[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
OVERVIEW OF PUBLIC-PRIVATE PARTNERSHIPS IN HIGHWAY
AND TRANSIT PROJECTS
=======================================================================
(113-57)
HEARING
BEFORE THE
PANEL ON PUBLIC-PRIVATE PARTNERSHIPS
OF THE
COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
MARCH 5, 2014
__________
Printed for the use of the
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committee.action?chamber=house&committee=transportation
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COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
BILL SHUSTER, Pennsylvania, Chairman
DON YOUNG, Alaska NICK J. RAHALL, II, West Virginia
THOMAS E. PETRI, Wisconsin PETER A. DeFAZIO, Oregon
HOWARD COBLE, North Carolina ELEANOR HOLMES NORTON, District of
JOHN J. DUNCAN, Jr., Tennessee, Columbia
Vice Chair JERROLD NADLER, New York
JOHN L. MICA, Florida CORRINE BROWN, Florida
FRANK A. LoBIONDO, New Jersey EDDIE BERNICE JOHNSON, Texas
GARY G. MILLER, California ELIJAH E. CUMMINGS, Maryland
SAM GRAVES, Missouri RICK LARSEN, Washington
SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts
CANDICE S. MILLER, Michigan TIMOTHY H. BISHOP, New York
DUNCAN HUNTER, California MICHAEL H. MICHAUD, Maine
ERIC A. ``RICK'' CRAWFORD, Arkansas GRACE F. NAPOLITANO, California
LOU BARLETTA, Pennsylvania DANIEL LIPINSKI, Illinois
BLAKE FARENTHOLD, Texas TIMOTHY J. WALZ, Minnesota
LARRY BUCSHON, Indiana STEVE COHEN, Tennessee
BOB GIBBS, Ohio ALBIO SIRES, New Jersey
PATRICK MEEHAN, Pennsylvania DONNA F. EDWARDS, Maryland
RICHARD L. HANNA, New York JOHN GARAMENDI, California
DANIEL WEBSTER, Florida ANDRE CARSON, Indiana
STEVE SOUTHERLAND, II, Florida JANICE HAHN, California
JEFF DENHAM, California RICHARD M. NOLAN, Minnesota
REID J. RIBBLE, Wisconsin ANN KIRKPATRICK, Arizona
THOMAS MASSIE, Kentucky DINA TITUS, Nevada
STEVE DAINES, Montana SEAN PATRICK MALONEY, New York
TOM RICE, South Carolina ELIZABETH H. ESTY, Connecticut
MARKWAYNE MULLIN, Oklahoma LOIS FRANKEL, Florida
ROGER WILLIAMS, Texas CHERI BUSTOS, Illinois
MARK MEADOWS, North Carolina
SCOTT PERRY, Pennsylvania
RODNEY DAVIS, Illinois
MARK SANFORD, South Carolina
VACANCY
------ 7
Panel on Public-Private Partnerships
JOHN J. DUNCAN, Jr., Tennessee, Chairman
CANDICE S. MILLER, Michigan MICHAEL E. CAPUANO, Massachusetts
LOU BARLETTA, Pennsylvania PETER A. DeFAZIO, Oregon
TOM RICE, South Carolina ELEANOR HOLMES NORTON, District of
MARK MEADOWS, North Carolina Columbia
SCOTT PERRY, Pennsylvania RICK LARSEN, Washington
SEAN PATRICK MALONEY, New York
CONTENTS
Page
Summary of Subject Matter........................................ iv
TESTIMONY
Joseph Kile, assistant director for microeconomic studies,
Congressional Budget Office.................................... 3
James M. Bass, interim executive director and chief financial
officer, Texas Department of Transportation.................... 3
Phillip A. Washington, general manager and chief executive
officer, Regional Transportation District of Denver, Colorado.. 3
Richard A. Fierce, senior vice president, Fluor Enterprises,
Inc., on behalf of The Associated General Contractors of
America........................................................ 3
PREPARED STATEMENTS AND ANSWERS TO QUESTIONS FOR THE RECORD SUBMITTED
BY WITNESSES
Joseph Kile, prepared statement.................................. 35
James M. Bass:
Prepared statement........................................... 46
Answers to questions for the record from Hon. John J. Duncan,
Jr., a Representative in Congress from the State of
Tennessee.................................................. 60
Phillip A. Washington:
Prepared statement........................................... 73
Answers to questions for the record from Hon. John J. Duncan,
Jr., a Representative in Congress from the State of
Tennessee.................................................. 90
Richard A. Fierce:
Prepared statement........................................... 98
Answers to questions for the record from Hon. John J. Duncan,
Jr., a Representative in Congress from the State of
Tennessee.................................................. 105
[GRAPHIC] [TIFF OMITTED]
OVERVIEW OF PUBLIC-PRIVATE PARTNERSHIPS IN HIGHWAY AND TRANSIT PROJECTS
----------
WEDNESDAY, MARCH 5, 2014
House of Representatives,
Panel on Public-Private Partnerships,
Committee on Transportation and Infrastructure,
Washington, DC.
