.
Alternatively, if a state program permits unsolicited proposals, and if
the state will consider O&M proposals as part of design/build proposals,
but does not wish to consider O&M proposals on their own, it simply
needs to make that clear in its program guidelines.

*Schedule For Action.* While the 2-step process was designed to help
proposers as much as VDOT*,* they learned that if a DOT pursues a dual
approach, it needs to develop an approach for proposal response. Even if
the timeframe established is long, the bidder must be kept informed of
progress made regarding project selection and approval. This may be as
simple as regularly scheduled meetings upon initial selection.
Participants in the Virginia program have also suggested that states
move away from the dual approach, and simply solicit proposals.

*Unsolicited Approach Works at Cross-Purposes to DOT Outreach.* Virginia
has been lauded for the extensive outreach carried out by the DOT, both
at the start of the program, and over time. Indeed, proposers praised
the Department for being the only DOT to stand before local governments
and state that the Commonwealth simply does not have the resources to
fund all the projects its needs. This honesty was strongly supported and
deemed critical.

VDOT has noted, however, that pockets of local opposition remain. A Rt.
288 "freeway" group, for example, opposed tolls on the proposed Rt. 288.
VDOT must continue, therefore, its efforts to educate the general public
as well as local governments.

At the same time, because Virginia's program allows unsolicited
proposals, VDOT has an incentive to reduce or stop outreach after a
time, because the DOT has received more proposals than it could respond
to in a timely manner.

[Any "Responsible Public Entity" To Accept Or Solicit A
Proposal]{.underline}

Enabling local governments or authorities to participate directly in a
P3 program may overcome one of the biggest barriers to such programs \--
local support. Some issues, however, do arise. The relationship between
Chesapeake and VDOT has been a good one, but suggests other states may
want to formalize roles and responsibilities. If a state program enables
local governments or authorities to undertake P3 themselves, some
consideration should be given as to how the DOT would work with the
locality through the process. This might include, for example, how (or
whether) to value the DOT contribution as part of the public share in
cost and risk sharing for the project.

No other Virginia locality has followed Chesapeake's lead and initiated
a P3 program for a major capital project under the PPTA of 1995
(although some Virginia localities have privatized transportation
functions involving transit and road repair). VDOT believes additional
education of local government on the program and experience of P3
projects will increase the likelihood that local government entities
will choose to pursue P3 programs of their own.

[Capital Vs. Operations And Maintenance Proposals: Relative and Absolute
Suitability to P3]{.underline}

VDOT and participating proposers both reflected that some projects may
be more suited to P3 programs and that there might be some benefit in
identifying these projects at the beginning of the process. In practice,
the issues arose in proposal evaluation, trying to determine whether a
proposal provided sufficient value to the DOT.

Several DOTs have expressed concern that the private sector is only
interested in submitting proposals that are the most commercially
viable, leaving the DOT with projects that are not viable from a
stand-alone perspective. Given a basket of projects, some of which could
be stand alone and others which could not, and scarce public dollars to
meet transportation needs, many proposers suggested that the DOT should
use its scarce resources to finance those that are not viable from a
stand alone perspective, and use the private sector to develop those
that can. The P3 arrangement can be structured so that the DOT shares in
the return, and uses its cash freed up to finance more projects than it
otherwise could if the private sector had never gotten involved. This
applies to both capital and operations and maintenance proposals. In
Virginia, eleven of sixteen proposals submitted under the Act were for
operations and maintenance. This result has led to VDOT issuing a
moratorium on these types of proposals, henceforth restricting
unsolicited proposals to construction of new transportation facilities
only.

DOTs may wish to look carefully at their long term capital plans, as
these typically represent a "wish list" of projects by local
governments, MPOs, and the state. While unsolicited proposals for
creative new ideas need not be excluded from the process, bidders may be
more interested and willing to respond if the DOT indicates the kinds of
projects it is interested in receiving proposals for, using existing
plans as a backdrop for that request. In addition, in determining which
projects might more logically lend themselves to P3, the DOT may wish to
consider its projects from a market perspective \-- which ones have or
could have elements that would make them viable (or viable with some
state assistance). Given the discussion above, it may be more logical to
solicit interest from the private sector for the latter group.

With respect to O&M proposals, the savings is typically based on
expected efficiencies. By definition, therefore, the DOT must be able to
determine what that segment of road would have cost them to operate and
maintain in the absence of private sector involvement. In Virginia, the
DOT did not isolate the costs of operations and maintenance of the pilot
section interstate from overall costs in a comparable accounting
framework. While this exercise can and is being done to permit
evaluation after the pilot contract is completed, it was not
anticipated. This caused delay in the evaluation process.

Where a proposal is solicited, the DOT can prepare such costs ahead of
time. The RFP for operations and maintenance of the Jamestown-Scotland
Ferry is one such example where the VDOT has separated out the costs of
operating that facility. This issue supported VDOT's case for soliciting
O&M projects.

Negotiations

The evaluation and negotiations with VMS illustrated three lessons that
have broader application:

1)  Establish a framework for evaluation;

2)  Establish a fee structure that provides smooth cashflow for the
    private partner; and

3)  Build trust between public and private.

    [Establish A Framework for Evaluation]{.underline}

The key appears to be flexibility: creating a framework that permits the
private partner to achieve the goals as it chooses, *taking advantage of
its ability to do things differently from the DOT.* Using performance
standards allowed VDOT to establish a level of service required and
minimize the oversight necessary. At the same time, it has allowed the
private firm to determine how it achieves required service levels.

The concept applies to design-build contracts as well. Here too, it is
critical to construct an agreement that evaluates the private party by
results, not the process or efforts employed to reach those results. In
practice, this means moving away from the traditional audit of activity
during a billing period, where the private partner must demonstrate what
was done to secure payment for services rendered. It may be more helpful
to spell out what results must be achieved by what dates, and to allow
the private partner to determine the method by which those results are
achieved.

[Establishing A Fee Structure]{.underline}

It becomes important to negotiate a payment structure that provides
stability to the private partner. This can be done many ways, including
partially divorcing the timing of payments from audit activities.

[Build Trust]{.underline}

Both sides must reliably understand what is critical to the other party.
While there are no rules for establishing this trust, one private firm
suggested that the initial negotiations take place privately between the
DOT (and AG's office) and the proposing team. Once there is an initial
agreement, each party should then turn to their respective legal teams
to determine whether the agreement is satisfactory. This clarifies the
respective roles: the private partner and the DOT negotiate an
agreement. The legal counsel's job is to make sure a negotiated contract
is binding and complies with law.

[]{#__RefHeading___Toc413052854 .anchor}washington state: new partners
initiative

[]{#__RefHeading___Toc413052855 .anchor}Background

Washington State embarked on their private partnership initiative in
1991, at least in part in response to ISTEA provisions encouraging
public-private cost sharing. Washington thus became one of the first
states to design legislation that could incorporate ISTEA provisions and
take advantage of lessons learned by other states, such as California
and Virginia, that had moved ahead prior to ISTEA.

In 1991, Washington\'s Transportation Policy Plan Steering Committee (an
arm of the State Transportation Commission) set up a Subcommittee on
Public-Private Partnerships in Transportation. The Subcommittee
suggested partnership enabling legislation, as follows:

> "The Legislature should authorize a program to allow the Secretary of
> the Department of Transportation to pursue and implement
> public-private initiatives for transportation capital
> improvements."[^19]

Among other subcommittee suggestions were the establishment of a
revolving loan fund, structured to take advantage of proposed
public-private partnership provisions and funding opportunities under
ISTEA, and the use of community redevelopment financing to increase
private sector investment.

The Transportation Commission (through the Subcommittee) sought several
objectives in passing state legislation:

-   Increased access to property development and project opportunities;

-   Fostering of financial and development expertise; and

-   A way to supplement state transportation revenues, allowing the
    State to use its limited resources for other needed projects.[^20]

    []{#__RefHeading___Toc413052856 .anchor}Process

    []{#__RefHeading___Toc413052857 .anchor}Program Development

Washington State's public-private partnership program was initiated by a
combined effort of the Transportation Commission and WSDOT. Upon
presentation by the Steering Committee, the full State Transportation
Commission held public hearings and found support among the general
public for the idea. Combined with the recommendations of the
Subcommittee, these findings encouraged the Commission to explore the
legal, regulatory, and administrative barriers to public-private
partnerships. The Subcommittee recommended that WSDOT be "authorized to
solicit proposals from the private sector and select up to six
demonstration projects," to be approved by the Commission and consistent
with "plans, rules, regulations and statutes governing state
transportation projects."[^21] The Subcommittee also recommended
"cooperation and consultation with affected jurisdictions,"[^22] and
established policies for minimization of state liability and
reimbursement for state services used to support projects. Surveys and
public forums following the efforts of this subcommittee identified
continued public support.

Over roughly the same time period, WSDOT was undertaking its regular
two-year planning process for 1991-1992, and it became apparent that
roadway system needs were outpacing funding resources. As a key
legislator said: "we added up the needs and experienced sticker
shock.\"[^23]

[]{#__RefHeading___Toc413052858 .anchor}Scope and Legislation

In early 1993, the Washington Legislature considered and unanimously
approved a bill enabling implementation of the recommendations regarding
public-private partnerships, The bill, Substitute House Bill (SHB) 1006,
was passed in April, by unanimous votes in both chambers, approved by
the Governor in May, and became effective on July 1, 1993. WSDOT
established their New Partners in Transportation based on SHB 1006.

The Washington legislation permits:

-   The WSDOT Secretary to select up to six demonstration projects;

-   Solicited proposals (but without restriction on scope -- projects
    are to be identified by the private sector);

-   Proposers to use Federal, State, and local financing;

-   WSDOT to assist the private entity, with respect to rights of way,
    airspace, eminent domain, development rights, permits, etc;

-   Build-Transfer-Operate arrangements (Projects will be owned by the
    private sector during construction, turned over to the State after
    construction, then leased back for up to 50 years of revenue
    operations);

-   Maximum rates of return to be established for each project, by
    negotiated agreement, with \"incentive\" rates of return allowed for
    beneficial actions; and

-   The Secretary to continue to charge user fees after the private
    lease expires.

