Wednesday, March 14, 2007

"The state might limit the length of concession agreements to 50 years."

Best Practices for P3's

Florida Officials Weigh in at Conference

March 14, 2007

By Matthew Hanson
The Bond Buyer
Copyright 2007

PALM BEACH, Fla. — Still in the early phases of deciding how public-private partnerships will work into transportation finance plans, Florida officials are considering some best practices to ensure the state gets the best deals possible for any potential P3s.

Part of making sure that the state and its cities gets as much as possible from future P3 deals means, among other things, limiting the maximum length of long-term concession deals, refusing to include non-compete clauses in concession agreements, and maintaining the state’s policy of having the legislature appropriate any payment to the concessionaires, said William Thorp, chief financial officer of Florida’s Turnpike Enterprise, at a P3 conference hosted by MBIA Inc. last week here.

“Florida is trying to position itself to move forward in the P3 area,” Thorp told the group of investors, advisers, and other officials interested in these hybrid infrastructure funding deals. “We realized that we really needed to tweak the language of this legislative package to make things work.”

The state statute addressing transportation P3s was enacted in 1991 and amended in 2004. Officials at the Florida Department of Transportation have begun drafting legislation to amend the law yet again, though nothing formal has been completed and there are not yet plans to introduce a bill in Tallahassee, Thorp said.

He added that one idea being batted around is that the state might limit the length of concession agreements to 50 years, requiring that any longer agreements get legislative approval. The Port of Miami Tunnel and Access Improvement Project would give concessionaires up to five years to design and construct the project, and then 30 more years to operate and maintain the tunnel, according to the project’s request for proposals.

When time-value of money is taken into account, not much value is added by extending the lease beyond 50 years, Thorp said, adding that it is also nearly impossible to tell how much Florida’s population growth will affect that value of the asset five decades from now.

This concept is likely modeled on Texas’ P3-related statutes, according to Robert Poole, director of the transportation group at Reason Foundation, California-based think tank that advocates for privatization and other libertarian principals. Poole now lives in Florida and does some consulting for the Florida DOT on the side.

“Texas seems to be getting terrific proposals with that as a limitation,” Poole said. “And while you probably would get somewhat more in upfront payments, depending on the specifics of each project with a longer term, it’s an awfully long time.”

Thorp added that officials have considered the merits of keeping non-compete clauses out of any potential lease agreement. These provisions could limit the state’s ability to build other roads within a certain distance from the one under contract.

The inclusion of strict non-compete clauses are generally now thought of as too restrictive, Poole said, adding that common practice is now to work out a sort of compromise based on the state’s or city’s plans for future projects.

“You as the concession-holder take into account the long-range transportation plan of the relevant jurisdiction,” he said. “Everything in that you have to just accept — take your lumps. If we build everything in that plan, that’s the breaks of the game, and you knew that going in. There’s no compensation from any of the effects from that.”

Another wrinkle in establishing P3s in Florida has been the state’s mandate that payments to potential concessionaires are subject to lawmakers’ appropriation, just like any other state expense. This is something that Florida does not plan to bend on for this new form of privatization, Thorp told the conference group, many of which represented the international firms that have bid on U.S. toll roads in recent years.

“Many of you concessionaires that we have talked to before have real heartburn with this annual appropriation risk — something that will not change,” Thorp said. “Even the way that debt service on Florida Turnpike bonds — and we have over $2 billion of bonds that are outstanding — everything is subject to appropriation in the state of Florida.”

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