The panel met, pursuant to notice, at 9:59 a.m. in Room
2167, Rayburn House Office Building, Hon. John J. Duncan, Jr.
(Chairman of the panel) presiding.
Mr. Duncan. The panel will come to order. First, let me
thank our distinguished panel of witnesses for being with us
today to testify. And this is the second event and first
hearing of the Panel on Public-Private Partnerships, or P3s, as
they are commonly called. We had a very successful, very well-
attended roundtable a couple of weeks ago, and now this is our
first hearing.
We are investigating how P3s can accelerate the delivery of
projects across all modes of infrastructure. I think almost
everybody in the Congress, both Democrats and Republicans,
agree that we have very great infrastructure needs in this
Nation. The big question is how do we pay for them. And so,
there are various suggestions or ideas or proposals, but
certainly many States and several State and local governments
have decided that public-private partnerships are one of the
solutions to the problem that we all face.
Our roads and transit systems play a critical role in the
movement of goods and people, and in the success of our
economy. States are increasingly utilizing P3s to help them
address their highway needs and other needs. We are happy to
have one of the leaders in this effort today, a representative
from the Texas Department of Transportation, with us.
Americans are also using transit systems to--more than
ever, to get them where they need to go. But, as we all know,
building new transit lines can be a complex and costly effort.
The Denver region decided to pursue a public-private
partnership in order to significantly expand its transit system
far more quickly and cheaply than would have been possible with
traditional project delivery approaches. We look forward to
hearing from a representative of Denver's regional
transportation district this morning.
In this hearing we also want to explore how the public
sector can ensure that public-private partnerships deliver
public benefits, and how those benefits are protected over
time. That is a very important question. We also recognize that
the private sector will only engage in projects that make
economic sense for their business models. So it is important to
understand what the private sector looks for when selecting
projects to participate in. One critical issue we will discuss
is how the public and private sectors can share in the risk of
a project, especially in arrangements that can last for 30
years or even longer.
Finally, while public-private partnerships are, first and
foremost, driven at the State and local level, the Federal
Government has a very important role to play in these
arrangements. Everything that this committee deals with, there
is a very important Federal role, because people in Ohio
sometimes use the highways in Tennessee, and vice versa. People
in California sometimes use the airports in Texas, and vice
versa. People in New York sometimes use the water systems in
Florida, and vice versa, and so forth. And the same is true
with our ports and railroads and every other topic that this
committee deals with.
The last surface transportation bill, MAP-21, significantly
increased the size of the TIFIA program, which provides credit
assistance to eligible surface transportation projects. We have
heard from many stakeholders that the TIFIA program is a
critical component of public-private partnerships in this
country. We want to explore how the TIFIA program is working,
and what changes we may need to make in the next authorization
bill, which we hopefully can complete later this year.