    []{#__RefHeading___Toc413052859 .anchor}Initiation of P3 Proposals

The enabling statute in Washington State directs WSDOT to solicit
proposals and develop six demonstration projects, but there was no
guidance as to what the projects should be as long as they were
"capital-related" and dealt with "the planning, construction, upgrading,
or reconstruction of transportation systems and facilities."[^24] In
fact, the law states: "proposals and demonstration projects may be
selected by the public and private sectors at their discretion."[^25]

Shortly following passage of SHB 1006, a draft RFP was drawn up by WSDOT
and distributed to 200 interested parties. In January, 1994, the final
RFP was issued concurrently with an extensive national and international
"solicitation of interest," resulting in the issuance of the RFP to over
300 interested parties. A pre-bid conference was held in February, 1994,
and attended by 200 private sector representatives.

WSDOT solicited conceptual proposals, rather than full detailed
proposals, so that final designs and permits were not required. The
process was designed to act as a funnel, attracting a number of
proposals and narrowing them down to a few (six at the most) which would
be initially approved for further consideration.

[]{#__RefHeading___Toc413052860 .anchor}Selection

Each proposal underwent a two-step evaluation. The conceptual proposals
were submitted with a one time \$35,000 check to help defray the cost of
review and selection. Each proposal was first evaluated by a team of
WSDOT technical experts. Concurrently, WSDOT retained a financial
advisor to review proposer financial qualifications and the proposed
financial plans for each project. The analyses of each project by these
two groups became a Technical Evaluation Report. Reports were developed
on all proposals and submitted to the Project Review Board.

Under the second step, the Project Review Board (consisting of the WSDOT
Deputy Secretary, Deputy State Treasurer, Director of Revenue, a
Professor of Civil Engineering, and the Program Director) reviewed the
proposals, the attending Technical Evaluation Reports, citizen letters
submitted to WSDOT, and interviewed one proponent for each project.
Using all of this information, the Board ranked all proposals and
recommended up to six to the Secretary for approval. Following the
Secretary's review of the Board's report, the State Transportation
Commission considered each proposal, after being informed of the
Secretary's recommendations. Projects approved by the Commission
advanced into agreement negotiations with WSDOT.

Conceptual proposals were evaluated and ranked based on four basic
criteria:

-   firm qualifications, including experience and financial capability
    to carry out the project (30 points);

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-   project characteristics, including concept, constructability,
    proposed financing, and compatibility with existing transportation
    systems and needs (30 points);

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-   community acceptability, including initial support and opposition,
    and plans to involve the public throughout project development (30
    points); and finally,

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-   benefits to the State, including state transportation and economic
    development goals, and use of women and minority-owned firms (10
    points).

An important characteristic of the WSDOT process was the treatment of
proposals as proprietary in nature. In order to protect the integrity of
the evaluation process, and to provide commercial confidentiality for
competing proposals, WSDOT kept the proposal details confidential until
projects were selected by WSDOT and approved by the Transportation
Commission.

[]{#__RefHeading___Toc413052861 .anchor}Finance

Under Washington's program, selection is not based simply on a
negotiated agreement following selection of conceptual proposals.
Instead, unlike other states, the post-selection agreement between the
State and the proposer is based on the conceptual proposal and "does
**not** give developers a vested right to build and operate the proposed
transportation facilities, \[but rather\] grants an **opportunity** to
study and design the proposed facility and to complete the planning
process required by law in order for WSDOT and other agencies to
determine whether the facility should be built."[^26]

Implementation of project agreements, and subsequent approval of final
proposals, are contingent on various approvals through the normal state
procedures for infrastructure projects. The franchise agreement would
not bind the proposer to build the project, even after it had been
through all approvals.

Only at this late point is it necessary for the proposer to seek
financing for ROW and final specifications for actual construction. If
project financing is secured, then construction can commence. Hence,
detailed plans for project financing were not readily available during
project review and selection. WSDOT did report, however, that about
\$166 million in state funds would be required to implement the six
projects.

[]{#__RefHeading___Toc413052862 .anchor}Project Descriptions

WSDOT received 14 proposals on May 13, 1994 from several consortia, of
which six were ultimately selected for negotiations. Consortia
consisting of transportation, engineering, finance, marketing,
environmental assessment and traffic analysis firms explored the
Washington transportation system and identified numerous potential
projects. The 14 proposals included several bridge projects, including
three competing improvement plans for the Tacoma Narrows Bridge (SR-16).
Also proposed were corridor and interchange improvements, a congestion
pricing tolled HOV project, two transit-like projects involving ferry
service and personal rapid transit, and two park-and-ride enhancements
premised on feeding transit ridership.

The selected projects are summarized below.

+---------------+-------------+--------------+-----------+-----------+
| **SIX         |             |              |           |           |
| PROJECTS      |             |              |           |           |
| SELECTED BY   |             |              |           |           |
| WSDOT FOR     |             |              |           |           |
| NEGOTIATION** |             |              |           |           |
+---------------+-------------+--------------+-----------+-----------+
| **Project     | **Project   | **Proposer** | **        | **Project |
| Name**        | Type**      |              | Estimated | Status**  |
|               |             |              | Cost**    |           |
+---------------+-------------+--------------+-----------+-----------+
| King County   | Increased   | Perini       | \$68      | Active &  |
|               | capacity at | Corp., with  | million   | agreement |
| Park-and-Ride | 23          | ABAM         |           | in place; |
|               | pa          | Engineers,   |           | study     |
| Enhancements  | rk-and-ride | et al.       |           | ongoing   |
|               | lots        |              |           |           |
+---------------+-------------+--------------+-----------+-----------+
| Puget Sound   | Toll SOV    | United       | \$32.5    | E         |
| Congestion    | use of      | In           | million   | liminated |
| Pricing       | existing    | frastructure | for Phase | from      |
|               | HOV lanes;  | (Be          | I; \$900  | further   |
|               | build out   | chtel/Kiewit | million   | cons      |
|               | HOV network | joint        | for Phase | ideration |
|               |             | venture)     | II        |           |
+---------------+-------------+--------------+-----------+-----------+
| SR 522        | Design and  | SR 522       | \$155     | On hold   |
| Corridor      | c           | Community    | million   | pending   |
| Improvements  | onstruction | Highway      | for Phase | le        |
|               | of a 10.59  | Association  | I; other  | gislative |
|               | mile urban  |              | phases    | act       |
|               | tollway     |              | n/a       | ion/study |
+---------------+-------------+--------------+-----------+-----------+
| Tacoma        | Several     | United       | \$216     | Active;   |
| Narrows       | options to  | In           | mill      | c         |
| Bridge and SR | reduce      | frastructure | ion-\$564 | ompleting |
| 16            | congestion  | (Bec         | million   | financial |
|               | and add     | htel/Kiewit) | for       | and       |
|               | bridge      |              | various   | envi      |
|               | capacity    |              | options   | ronmental |
|               |             |              |           | fe        |
|               |             |              |           | asibility |
|               |             |              |           | study     |
+---------------+-------------+--------------+-----------+-----------+
| SR 18         | C           | National     | \$256     | E         |
| Corridor      | onstruction | Tr           | million   | liminated |
| Improvements  | of four     | ansportation | for Phase | from      |
|               | lane        | Authority    | I; \$220  | further   |
|               | tollway     | (Perot Group | million   | cons      |
|               |             | & Greiner    | for Phase | ideration |
|               |             | Engineering) | II        |           |
+---------------+-------------+--------------+-----------+-----------+
| SR 520        | I           | Washington   | \$440     | On hold   |
| Corridor      | mprovements | Tr           | million   | pending   |
| Improvement   | to SR 520   | ansportation | total     | le        |
| Project       | corridor    | Partners     | cost;     | gislative |
|               |             | (Parsons     |           | act       |
|               |             | Brinckerhoff | \$67.5    | ion/study |
|               |             | and Morrison | million   | funding   |
|               |             | Knudsen      | for Phase |           |
|               |             |              | I;        |           |
|               |             |              |           |           |
|               |             |              | \$372     |           |
|               |             |              | million   |           |
|               |             |              | for Phase |           |
|               |             |              | II        |           |
+---------------+-------------+--------------+-----------+-----------+

Metro/King County Park-And-Ride Capacity Enhancement

In 1994, the Perini Corporation submitted a proposal to design, develop,
finance, and construct single level parking decks over existing parking
spaces at 23 park-and-ride lots located in King County, Washington.
Though parking is currently free, discussions with potential users have
indicated that patrons are willing to pay a fee for a parking location
that provides the added amenities of security, convenience services, and
clean attractive surroundings. WSDOT and METRO benefit because all 23
lots are built at once. Perini offered to bring all 23 lots on line in
two years. Because the financing arrangement will build all 23 lots at
once, Perini can take advantage of huge economies of scale which Perini
estimates will reduce the cost per slot from \$23,000 (the cost under
the public construction plan) to \$11,000.

Perini estimates that local construction cost will be \$68 million. In
order to begin construction as soon as possible, Perini has agreed to
pay all development and construction costs up-front while seeking
reimbursement of the pre-construction development costs (approximately
\$2 million) from the State's HB 2909 Transportation Revolving Loan
Fund. In addition, Perini has proposed to guarantee any revenue
shortfalls (up to \$3 million) for the first three years of operation.

Perini and the Revolving Loan Fund will be reimbursed for project costs
through the sale of \$68 million in 30-year tax-exempt certificates of
participation backed by parking revenues. METRO will operate the sites
and collect parking revenues; revenues will be transferred to WSDOT who
will use the revenues to repay the bonds issued on behalf of either a
Special Purpose Entity (SPE) or a Public Development Authority (PDA) via
a lease payment. While operating costs will be subject to annual
appropriations, it is anticipated that parking fees will generate
sufficient revenues to cover debt service and operations. Additional
revenues from on-site commercial franchises are anticipated in the
future.

