Troy Univ Ppp 15 Apr10
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Transcript of Troy Univ Ppp 15 Apr10
Public Private Partnerships – Private Solutions For Public Needs
VISION PATH FINANCIAL
Public Private Partnerships: A Global Tool for Infrastructure
AG
EN
DA › Current Economic Outlook and Key Factors
› PPP: An overview
› Examples of PPP’s
› PPP Process Risks and Cost
› Open discussion
ECONOMIC OUTLOOK
Public Private Partnerships – Private Solutions For Public Needs
International Markets: Slower growth
› Weaker national economies
› Limited migration due to soft housing markets
› Shifting and cautious capital infrastructure investors
› Some bright spots - Growth in China and Canada
› Improving economic indicators
Public Private Partnerships – Private Solutions For Public Needs
Fiscal Situation: Difficult Times
› Limited growth in tax revenues– Commercial and residential real estate correction– Tax reforms (property, other)
› Less federal, state and local revenues› Federal/National funding at risk
– Stimulus package drop-off after 2010 (U.S.)– Healthcare reforms and costs (Global)
Public Private Partnerships – Private Solutions For Public Needs
Global UrbanizationThe world’s urban population is projected to grow at twice the annual pace of the total population.
Source: United Nations, 2006
Public Private Partnerships – Private Solutions For Public Needs
Growth in Govt Funded PPP Programs
Energy PPP’s: Loan Guarantee Programs – US
Public Private Partnerships – Private Solutions For Public Needs
Anticipated Growth in Infrastructure
Source: Strategy + Business magazine (Spring 2007) by Booz Allen Hamilton, Inc.
During the next 25 years, modernizing and expanding urban infrastructure will require approximately $41 Trillion.
Projected cumulative infrastructure investment needed during the next 25 years to modernize obsolescent systems and meet expanding demand, broken down by region and sector.
Public Private Partnerships – Private Solutions For Public Needs
US Infrastructure Report CardOverall Grade = D
ASCE Grading scale: A=Exceptional; B=Good; C=Mediocre; D=Poor; F=FailingSource: 2005 American Society of Civil Engineers (ASCE) Report who gave U.S. infrastructure a “poor” rating based on the condition
Aviation D+
Bridges C
Dams D-
Drinking Water D-
Energy D
Hazardous Waste D
Ports/Waterways D-
Parks and Recreation C-
Rail C-
Roads D
Schools D
Solid Waste C+
Transit D+
Wastewater D-
Public Private Partnerships – Private Solutions For Public Needs
Education: Drivers behind construction
› Class size reduction› Population growth & migration› Changing Educational Needs
• Technology, computer labs, science labs, bio-science facilities, athletic facilities
› Modernization / replacement of aging facilities› Environmental
• LEED initiative to reduce carbon footprint utility consumption; electricity, water, gas.
Public-Private Partnerships: An Overview
Public Private Partnerships – Private Solutions For Public Needs
What is PPP?
A Public-Private Partnership is a contractual agreement between a public agency (federal, state or local) and a
private sector entity, or not for profit. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the
use of the general public. In addition to the sharing of resources, each party shares in the risks and rewards in
the delivery of the service and/or facility.
Public Private Partnerships – Private Solutions For Public Needs
PPP is not privatization
PPP Privatization
Asset ownership Usually no irrevocable transfer of assets
Transfer of ownership of assets
Public responsibility Set policy and service levels Regulation
Level of services Mechanism for shared services
Authorities withdraw from service
Risk/Reward Shared Transferred
Mode Partnership Self-interest
Public Private Partnerships – Private Solutions For Public Needs
What makes a partnership work?