Private activity bonds are also important in the P3
arrangements, and I am sure we will hear about their role
today, as well.
Again, I want to thank the witnesses for being here today,
and I now recognize the ranking member, Mr. Capuano from
Massachusetts, for 5 minutes to make any opening statement he
may have.
Mr. Capuano. Thanks for being here, guys. I look forward to
the discussion.
[Laughter.]
Mr. Duncan. Well, that is the quickest opening statement I
think I have ever heard. Well, thank you. Thank you very much.
We have now been joined by our chairman, Mr. Shuster, and
it is always an honor and privilege to have him here with us,
and so I would like to call on him for any comments he has at
this time.
Mr. Shuster. I just want to echo Mr. Capuano's words.
[Laughter.]
Mr. Duncan. All right. And Mr. Meadows?
Mr. Meadows. Ditto.
Mr. Duncan. Well, well, this is a first, I can tell you. Of
all the committee hearings I have chaired over the years, that
is a first.
Mr. Shuster. Mr. Chairman?
Mr. Duncan. Yes?
Mr. Shuster. Just a reminder, we are not in the Senate,
so----
[Laughter.]
Mr. Duncan. All right. Well, I previously welcomed all the
witnesses. Our panel today is a very distinguished one. We will
start with Mr. Joseph Kile, who is assistant director for
microeconomic studies at the Congressional Budget Office, and
then, following his testimony, Mr. James Bass, the interim
executive director and chief financial officer of the Texas
Department of Transportation. Next is Mr. Phillip Washington,
general manager and chief executive officer of the Regional
Transportation District of Denver, Colorado. And finally, Mr.
Richard Fierce, a senior vice president of Fluor Enterprises.
And he is here on behalf of The Associated General Contractors
of America.
I ask unanimous consent that our witnesses' full statements
be included in the record.
[No response.]
Mr. Duncan. And hearing no objection, that will be so
ordered.
Since your written testimony has been made a part of the
record, the subcommittee would request that you limit your oral
testimony to around 5 minutes.
And, Mr. Kile, we will begin with you.
TESTIMONY OF JOSEPH KILE, ASSISTANT DIRECTOR FOR MICROECONOMIC
STUDIES, CONGRESSIONAL BUDGET OFFICE; JAMES M. BASS, INTERIM
EXECUTIVE DIRECTOR AND CHIEF FINANCIAL OFFICER, TEXAS
DEPARTMENT OF TRANSPORTATION; PHILLIP A. WASHINGTON, GENERAL
MANAGER AND CHIEF EXECUTIVE OFFICER, REGIONAL TRANSPORTATION
DISTRICT OF DENVER, COLORADO; AND RICHARD A. FIERCE, SENIOR
VICE PRESIDENT, FLUOR ENTERPRISES, INC., ON BEHALF OF THE
ASSOCIATED GENERAL CONTRACTORS OF AMERICA
Mr. Kile. Thank you. Good morning, Congressman Duncan,
Chairman Shuster, Congressman Capuano----
Mr. Duncan. Pull the microphone a little bit closer to you,
if possible.
Mr. Kile. Sure thing. Is that better?
Mr. Duncan. Yes.
Mr. Kile. Good. Good morning, again, and thank you for
having me here today to talk about public-private partnerships
before this panel.
The United States has about 4 million miles of public
roads. In 1960 the number of miles of--since 1960 the number of
miles of roads has grown slowly, but the demands on them have
grown substantially. In particular, the number of vehicle miles
traveled roughly quadrupled, rising from about 700 billion in
1960 to roughly 3 trillion in 2012.
To pay for those roads, the Federal Government and State
and local governments spent about $155 billion in 2012.
Traditionally, a State or local government assumes most of the
responsibility for carrying out a highway project, and bears
most of its risk. Such risks include the possibility of cost
overruns, delays in the construction schedule, and shortfalls
and toll revenues for such roads. Alternatively, some analysts
assert that public-private partnerships can increase the amount
of money available for highway projects, and can complete the
work more quickly, or at lower cost than is possible with the
traditional approach.