Because Perini's contract is strictly a flat fee for design/build, any
excess revenues will be wholly available to WSDOT. Once the bonds are
repaid, the facilities will provide a long term source of revenue to
WSDOT or METRO, even without extra concession lease income. At the end
of the project lease period, the facilities will be transferred to WSDOT
or Metro.

SR 522 Corridor Improvements

The SR 522 Community Highway Association, a nonprofit community-based
corporation, submitted a proposal to provide a new transportation
corridor between Woodville and Monroe. The main benefit of this proposal
is to improve safety and relieve congestion along the SR 522 corridor of
northeast Seattle. The proposal calls for work to be completed in three
phases and only provides construction cost estimates and a financial
plan for the first phase.

Phase I is to design, construct, and operate a 10 mile full access
controlled, four lane tollway from the State Route 9 interchange to the
US 2 interchange. Two new interchanges are to be constructed at Paradise
Lake Road and Fales Road as well. Phase II will include an additional
toll plaza for a congestion pricing pilot program, installation of
park-and-ride lots, and the modernization of approximately 2 miles of SR
522 between I-405 and SR 9. The final phase would evaluate the
feasibility of extending improvements across SR 2 and creating a bypass
around Monroe.

Cost estimates are unavailable for the final stages, but the estimated
total cost for Phase I is \$155 million. The financing for Phase I would
be accomplished through the issuance of tax-exempt debt by the 522
Community Highway Association which expects to qualify for the issuance
of debt under IRS ruling 63-20. The size of the bond issue and the
resulting toll service are dependent on any contribution made by the
State. These revenue bonds are backed solely by the pledge of toll
revenues. Interim funding is to be funded through a \$4.6 million bank
loan which would be repaid upon sale of the long term debt. In addition,
some form of credit enhancement (such as municipal bond insurance or
letter of credit) may be used to strengthen the bond sale.

Proposers plan to seek federal designation for a Congestion Pricing
Pilot Program along with federal financial assistance. Currently, the
proposal is on hold pending legislative approval.

Tacoma Narrows

The Tacoma Narrows Bridge, located along SR 16 in the northwest section
of Tacoma, is the primary link between the Seattle-Tacoma metropolitan
area and the Olympic Peninsula. The immense population growth of these
areas has resulted in increased congestion on SR 16 and especially on
the bridge. United Infrastructure, a joint venture of Bechtel and
Kiewit, proposed four distinct alternatives for improvements -- two
involving the construction of a new bridge, the construction of a new
lower deck on the existing bridge, and an option for better management
of the existing bridge.

The proposal includes project cost estimates for two of the
alternatives. Double decking the existing bridge is estimated at \$564
million. The Transportation Demand Management (TDM) option is estimated
at \$216 million. WSDOT contributed a \$1.4 million
environmental/investment analysis in the SR 16 corridor to the project.
United Infrastructure expressed a willingness to provide \$105 million
in equity if a new bridge is built and \$35 million for the TDM option.
Their investment would be recovered through the sale of taxable debt and
repaid with tolls from the facility.

SR 520 Corridor Improvement Projects

Washington Transportation Partners (WTP) proposed to improve the
existing SR 520 corridor, which links downtown Seattle with Bellevue to
the east, in two phases. The first phase would connect the existing
ramps from SR 520 to the I-5 express lanes, upgrade the elevated SR 520
structures, construct a toll facility, and provide some noise
mitigation. The project would construct covers with parks over the
roadway at selected locations, add HOV lanes in each direction, and
provide a bicycle and pedestrian path across Lake Washington. The second
phase will not proceed unless supported by the affected neighborhoods
and relevant environmental studies.

WTP estimates total cost of the project including design, engineering,
and construction to be approximately \$440 million (\$67.5 million for
Phase I). WTP plans to use \$12.5 million of equity, \$6 million from
the HB 2909 Transportation Revolving Loan Fund, and \$49 million from
tolls to finance phase I of the project. At a cost of \$372 million for
Phase II, WTP intends to use an additional \$12.5 million of equity,
\$119 million from net toll revenue, and the remainder from permanent
non-recourse financing. Approximately \$360 million of taxable revenue
bonds will be issued to pay for construction costs, repay the Loan Fund,
capitalize interest during construction, and pay financing fees and
other costs. The bonds will rely solely on tolls for repayment.

[]{#__RefHeading___Toc413052863 .anchor}Project and Program Status

In the fall of 1994, just after the six demonstration projects had been
selected, Washington State experienced a major political change, and the
majority party in the legislature swung to the Republicans. While
WSDOT\'s New Partners program was not a focus of the election campaigns,
there was growing resistance to tolls in general. New members were
elected from the districts affected by projects, including the SR 18
corridor and SR 520 area, providing special focus on these issues.
Nevertheless, WSDOT proceeded to negotiate agreements with project
sponsors. Private participants later reflected that WSDOT did not pay
sufficient attention to this change in the legislature.

The political upheaval in Washington State led to amendments to the New
Partners program that cast doubt on all the projects and caused the
demise of at least two. A \"repair\" bill, SHB 1317, was introduced in
January 1995, and hotly debated for the entire session, becoming one of
the last bills to pass. It required WSDOT to respond to petitions by
5,000 or more citizens, first determining communities affected by the
proposed project, then conducting a local referendum in those
communities (Any citizen could sign the petition). All the roadway and
bridge projects were significantly affected by negative petitions or
other restraints; the King County Park-&-Ride was not subjected to a
petition.

In February 1996, further revisions were made to the enabling
legislation in SB 6753 that showed some degree of compromise. This bill
requires WSDOT to undertake environmental and financial feasibility
studies itself, and only as funded by the Legislature, then select a
preferred alternative before holding the referendum (Under the original
legislation, the private proposer had to pay for these costs). WSDOT
points out that after holding the \"advisory\" election, the authority
to enter into a franchise agreement with the sponsor still exists; it is
not dependent on the outcome of the election and does not require
further approval by the Legislature.

As of December 1996, of the six projects initially selected, two
projects were no longer under consideration (SR 18 and Puget Sound
Congestion Pricing); two (SR 520 and SR 522) are on hold indefinitely
unless the Legislature appropriates funds for detailed feasibility
studies. Two projects are still alive: the Tacoma Narrows Bridge project
is undergoing a state-funded environmental and financial feasibility
study; and the Park-and-Ride lots in King County have ongoing market
studies under a development agreement between Perini and WSDOT. The
Tacoma Narrows project could be approved after studies are completed and
a referendum held, now planned for mid-1998 (SB 6753 also appropriated
\$10 million toward the environmental and feasibility studies. If the
project moves forward, then funds will be repaid to WSDOT from the
project financing).

Public involvement was expected to take place under the normal public
involvement process for state transportation project development.
Following the signing of project agreements, projects must be adopted
into Regional Transportation Plans, the Statewide Multimodal
Transportation Plan, and for projects involving any federal funds, the
State Transportation Improvement Program (STIP), as well as conform with
the State Implementation Plan for Air Quality (SIP). Normal EIS and
permitting procedures follow. All of these procedures involve normal
public involvement and government approvals. These requirements leave
open the prospect of another lengthy phase of project development, and
may reflect a disbenefit of the stepwise process adopted by Washington.
In particular, the process does not provide a forum for public outreach
by [both]{.underline} the DOT and the proposer up-front.

The private sector was generally satisfied with the coordinated state
effort up to the point of project approval, but noted that supporters of
New Partners within WSDOT did not keep track of changes in the
Legislature because they became consumed with the tight schedule of
project negotiations across all six projects. Meanwhile, a public revolt
against tolls took shape. Many in the private sector believe that if
supporters had briefed legislators after project selection and again
informed new members immediately after the election, the program
momentum might have been preserved. Unfortunately, this very promising
New Partners program enacted in July 1993 has led to no infrastructure
improvements as of March 1996, and appears unlikely to produce any
before late 1998.

[]{#__RefHeading___Toc413052864 .anchor}Timeline

A timeline for Washington State's public-private partnership initiative
follows:

  ---------------- ------------------------ -----------------------------------
  **WASHINGTON                              
  STATE                                     
  PUBLIC-PRIVATE                            
  PARTNERSHIPS                              
  INITIATIVE                                
  TIMELINE**                                

  **DATE**         **EVENT**                **NOTES**

  Early 1991       Establishment of         Birth of P3 initiative; parallels
                   Subcommittee on P3 in    ISTEA
                   Transportation (part of  
                   Transportation           
                   Commission)              

  August 1992      Report of Subcommittee   Recommendation to pursue P3
                   Issued                   

  July 1993        Passage of SHB 1006      Enabling legislation unanimously
                                            approved

  January 1994     WSDOT issues Final RFP   Extensive national and
                   for demonstration        international solicitation of
                   projects                 interest

  March 1994       Passage of               Authorizes WSDOT to provide
                   Transportation Revolving financial support; \$25 million
                   Fund Legislation         revolving fund.

  May 1994         Submittal of 14          WSDOT treats as confidential
                   conceptual proposals     business plans

  August 1994      Six proposals selected   WSDOT began negotiating agreements
                   by WSDOT and Commission  in September 1994

  January 1995     New legislative session  Majority changes to Republican;
                   convened after fall \'94 major revisions proposed to SHB
                   elections                1006 statute

  May 1995         SHB 1317 passed;         New limitations on P3 projects \--
                   substantially weakens    if petition with 5,000 signatures
                   WSDOT authority to       received, WSDOT must hold advisory
                   implement projects       election (referendum) after
                   selected; prohibits      identifying affected communities;
                   further consideration of WSDOT may not negotiate a share of
                   Puget Sound Congestion   the user fees from the private
                   Pricing project          projects, as originally permitted,
                                            nor continue to charge tolls after
                                            the privately-constructed projects
                                            revert to public control

  February 1996    SB 6753 passed; further  State selects preferred alternative
                   revisions to P3 program  before advisory vote taken; State
                                            must finance and undertake
                                            environmental and financial
                                            feasibility studies and define
                                            boundaries of affected communities;
                                            \$10 million provided to study
                                            Tacoma Narrows Bridge project;
                                            local advisory votes to be taken on
                                            final project
  ---------------- ------------------------ -----------------------------------

[]{#__RefHeading___Toc413052865 .anchor}Lessons and Highlights

The Washington State enabling legislation was deemed to be basically
sound and incorporated lessons learned in the early partnership efforts
in other states. In general, proposers liked the State's design for the
process, and found the State receptive to different proposals and
responsive to the needs of proposers. WSDOT was successful in attracting
bids from experienced teams with the financial and technical capability
to fulfill their proposals. Most observers felt that the selection
process was fair, and resulted in selection of high-quality teams. The
proposed projects solved real problems still facing WSDOT, such as the
build-out of Seattle\'s HOV system.

