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95–736 PDF 2016

S. HRG. 114–50

EXPLORING OPPORTUNITIES FOR PRIVATE

INVESTMENT IN PUBLIC INFRASTRUCTURE

HEARING

BEFORE THE

SUBCOMMITTEE ON 

HOUSING, TRANSPORTATION, AND COMMUNITY 

DEVELOPMENT

OF THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED FOURTEENTH CONGRESS

FIRST SESSION

ON

EXPLORING THE POTENTIAL FOR GREATER PRIVATE INVESTMENT IN 

PUBLIC TRANSPORTATION AND EXAMINING THE ROLE SUCH PARTNERSHIPS CURRENTLY PLAY IN THE DEVELOPMENT AND DELIVERY 

OF TRANSPORTATION AND INFRASTRUCTURE PROJECTS

APRIL 29, 2015

Printed for the use of the Committee on Banking, Housing, and Urban Affairs

Available at: http://www.fdsys.gov/

(


BANKI-41578DSA with DISTILLER
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

RICHARD C. SHELBY, Alabama, Chairman

MIKE CRAPO, Idaho 

BOB CORKER, Tennessee 

DAVID VITTER, Louisiana 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

DEAN HELLER, Nevada 

TIM SCOTT, South Carolina 

BEN SASSE, Nebraska 

TOM COTTON, Arkansas 

MIKE ROUNDS, South Dakota 

JERRY MORAN, Kansas 

SHERROD BROWN, Ohio 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

JON TESTER, Montana 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

ELIZABETH WARREN, Massachusetts 

HEIDI HEITKAMP, North Dakota 

JOE DONNELLY, Indiana

WILLIAM D. DUHNKE III, Staff Director and Counsel 

MARK POWDEN, Democratic Staff Director

DAWN RATLIFF, Chief Clerk 

TROY CORNELL, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor

SUBCOMMITTEE ON HOUSING, TRANSPORTATION, AND COMMUNITY DEVELOPMENT

TIM SCOTT, South Carolina, Chairman 

ROBERT MENENDEZ, New Jersey, Ranking Democratic Member 

MIKE CRAPO, Idaho 

DEAN HELLER, Nevada 

JERRY MORAN, Kansas 

BOB CORKER, Tennessee 

TOM COTTON, Arkansas 

MIKE ROUNDS, South Dakota 

DAVID VITTER, Louisiana 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

JON TESTER, Montana 

JEFF MERKLEY, Oregon 

HEIDI HEITKAMP, North Dakota 

JOE DONNELLY, Indiana

TRAVIS NORTON, Subcommittee Staff Director

BRIAN CHERNOFF, Democratic Subcommittee Staff Director

JACKIE SCHMITZ, Democratic Legislative Assistant 

(II)


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CONTENTS

WEDNESDAY, APRIL 29, 2015

Page

Opening statement of Chairman Scott .................................................................. 1

Opening statements, comments, or prepared statements of: 

Senator Menendez ............................................................................................ 2

WITNESSES 

Jane F. Garvey, Chairman, Meridiam Infrastructure Fund, North America ..... 4

Prepared statement .......................................................................................... 19

Colleen Campbell, Board Member, Infrastructure Ontario .................................. 5

Prepared statement .......................................................................................... 22

Response to written question of: 

Senator Vitter ............................................................................................ 99

Calvin E. Hollis, Managing Executive Officer, Countywide Planning and Development, Los Angeles County Metropolitan Transportation Authority ....... 7

Prepared statement .......................................................................................... 76

(III)


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BANKI-41578DSA with DISTILLER
(1)

EXPLORING OPPORTUNITIES FOR PRIVATE 

INVESTMENT IN PUBLIC INFRASTRUCTURE 

WEDNESDAY, APRIL 29, 2015

U.S. SENATE, SUBCOMMITTEE ON HOUSING, TRANSPORTATION, AND COMMUNITY DEVELOPMENT, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. 

The Subcommittee met at 9:30 a.m., in room SD–538, Dirksen 

Senate Office Building, Hon. Tim Scott, Chairman of the Subcommittee, presiding. 

OPENING STATEMENT OF CHAIRMAN TIM SCOTT 

Chairman SCOTT. I call this Subcommittee meeting to order, and 

good morning to everyone. Thank you for taking the time to be 

here. 

This is the first meeting of this Subcommittee, so before we 

begin, I would like to welcome all Members and, in particular, 

Ranking Member Menendez. I know that he has a deep concern for 

the issues in our jurisdiction, and I look forward to working with 

you on housing, transit, and community development issues. 

Today’s hearing is entitled, ‘‘Exploring Opportunities for Private 

Investment in Public Infrastructure.’’ I would note that Congress 

will meet in a joint session at 10:40 this morning. I have had the 

opportunity to share that with the witnesses already. So I will limit 

my remarks and ask the Ranking Member and our witnesses to do 

the same. 

Last week, the full Committee heard testimony from the Acting 

Administrator of the FTA and transit industry experts about our 

Nation’s transit needs. We learned that there is an $86 billion 

backlog of repair and maintenance costs for existing transit assets. 

According to FTA Administrator McMillan, this backlog grows by 

$2.5 billion a year. 

Even though we cannot take care of our existing infrastructure, 

the Federal Government continues to invest in new infrastructure. 

Some of these new investments are in the same transportation systems that contribute to the massive repair backlog. 

I think last week’s hearings made clear that we need to reset our 

priorities in transit policy. We need to be smarter about the way 

we use our Federal transit dollars. MAP–21 made some progress 

in this area by requiring the FTA to do more to facilitate private 

investment in public infrastructure. 

In a traditional model, a public entity contracts separately for 

the design, engineering, construction, maintenance, and operation 

of a transit system. In a P3, or a public-private partnership, some 


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or all of those responsibilities, and sometimes even the financing, 

are undertaken by a private sector entity with experience and expertise in the transportation industry. Properly encouraged, the 

private sector entity uses the synergies derived from managing all 

phases of the project to deliver the project on or ahead of schedule 

and oftentimes under budget. P3s have shown a lot of promise in 

other countries for improving project delivery and operation, and at 

the same time reducing the role of Government in infrastructure 

funding. The question is: Why aren’t we seeing more of them in the 

United States? I do not believe the FTA has made the best use of 

its P3 mandates from MAP–21. 

As this Committee looks forward to a reauthorization bill, I am 

interested to learn what more we can do to encourage private investment in public infrastructure and, where possible, joint development. At a time when our national debt is a little over $18 trillion, and with the current repair backlog of $86 billion, we need to 

start getting very serious about innovative methods of providing 

Government services. 

I look forward to hearing the testimony of our witnesses, and I 

look forward to hearing Ranking Member Menendez. 

STATEMENT OF SENATOR ROBERT MENENDEZ 

Senator MENENDEZ. Well, thank you, Mr. Chairman, and congratulations on your role as Chairman of the Housing, Transportation, and Community Development Subcommittee. I look forward 

to working with you on all of these issues. The Subcommittee has 

an impact on people’s mobility, its access to jobs, its quality of life, 

and these are critically important issues. 

Today we are little bit more than a month out from the expiration of the Federal transit programs. During the development of 

MAP–21, we worked to enact a number of bipartisan policy reforms, programs, streamlining performance measures to enhance—

to ensure, I should say, that Federal dollars were targeted to where 

they were needed the most, and that they were being used effectively and efficiently. 

But MAP–21 failed to address, from my view, the central problem: a lack of adequate funding. The Banking Committee has 

heard from disparate groups—the Chamber of Commerce, labor, 

transit agencies large and small. Every one of them has testified 

that current funding levels are grossly inadequate. It does not matter whether you are talking about a major metropolitan heavy-rail 

system or a light-rail line serving a growing community or a bus 

route running through a small town. We need to invest more. 