Public Private Partnerships – Private Solutions For Public Needs
Benefits of PPP
› Earlier delivery of projects
› Ability to deliver multiple facilities as needed by demand
› Risk shifted (shared) from Public to Private sector
› Cost Savings- Construction- Efficiencies/Innovation- Potential life-cycle costs as private sector invests more up front to
save operating costs- Lower initial costs (e.g., pre-development; construction)
Public Private Partnerships – Private Solutions For Public Needs
Benefits of PPP
› Positive impact on bond/debt capacity and ratings if private debt used
› Economic development catalyst/increased tax revenues – (e.g., create jobs, impact property values)
› Possible operating expense (vs. capital) treatment
› Increased flexibility for public agency
› Public sector can focus on its’ core competencies
› Innovative funding solutions
› Revenue possibilities and longer-term cash flow
Public Private Partnerships – Private Solutions For Public Needs
Public-Private Partnerships Confusion(also referred to as PPP, P3, 3P and PFI)
Public Private Partnerships – Private Solutions For Public Needs
Types of PPP
Degree of Private Sector Involvement
Degr
ee o
f Priv
ate
Sect
or R
isk
Public Private Partnerships – Private Solutions For Public Needs
Design/Build/Maintain (BOM)
› Private sector:– Designs and builds facility– Signs maintenance contracts
› Public sector:– Finances – Operates
Design/Build – CM@RiskDesign/Build/Maintain (BOM)
Public Private Partnerships – Private Solutions For Public Needs
Build/Operate/Transfer (BOT)
› Private sector:– Designs and builds facility– Assign operation contracts for non
governmental functions– Provides some or all of financing
› Asset ownership– Transfer to public agency varies
• Can be at end of construction• Can be at end of operation/finance contract• Can be at the option of public agency
Design/Build – CM@RiskDesign/Build/Maintain (BOM)
Build/Operate/Transfer (BOT)
Public Private Partnerships – Private Solutions For Public Needs
Lease/Develop/Operate
› Private sector:– Leases or buys existing facility– Renovates, modernizes, expands facility
› Public sector– Public agency may provide operation
Design/Build – CM@RiskDesign/Build/Maintain (BOM)
Build/Operate/Transfer (BOT)Lease/Develop/Operate
Public Private Partnerships – Private Solutions For Public Needs
Tax-Exempt Lease/Bond
› Private sector:– Finances capital assets or involves private
investments› Bond/Lease payment
– Interest payments are tax exempt under State/Federal laws
› Asset ownership– Transferred to public agency at beginning
or end of lease/bond term– May be owned for non for profit Special
Purpose Entity
Design/Build – CM@RiskDesign/Build/Maintain (BOM)
Build/Operate/Transfer (BOT)Lease/Develop/Operate
Lease PurchaseSale/Leaseback
Tax-Exempt Lease/Bond
Public Private Partnerships – Private Solutions For Public Needs
Private Finance Initiative
› Model developed in UK (used by Canada, Australia, others)
› Risk is mostly transferred to the private sector› Private sector:
– Designs and builds facility– Provides all of financing– Provides maintenance under contract– Provides operations of non-education
functions under contract› Public sector
– Accrues equity as lease payments are made– Own asset at end of lease term
Design/Build – CM@RiskDesign/Build/Maintain (BOM)
Build/Operate/Transfer (BOT)Lease/Develop/Operate
Lease PurchaseSale/Leaseback
Tax-Exempt Lease/BondTurnkey
Private Finance Initiative
Public Private Partnerships – Private Solutions For Public Needs
The evolution of PPPs
Operational Focus Strategic Focus
Input-orientation Output-orientation Outcome-orientation
Outsourcing
Design & build, O&M contracts
PPP contracts
Joint Ventures & Strategic Partnerships
Cost Value
Public Private Partnerships – Private Solutions For Public Needs
Operations
› Only will provide non-governmental services– Food services– Energy and utilities
› Not a necessary component for PPP› Performance guarantees
– Financial penalties
Public Private Partnerships – Private Solutions For Public Needs
Maintenance
› Can provide complete services– Building maintenance– Grounds maintenance
› Performance guarantees– Financial penalties
• Example: Financial penalties if light bulb is not replaced within 30 minutes of reporting
› Facility must be in proper shape when lease term is up
Public Private Partnerships – Private Solutions For Public Needs
Primary School Example- Knowsley UK
– Introduction– Balfour Beatty Capital was awarded a 25-year, $294 million contract to design and construct seven new
learning centers.– Private investment: $38 million in the project.
• Project overview– Construction of seven state-of-the-art learning centers which will replace all of the existing schools over
a 3-year period.– Maintenance of the schools will be undertaken by a subsidiary of Balfour Beatty.– Balfour Beatty will work with Knowsley Council in the further development of a clear educational vision
examining progressive learning environments and teaching models.
The vision for KnowsleyKnowsley will create learning centers – schools - that will be open in the evenings, on weekends and during the school holidays, making them available for the entire community. The centers will also provide other services for the community, such as healthcare, on the same site.
Education Councilman Larry Nolan said, “So much more is known today about the way children learn, and these new learning centers will be designed to meet their needs.”