[]{#__RefHeading___Toc413052866 .anchor}Widespread Support in the DOT
and in the General Public

The program was initiated by the Transportation Commission and the DOT
(through leadership of the Subcommittee on Public-Private Partnership).
This interest led to legislation, not the reverse. While legislative
initiatives can be successful, there have been many instances where the
DOT did not support a legislatively driven program.

[]{#__RefHeading___Toc413052867 .anchor}Rate of Return was Regulated but
Flexible

WSDOT had foresight to make the maximum rate of return negotiable; it
was not established beforehand. Within this rate of return, the
developer was free to establish and modify tolls and fares. Incentive
rates of return could also be negotiated, allowing increments to the
baseline maximum rate of return, if the developer met certain safety or
demand management goals.

[]{#__RefHeading___Toc413052868 .anchor}Financial Assistance was
Available from the State

Washington was willing to engage in direct financial participation to
"address risk private capital markets are unable to accept."[^27] A
revolving fund of \$25 million was established. Both revolving fund
loans and any additional state funds, however, would need to be
appropriated by the Legislature. The State was also willing to deploy
staff and facilities for development of the project, but expected to be
fully reimbursed for all of these expenses from project generated
revenues. This permitted the DOT to share in the early risk period where
political risk was highest.

[]{#__RefHeading___Toc413052869 .anchor}Outreach Should Be A Joint
Responsibility

In Washington, the private developers had primary responsibility for
gathering public support and were generally successful with local
leaders, but not the public at large. When surveys or focus groups
results from the private sponsors were released, they were perceived as
biased, because they were conducted by the private entity that stood to
gain from the project. This bias was strengthened because proposers were
trying to gather support while competing with eachother for plan
approval.

The public was seen as not understanding the true costs of
transportation improvements. Individual project needs were understood,
but while the transportation fund is adequate for most individual
projects *taken one at a time,* most of the public did not really
understand the problems facing WSDOT to assemble funds to construct
needed transportation projects. Conveying the funding shortfall -- both
by portraying the high costs of transportation improvements and
contrasting it with the inadequate revenues -- might have convinced
voters of the real need (just as Secretary Martinez of Virginia later
did with communities in Virginia). WSDOT bonding is limited and gas tax
increments have failed six years in a row. If WSDOT had been able to
convey the concept that project needs were so huge that they dwarf gas
tax revenues, this recognition might have been heightened.

In addition, although proponents of SHB 1006 felt that tolling was
clearly identified when putting forth the New Partners program, somehow
the public did not understand that the program involved tolls. In a
sense, citizens supported the initiative in general but did not like the
specifics. Voters were not educated as to WHY public-private
arrangements made good sense for the State and its citizens -- whether
the access to private capital was important, or greater private sector
efficiency in road construction, etc. Some voters wondered: "if this
program is such a great idea, why doesn't the DOT do it itself \-- what
added value are we receiving for the private sector involvement?"

The public (and the DOT) also needs to understand that "cherry picking"
is an element of P3. The perception that private firms might profiteer
off public needs is easy to develop and hard to refute. The key is to
understand that the private sector, while it needs to make a return on
its investment, can provide net benefits to the State.

[]{#__RefHeading___Toc413052870 .anchor}Public Outreach Efforts Must Use
The Right People To Reach The Right People

Public outreach needs to be a dynamic set of activities that keeps
abreast of any changing conditions between proposal selection and final
negotiated agreement. The audience for outreach may thus change over
time and cannot be prescribed beforehand. Aside from reaching the
general public as well as public officials in the DOT, WSDOT needed to
keep new legislators informed and garner their support, which was not
done. Indeed, by leaving much of the outreach to the proposers, the
public at large was not adequately brought into the process. This was
reflected in a Seattle newspaper from June 1994 which wrote: \"\[the\]
state may like transportation projects, but what about the
public?\"[^28]

Furthermore, the key individuals required to conduct outreach may change
depending on the intended audience. Indeed, WSDOT\'s support was
questioned by some participants. As opposition arose, following the 1994
election results, and a new legislative leadership came into power,
strong support from the Secretary and the Governor could have been
critical for this otherwise non-standard approach.

[]{#__RefHeading___Toc413052871 .anchor}Undertaking Six Partnership
Projects From Scratch Overwhelmed The DOT

As WSDOT had no experience with such a program and the State had no
tolls in place, several detailed negotiations went forward
simultaneously, and large interests were at stake. WSDOT may have had a
smoother experience if they had staged the selection process. In
addition, administrative costs can be higher than anticipated, including
the costs to design a program, issue RFPs, review submittals, select
winners, oversee development and environmental processes, and eventually
monitor toll collection and road maintenance. These activities need a
dedicated professional staff, and they continue for the life of the
project or program.

[]{#__RefHeading___Toc413052872 .anchor}Transparency Vs. Confidentiality

In hindsight, broad competition with no defined project list, meant
WSDOT properly held business proposals in confidence and restricted
disclosure, which left itself open to the perception that the selection
process was "behind closed doors," with attendant implications.

[]{#__RefHeading___Toc413052873 .anchor}States May Wish To Guide
Proposers To Projects Wanted By Regional Jurisdictions

No mechanisms were in hand to assess whether New Partner projects were
highly sought by individual county and regional jurisdictions. The
program may have received better local support if it had linked directly
to MPO TIPs. For example, the Puget Sound MPO had not completed its
regional plan before the six demonstration projects were accepted. MPOs
might prefer a specific list of projects targeted to their needs, rather
than selected from private proposers.

[]{#__RefHeading___Toc413052874 .anchor}E-470: Public-Private
Partnership in Denver Metropolitan Area

[]{#__RefHeading___Toc413052875 .anchor}Background

Colorado drew much of its public-private partnership experience from one
major undertaking, the design and construction of a circumferential
highway around the eastern perimeter of the Denver Metropolitan area.
This locally controlled initiative's innovative blend of public and
private finance made E-470 a success story among public-private
partnerships.

The Denver Metropolitan area has grown rapidly since the 1970s. The
region, but for a brief recession in the mid 1980s, has become
increasingly diversified in its economy and population. A low cost of
living, relatively high wages, and available employment attracted
families from California and other, more crowded regions of the country.
Local governments in the southeast Denver Metropolitan Area embraced
this growth and sought to make sure that communities provided the
necessary infrastructure to meet demand.

The idea for a beltway around Denver had been discussed as early as
1958. However, it was not until the late 1970s that federal funds were
used to construct parts of a circumferential highway around the Denver
area. At that time, plans were made to construct both an Eastern segment
(E-470) and a Western segment (W-470). The Eastern segment was intended
to connect Denver International Airport (DIA) and the northern parts of
the City with the booming southeast Denver communities including
Arapahoe, Adams, and Douglas Counties as well as the Cities of Aurora,
Brighton, Parker, Thorton, and Commerce City. Once complete, it is
expected that commuters will save approximately 10 to 15 minutes over
driving on existing roads to the airport. E-470 will be the only
high-speed, north-south corridor on the east side of Denver.

Even before the western section was completed in 1990, however, it
became apparent that budget and political constraints on the Colorado
Department of Transportation (CoDOT) would delay the extension of the
beltway east of Denver. Indeed, as early as 1985, due to the enormous
cost of the beltway project, CoDOT felt pressure from other regions of
the State to seek alternative options to complete the beltway, reserving
scarce federal and state funds for areas beyond the Denver metropolitan
area. Under legislation passed in 1987, the aforementioned counties and
cities created the E-470 Authority by intergovernmental agreement. At
that time, the Authority did not have the power to issue bonds or raise
revenues. In order to get the project moving, therefore, Arapahoe County
offered to issue bonds for construction.

An Arapahoe County Commissioner, Tom Eggert, was one of the original
backers of the project. He believed in the road's potential not only to
relieve congestion and connect southeastern Denver to DIA, but to open
the doors to economic development for Arapahoe County and the
surrounding area. Under Eggert's leadership, Arapahoe County issued over
\$722 million in bonds in 1986 to finance the construction of E-470. The
project, however, was not ready to go to construction. As a result, the
bonds had to be deposited in escrow and were remarketed at 6-month
intervals. As they were intended to finance construction of a highway,
it was not credible to issue them for periods longer than six months and
still claim they were ultimately going to be used for project finance.
Once the project was ready for construction, the bonds could be
re-issued for a longer period and the escrow account closed, as project
revenues would be realized and used for debt service. Arapahoe's
strategy to issue for deposit to escrow was feasible, however, because
Arapahoe County issued before the 1986 Tax Reform Act took effect. Thus,
the County could use arbitrage earnings to repay the short term bonds
plus interest and re-issue new bonds until such time as the project was
ready to go to construction.

[]{#__RefHeading___Toc413052876 .anchor}PROCESS AND PROJECT DESCRIPTION

The process used to engage the private sector was secondary to the
State's intention of using a public authority structure to construct the
road. Indeed, much of the process developed in response to events that
took place. A detailed timeline for the project follows this section.

In 1987, Colorado passed the Public Highway Act, enabling municipalities
to join together and create highway authorities within metropolitan
regions of Colorado for the purposes of financing and constructing
beltways and other transportation improvements. The Act allowed the
E-470 Authority to assess fees within their constituency in the form of
tolls, highway expansion fees, and other special targeted assessments.
Under the Act, the State Legislature authorized the E-470 Authority to
control the finance and construction of the project. This included
responsibility for the bonds as it now had the means to collect revenue
for their repayment.