At some point all the efficiencies, all the cost savings, and all the 

reforms are simply not enough to make up for a lack of investment. 

Everything we have heard tells us we have reached that point. 

The topic of today’s hearing is exploring opportunities for private 

sector involvement in public transportation projects, and I am particularly interested to hear from our witnesses today what they 

have done in leveraging, for example, real estate assets to support 

transit projects that improve foot traffic for local businesses, attract 

new residents to a neighborhood, something in which the private 

and public sector have a shared stake. 


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One of the programs I worked to include in MAP–21 was a transit-oriented development pilot program. The Federal Transit Administration is still working to select recipients, but I believe it is 

an area that holds a lot of promise for the future. 

But even the transit projects with some of the largest roles for 

the private sector still include significant amounts of public capital. 

If we want the types of private sector partnerships we will be hearing about today to work, we need to step up as well. The private 

sector on its own cannot build and maintain a nationwide transit 

network. And given that many of the existing transportation P3s 

are large, complex, mostly metropolitan mega projects, I think we 

should all be concerned about the potential that too great a focus 

on private investment runs the risk of leaving behind smaller or 

rural communities, low-income populations, the elderly, and persons with disabilities. 

So it is my hope that we can look for ways to work with the private sector when appropriate and make certain the environment, 

workers, and social equity are protected and enhanced. 

Mr. Chairman, thank you. I look forward to hearing from our 

witnesses. 

Chairman SCOTT. Thank you, Ranking Member. 

We will go to introducing our witnesses. I would like to say welcome to Senator Warren, who is not a part of the Subcommittee, 

but always part of the Banking Committee—thank you for being 

here; and Senator Crapo, who is a Member of the Subcommittee. 

Our witnesses today, we have a fantastic group this morning. 

The first witness is Ms. Jane Garvey. She is the North America 

Chairman of Meridiam Infrastructure. In 2008, Ms. Garvey served 

on the transition team for President Obama with a focus on transportation policies. From 1997 to 2002, she was the Administrator 

for the FAA after earlier positions as Deputy Administrator of the 

Federal Highway Administration, Director of Boston’s Logan International Airport, and Commissioner of the Massachusetts Department of Public Works. Ms. Garvey is currently Chairman of the 

Board for the Bipartisan Policy Project in Washington, DC. 

Ms. Colleen Campbell serves on the Board of Directors for Infrastructure Ontario and as Vice Chairman of the Bank of Montreal 

Capital Markets. Ms. Campbell has over 30 years of experience in 

investment banking and debt capital markets, most recently as 

global head of debt capital markets for BMO Capital Markets. She 

is recognized as a leader in the development of model for infrastructure bond financing in the Canadian market and was named 

as a top bond investment banker in Canada in the Brendan Wood 

Journal ‘‘Outperformance in the Capital Markets 2006.’’

Finally, Mr. Cal Hollis is the Managing Executive Officer for 

Countywide Planning and Development at the Los Angeles County 

Metropolitan Transportation Authority. Mr. Hollis joined Metro in 

May of 2011, following a 26-year career as an adviser in public-private real estate transactions and managing principal of Keyser 

Marston’s Los Angeles office and a 2-year stint as acting CEO and 

COO of the Community Redevelopment Agency of the city of Los 

Angeles. Mr. Hollis is the former Vice Chairman of the Urban Land 

Institute’s Public-Private Partnership Council, a board member of 


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the Pasadena Heritage, and a member of Lambda Alpha. He and 

his wife are long-time residents of Pasadena, California. 

Finally, without objection, your written statements will each be 

made part of the record, as will any extraneous materials that 

Members have for inclusion in the record. I would ask each of you 

to briefly summarize your testimony in 5 minutes or less. 

Ms. Garvey, you are recognized. 

STATEMENT OF JANE F. GARVEY, CHAIRMAN, MERIDIAM 

INFRASTRUCTURE FUND, NORTH AMERICA 

Ms. GARVEY. Thank you very much, Mr. Chairman, Senator 

Menendez, Senator Warren, Senator Crapo. It is a real pleasure to 

be among you today. 

I am the Chairman of Meridiam Infrastructure, and we are a 

long-term investor in public-private partnerships. Our investors are 

all public pension funds, and they are very committed to the notion 

of building public infrastructure. And while there is a broad range 

of definitions of P3s, P3s are fundamentally a legally binding contract between the public sector and a private company, which I will 

make the distinction this is not privatization. This is really publicprivate partnerships that we are talking about. 

I will start by saying P3s are not for every project. As you mentioned, Mr. Chairman, P3s are best applied to large, complex, and 

very difficult projects. I would like to focus, for a minute or two, 

on the characteristics of what I have seen in my almost 30 years’ 

experience in transportation as what constitutes successful P3 

projects. 

The first characteristic is that there has to be authorizing legislation in place, and this is true both for highways and for transit. 

There has got to be a clear sense and a clear message to the private sector of what is expected. Half of the States in the United 

States have the authorizing legislation, and many others are adding legislation as we move forward. 

The second characteristic is choosing politically smart projects. 

What I mean by that is projects that are critically important to the 

community. The projects should be part of an overall or comprehensive and cohesive transportation plan. We are not interested in 

doing a sort of one-off project. We want a project that really is supported by the community. These are long-term partnerships that 

have to transcend several administrations, and having those sorts 

of partnerships and support in place is really critical. 

That also implies that there has been a very robust discussion 

of public policy goals. It is important for the private sector to understand upfront what does the community want, what is the community’s interests, what are the concerns about labor, what are the 

concerns about the environment, mobility, and if it is about economic development. Understanding those public policy questions up 

front is very critical and important. 

Another aspect is a true understanding of risk sharing. I would 

say that is one of the most complicated issues when you look at 

P3s, understanding who is assuming what risk. Risk can be shared 

in many, many different ways. The public sector often takes the environmental planning and permitting risk while the private sector 

will assume the risks associated with design, construction, financVerDate 0ct 09 2002 16:53 Jul 29, 2016 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 L:\HE3E8B~1\04-29E~1\HEARING\95736.TXT SHERYL

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ing, operating, and maintaining the project through the life of the 

project. 

The devil, though, is in the details. Sometimes the same sort of 

prescriptive approach that is used in traditional methods is applied 

to P3s, and I think that does cause delays and inefficiencies. 

Certainly determining the revenue stream is critically important. 

We know what challenges transit faces. We know the wonderful 

programs that Congress has put in place, but often that is still not 

enough, and I would echo Senator Menendez’s comment that a 

strong, robust Federal program is always needed for transit. 

A number of localities have looked at this in a very different way 

and developed revenue streams at the local level. Los Angeles has 

done a great job with developing a sales tax that is dedicated directly to P3s in LA. We will hear more from Cal about that as well. 

So localities are taking on a number of these responsibilities themselves. Development rights, impact fees, the transit-oriented development—all I think offer great possibilities as well. 

A final point I would say is the institutional capability of a community. Often we find that P3s are very complicated, difficult 

projects, and the first time a State or an entity has taken this on. 

So making sure they have the capability to do that, the kind of 

technical expertise is really critical and important. And I think 

that is something that Congress could help with as well. 

I will end by saying, as I started, P3s are not for every project, 

and, frankly, if the only reason that a State is looking at a P3 is 

because of financial reasons, it is not the right reason. But P3s are 

one more tool. They provide fixed price for the public sector and allows the public sector to really think and plan as they move into 

the future. And it is really, I think—one of the most important aspects is the ability to build in life-cycle costs through the life of a 

project—really dealing with one of the greatest challenges that I 

think we face in infrastructure, and that is long-term maintenance 

costs. 