Over the past 25 years, governments at all levels have
created about 100 public-private partnerships for highway
projects that exceeded $50 million. Adjusted for inflation, the
total value of those projects was about $60 billion. That is
about 1.5 percent of the total amount spent by all governments
for highways during that period. But roughly half of that total
has been committed during the past 5 years.
My testimony today is going to address the role of the
public-private sector in financing and providing--that is,
designing, building, operating, and maintaining a highway
project--and I want to make three broad points.
First is that private financing can provide capital
necessary to build a new road, but such financing comes with
the expectation of a future return for private lenders and
private investors. Private financing only increases the
available funds for highway construction when States or
localities have chosen to restrict spending by imposing legal
or budgetary constraints on themselves. Even so, regardless of
the financing mechanism chosen, the ultimate source of money
for highways is toll revenues paid by drivers and funds from
taxpayers.
Second, the cost of privately financing a highway project
is roughly equal to the cost of financing it publicly after
factoring in certain costs to taxpayers. Those costs include
the risk of losses from the projects that are borne by the
Federal Government, and the financial transfer made by the
Federal Government to States and localities. CBO examined 29
highway projects that were undertaken since 1989 that cost more
than $50 million and involve private financing. The amount of
risk that was transferred to the private partner varied
substantially from project to project. In some cases, the
financial risk was borne primarily by taxpayers, who were
responsible for repaying the debt incurred by the private
partner. But in other cases, the private partner bore much more
of the risk of the investment, in particular the risk that it
might lose the money if the project did not receive the
revenues that were expected.
Of the projects that have been completed, some of those
that were financed through tolls have failed financially
because the private partners over-estimated the revenues that
the project would generate. And, as a result, they were unable
to fully repay the project's debt. Perhaps in response to that
history, projects that are still under construction tend to
rely less on tolls for revenues. More commonly now, private
partners are compensated through a State's general revenues,
which reduces the risks of not being repaid. In addition,
financing provided by TIFIA and tax-exempt private activity
bonds have become an increasingly important source of funds for
highway projects.
Third, and finally, CBO assessed the limited evidence on
cost savings that might occur from bundling together other
elements of providing highways--in particular, designing,
building, operating, and maintaining them.
On the basis of the evidence, it appears that public-
private partnerships have built highways slightly less
expensively and slightly more quickly than when compared with
the traditional approach. Contracts that bundled two or more
elements of the work may give greater control to the private
partner, and a stronger incentive to reduce costs and meet
established schedules.
But contracts that achieve those goals can be challenging
to formulate, especially in light of the lengthy period of time
over which many contracts extend. The relative scarcity of data
and the uncertainty surrounding the results from the available
studies make it difficult to apply the conclusions definitively
to other such projects.
Thank you very much. That concludes my statement. I would
be pleased to answer any questions you might have.
Mr. Duncan. Well, thank you very much, Mr. Kile.
Mr. Bass?
Mr. Bass. Good morning. My name is James Bass, and I am the
interim executive director and chief financial officer at the
Texas Department of Transportation. I would like to thank
Chairman Duncan and Ranking Member Capuano for holding this
hearing today. I will discuss the State's perspective using
public-private partnerships--or P3s, for short.
As the panel is well aware, States are struggling with the
lack of predictable funding for our transportation projects.
The surface transportation program, until very recently, was
one of the most reliable of all Federal undertakings. Now there
are recisions, earmark claw-backs, short-term extensions, and a
trust fund that can no longer fully replenish itself. These are
obviously not ideal circumstances in which to deliver projects,
because they disrupt the planning process for agencies, local
communities, and our private-sector partners, both on the
construction and the engineering side.