Once the E-470 Public Highway Authority had taken responsibility for the
bonds it looked to establish revenue streams to begin construction and
debt pay-down, as follows:

-   Tolls \-- paid by motorists who used the road for improved access to
    DIA;

-   A \$10 per year vehicle registration fee \-- paid by local residents
    who would be beneficiaries of the road and the economic growth and
    development it would generate; and

-   A highway expansion fee \-- levied on developers who were similarly
    beneficiaries of the road and the increased mobility and access it
    provided their developments.

The vehicle registration fee required a majority approval from voters in
the relevant districts. The approval came by referendum in 1988 and the
Authority began assessing the fee the following year. No vote was
required to implement the highway expansion fees.

The Authority retained the Union Bank of Switzerland (UBS), which had
substantial international experience in these types of projects, to
secure financing for all four segments of E-470, at a total cost of
around \$1 billion. Using traditional methods of project finance, UBS
tried to issue a letter of credit (LOC) backed by a consortium of
commercial banks. They were unsuccessful in this attempt. However, UBS
was able to issue a smaller LOC for \$66 million to finance segment I of
the road, where the LOC was backed by the vehicle registration fees.
Segment I was structured as a traditional design/bid/build contract.
After construction on segment I began, UBS attempted a second time to
issue the larger LOC and failed a second time.

At the same time, the E-470 Authority determined that the remainder of
the contract should be bid under a design-build structure, both to
accelerate the rest of the project (it was now very delayed) and to
allow partial financing of the design work.[^29] Lacking an existing
model for a design-build contract for highways, the E-470 Authority
worked with prospective partners to design an RFP and contract agreement
that would maximize public and private sector strengths.

The Authority issued the E-470 RFP for a design-build contract, with a
fixed price and completion date. The RFP also stipulated a three-year
warranty as well as early completion incentives. Using a competitive
bidding process, the Authority selected Morrison Knudsen (MK).[^30]

Realizing that UBS was having difficulty arranging the needed financing,
MK signed a separate agreement that assigned the firm the formal role of
financier in return for a success fee. MK pursued two strategies in
parallel: attempting to secure the traditional LOC with commercial banks
as well as working with the various rating agencies to permit the
project to issue revenue bonds. The latter approach had no precedent as
the rating agencies were uncomfortable with construction risk in a
revenue-backed arrangement.

MK discovered at this time that the fourth segment of the project
represented a "weak link" in terms of low traffic counts and high cost
per mile. Further, the selected alignment exacerbated the problem.
Pressured by the need to reduce the cost and scale of the project to
make it financially feasible, planners modified a portion of the initial
alignment of the proposed road. By moving the alignment of Segment IV
closer to Denver and utilizing an existing interchange with I-70,
projected traffic volumes would improve and the reduction in the length
of the road required would reduce costs by \$100 million. Unfortunately,
this change strained the relationship between Arapahoe County, who had
championed the project and issued the debt, and the Authority, which now
had control over the project.

The realignment also angered developers who, relying on the road's
initial location, had begun purchasing land and planning businesses
along the route. Environmental interests raised additional complaints.
Moving the road in toward Denver, they argued, would aggravate an
already serious air pollution problem in the metropolitan area. Finally,
residents of nearby affluent communities objected to the road's
proximity.

While the change in alignment offered an arena in which to fight an
unrelated political battle for control over the project, this masked a
real loss of support among some localities and the development
community. Arapahoe County Commissioner John Nicholl led opponents to
the alignment change. Nicholl agreed the communities would benefit from
E-470, but he believed that residents of the area should have a chance
to vote on the road's new alignment. Arguing that the public voted on
vehicle registration fees under the initial alignment, Nicholl thought
voters should be asked again whether a different alignment should be
utilized. His argument rested on the notion that the public had been
subject to a "bait and switch" in that E-470 stakeholders had supported
a tax based on one alignment and were asked to accept a different
alignment for the road without a new vote.

Unfortunately, this issue also arose in the midst of a fight for control
of the project and the commissioners engaged in this fight used the
concern over the re-alignment to garner support for their case. In
particular, two of three Arapahoe County Commissioners, including
Nicholl, filed suit in 1993 stating among other claims that the
Authority's plan of finance to remarket the 1986 bonds violated the
TABOR amendment, which requires any new bond issuance by a government
entity be subject to a vote. The Colorado Supreme Court, however, ruled
that the E-470 Authority could proceed with the plan of finance without
an election.

By doing this, the courts effectively over-ruled a County Commissioner,
which may not be the best way to educate and garner local support. Had
these two issues been kept separate, the E-470 Authority and MK could
have addressed the issue of needing to re-align the road head-on, and
either gathered sufficient support to obviate the need for a re-vote or
at least educate the stakeholders so they could cast an informed re-vote
on the issue (In terms of setting precedent for further P3 initiatives,
the way this was handled may be remembered).

During the interim period when the project was delayed due to
litigation, the Authority was undertaking the re-issuance of the debt
with MK playing the role of financier. It became apparent that MK was
experiencing financial difficulties. MK needed to select a partner that
could support it financially. MK selected Fluor Daniel, and the project
went forward as a 51/49 (FD/MK) equity limited partnership, under the
name Platte River Constructors.

The final financing consisted of a combination of debt and grants. The
City of Denver further agreed to construct an interchange over existing
Route 70 near DIA, worth about \$7 million. No direct federal highway
aid has been made available for E-470 (See financing table below).

E-470 Project Financing

  ----------------------------------- -----------------------------------
  **Financing**                       **Amount**

  Vehicle Registration Fee Bonds      \$51 million

  Senior Current Coupon Bonds         \$406 million

  Senior Deferred Interest            \$181 million

  State Loan and Local Match          \$40 million

  Contractor Investment               \$16 million

  Total Funds                         \$694 million
  ----------------------------------- -----------------------------------

E-470 Project Timeline

  ------------ ----------------------------------------------------------
  **DATE**     **EVENT**

  1985         E-470 created by IGA for express purpose of planning,
               designing, and constructing E470

  1986         \$722 million in bonds issued by Arapaho County

  1987         Passage of Public Highway Authority Act

  1988         E-470 Public Highway Authority established Citizens of
               affected area approve \$10/year vehicle registration fee

  1989         \$63 million of bonds released for segment I

  1991         Segment I open to traffic and tolls

  1991-1993    Financial plan for remainder of roadway using a \$1
               billion letter of credit eventually replaced by a
               fixed-rate long-term financing plan

  1993         New alignment adopted by Authority Board

  1993-1995    Litigation by opponents to the alignment change

  1995         Supreme Court rules Authority's financial plan could
               proceed with the 1986 bonds

  1995         Bonds remarketed; project commences construction
  ------------ ----------------------------------------------------------

[]{#__RefHeading___Toc413052877 .anchor}LESSONS and highlights

[]{#__RefHeading___Toc413052878 .anchor}Locally Initiated Programs Need
To Involve The State

The process used in Colorado did not formally involve CoDOT. While the
DOT offered its services on more than one occasion, the Authority did
not show much interest in accepting help. The Authority Board was not
familiar with the nuances of project finance, but trusted MK's expertise
and familiarity with project finance to engage them as financier. Once
MK took a more formal role in arranging the financing, however, they
quickly approached CoDOT for assistance.

MK realized that the municipal bond market would look for state support
of a large revenue bond issue, especially where there was no precedent
for this kind of financing. Over the 1992-1993 period, MK secured a \$20
million loan from CoDOT that required a \$20 million local match. The
value of the loan was not as important as the demonstration of state
support for the project that the cash loan provided. While providing
less than 3 percent of project costs, the loan went a long way to
reassure investors in the public sector's commitment to E-470 and the
viability of the endeavor. This kind of state support is critical to
re-assure investors that a project of this magnitude is both needed and
encouraged by the administration.

Where cash support is not possible, other kinds of support can be
provided, such as a promise not to build competing roadways or in-kind
contributions. One of the key issues that arose during financial
consideration of the E-470 project was related to land use jurisdiction
and planning. It was essential to the various parties that this planning
report was unbiased. CoDOT's assistance here was crucial to maintain
objectivity between competing interests.

At the same time, when a project is locally initiated, such as this one,
there was concern on the part of the Authority that the state would
"take over".

While the E-470 example demonstrates the strengths and weaknesses of a
project grown from local initiative, a clear and defined state role may
have aided early on to secure financing and minimize costs. As well, an
increased state role may have been able to alleviate some of the
political issues that arose that led to costly litigation motivated by
angry developers.

Where a program permits local government entities to promulgate a P3
arrangement, the role of the state and the role of the local entity
should be carefully identified and articulated at the start, probably in
the guidance establishing the program. This will allay fears on the part
of the local entity, provide a framework for action by the state, permit
each party to offer those services that take advantage of their
respective strengths, and provide comfort to the bond market that the
project has state support.

[]{#__RefHeading___Toc413052879 .anchor}Outreach Can Alleviate The
Perception Of "Bait And Switch"

If circumstances require a change after local support has been secured,
it is imperative that the DOT walk the public through the change: why it
occurred and what it means. This concept applies more broadly as well.
In the event the P3 program is generated locally, it is just as
important to explain from the beginning that a private partner is sought
and why, so that the public is not "surprised" when a private partner
appears.

[]{#__RefHeading___Toc413052880 .anchor}California: San Diego Expressway
Project

[]{#__RefHeading___Toc413052881 .anchor}Background

The San Diego Expressway Project consists of constructing about 11 miles
of new highway alignment from State Route 905 near the International
Border to State Route 54 near the Sweetwater Reservoir. The project
calls for the ultimate construction of an eight-lane highway plus
possible future construction of carpool lanes and/or transit facilities
in the median.

The San Diego area has a relatively diversified and prosperous economy
and growth record and is experiencing a strong recovery from the
recession of the early ninties. Its location in Southern California,
contiguous to the Mexican border, provides an international aspect to
traffic patterns and an additional thrust to traffic growth.

In order to divert commercial traffic away from the congested San Ysidro
border crossing to Tijuana, Mexico, the Federal government opened the
Otay Mesa border crossing several miles to the east in 1984. Sanyo NA
became the first business to move into the Otay Mesa area.