With that, I will conclude and welcome any questions after the 

other panelists. 

Chairman SCOTT. Thank you, Ms. Garvey. 

Ms. Campbell. 

STATEMENT OF COLLEEN CAMPBELL, BOARD MEMBER, 

INFRASTRUCTURE ONTARIO 

Ms. CAMPBELL. Thanks as well for having me here today. As 

mentioned, I am a board member of IO, and I also chair their Investment Committee. 

IO, just by way of background, is the Government of Ontario’s 

Crown agency responsible for delivering major infrastructure 

projects using our made-in-Ontario P3 model. We call it ‘‘Alternative Financing and Procurement.’’ I will refer to it as AFP. We 

are very proud of the work that IO does and believe it brings together the best in public sector investment and private sector expertise. 

As Ms. Garvey mentioned, legislation is important. The agency 

was created in legislation and is accountable through our independent board of directors to the Ministry of Economic Development, Employment, and Infrastructure. The majority of the board 


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members of IO are from the private sector with a variety of experience in finance, law, construction, and general management. You 

referred to my own experience in financial markets. Specifically, I 

started BMO’s infrastructure practice in 1997. 

So IO itself was created 10 years ago when the province faced 

similar challenges to what you described for you today. The government has a very ambitious plan to rebuild its aging capital stock, 

and yet we had great concerns about procuring and managing 

these projects using a traditional method because, quite frankly, we 

had failed on many of those projects. 

The government realized that complex infrastructure projects 

have big risks and that transferring those risks to the private sector was in the public interest. So rather than taking a status quo 

approach, we developed our own model to modernize how these 

could be done. 

Over the last 10 years, IO’s major projects division has completed 

46 projects. The construction value of these projects is well over 

$10 billion. 

A review of our track record conducted March of 2014 confirmed 

that 97 percent of the completed projects were delivered on or 

below budget, and 73 percent of those projects were also delivered 

within a month of their scheduled completion date, so a much better record than the more traditional method. 

This model is obviously being deployed elsewhere. Both Australia 

and the United Kingdom have done so for quite some time. And we 

are also taking note of the progress being made in the United 

States. We are pleased to be partnered with the National Governors Association to assist in building P3 capability in the United 

States. 

So there is a growing body of evidence that P3s are a responsible 

way for government to invest in infrastructure, and we just wanted 

to give a bit of a foundation for our discussion today to describe 

some of the core elements that make this approach successful. 

First, we do not break large projects up into smaller projects and 

tender them separately. Breaking them up leaves enormous integration risks with the public sector. 

Second, we do not pay until projects are complete, or at least we 

try to limit the amount we pay until completion. In some cases, we 

have to make interim payments. 

And, third, we require builders to design the projects to meet our 

specifications and build to meet our objectives, and change orders 

to deal with deficiencies in the design are the private sector’s responsibility. 

And, finally, where appropriate, we hold builders accountable for 

the long-term quality of the asset by paying them a portion of the 

construction cost over time on what we call ‘‘Design Build Finance 

Maintain,’’ or DBFM, contracts. 

Private finance is a tool in the toolbox for government to ensure 

that the private sector has skin in the game and delivers results 

for government. In a sense, it is a cost of the risk transfer as arguably private sector financing costs are typically higher than the 

public sector. The point is the benefits outweigh the costs. That is 

value for money. 


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It is important to be clear: all of our AFP projects result in publicly owned assets; AFP is not privatization; and AFP is not a fundraising tool for government. 

While IO’s first 10 years delivering AFPs have been focused on 

social infrastructure, the next 10 years are anticipated to be dominated by civil infrastructure. We are now working on major roads, 

subway, and light-rail transit systems. 

Ontario is a leader in AFP, and Canada is a leader in P3s globally. There is a strong industry within Canada that includes financial institutions, general contractors, architects, and engineers, all 

of whom are part of the success. There is a deep, efficient bank and 

bond market available to finance these structures, and this financing is available on a long-term basis to match the long life of the 

assets, thus eliminating refinancing risk. 

It is important to note that last week the Governments of Canada and Ontario both delivered their respective annual budgets. 

Ontario committed $130 billion for investment in infrastructure 

over 10 years, with a focus on transport and transit. And the Federal Government created a $1 billion annual public transit fund 

that will be leveraged to deliver projects using AFP. 

Equally important to the success of this model is the culture of 

transparency and fairness and the centralization of expertise that 

an organization like IO brings to the equation. A large part of our 

mandate is risk management. And like any risk management function, the oversight and independence that our organization brings 

to our ministry clients strongly supports the objective of on-time, 

on-budget delivery of high-quality infrastructure assets. 

Our organization is the intermediary between the public and the 

private sectors. Our ministry clients trust us to execute on their behalf, and our private sector partners trust us to run a transparent 

and fair process. 

I would be happy to discuss any aspects of our model so that we 

can help you advance the use of modern project delivery models in 

the United States. Thank you. 

Chairman SCOTT. Thank you, ma’am. 

Mr. Hollis. 

STATEMENT OF CALVIN E. HOLLIS, MANAGING EXECUTIVE OFFICER, COUNTYWIDE PLANNING AND DEVELOPMENT, LOS 

ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY 

Mr. HOLLIS. Mr. Chairman, Ranking Member Menendez, and 

Members of the Committee, thank you for the opportunity to be 

here today. I am responsible for Metro’s real estate and joint development program in Los Angeles. The department houses the real 

estate acquisition group, our real estate asset management team, 

and the joint development program. The joint development program results in ground leases with private sector developers for the 

residential and commercial development of Metro property. The 

projects are often on or immediately adjacent to Metro’s below- or 

at-grade rail stations, on park-and-ride lots, and similar underutilized properties. The Metro joint development program dates back 

to the early 1990s with Metro’s first light-rail project. 


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To date we have completed 17 joint development transactions, 

which has resulted in over 2,000 residential units, approximately 

30 percent of which are subsidized affordable housing units, the 

300-room W Hotel in Hollywood, 800,000 square feet of retail 

space, and 600,000 square feet of office space. We have 3 additional 

residential projects that are under construction, 9 under negotiations, and another 14 to 20 sites that are under consideration for 

future development. Private sector demand is very strong for our 

well-located sites. With the implementation of five additional transit projects this year, additional joint development sites will be 

identified. 

With regard to our board’s policies and priorities, the board has 

established the following goals for its joint development program: 

first, to increase ridership; to encourage comprehensive planning 

and development around stationsites and along transit corridors; to 

reduce auto use and congestion through the encouragement of transit-linked development; to generate value to Metro through maximizing ground rent on Metro-owned properties; and to enhance 

land use, urban design, and economic development goals of the 

communities that we serve. 

Typically, our joint development agreements are structured as 

long-term, nonsubordinated ground leases such that we maintain 

long-term control and ownership of the property. Lease payments 

have been structured as either prepaid lump sum leases or with 

annual payments with escalations. In certain cases, the projects 

have also made capital contributions for station modifications and 

additional transit enhancements. In the current fiscal year, our 

asset management group will generate over $12 million in revenue 

from property and the joint development group an additional $10 

to $14 million in lease income. We believe a joint development program can provide significant benefits to transit agencies and the 

general public by: recouping a portion of the public investment in 

transit infrastructure, capitalizing on the land value enhancement 

created by that public investment; providing a dependable revenue 

stream to support operations; creating a platform for additional private investment, particularly in communities which to date have 

been struggling to attract such investment; and demonstrating how 

TOD principles as espoused by the Urban Land Institute, and others, can add both real estate value to public lands and reduce the 

dependency on the private automobile. 