Public Private Partnerships – Private Solutions For Public Needs
K-12 Examples
“The pieces in our puzzle box have the following words on them; planning objectives, educational program goals, expertise, capability, capital funding, construction bonds, school improvement, tax incentives, housing, affordable housing, public programs and services, school choice, charter schools, private financing, flexibility, inflexibility, profit motive, bottom line, debt service, tax liability, public goals and objectives, early childhood development, responsibility, priorities, political considerations, repeat business, classroom space, community space, community learning, career education, etc.
The bottom line is that we in the D.C. Public Schools see {public-private partnerships} as an opportunity and valuable tool in the arsenal of school facility improvements and accommodation of educational program needs.”
Dr. Paul Vance, Superintendent, Washington, D.C. Public School Board
Public Private Partnerships – Private Solutions For Public Needs
Higher Ed Example
University of Central Florida was able to build a convocation center where state funding was not available for such projects.
Example of PPP at University of Central Florida:
Public Private Partnerships – Private Solutions For Public Needs
Hospital Example – Birmingham UK– Introduction– In June 2006, Balfour Beatty Capital was awarded a
40-year, $1.1 billion public-private partnership (PPP) project for Birmingham New Hospitals in the UK.
– Total committed investment is $46 million.› Project overview
– Relocates most of south Birmingham’s key clinical and mental health facilities to a single site
– Construction is being undertaken over 62 months through a joint venture between Balfour Beatty Construction and Haden Young.
› FM Services: Balfour Beatty Capital is responsible for the facilities management services at the hospitals. This has been subcontracted to Haden Building Management, the Balfour Beatty Group facilities management company.
Public Private Partnerships – Private Solutions For Public Needs
Loudoun County Govt Center – Leesburg VA
› 158,000 SF, five-story government center including administrative headquarters and 418-space parking garage.
› Scattered operations consolidated in two locations and capitalized using tax-exempt bonds, creating ~$1 million in annual savings (~$22 million cumulative savings over lease term).
› County outsourced financing, design, development, and construction risk, realizing savings of ~10% of project costs.
› Private Partner: Gilbane Development Company
Process Risks
Public Private Partnerships – Private Solutions For Public Needs
Process Risks
Risk Solution
Reputation Loss of reputation because a partner reneges on agreement Thorough pre-screening of partner
Expectation Unrealistic expectation- Include stakeholders in process- Clearly communicate status at every milestone
ProjectPrivate partner unable to deliver due to financial resources or experience
Select partner that can bring resources to accomplish goals
LegalProject being derailed due to violations of procurement or delivery laws
Research laws prior to RFP/RFQ process and ensure the document is compliant
Political Process can derail due to political fighting
Get political agreement prior to process
Public Private Partnerships – Private Solutions For Public Needs
Balancing Risk with Costs
› The greater the transfer of risk, the higher the price› Project costs could grow and become prohibitively expensive› Transfer risk when it makes good economic sense
Hurdle
Risk
Costs Optimal risk transfer
Public Private Partnerships – Private Solutions For Public Needs
Cost Over Time
Time
Cost
to P
ublic
Sec
tor
PPP approachPublic funding
Traditional funding of projects contains peaks and valleys in spending
PPP creates a steady, predictable, and affordable financing source
PPP – A Combining of Strengths
Public Private Partnerships – Private Solutions For Public Needs
Combining of Strengths
› Legal authority› Protection of procurement
polices› Broad perspective to
meet public needs› Personnel is dedicated
but constrained› Capital resources and
under utilized assets
(Result of market competition)›Management efficiency›Workplace efficiencies›Capital management›Newer technologies›Cash flow management›Personnel expertise
Public Sector Strengths
Private Sector Strengths100%
Effectiveness
Vision Path Financial
Public Private Partnerships – Private Solutions For Public Needs
Additional Information› National Council for Public-Private Partnerships
- www.ncppp.org- Articles, papers and other resources on PPPs
› American Society of Civil Engineers- www.asce.org- Infrastructure report card
› US DOT – National Strategy to Reduce Congestion- www.fightgridlocknow.gov- Includes sample legislation authorizing PPPs
› US EPA – Sustainable Infrastructure for Water and Wastewater- www.epa.gov/waterinfrastructure/index.html- Advocates full cost pricing
Public Private Partnerships – Private Solutions For Public Needs
Contact info:
Steve AllenPresident and CFO
Vision Path Financial, LLC404-993-2500
Vision Path Financial
Public Private Partnerships – Private Solutions For Public Needs
Vision Path Financial
Public Private Partnerships: A Global Tool for Infrastructure