For a number of reasons, cross-border commerce and trade have blossomed
in the San Diego region. The entire state of Baja (Mexico) contiguous to
the California border is designated as a Free Trade Zone by the Mexican
government. This is the underpinning of the Maquiladora (maquila)
program in Mexico. The maquila program permits duty-free transfer of
parts into Mexico (from the US) for use in manufacturing. The result has
been to focus manufacturing in Mexico, using less expensive labor, but
often reliant on US components: management, sales and R&D tend to be
housed on the US side of the border, creating the twin-plant concept. An
estimated 755 maquilas operated in Baja in 1995, with employment of
150,000; growth has continued despite the devaluation of the Mexican
peso in the mid-1990s. Tijuana, Mexico, directly adjacent to the border
south of San Diego, has the greatest concentration of maquila operations
and related employment.

Several domestic US actions have fueled economic growth of the twin
plant industry, built around complementing the Maquiladora program in
Mexico. The State of California designated Otay Mesa as an Enterprise
Zone receiving special tax and other advantages. In 1989, Otay Mesa was
designated a US Foreign Trade Zone which conferred certain tax and other
financial incentives to manufacturing and related industries. As a
result, twin plant activities grew rapidly.

[]{#__RefHeading___Toc413052882 .anchor}Effects of NAFTA

NAFTA gives preferential treatment, and complete tariff elimination to
goods made or assembled in North America, with the probable result that
a higher percentage of components will be sourced from North America
(less from outside the NAFTA countries). This provides additional
incentive for maquilas to buy American, hence the likelihood of more
trade flowing across the Mexican border.

In 1996, there were approximately 380 companies operating in Otay Mesa,
employing about 10,000 people. Thousands of acres are zoned for
commercial/industrial use and ready for development. Trade and maquila
production, which was already growing strongly, were further
strengthened by the passage of NAFTA. Commercial traffic to/from the
border area (all via Otay Mesa) has increased rapidly, coupled with
employee travel to/from and through the border crossing. This activity
was aided by a duty free import program for goods moving back and forth
in the production process.

In fact, the San Diego Association of Governments' (SANDAG) land use
plan showed a large heavy commercial zone along the border, endorsing
the growth. San Diego County adopted its East Otay Mesa Plan to provide
for additional commercial and industrial development east of the San
Diego city limits. Six industrial parks are already established on the
Mesa, containing more than two million square feet of building. \"There
are more than 6,000 acres under the land use jurisdiction of either the
City or County of San Diego, on the U.S. side Otay Mesa, planned for
commercial and industrial use.\" In addition, nearly 2,000 more people
are employed at the several correction institutions in Otay Mesa and
another 1,000 are employed by the federal inspection services at the
border.

[]{#__RefHeading___Toc413052883 .anchor}TransNet Program

The San Diego region has a supplemental funding plan for transportation
improvements administered by SANDAG. The plan is funded by a 1/2 cent
regional sales tax adopted in 1987 for 20 years, through April 2008.
When the sales tax was approved by voters, it was passed with the
understanding that it would be used to fund these transportation
improvements. Parts of the TransNet program are bonded, issuing revenue
bonds supported by the sales tax revenues.

The SANDAG Board of Directors administer the TransNet program. One-third
of the revenues are allocated to maintain and improve local streets
using an agreed formula. The other two-thirds are dedicated to highway
and public transit improvements. Every two years, a seven-year list of
projects, the "TransNet Plan of Finance," is updated which will use
TransNet funds. The revenues have been negatively affected by economic
downturns in Southern California, and project costs have gradually
inflated. The estimated sales tax receipts will only cover approximately
70 percent of the costs. Other traditional revenue sources will be
needed to fully fund all projects. Further, the program is unlikely to
be renewed, because the statutory requirement now calls for a two-thrids
majority to adopt an add-on sales tax and support is not there.

[]{#__RefHeading___Toc413052884 .anchor}Process: AB 680

[]{#__RefHeading___Toc413052885 .anchor}Scope and Legislation

The SR-125 project was part of a larger statewide P3 initiative. The
State of California authorized four demonstration projects for
development of transportation facilities by private entities under its
AB 680 legislation enacted in July 1989. Under AB 680, Caltrans was
given broad, relatively autonomous authority to select four projects and
enter into agreements with private parties, and it appears that the
State chose projects under AB 680 with only limited input. Geographic
dispersion criterion for projects included in the statute required at
least one project in Southern California and one in Northern California.

Major concession terms were relatively standard across the projects.
Firms would design, build, transfer, operate (BTO) for up to a maximum
lease of 35 years and be responsible for maintenance and operating costs
(the State may provide maintenance and the California Highway Patrol may
perform policing services on a reimbursable basis).

Operators can set and collect tolls, can earn a \"reasonable return on
investment\" net of ongoing expenses and debt service. Concession
agreements are expected to inhibit Caltrans from building competing
facilities, but exceptions were generally provided. Finally, Caltrans is
required to use its condemnation powers (eminent domain) on behalf of
the project, if requested by the private operator.

The SR 125 project was one of four projects selected by Caltrans in
September 1990. The other projects were: the SR-91 Express Lanes; the
SR-57 extension in Orange County; and, the Mid-state Tollway (near San
Francisco Bay). Only one of four projects selected has become
operational to date, the SR-91 Express Lanes.

[]{#__RefHeading___Toc413052886 .anchor}California Transportation
Ventures, Inc. (CTV) Rationale for Proposing San Diego Project Under AB
680

Caltrans had shown the general alignment of SR 125 South on San Diego
area planning documents since the mid-1960s, and SANDAG had likewise
identified a need for an eastern \"outer loop\" highway system in th
Regional Transportation Plan since 1984, but constraints on public
funding had precluded any construction activity.

California Transportation Ventures, Inc., a partnership between Parsons
Brinckerhoff Infrastructure Development Co. and Transroute
International, S.A., is the project sponsor. CTV identified SR-125 South
as appropriate and meeting the objectives of AB 680 to provide needed
regional transportation facilities with private sector funding. This
area was characterized by:

1.  A dynamic environment in San Diego County, especially in the South
    Bay/Otay Mesa regions;

2.  Major land developments in and around the SR 125 South corridor,
    including residential developments at Otay Ranch (23,000 dwelling
    units alone), EastLake, and several others;

3.  Increasing trade and traffic across the US-Mexican border, with
    industries in Otay Mesa eventually at build out expected to employ
    140,000; and

4.  Potential for an additional, northern segment from Route 52 to
    SR-56.

Most importantly, strong local support for completing the SR 125 project
was demonstrated by the public funding of the connections to I-5 and
I-805 to the west and I-8 to the north, and the initiation of
environmental and route location process by SANDAG, the County of San
Diego, the City of San Diego, and the City of Chula Vista under a 1989
Agreement with Caltrans.

[]{#__RefHeading___Toc413052887 .anchor}Project Description

The proposed State Route 125 South (SR 125) is designed to be a
north-south highway corridor in southeast San Diego County traversing a
partly developed region extending south to the Mexican border that will
provide access to the Otay Mesa border area employment centers and
adjacent border crossing. The Southern segment of SR 125 is planned as
an 11.2 mile controlled access highway running from State Route 54 south
to Otay Mesa. The southernmost 10-mile segment is planned as a
privately-financed toll road built to freeway standards.

The northern-end segment (1.2 miles plus the interchange with SR 54),
commonly referred to as the San Miguel Connector, will be built with
public funds allocated by SANDAG. Current plans are for CTV to construct
the connector and be reimbursed by SANDAG under an extension to CTV's
franchise with Caltrans, requested by the SANDAG Board on February 28,
1997.

Additional northern segments of SR 125 are planned as freeways by
SANDAG, and some are already under construction, as discussed below,
with the result that this eastern corridor would connect with major
east-west routes on the northern side of San Diego, as far north as SR
52, making an important contribution to traffic projections. It is
important to note that the entire segment of SR 125 from I-8 to the Otay
Mesa border (including the tollway) has been designated as part of the
National Highway System.

Land use to accommodate growth has been approved. A large area is
already zoned commercial, and there are extensive plans to move ahead.
In fact, SANDAG views the toll road as helpful for its land use plan,
because it will serve planned developments in a manner consistent with
the approved Regional Transportation Plan (the population within San
Diego County is projected to grow from 2.7 million in 1995 to 3.8
million by 2015). In addition, investments at the Otay Mesa Port of
Entry will improve the flow of business traffic and commuters to/from
the maquila plants in Mexico. In particular, there is a new, dedicated
commuter lane at the Otay Mesa Port of Entry. Commuters returning to the
US can obtain a permit, essentially represented by a smart card and
vehicle transponder, to speed border clearance. The card has a photo ID
for quick checkup of auto drivers and passengers.

Finally, Chula Vista, in addition to being a major residential center,
is also a shopping center for Mexican day-trips and a weekend home spot.
Both Chula Vista and Otay Mesa see heavy southbound commuter and
commercial traffic, and sense that SR 125 will provide traffic relief by
the time it is completed, since I-5 and I-805 (the other two north-south
routes) are approaching capacity.

#### CTV's Role

While CTV is the project sponsor (with financial contributions for the
San Miguel Connector from SANDAG), the San Diego Expressway Limited
Partnership (SDELP) actually holds the franchise, for whom CTV serves as
managing partner. CTV\'s franchise agreement provides for cooperative
actions, assistance in obtaining permits and financing, and facilitation
of local, State, and Federal roadways interconnecting with the tollway.
CTV is even given certain limited rights, subject to approval by SANDAG,
to extend its tollway (discontinuously) in a northerly direction to
connect with east-west routes 94, 52, and 56.

All parties have agreed that it makes sense for CTV to amalgamate the
one-mile San Miguel Connector into its own construction project,
concluding that a design/build arrangement integrated into CTV\'s
construction contract would help realize economies of scale.