There are impediments to developing joint development programs. The first of those is the availability of land and capital for 

joint development. Typically, our experience at Metro is that major 

transit corridor projects seek to minimize land acquisition to preserve limited capital dollars for transit improvements. Metro has 

not applied for Federal FTA grants for joint development purposes 

in favor of reserving such grant opportunities for transportation 

improvements. Should a source of funding be available that was reserved or targeted specifically for joint development activities, 

Metro would be interested in these programs to expand our joint 

development program. With regard to financing tools that can be 

applicable to joint development, S. 797 and S. 880 are steps in the 

right direction. 


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Second, alignment of transit capital projects with real estate cycles is very difficult. It is most cost-effective to move forward with 

integrated joint development and transportation projects at the 

same time. This has been difficult for a variety of reasons, but not 

impossible to achieve. Where it is not possible, we attempt to mitigate the costs inherent in serial development by looking at station 

design from a future joint development perspective in addition to 

a transportation perspective such that future development is anticipated and not precluded or made more costly than necessary. 

In conclusion, we believe Metro has developed a model for maximizing the return on transit infrastructure investment through 

joint development and proper stewardship of our other property assets in partnership with an active private sector. 

Thank you for the opportunity. We would be happy to respond 

to questions of the Committee. 

Chairman SCOTT. Thank you, Mr. Hollis. 

I will start with the first of Ms. Campbell. I believe that we 

should do more to leverage public resources to address some of our 

infrastructure needs. Federal highway projects have been very successful in the P3 space. The same is not necessarily true for public 

transportation. I remember back in my days on county council 

where we were able to use a design-build public-private partnership to create a number of road projects that were very successful. 

It gave local government and the Federal Government predictability and certainty as we moved forward in some of the projects. 

The one example that I am aware of, the P3 on the transit, is 

the Denver Eagle P3 project. However, this project did not receive 

expedited consideration, nor has the Federal Government waived 

any of the construction or financial management oversight requirements for the project. And as a result, what was supposed to be a 

project delivered through a streamlined and expedited process is 

still mired in Federal bureaucracy. 

Ms. Campbell, the process for entering into an Infrastructure Ontario P3 seems quite different than what I just described, as does 

the timeline for review. Could you discuss the process that IO has 

in place for advancing projects? What kind of consideration do you 

give to the due diligence of private investment groups? And how 

much oversight of the actual construction process and the financials does IO exercise once a P3 is signed? 

Ms. CAMPBELL. I will do my best. So just to be clear, the IO’s 

role, we would deal with the ministry responsible for the given 

project. In this case it would be—you know, they would own the decision on whether to go ahead with the project. And so once that 

decision was made, IO is brought into procure and run the P3 process, and we have a very defined process for doing that in terms of 

what our role is and how we face the private sector. 

And so once the project is designed, signed off, we work to come 

up with a budget for that through the traditional, and then we put 

it out to tender through what we call a Request for Qualifications 

as the first step where we—consortiums are formed, and in this 

case they probably would be financing as well, so they have financial partners as well as the construction partners. We shortlist that 

to a group of three groups once we are through the RFQ, and then 


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those three go away and over a 6-month period typically will come 

up with a competitive bid to both finance and build that. 

It is a very defined process that they all respond to. It has got 

to meet all the requirements for—all the technical requirements 

and all the financing requirements. And at this stage, after 10 

years, the process is quite well understood by the groups that bid 

on it, and so I would say it is quite formulaic now when you get 

into transportation projects versus hospitals. There are obviously 

very different risks. So it is a little more complex, but it is very 

well defined. 

So without getting into the details on whether we look at the 

structures, we are very precise in terms of what the requirements 

are on the design. They are allowed to innovate within that if they 

can find a better way of building. But they have to provide to a 

standard kind of construction and design complement. And in that 

way, three prices are arrived at, and then we take a few months 

to decide which of those three we will pick to proceed with. But 

these are fully financed as well by them. 

Chairman SCOTT. Thank you, ma’am. 

Ms. Garvey, how does the private marketplace work the broader 

Federal process into their overall deliberations when deciding 

whether to invest in a P3 project? And is there a point at which 

the Federal process is considered to take too long and, as such, a 

firm like Meridiam would decide against investing? For example, 

would a P3 through IO be more attractive than one going through 

the Capital Investment Grant Program? 

Ms. GARVEY. I think from our perspective, the first thing that we 

look at is where does it fit in in a transparency plan. And if it looks 

to be a critical part of the plan, that is incredibly important to us. 

We have found, in terms of the Federal Government, sometimes 

we run into difficulties in trying to apply the TIFIA program. We 

have worked very closely with that. I think the key is in the whole 

discussion of how you are defining risk, and that is done very early 

on in the project. 

If you are sitting down with the private sector and really understanding who is taking—or the public sector—who is taking which 

risk, I think that is critical. That is really important to understand. 

The public sector understands the environmental process very 

well, so we tend to look at those projects that have already been 

through the environmental process, that have the environmental 

document if not fully in place, a draft in place, because that is a 

real document. Understanding that is sort of a threshold question 

for us. If the public is through the environmental process or have 

a draft in place, then there is a good indication that that project 

will continue. So that is generally how we judge the projects that 

we are going to engage in, that and whether it is a really critical 

piece of an overall transportation plan. 

Chairman SCOTT. Thank you. 

Ranking Member. 

Senator MENENDEZ. Thank you Mr. Chairman. Thank you all for 

your testimony. 

There has been some discussion in this Committee about whether the private sector can fill in the gaps where Government has 

fallen short, in particular the question of whether we can pass anVerDate 0ct 09 2002 16:53 Jul 29, 2016 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 L:\HE3E8B~1\04-29E~1\HEARING\95736.TXT SHERYL

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other flat-funded transportation bill and ask the private sector to 

fill in the gaps. 

So my first question, Ms. Garvey, your testimony notes that if 

the only reason a public sector agency is considering a P3 is for financial reasons, it is probably not the right model. Can you give 

us a little context to that? Discuss why that is the case. 

Ms. GARVEY. I think the real advantage of a P3 is threefold: 

One, you can move a project much quicker, and the private sector 

can finance it upfront. You still have to have a robust revenue 

stream, and I will get to that. But you can finance it upfront, often 

moving a project ahead many years before it might have happened 

or occurred ordinarily. 

The second is the real sharing of risk that we talked about. The 

public sector takes on the risk that they are most comfortable 

with—that is, the environmental, the permitting, and those aspects—leaving the construction risks and the design risks to the 

private sector. 

The third reason that I think it is really important is this whole 

notion of life-cycle costs. When I look at the infrastructure in this 

country, in my own State of Massachusetts, one of our great challenges is maintenance and long-term life-cycle costs. We have not 

always done as well on that. 

When you look at a public-private partnership, although the public sector owns it, the private sector is only paid when they perform 

according to the performance standards, but the life-cycle costs are 

taken on by the private sector, and I think that is a real advantage. Those to me are the reasons why you would move to a P3. 

Having said that, I fully agree with your assessment that a robust Federal program, a robust State program is absolutely needed. 

It is a partnership, and to think of this as taking the place of the 

public investment I think is probably not appropriate or not the 

best way to look at it. This is one more tool—as was said by one 

of the previous speakers, it is one more tool in the toolbox, but it 

should not be viewed as a panacea or the silver bullet. 

Senator MENENDEZ. Thank you for those insights. 

Mr. Hollis, let me ask you, your testimony focuses on an important point, not just better leveraging of existing resources but ways 

to actually create new revenue streams for transit agencies by leasing real estate to the private sector for residential or commercial 

development. So I think it is a creative approach. 

Joint development produces a revenue stream for your agency, 

albeit a modest one compared to, I guess, your overall operation. 

