By Al Maloof, Ph.D.
During the last 25 years the U.S. Transportation industry has seen a drastic change with respect to the financing of infrastructure and transportation projects. Today, during these difficult times, operators are forced more than ever to explore and identify alternative feasible approaches to financing critical infrastructure and transportation projects that were not often previously considered in the United States.
Some very effective alternative funding and development models to consider as options to traditional procurement methods are long-term concessions, public private partnerships (PPP) and private financing and operation. These include variations in modeling that could be proposed as partnering, outsourcing or full privatization. Due to the current economic climate, such partnerships appear to be a clear solution to the shortage of capital stakeholders and owners of assets are encountering throughout the United States, and specifically in several active key states, which are emerging as innovative frontrunners of alternative project finance, delivery and operation methods.
Long-term concessions also have become frequent alternatives to funding transportation and infrastructure projects. With a private entity assuming financial, operational and management responsibilities, concession projects can provide a sense of security to a public owner. In January of 2005, the city of Chicago completed the Skyway project, a 7.8-mile toll road, which connects the Indiana Toll road with the Dan Ryan Expressway on the south side of Chicago. Following a competitive and complicated bidding process, the city awarded its contract to two foreign investors: the Spanish toll developer, Cintra and Australian toll operator, Macquarie. This concession agreement permitted the private entity to operate and maintain the toll road for a 99 year term. In exchange, the city received 1.8 billion dollars for the lease, some of which was used to pay off city transportation debts that had been accruing for a number of years. Some of the funds were later used to supplement neglected city projects and provided much needed relief to the local citizens. As a result of the economic risk involved in the project, the concessionaire made it a point to make efficient and wiser investment decisions than say a traditional vendor would.
There is always a sense of ownership involved in the kind of investment, which allows a private entity to seek the long-term profit opportunities and not just a quick build to completion and exit strategy. This long-term concession agreement would be the first of its kind in the country to be established on a toll that was already operating, putting the city of Chicago into the mix as one of the pioneers for alternative methods of project funding.
Throughout the past few years in particular, it is no wonder public private partnerships projects have increased significantly. Public private partnership projects not only provide the needed funds for new projects, but also develop innovative financing and construction methods, which have a positive influence on project management. According to the United States Department of Transportation, private public partnership ventures can result in crucial cost savings, significantly quicker project completion, and they allow the private investor to apply revolutionary ideas and innovative decision making. Inasmuch as there is a substantial financial risk involved with every new project, it is naturally incumbent upon private entities to guarantee commitment and dedication; this almost always ultimately results in better management and stronger customer service for all of the parties.
In recent years, the state of Florida has made significant efforts to establish itself as one of the leaders of alternative project funding: one of its most ambitious efforts involves the Port of Miami Tunnel. This 30-year toll collection concession, will seek to connect the Port of Miami and the mainland, and decongest one of Miami’s oldest and busiest arterial roadways known as US Highway 1. With a projected cost of more than 1.5 billion dollars, this would be one of the most expensive transportation and infrastructure projects in the history of South Florida and Miami-Dade County. The project is still in its procurement stages, but is set to move forward in late 2009. Another progressive project is the planned Florida Marlins Stadium, with a series of new roadway configurations and several parking garages and mixed-use complexes planned.
Additional projects include Florida Department of Transportation’s (FDOT) I-595 corridor improvements and the Alligator Alley Sawgrass Expressway expansion and tolls retrofit outsourcing initiatives. The I-595 procurement already has been awarded and will provide for variable toll road express lanes that include an availability payments program. This is essentially structured to provide compensation to contractors after segments of the road are completed and operating. The Sawgrass toll road project will be re-procured in late 2009 or early 2010. With these and other projects, Florida has assumed the position of being one of the leaders of innovative design, development, construction and operation of these projects, and there is more to come.
Perhaps the most difficult approach to alternative funding solutions is the privatization of transportation projects. There is a certain degree of skepticism among private corporations and government agencies when considering privatizing public goods and services. Also, labor unions emerge as major stakeholders in these efforts. It has long been thought that privatization means job loss, however that is not always the case. Many private operators are taking on those employers when a conversion is proposed. With the governments’ support of new regulations, private investors are increasingly rising to the challenge to provide vigorous platforms to compete for the business. The ideology that transportation services should be managed by the government or state is a thing of the past. The private sector now possesses the required knowledge, skills and ability necessary to finance, develop, manage and operate government projects.
Difficult times require different strategies, and innovative ideas that include long-term concessions, public private partnerships and privatization can provide the much needed alternative solutions to the ever-growing necessity of long past due transportation and infrastructure improvement and development. With solid investors and legislative and policy support, our transportation systems can now look forward to a bright and busy future. This future will be one that will no longer endure the lack of infrastructure and transportation advancements the citizens so well deserve, and free the American people to acquire the infrastructure required to achieve and maintain quality of life. Florida will be one of the most active states in the country for modifying, rebuilding or constructing new infrastructure and transportation projects. There is certain to be much more to come.
Al Maloof, Ph.D. is managing director at GJB Consulting LLC (GJB), an affiliate of the Genovese, Joblove & Battista, PA law firm. He maintains offices in Miami, Ft. Lauderdale and Tallahassee and Washington, D.C., He has worked in and around transportation for more than 20 years, and assisted Florida’s governor in the restructuring of the Florida Department of Transportation (FDOT) and currently serves on the board of directors of the Miami Dade Expressway Authority (MDX). He also holds the position of vice chair of advocay (local, state and federal government relations) with the Greater Miami Chamber of Commerce (GMCC). His firm specializes in procurement, bids, RFP’s of transportation, public works and infrastructure projects. He specializes in strategy to pursue new projects and programs, and in developing business opportunities between the public & private sector. Al Maloof, Ph.D. can be contacted at AL.MALOOF@GJB-LAW.COM