A recent projection of overall project costs for SR 125 South was
approximately \$315 million (as of late 1996). In order to reach
construction, CTV expects to have spent roughly \$25 million for
development and environmental costs, and another \$40 million for ROW.
The ROW for the toll road requires about 730 acres, of which about 430
acres are expected to be donated by four major land developers, the
Baldwin Company, EastLake Development Co., Trimark Ventures, and
McMillin Companies. The final alignment recommendation has been made by
Caltrans for the tollway and the connector. One key cost has been
controlled by virtue of CTV having contracted with Caltrans for
environmental work in a fixed price contract. CTV was originally
supposed to do the EIS, but due to a request from the City of Chula
Vista, Caltrans has agreed to complete the EIS under a fixed price
contract with CTV.

SANDAG has committed \$100 million out of the current seven-year
TransNet program to support the San Miguel Connector and the interchange
with State Route 54. To program funds for the San Miguel Connector of SR
125 South, along with other complementary segments of SR 125, SANDAG had
to commit its regional Federal funds that were intended to help border
crossings under NAFTA.

The CTC was willing to reallocate, but some of this comes at the expense
of \"regular\" priorities for the San Diego region. Caltrans jointly
with SANDAG proposed to the CTC to advance the San Miguel Connector and
reprioritize the Sweetwater segment, using \$132 million State and
Federal dollars. SANDAG further estimates that it has spent about
\$500,000 on environmental documents related to SR 125. The Chula Vista
and Otay Mesa Chambers of Commerce and several other local agencies were
helpful also, urging SANDAG to provide financial support for the San
Miguel Connector and other northern extensions that will complement the
toll road.

CTV expects to issue taxable debt of about \$220 million (including
inflation, a total of \$410 million, less \$90 million equity and land
contributions and \$100 million more reimbursed for the San Miguel
Connector from SANDAG). This debt would be primarily financed by toll
revenues on the facility, though some revenues from air rights,
concessions, and impact fees are possible. Chula Vista has Assessment
Districts, and can provide incentive to donate ROW and also charge
impact fees running \$2,500 to \$4,000 per DU for road improvements
which supplement the SR 125 project. The SDELP partnership has the right
to sublets air rights on the SR 125 ROW.

CTV has actively pursued credit enhancement options, such as obtaining
guarantees on their debt financing, possibly through loan guarantees
from a California State Infrastructure Bank (SIB). CTV has also
expressed interest in a Federal standby line of credit to serve as a
traffic guarantee for the first 10 years of operation.

[]{#__RefHeading___Toc413052888 .anchor}Timeline for SR 125 Tollway

The following chart shows key events in the SR 125 timeline.

  ---------------- ------------------------ ------------------------------
  **DATE**         **EVENT**                **COMMENT**

  1960s            Route adopted            Corridor protected, never
                                            funded, rescinded later in
                                            1976

  1984             Otay Mesa Border         Northbound Commercial traffic
                   Crossing                 diverted

  1987             TransNet funding plan    County adopted 1/2 cent sales
                                            tax for TransNet program

  1989             AB 680 enacted           Caltrans authorized to develop
                                            four roads by private
                                            partnership

  1984             SR 125 reinstated into   SANDAG agreed with Caltrans,
                   region\'s long-range     recognized need, put SR 125
                   plan                     back into Long-term plan in
                                            March 1989

  February 1990    AB 680 candidates chosen 

  July 1990        Caltrans receives        CTV and Bechtel submit
                   proposals                proposal for SR 125

  September 1990   Caltrans selects         SR 125 one of four selected
                   projects                 projects

  January 1991     SR 125 franchise         CTV awarded franchise for SR
                   executed                 125
  ---------------- ------------------------ ------------------------------

+---------------+-----------------------+-----------------------------+
| **DATE**      | **EVENT**             | **COMMENT**                 |
+---------------+-----------------------+-----------------------------+
| June 1991     | Lawsuits filed        | State engineers protest     |
|               | protesting AB 680     | outsourcing & Chula Vista   |
|               | process & SR 125      | challenges tollway          |
|               |                       | development[^31]            |
+---------------+-----------------------+-----------------------------+
| 1992          | Lawsuits              | Engineers lost; Chula Vista |
|               | settled/dismissed     | settled                     |
+---------------+-----------------------+-----------------------------+
| August 1992   | CTV/Caltrans          | Caltrans agrees to contract |
|               | agreement             | to perform environmental    |
|               |                       | work                        |
+---------------+-----------------------+-----------------------------+
| December 1992 | NAFTA signed by USA   | NAFTA Treaty Effective Jan. |
|               |                       | 1994                        |
+---------------+-----------------------+-----------------------------+
| 1993          | Alignment studies     | Ten alternative alignments  |
|               |                       | selected and put under      |
|               |                       | review                      |
+---------------+-----------------------+-----------------------------+
| April 1994    | SANDAG supports       | Public funding for San      |
|               | connector &           | Miguel connector allocated  |
|               | interchange           |                             |
+---------------+-----------------------+-----------------------------+
| March 1995    | New alternative route | Citizens Advisory Committee |
|               | added for study       | Alignment adds new study    |
|               |                       | option                      |
+---------------+-----------------------+-----------------------------+
| April 1996    | SR 125 Fanita section | Ground-breaking on segment  |
+---------------+-----------------------+-----------------------------+
| May 1996      | CTC allocates funds   | State supports Sweetwater   |
|               | to SR 125             | segment                     |
+---------------+-----------------------+-----------------------------+
| July 1996     | DEIS circulated by    | Environmental study made    |
|               | Caltrans              | public                      |
+---------------+-----------------------+-----------------------------+
| August 1996   | SR 125 Sweetwater     |                             |
|               | ground breaking       |                             |
+---------------+-----------------------+-----------------------------+
| September     | Comment period ends   | Caltrans begins review of   |
| 1996          |                       | comments                    |
+---------------+-----------------------+-----------------------------+
| August 1997   | Alignment             | Caltrans assembles Final    |
|               | recommendation        | EIS                         |
+---------------+-----------------------+-----------------------------+
| 1997 and 1998 | Seeking record of     | CTV plans financing in late |
|               | decision (ROD) &      | 1997;                       |
|               | financing             |                             |
|               |                       | Construction to begin       |
|               |                       | immediately                 |
+---------------+-----------------------+-----------------------------+

[]{#__RefHeading___Toc413052889 .anchor}project Status

CTV obtained an exclusive franchise to build a tolled expressway from
Caltrans under the AB 680 program in 1991. They are now seven years into
project development. Significant development expenditures have been
incurred, two opposing law suits have been overcome. The larger suit was
a statewide challenge to AB 680 in which the Union of State engineers
argued that the AB 680 process would simply outsource their engineering
work. As of the Fall of 1997, Caltrans is assembling the final
Environmental Impact Report/Statement (FEIR/FEIS) and finishing the
biological assessment necessary for Federal approval of the project.

While funding for the Connector had been secured through an agreement
between CTV and SANDAG, long-term financing has yet to be arranged for
the tollway segment. As of now, financing seems likely to be private
taxable debt of approximately \$220 million, though several alternative
options are available (such as SIB assistance), and tax-exempt status
might be possible. Finally, there is some precedent to using
project-specific lines of credit and direct loans to enhance California
projects.

CTV has not actually obtained ROW, but has agreements for land
contributions from several developers. AB 680 also provides access to
condemnation via Caltrans. Much of the residential build-out is planned
for and approved, supported locally, and developers are apparently ready
to go; Chula Vista seems especially eager to support residential
construction and has a 23,000 unit development which began construction
in the Fall of 1997. Residential development is still prospective in
nature, however, and depends on the overall growth of San Diego County,
border trade, and the real estate market.

SANDAG commitment is positive, but there is a concern. The San Miguel
Connector is complicated and the Connector will feed directly into the
toll road. SANDAG has committed local sales tax revenues, intended for
other projects, to this connector. When local voters approved the sales
tax, however, it was with the understanding that the funds would be used
for free facilities. In fact, the funds were only intended for the SR
125 connector and for other projects; there was not enough money to fund
the SR 125 South segment as well (so it was never a question of asking
for funds for a free facility only to then change that facility into a
tolled facility). Moreover, the connector itself *is free*; it simply
links to the toll facility. Voter perception, however, may be difficult
to sway.

Another regional issue concerns funding for Route 905. The SR 905
project is a key traffic link for the east/west corridor serving the
Otay Mesa border area for truck traffic traveling to and from San Diego
currently served only by the four-lane Otay Mesa road. It offers the
only free alternative to move through traffic out of the border area. It
is crowded with commercial trucks and the CTC has already allocated \$16
million to make the Otay Mesa Road section into a six-lane highway.

The Otay Mesa Chamber of Commerce has suggested that SANDAG is trying to
have it both ways on SR 905, doing limited improvements now in 1997,
reserving the ROW for a freeway, but holding major improvements until
the year 2005, which Otay Mesa says is really 2020 because there will
not be any funds left in 2005. They feel this strategy will not get SR
905 built in a timely fashion unless specific federal funding is
allocated.

Remaining next steps for CTV include:

-   The final administrative hurdle, the FEIR/S, Section 404 Permit, and
    ROD;

-   Selection of a design-build contractor; and

-   Obtaining financing and moving to construction.

In order to finalize the EIS, Caltrans needs to complete:

-   A relocation study;

-   A biological mitigation plan; and

-   Finalize responses to all comments received.

By and large the private development of the road appears welcome, and
the County entities have stated:

\"The infusion of private funding for SR 125 South will ensure the
timely completion of San Diego County\'s planned highway network and the
provision of access vital to the economic success of the entire
region.\"[^32]

[]{#__RefHeading___Toc413052890 .anchor}Lessons and Highlights

[]{#__RefHeading___Toc413052891 .anchor}Financial Arrangements Should Be
A Function Of The Project's Risk Profile

Building a new road is a long-term process, with very uncertain results.
SR 125 was granted its franchise under AB 680 in 1991, after one to two
years of application effort. While CTV has (along with the real estate
developers who donated land) been willing and able to sink considerable
equity into this venture, the long lead time inherent in a greenfield
road has increased the risk to the private partners considerably. This
has several implications:

-   *Other firms in the same situation may not have been willing or
    financially strong enough to take such a position*. Risk sharing
    thus needs to consider the nature of the risks involved and the
    profile of risks over time. Where a DOT or local government feels
    this type of project is very important, it can reduce this risk to
    the private party by sharing some of this upfront risk, or by
    recognizing it in negotiations over rate of return. To some extent
    this has happened: SANDAG has recently decided to fund the San
    Miguel Connector up-front through direct reimbursement to CTV
    (instead of over time as initially proposed).