How is your agency using that revenue? That is one question. 

And, last, your testimony notes that although you have the option of using Federal transit dollars for joint development, LA 

Metro has declined to pursue that option, focusing instead on using 

those funds solely for transportation purposes. Should Congress 

consider dedicated funding for public-private sector joint developments? If you could put your microphone on. 

Mr. HOLLIS. With regard to how we use revenues, all of our joint 

development revenues go into our general fund which supports operations, which helps keep our fares some of the lowest in the 

country. So it is a small piece, but it is critical because it is very 

flexible revenue, and we use it for operating costs of the system. 


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With regard to the availability of Federal funds for joint development, it is a permitted use under the regulations. We currently 

have a $5 billion construction program with five transit projects 

underway. Our board would like to see that be much larger. Every 

dollar is critical, and so where I would love to have extra dollars 

that I could round out a development site so we could do a better 

development, a more impactful development, our transit planners 

will be trying to minimize the footprint of that real estate that we 

acquire. So rather than having to go to funding a program that 

competes with capital dollars for our transit system, if there was 

a separate program that was dedicated to joint development, it 

would allow us to compete for those dollars, creates better projects, 

more valuable projects, therefore generating more operating revenues for our system. 

Senator MENENDEZ. All right. I have other questions, but in deference to our colleagues, Mr. Chairman, depending how long we go, 

I might ask you to come back. 

Chairman SCOTT. Absolutely. 

Senator Warren. 

Senator WARREN. Thank you very much, Mr. Chairman. Thank 

you for inviting me here today. And I want to thank our witnesses, 

all three of you, for your very thoughtful analysis. 

You know, elsewhere we hear a lot of talk about public-private 

partnerships around infrastructure and claims that they will solve 

our infrastructure crisis. And so I just wanted to ask a question 

around focusing on the financing aspect. 

These partnerships can provide capital to start a project, as you 

have talked about. But there is no magic here. The money must always be repaid, and the price must always include a healthy profit 

for the private company. Whether it is increased taxes to pay back 

a private loan, higher tolls on a bridge, or higher parking fees at 

the airport, the bill comes due; taxpayers must pay. 

As the Federal Highway Administration noted in its report in 

2010 regarding public-private partnerships, these programs ‘‘do not 

generate revenue, they require it.’’

Public-private partnerships have another problem. The profits 

are privatized, but when something goes wrong, sometimes taxpayers end up having to deal with the consequences. Bankruptcies, 

design changes, falling demand, huge cost overruns can eat up the 

supposed benefits of these deals. 

So the question I would like to ask is: Since these projects are 

ultimate funded by the taxpayers for the benefit of private companies, do you agree that there should be strong Federal oversight to 

evaluate the costs, the risks, and the benefits of these programs? 

Ms. Garvey, how about if I start with you? 

Ms. GARVEY. Yes, I think there certainly is an appropriate role 

for the Federal Government for oversight. Absolutely. But I will tell 

you there are two key pieces. 

One is that in determining the sharing of the risks, the construction risks, for example, the design risks, those are all assumed by 

the private sector. So the kind of due diligence that the private sector has to do in order to make that happen is important. 

Senator WARREN. Let me just stop you right there, though, and 

just ask the question: That is, if that is what the public requires. 


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There is nothing inherent in that that requires it, because we have 

seen the projects that have been the public-private partnerships 

that have exploded, that have gone very, very badly. And the risks 

all got shoved over to the taxpayers. 

Ms. GARVEY. Well, actually, the one that I am the most familiar 

with would be the one in California, and in that case, the Federal 

Government did—I do not want to say ‘‘very well,’’ but they were 

able to—the TIFIA program was able to recapture that. I think you 

are making a good point, that you have to be very clear in the contracts that you draw up. It absolutely has to be ironclad. And I 

would say that that is in the private sector’s interest as well. You 

have got to have a clear contract. 

I think we have learned a lot from the early days of P3s and certainly learned a lot from the Canadian experience as well. A clear, 

ironclad contract is absolutely essential. But you are right; you 

need a robust revenue stream. They have to be paid back. 

Senator WARREN. Good. Thanks, Ms. Garvey. 

Ms. Campbell? 

Ms. CAMPBELL. I will try not to be competitive, but I disagree. 

And I think it is fine to talk about these things in the model and 

isn’t it great, but if it is not done right, you will get extra costs and 

the downside of the risks. So it really is critically important. 

And, you know, to go back to, I think, why it has worked—and 

we have had 10 years of learning, and starting from small things, 

working on hospitals for 10 years. If you do not structure the contracts right and you do not do your—and I do think you need a central authority. You cannot have everyone creating their own way, 

however that works, whether it is the State level or the Federal 

level. You have to have a Center of Excellence, and I think the 

Center of Excellence has to be independent from the owner of the 

asset. It is like I say, when you build a house—and in my case, my 

husband is the problem, not me. But you decide what you are going 

to build, and then all of a sudden he wants the fancy sound system 

or the bigger garage or whatever it is, and you have to say, ‘‘No, 

I am independent. I was told that you wanted to build this. We 

have procured this. We have priced this. We have a timeline for 

this. If you want to change it, we have to go back to the top of government. No meddling in the back room.’’

And what is equally important is that the oversight during the 

process and the selection of the partners and the structuring—and 

that is why the transfer of the financial risk to the private sector 

is critically important. And I know in our Governor General’s report, we got the note on, you know, you paid these additional financing costs that you referred to, and there is no question the financing costs are higher for that entity than it would be if the government was raising the money directly. But without the transfer 

of the financial risk, you do not get the accountability for delivering. And so when they go offside, they own the risks of going offside. 

Senator WARREN. Thank you. 

And, Mr. Hollis, if I could ask you just to respond briefly, because I am over time, if that is all right, Mr. Chairman. 

Mr. HOLLIS. Well, I cannot speak directly to the P3 program. I 

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tate program. You need to have the right people with the right expertise to deal with complicated projects. P3 is a financing tool primarily, and if you do not have people that understand financing, 

the first X-number of deals are going to go bad. And you have to 

have the right people in the right place. That is why it is difficult 

for small agencies, I think, because they do not have the in-house 

expertise, and there needs to be some kind of regional entity that 

can gather that expertise together. 

Senator WARREN. I want to thank you all, and I just appreciate 

your emphasizing here the importance of the Federal role and the 

importance of having excellent oversight. There is no free lunch 

here. Giving into the temptation of a short-term fix with private 

money and then paying for it with long-term taxpayer money not 

only does not create any new resources for infrastructure; in fact, 

it makes the problem worse over time. 

We need more up-front taxpayer investments in infrastructure, 

period. Public-private partnerships will not solve that problem, and 

if governments are going to turn to public-private partnerships, the 

need to exercise the kind of careful oversight our witnesses have 

talked about is critical to ensure that taxpayers are not left holding 

the bag. 

Chairman SCOTT. Thank you very much. 

Senator WARREN. Thank you, Mr. Chairman. 

Chairman SCOTT. Yes, ma’am. 

Mr. Hollis, during the hearings last week, the Committee focused 

on the growing state of good repair backlog. It strikes me that one 

way to address some of the backlog is to look more seriously at the 

potential to generate nontraditional sources of revenue from transit 

investments, also known as ‘‘value capture.’’

Today transit systems often only look at traditional revenue 

streams—Federal, formula funds, State and local taxes, and fare 

box recovery—when there are a myriad of other opportunities to 

generate revenues. Around the world, more and more work is being 

done to capture the commercial value of the transit investment 

rather than simply value-engineer the investment to obtain the 

lowest-cost alternative. 

LA Metro has done some work in this area, but I understand 

that LA still struggles with some of the value engineering issues 

associated with the overall cost of projects. 