-   *The rate of return may need to be re-negotiated or structured as a
    function of different outcomes.* The rate negotiated between
    CTV/SDELP and Caltrans was 18.5 percent. Based on today\'s
    risk/reward profile, this limited return permitted to CTV/SDELP
    under its franchise may not be adequate, compared to the continuing
    possibility (in 1997) of a complete loss of significant equity
    capital expended (since 1989). Note that a portfolio investment in
    NYSE stocks has earned about 25-35 percent annually for the past two
    years.

-   *The state's contribution may need to reflect the type of project.*
    Under AB 680, Caltrans cannot use State funds. Given the project's
    greenfield nature, this may have been an unrealistic restriction
    that precludes good projects from getting done. Indeed, start-up
    financial assistance may be necessary to keep private players
    interested. SR 125 has required major up-front equity over about
    eight years so far, with no revenues in sight before about 2000.

[]{#__RefHeading___Toc413052892 .anchor}Environmental Clearances Should
Be Sought To Maximize Flexibility and Minimize Objections

Environmental clearances are difficult, lengthy in duration, costly, and
often a stumbling block. States and private entities should seek a way
to minimize the possibility for local, state, or federal objections and
seek to obtain the highest clearance possible if there is any chance
Federal funds will be used at any time in the process.

At the request of the City of Chula Vista, Caltrans undertook the EIS.
CTV officials suggested that this is one area of risk and cost that the
public partner can and should assume as the state has a natural
advantage here: the value of the risk it saves the private partner is
worth more to that partner than it costs the state. Thus, it can be
valued as a contribution in excess of what it actually costs the state
to undertake (effectively capturing some or all of the rent for the
state).

Finally, it would facilitate such projects to include a calendar
"cut-off" date to limit late-stage environmental challenges to the
Federal EIS.

[]{#__RefHeading___Toc413052893 .anchor}Any Non-Compete Clause Must Be
Clear and Binding

The non-compete clause must be clear in setting local priorities. SANDAG
recognizes the need for SR 125 when it states: \"The relocation of the
commercial port of entry to Otay Mesa and the NAFTA-related traffic
growth is overwhelming the existing border transportation
infrastructure.\" SANDAG has been supportive despite having many
competing priorities.

The widening of Otay Mesa Road to six lanes by 1998 was recently
scheduled, evidence that both SANDAG and Otay Mesa recognize the urgent
need to upgrade the major East-West SR 905 to serve border traffic. Otay
Mesa Road currently serves as an extension of SR 905 and is feeding
traffic to/from I-805 and I-5, the two major north/south Interstate
roads through San Diego. While this improvement may seem to compete with
SR 125, it actually will stimulate further area growth. SR 905 also
provides a free, direct route into and out of the border crossing area.
Caltrans is restricted from developing competitive facilities in a six
mile wide corridor along SR 125, although SR 905 was specifically called
out in the franchise as an exception to this restriction.

[]{#__RefHeading___Toc413052894 .anchor}Using Funds to Support Private
Toll Road Projects

Opponents of the project have raised the issue of TransNet allocating
the sales tax revenue for the San Miguel Connector that leads into the
toll road. In fact, the very concept of public-private partnerships is
based upon both sectors providing funds or other non-monetary resources
to complete necessary public infrastructure projects.

##### APPENDIX 1: INDIVIDUALS CONTACTED FOR THIS REPORT

[]{#__RefHeading___Toc413052895 .anchor}Appendix 1: Individuals
contacted for this Report

#### Arizona

*Bill Hayden (ADOT)*

*Suzanne Sale (ADOT)*

*Bill Allen (Dewberry & Davis)*

*Robert Farris (Interwest)*

**California**

*Roy Nagy (Caltrans)*

*Bill Allen (Dewberry & Davis)*

*Mike Schneider (Parsons Brinkerhoff)*

*Penny Allen (Allen & Company)*

#### Colorado

*Tom Eggert (Arapahoe County Commissioner)*

*John Nicholl(Arapahoe County Commissioner)*

*Pam Bailey (E-470 Authority)*

*Jeff May (DRCOG)*

*Frank Finlayson (Morrison Knudsen)*

*Jim Carroll (Fluor Daniel)*

#### Florida

*Nick Collins (Mngr. Public Private Trans Progr, FLDOT)*

*Brady Sneath (FLDOT)*

*Bill Allen (Dewberry & Davis)*

*Robert Farris (Interwest)*

#### Minnesota

*Adeel Lari (Dir. Alternative Transportation Financing, MinnDOT)*

*Jack Rizzo (Perini)*

*Robert Farris (Interwest)*

#### New York

*Michael McCarthy (NYDOT)*

#### New Jersey

*Robert James (NJDOT)*

#### Oregon

*Donald Wagner (ODOT)*

#### Pennsylvania

*Dennis Lebo (Assistant Deputy Sec. For Planning, Penn DOT)*

#### Puerto Rico

*Gabriel Rodriguez (Assistant Sec. For Planning)*

#### South Carolina

*Larry Duke (Dir.Fin. SCDOT)*

*Elizabeth Mabry (Deputy Chief Counsel, SCDOT)*

*Bill Allen (Dewberry & Davis)*

*Robert Farris (Interwest)*

**Virginia**

*James Atwell (Assistant Commissioner for Finance, VDOT)*

*Rick Davis (Asst Admin. of Fin. Plng. VDOT)*

*Deborah Brown (VDOT)*

*Kevin Baron (VDOT)*

*Bill Allen (Dewberry & Davis)*

Nici Masucci (VMS, Inc.)

Jim Carroll (Fluor Daniel)

*John Milliken (Venable, Baetjer and Howard)*

#### Washington

*Rhonda Brooks (Program Mngr., Public Private Transportation
Initiatives, WSDOT)*

*King Cushman (Puget Sound Regional Council)*

> *Bill Allen (Dewberry & Davis)*

*Jack Rizzo (Perini)*

*Robert Farris (Interwest)*

##### APPENDIX 2:"ROLE OF 63-20 NONPROFIT CORPORATIONS IN PUBLIC-PRIVATE INFRASTRUCTURE FINANCINGS"

###### By Karen J. Hedlund

[]{#__RefHeading___Toc413052896 .anchor}Appendix 2: "Role of 63-20
Nonprofit Corporations in Public/Private Infrastructure Financings"

By Karen J. Hedlund

[^1]: *Contribution of Highway Capital to Industry and National
    Productivity,* research report prepared for US Federal Highway
    Administration, Ishaq Nadiri, 1996.

[^2]: Minnesota Department of Transportation, *Request for Proposals for
    Transmart: Minnesota's Toll Facilities Public-Private Initiatives
    Program*, July 26, 1995, p. 7.

[^3]: Daily Journal of Commerce, Seattle, June 10, 1994

[^4]: [Washington State's Role in Public Private
    Partnerships]{.underline}, WSDOT, p.11.

[^5]: Minnesota Department of Transportation, *Request for Proposals for
    Transmart: Minnesota's Toll Facilities Public-Private Initiatives
    Program*, July 26, 1995, p. 7.

[^6]: Virginia passed specific enabling legislation in 1988 for the
    Dulles Greenway project; this project is further discussed in the
    Case Studies section of this report. Because the 1988 legislation
    was project-specific, and not related to the current statewide
    process, it is discussed only within that case study.

[^7]: One has been withdrawn and two did not qualify under the Act.

[^8]: Substitute House Bill 1006, Sec.1.

[^9]: Subcommittee on Public-Private Partnerships in Transportation.
    "Subcommittee Report." *Washington State Transportation Plan*.
    August 1992.

[^10]: *1993 Report to the Legislature: Transportation Policy Plan for
    Washington State.*

[^11]: Ibid.

[^12]: Ibid, Sec.1 and 2.

[^13]: Ibid, Sec.3.

[^14]: *Washington State's Role in Public Private Partnerships*, WSDOT,
    p.11.

[^15]: Idem.

[^16]: Ibid, 12.

[^17]: *The Washington Post*, January 17, 1998.

[^18]: Two conceptual proposals, one from Eastern Virginia
    Public-Private Facilities Partners, L.L.C. and one from Hampton
    Roads Infrastructure Development Group, were originally submitted.
    The two have merged and a detailed proposal is expected from the new
    entity, Hampton Roads Public-Private Development, L.L.C.

[^19]: Subcommittee on Public-Private Partnerships in Transportation.
    "Subcommittee Report." *Washington State Transportation Plan*.
    August 1992.

[^20]: Substitute House Bill 1006, Sec.1.

[^21]: *1993 Report to the Legislature: Transportation Policy Plan for
    Washington State.*

[^22]: Ibid.

[^23]: Ruth Fisher, (former) Chair of House Transportation Committee.

[^24]: Ibid, Sec.1 and 2.

[^25]: Ibid, Sec.3.

[^26]: *Washington State's Role in Public Private Partnerships*, WSDOT,
    p.11.

[^27]: Ibid

[^28]: Daily Journal of Commerce, Seattle, June 10, 1994.

[^29]: Where all or part of the design work must be financed, a
    design/build approach is often necessary. In order to issue
    stand-alone revenue bonds for construction (and design/engineering),
    the issuer must provide the markets with guarantees of the cost and
    completion date. In practice, therefore, the project sponsor must
    already have the construction partner under contract, which in turn,
    necessitates the same firm or team undertaking the remaining design,
    engineering and construction work \-- a design/build structure.

[^30]: The Authority initially selected Brown & Root, but could not
    successfully negotiate an agreement.

[^31]: Chula Vista is a rapidly growing residential community to the
    west of the proposed road.

[^32]: San Diego Economic Development Corporation, *Three Countries, Two
    Borders, One Market.*