First, what types of value capture projects has LA Metro undertaken in an effort to generate revenues? How much annual revenue 

has been generated to date from these investments? And do you expect greater revenue potential in the future from additional investments? 

Senator MENENDEZ. Mr. Chairman, if I may, just for a moment, 

I have an amendment that is pending in the Finance Committee 

which I have to go attend to. So if you are finished before I can 

come back, then I will just submit my questions for the record. 

Chairman SCOTT. Sounds good. Thank you, sir. 

Senator MENENDEZ. Thank you. 

Mr. HOLLIS. Mr. Chairman, we currently generate from our real 

estate operation—our real estate operation deals with all of our 

real estate assets other than the joint development piece. That 

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term leases, from advertising opportunities on that property, from 

temporary uses by a whole range of people. Our joint development 

program this year will generate about $14 million. 

There are other real-estate related sources. As an example, we 

are negotiating with the State of California to acquire a number of 

park-and-ride lots that are located along the Green Line of one of 

our transit lines. The State of California’s statutes do not allow it 

to generate revenue from those parking lots. We are working diligently with the State of California and with the Federal Highway 

Administration who helped pay for those lots to try to convey those 

lots to Metro so that we can put them into more productive use. 

And I think more cooperation between the State, the Federal, and 

the local agencies to get some of those stagnant assets back into 

productive use would be very, very helpful. 

Our board has been very clear that we are to look for every revenue stream that we can find in addition to fare revenues. And 

that includes advertising revenues; it includes cell tower revenues; 

it includes leasing revenues; and it includes expanded joint development opportunities. They are an important revenue because, as 

I mentioned, they do not have many of the single-purpose strings 

attached to them that other sources of funds have within a transit 

agency. 

Chairman SCOTT. Thank you. 

Ms. Campbell, since 2004, Infrastructure Ontario has been assigned 83 projects representing a total construction cost of around 

$5.5 billion. This is a significant investment, but much like the 

United States, there is also the long-term costs to maintain these 

significant infrastructure investments. 

Can you speak to the life-cycle cost requirements that are built 

into the P3 arrangements? And how long are concessionaires expected to maintain these assets, if at all? What are the advantages 

to a P3 that included operating and maintaining the assets? It certainly seems to have caused a number of questions about the longterm investment and the long-term risk exposure to taxpayers. I 

would love to hear your comments. 

Ms. CAMPBELL. We look at each one of these assets—and I talked 

about the DBFM, the Design-Build-Finance-Maintain model, and it 

does not apply to every project we do. But when there is, as Ms. 

Garvey referred to, when it is an asset where the life-cycle costs 

are significant, you want an alignment between the fact that they 

are going to build this thing upfront, you are not going to be clear 

on how well it is built or what the maintenance looks like until, 

you know, 30 years in. If you need to line those up, they then have 

a 30-year operating arrangement on that. At the end of 30 years, 

they will hand it back to the government. 

And so if you do the whole package, they will finance it upfront; 

we will pay them some payments—well, actually, on a full DBFM, 

they will not get paid anything upfront. They will get paid over the 

30 years. And if there are maintenance costs over that 30-year time 

that exceed what our payment stream is to them, they bear that 

risk. And their financing lines up over that 30-year period in an 

amortizing instrument as well. 


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And so they are at risk. If indeed they go over cost on the build 

or if they go over cost on the maintenance, that is fully their responsibility. 

Not all assets make sense. If it is viewed that there is little lifecycle risk in the asset, it might not make sense to do it that way. 

But where there is life-cycle risk, we bundle it all together with the 

financing component and transfer that risk to the private sector. 

Chairman SCOTT. Thank you. 

Ms. Garvey, are there any guiding principles Meridiam believes 

must be a part of a P3 investment that it considers, contracting 

guidelines or long-term revenue requirements, operating and maintenance goals? 

Ms. GARVEY. Well, I think we have discussed a number of those 

today. 

Chairman SCOTT. Yes. 

Ms. GARVEY. But I think, again, when we look at the guidelines, 

what we are looking for is clear legislation. We are looking for a 

clearer understanding of what the public policy goals and expectations are for the public sector. We are looking at what the revenue 

stream is and how robust is that revenue stream. We are looking 

at the institutional capability, that was talked about before. Those 

are fundamental principles for us as we look at a project. 

The whole notion of operating and maintenance that you just referred to, Mr. Chairman, I think is really critical and important, 

and one of the more interesting aspects that we are finding in P3s 

is that there is often an incentive built into the contract for the private sector to move to more energy-efficient projects or energy-efficient techniques, because that is really a way to capture some of 

the efficiencies. So some of those incentives are important as well 

as we look at the contracts. 

Chairman SCOTT. Thank you. 

Ms. Campbell, IO’s literature talks about leveraging the expertise in project management discipline of the private sector through 

the use of P3s to deliver infrastructure projects. However, Ontario’s 

Auditor General released an audit on IO’s P3 model and asserted 

that Ontario taxpayers spent $8 billion more than it would have if 

the projects were completed successfully using traditional government procurement. Eight billion dollars is not an insignificant 

amount. Could you address this finding and explain to the Committee why, in spite of this 2014 finding, IO continues to advance 

the P3 model? Are there other benefits or efficiencies that were not 

considered in the audit? 

Ms. CAMPBELL. The short answer is yes, and there has been a 

lot of press over that. There are two numbers missing from the $8 

billion. There is a $14 billion number, which is the savings—we do 

something called value-for-money analysis on every project we look 

at. And we look at the risk transfer and the dollars in that risk 

transfer, which in the total of the projects that she referred to was 

$14 billion. So we calculated—and this is third-party verified, wellknown technology in the calculations—that there were $14 billion 

in savings in transferring those risks, and those would have been 

life cycle, capital, and the rest of it—$14 billion in savings against 

the $8 billion of additional financing costs, which is both the upfront fees plus the financing costs over the life of the asset, that 


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it costs incrementally to finance through the private sector, leaving 

us a net gain of $6 billion. So that is the full assessment. 

Chairman SCOTT. That is the whole story. 

Ms. CAMPBELL. That is the whole story. 

Chairman SCOTT. Excellent. Thank you. 

Last question, and thank you all for your participation in this 

panel discussion, an important discussion about how we can hopefully move more projects forward and do it in less time and more 

cost-effective. 

Mr. Hollis, one way to employ the value capture concept is 

through contracts with concessionaires who in turn generate revenues that can be reinvested in the system. I understand that one 

of LA Metro’s efforts centers on bringing concessionaires into Union 

Station as part of a broader revitalization effort. Mr. Hollis, could 

you speak to the broader efforts to revitalize Union Station and the 

decision to bring in private concessionaires? How much revenue 

has been generated as a result of these contracts? And is the revenue sufficient to cover the annual operating budget of Union Station? 

Mr. HOLLIS. Mr. Chairman, in 2011, our Metro Board of Directors acted to purchase Union Station from a private party. Since 

that time, we have done a complete master plan for the property, 

and we have begun attracting concessionaires into the property. 

These include restaurants and other retail uses. We currently generate approximately $1 million, $1.2 million in revenue, which does 

cover the operating costs of the station as a property. In addition 

to that, we have tenants, including Amtrak and commuter rail, 

that pay additional costs for the burdens they put on the station. 

We believe Union Station is the kind of property that can certainly generate substantial revenues that will more than cover its 

costs. We also as part of the master planning for Union Station 

planned for 3.2 million square feet of commercial development at 

the station, and those ground lease revenues will generate tens of 

millions of dollars for the transit agency. 

So that was an asset that we had to acquire, and we are achieving the benefits of that acquisition decision today and will continue 

into the future. 

Chairman SCOTT. I was pretending that was my last question. 

Actually I have one more that came to mind. 

Drawbacks from being a landlord, having the transit system as 

a landlord, you know, just quickly? 

Mr. HOLLIS. The principle drawback is that the agency needs to 

think of itself as an owner of real estate, and increasingly—and 

there has been a change in the way we address this issue to the 

positive. We have to recognize we have to work with our local communities. We are imposing development within their communities. 

We need to work with those communities to be sure that development is consistent with the needs of those communities, and we are 

doing a much better job of that. 

Second, we need to act like a private landlord if we are going to 

get the benefits of being a property owner. We need to insist upon 

fair value for our property, which our board has been very good at 

insisting upon. We need to be sure that the development is built 


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properly for the long term, because these are our assets forever, as 

far as we are concerned. 

So as long as you are diligent, as long as you are willing to act 

like a private landlord in terms of protecting the value of those assets, and you properly transfer appropriate risks to those lessees, 

we do not believe that there are significant downsides for a transit 

agency to be the owner of a commercial property. 

Chairman SCOTT. Thank you very much. Thank you to all the 

witnesses for being here this morning. I know that Senator Menendez as well as other Members may have questions. We will submit 

those questions for the record. 

Chairman SCOTT. Thank you so much, and this Subcommittee is 

adjourned. 

[Whereupon, at 10:27 a.m., the hearing was adjourned.] 

[Prepared statements and responses to written questions supplied for the record follow:] 


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PREPARED STATEMENT OF JANE F. GARVEY

CHAIRMAN, MERIDIAM INFRASTRUCTURE FUND, NORTH AMERICA

APRIL 29, 2015

Good Morning, Chairman Scott, Ranking Member Menendez and Members of the 

Subcommittee. 

My name is Jane Garvey, and I am Chairman of the Meridiam Infrastructure 

Fund, North America. It is my pleasure to be here today to discuss the opportunities 

and the challenges for private investment in the United States transit system. 

Meridiam is a long-term investor in public-private partnerships, or P3s. Our investors are primarily public pension funds or institutional investors who embrace 

the long-term nature of the fund and are committed to the notion of building public 

infrastructure. While there is a broad range of definitions for P3s, fundamentally, 

it is a legally binding contract between the public sector and a private company 

where the partners agree to share the risks and rewards that are inherent in an 

infrastructure project. In the case of some P3s, the private sector assumes all of the 

revenue risk and collects tolls or fees generated from the project 

Meridiam’s business model contemplates an agreement where we, the private sector, designs, builds, finances, operates and maintains the facility for a pre-determined period of time. In exchange, the public sector provides a reoccurring payment 

based on the condition of an asset—In other words, we are paid only if we meet 

certain performance standards set by the public sector. 

Currently, we have 33 billion under management and 39 projects in operation 

worldwide. Our investments have been across a number of asset classes including 

transportation, power and social infrastructure but what links them is their social 

importance to the communities they serve. 

Let me be clear—Public-private partnerships are not for every project. However, 

large, complex projects that lend themselves to innovation are often good candidates. There are certain characteristics that we in the private sector look for—and 

criteria that are equally important to public sector as well.

1. Strong, authorizing legislation that gives clarity and direction to the public/private relationship. Currently about 33 States have the ability to enter into P3 

agreements. Legislation that provides clear guidance and direction is an essential threshold for the private sector.

2. Politically smart projects: Projects should be of critical importance to the community. In the case of transportation, the project should be part of a larger 

plan that is integral to an overarching view of the future of the community. 

This implies an open public policy debate and discussion early in the process. 

What public policy goals are important to the community, how are they reflected in a P3 relationship? These projects are long term in nature and extend 

far beyond the term of one administration. Projects that reflect clear policy 

goals that are laid out early in critical to success and give the public sector 

an understanding of what is important to the community as well.

3. Active engagement of the stakeholders: These are complex projects, often it is 

a ‘‘first time’’ approach. Active engagement of the stakeholders throughout the 

process, not just the early stages, is critical for success.

4. Determining the revenue stream: As has been said many times, P3s are not 

‘‘free money’’. Lack of a robust revenue stream has been an impediment to 

many transit projects and P3s are no exception. Fares do not generate enough 

to cover the long-term costs. Some communities, such as Los Angeles and Denver, have opted to pass a sales tax dedicated to creating a long-term revenue 

stream. Others are considering impact fees, development rights along the transit corridor or a combination of multiple streams.

5. Risk sharing: Risk sharing may be among the more complicated aspects of P3s 

and can take many forms. The public sector often takes on the environmental 

and permitting risk while the private sector assumes the risk for design, all 

the construction risk, financing risk and the operating and maintenance of the 

facility. But as is often the case, the devil is in the details. For example, during 

the design phase of a project, is the private sector free to design to a performance measure or are the same design reviews that are used in traditional delivery models still employed here, creating a duplicative layer of review? Similarly, during construction, is the contractor free to employ techniques that meet 

the performance standards or are they expected to follow more prescribed techniques? And is the revenue risk transferred entirely to the private sector or 

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formance standards or metrics? These are important questions and for a 

project to succeed, those issues should be understood upfront.

6. Institutional capability: It is critical to have an empowered dedicated P3 public 

sector team. Centrally located and a team with the technique expertise to oversee what is a complicated process. Often the responsibilities for moving 

through the process are shared across many agencies or departments in government. This can create delays as well as confusion for proposers who may 

have questions or concerns. A focal point, or a ‘‘one stop shopping’’ could help 

eliminated the inefficiencies that can arise during the process.

7. Political Leadership. The Federal Government has a key role in fostering P3 

projects. However, there is no substitute for a strong, local leadership to advocate for the project and in this case for an alternative delivery model. It is generally true for any large, complex infrastructure project and I would say particularly true for P3s. These projects only succeed with strong local leadership.

When I look at the lessons learned from established P3s, particularly here in the 

United States, the extent to which they are successful depends, in part, on recognizing and embracing these elements I have outlined:

• Clear legislation,

• Understanding of revenue risk,

• Level of expertise,

• Transparency,

• An identified revenue stream, and

• Political leadership.

There are certain to be some growing pains with our experiences particularly in 

the United States. For example, how does the contract deal with what could be unanticipated events far into the future perhaps in year 20 or 25? Is there some sort 

of ‘‘elasticity provision’’ that could give both parties an opportunity to revisit a narrow provision in the contract without opening up the entire contract? Are the roles 

of each entity public and private clearly understood particularly in the area of ‘‘risk 

sharing’’? 

In the case of the private sector, it is essential for us to fully understand the political considerations and challenges that the public sector faces. I believe we can better explain some of the advantages of the P3 model, but also fully recognize it is 

not for every project and the public policy considerations may lead the public sector 

to another conclusion. And while we urge transparency on the public side, it is 

equally important for us to be transparent in our goals, approach and revenue returns as well. 

As I stated, P3s are not for every project. If a public sector entity is considering 

this approach solely for financial reasons, it is probably not the right model. But 

it is one more ‘‘tool’’, one more approach for the public sector to consider as they 

are looking at solutions for their infrastructure investments. A P3 approach allows 

for appropriate sharing of risk, encourages the private sector to be innovative and 

efficient and gives the public sector a fixed price for all the elements (design, construction, operation and maintenance). This allows a real opportunity for the public 

sector to anticipate and plan well into the future. For me the real benefit of a P3 

is the ability to deal with a challenge that has long plagued the aging infrastructure 

in this country and that is the ability to build in life cycle costs. It is a recognition 

that construction of a project is step one and that maintaining that infrastructure 

throughout its useful life is equally necessary to the long-term success of a project. 

I applaud this Committee’s interest in this issue. Working together, I am confident we can create constructive partnerships between the public and private sectors, partnerships that benefit our communities and help to improve our national 

infrastructure. 

Again, thank you for the opportunity to appear before your Committee. I am 

happy to answer questions. 

Meridiam Infrastructure Fund, North America 

Examples of U.S. Projects 

Port of Miami: This project comprises the construction and management of a 1.6 

km tunnel linking the Port of Miami to the MacArthur Causeway. The concession 

company receives FDOT payments over the term of the concession based on the 

availability of the tunnel.

• Overall investment: $903 M


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• Concessionaire: MAT Concessionaire, LLC

• Partners: Meridiam (93.4%), Bouygues Construction (6.6%)

• Public partner: Florida Department of Transportation (FDOT), Miami-Dade 

County, city of Miami

• Date of entry into service: August 2014

• Concession period: 35 years

Presidio Parkway: This project is a design, build, finance, operate, and maintain 

concession in San Francisco, California. The Project will replace the current 1.6 

miles (2.6 km) Southern approach to the Golden Gate Bridge with a parkway facility, two pairs of cut-and-cover tunnels, a high viaduct, a low-causeway and 

landscaped medians.

• Overall investment: $365 M

• Concessionaire: Golden Link Concessionaire (GLC)

• Partners: Meridiam Infrastructure (50%), Hochtief (50%)

• Public partner: California Department of Transportation (Caltrans), San Francisco Transportation Authority (SFCTA)

• Current status: Construction with date of entry into service as Fall 2015 (provisional)

• Concession period: 33.3 years

IH–635 (LBJ) Managed Lanes: This project consists of reconstructing the 

motorway alignment to provide general purpose lanes and 13 miles of new Managed 

Lanes as well as the construction of new frontage roads on the IH–635 road that 

currently serves as the main circumferential roadway in the Dallas region in the 

Dallas-Fort Worth metropolitan area (the ‘‘Metroplex’’), the fourth largest metropolitan area in the United States.

• Overall investment: $2.6 B

• Concessionaire: LBJ Infrastructure Group (LBJIG)

• Partners: Meridiam Infrastructure and co-investors (42.4%), Cintra (51%), 

Texas Police and Fire Pension System (6.6%)

• Current status: Construction with date of entry into service: Fall 2015 (provisional)

• Concession period: 52 years

North Tarrant Express project: The NTE project includes the financing, design 

and total rebuilding and expansion of 21.4 km length sections of the existing roadway, including frontage roads and the addition of tolled managed lanes. The roadway borders a number of communities to the north and east of Ft Worth, Texas. 

The project is financed by a mix of private and public sources.

• Overall investment: $2.1 B

• Concessionaire: NTE Mobility Partners

• Partners: Cintra (57%), Meridiam and co-investors (33%), Dallas Police and Fire 

Pension System (10%)

• Public partner: Texas Department of Transportation (TxDOT)

• Date of entry into service: October 2014 (nine months ahead of schedule)

• Concession period: 52 years

Long Beach Courthouse: This social infrastructure project includes the design, 

construction, financing, operation and maintenance of the new court building which 

replaces the current Long Beach Courthouse completed in 1959. The new Courthouse comprises 31 courtrooms, with accompanying holding cells and administrative 

office space. The project also includes renovation and operation of a car parking facility and the provision and management of commercial office space and retail space 

within the Courthouse.

• Overall investment: $495 M

• Concessionaire: Long Beach Judicial Partners

• Partners: Meridiam and co-investor (100%)

• Date of entry into service: Fall 2013

• Concession period: 38 years


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RESPONSE TO WRITTEN QUESTION OF SENATOR VITTER 

FROM COLLEEN CAMPBELL 

Q.1. As you know, building or upgrading highway infrastructure is 

among the most common uses for Public-Private Partnerships. In 

Louisiana, for example, a Public-Private Partnership has been considered as a way to complete the long-delayed Interstate 49 corridor from Lafayette to New Orleans. 

From your experience, can you describe the criteria or formula 

that should be used to determine what ratio of investment should 

be public versus private, and how to fairly determine a price for 

tolls for projects such as a highway?

A.1. The decision to utilize private funding as a means of financing 

civil infrastructure should be used judiciously as it comes with a 

cost. The ratio with respect to private versus public investment in 

a project should be limited to the optimal amount required to align 

the interests of the public and private sectors; with the ultimate 

goal of giving the public sector appropriate negotiating leverage 

and protection in the event of a default by the builder or operator 

of the asset. In Canada, the majority of new roads have not involved the transfer of toll risk. Therefore, the totality of the risks 

being passed on to the private sector specifically relate to those associated with construction, lifecycle, and maintenance of the asset. 

Traditionally, this means that the majority of capital used during 

construction is private and the majority of the capital during the 

operating phase is public via annual/monthly service payments to 

the operator. In some cases, as much as 85 percent of the capital 

during the operating phase is publicly funded. This type of funding 

structure is typically utilized on our largest capital transactions 

where the sheer size of the contract warrants a larger substantial 

completion payment (SCP) in order to make it financeable and affordable. 

IO’s current policy for Highways is to pay up to 85 percent of 

Capital Costs at Substantial Completion to achieve the optimal balance between risk transfer and maximizing value for the Province. 

That said when devising IO’s internal strategy with respect to 

determining the optimal SCP size, IO conducted sensitivity analysis on two risk coverage/exposure metrics in addition to reviewing 

the nature (complexity/labour intensity & spatial coverage) of the 

specific asset class to assist in informing our policy:

• Public Sector Coverage Ratio (PSCR): This ratio essentially captures the value of the private sector money at risk 

(debt and equity) over the 30 year concession period as compared to performance obligations that Project Co. must meet 

per the Project Agreement (i.e., facilities maintenance and 

lifecycle/rehabilitation) over the same period. Overall, it is an 

indication of the Sponsor’s leverage over Project Co. during the 

concession period.


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• Expiry Transition Period Over-run Cushion (ETPOC)—

This ratio focuses on the sponsor’s (public sector) coverage during the high risk years (i.e., 5 years prior to expiry of the 

Project Agreement). The ratio captures how much facilities 

maintenance and lifecycle/rehabilitation costs can increase before it eats into the remaining private sector debt and equity. 

It is a measure of how high actual costs can deviate upwards 

from projections before a potential default by Project Co.

It is important, however, to keep in mind that other factors can influence this policy. Therefore it is critical to balance the following 

constraints with the above ratios to achieve the optimum SCP on 

a Project-by-Project basis.

• Affordability—as the amount of public sector investment decreases (or SCP), financing costs will increase. Higher SCP 

makes the project affordable for the Province.

• Market Lending Capacity—for civil transit projects in particular, the dollar scale of the project may be too large for the 

market to accommodate from a bond capacity perspective. This 

may warrant an increase to the overall amount of public investment.

• Minimum Lender Capacity—to ensure competitive pricing a 

transaction should ideally attract large dealers and institutional investors. For this at a minimum, bond solutions must 

meet the DEX Bond Index size requirements (>$100m & 10 

buyers).

• Project Rating—a decrease in the amount of the SCP will improve the coverage and break-even ratios but depending on the 

size, scale and risk profile of the project, it may not achieve the 

desired project rating no matter any change (i.e., a movement 

from a BBB+ to a low A rating may not be worth the increase 

in overall financing costs).

As an example of SCP sizing in recent IO highway projects:

• Windsor Essex Parkway (2009)—85 percent substantial completion payment

• Highway 407 Phase 1 (2012)—85 percent substantial completion payment

• Highway 407 Phase 2 (2015)—85 percent substantial completion payment

• Highway 427 (2016 estimated)—75 percent substantial completion payment


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