In recent years, Texas has looked to the private sector
more frequently to help us not only pay for, but to construct
large-scale projects that otherwise would be years away from
construction. These P3s are enabling the State to leverage our
resources and deliver projects to our citizens much more
efficiently and expeditiously than with the standard pay-as-
you-go methods of the past.
In Texas, P3s for transportation projects are entered into
using a procurement process that allows TxDOT to select the
proposal that provides the best value to the State. These
agreements provide for the design and construction,
rehabilitation, expansion, or improvement of a transportation
project, and may also provide for the financing, maintenance,
and operation of such a project.
Through the use of P3s, TxDOT has been able to narrow the
gap between our transportation needs and our transportation
assets, and has helped citizens to realize our transportation
goals of improved traffic flow and improved air quality.
Without the option of these P3s, several projects would not be
developed for a number of years, including State Highway 130
segments 5 and 6 in central Texas, and a number of long-awaited
projects in the Dallas-Fort Worth region.
There are different ways to structure a P3 agreement, and
the terms of these agreements vary, based on the level of
private sector participation. In Texas, a concession agreement
gives the developer responsibility to perform some or all of
the development, financing, operation, and maintenance of a
facility for up to 52 years. In exchange, the developer is
provided a right to the revenue generated by the project, and
these projects also can potentially provide for revenue sharing
with TxDOT over the life of the contract and, in some cases,
include an upfront, lump sum payment.
Other potential advantages include the developer assuming
the risk for cost, schedule, traffic and revenue, financing,
and meeting State and Federal standards over time. It also
removes the financial burden of operating and maintaining the
project from TxDOT. And it also reduces and, in some cases,
eliminates the amount of public funds needed to construct the
project.
One of the benefits of building projects under a P3 is that
elements of risk are transferred from the public sector to the
private developer. However, there are some risks that are
better managed by TxDOT than by the developer. And one of our
core principles is to allocate risk in such a way that we
maximize the benefits of the P3 to the public. These risks are
identified and allocated on a project-by-project basis.
Private activity bonds and TIFIA are very important tools
that have helped several Texas projects be more feasible. A
point that is generally missed in the descriptions of MAP-21 is
that it--the reinvigorated TIFIA program had the practical
effect of adding at least an extra year of project delivery to
the 2-year bill.
MAP-21 also solved key challenges that have historically
held back the TIFIA program. We are very encouraged by the
substantial increase in funding for the program, the increased
share of project costs that TIFIA can finance, and the
congressional desire to make the TIFIA program more efficient.
To date in Texas we have received over $4.2 billion in
TIFIA assistance. And when that's been combined with local,
private funding, has yielded over $13 billion in total
projects. These projects have been critical to relieving
congestion and contributing to efficient movement of people and
goods in the heavily populated areas of our State.
Prior to MAP-21, USDOT was allowed discretion to evaluate
and choose eligible projects under specific criteria. Over
time, USDOT continued to add criteria such as livability to its
list of selection criteria. These criteria, while seen by some
as beneficial to help narrow down projects for funding, went
beyond what was laid out in the law. MAP-21 eliminates
discretionary selection criteria, and establishes a limited set
of objective criteria that require a yes-or-no determination of
satisfaction, and TxDOT welcome this change.
MAP-21 provides critical changes and increased funding, but
changes can be made to further enhance the program: reinforce
that 49 percent of eligible project costs are allowed under
MAP-21; streamline the letter-of-interest phase and enforce
strict deadlines for the review of LOIs; incorporate the TIFIA
application process with project procurement, in order to
maximize competition.
Again, I appreciate the opportunity testify today on the
success of partnering with the private sector to deliver
transportation projects in Texas. P3s in Texas have and will
continue to play a vital role in how we deliver critical
transportation projects.
And I look forward to answering any questions.
Mr. Duncan. Well, thank you very much, Mr. Bass. I had the
privilege of chairing the Highways and Transit Subcommittee
when we wrote MAP-21, so I appreciate some of your favorable
comments there.
Mr. Washington?
Mr. Washington. Chairman Duncan, Ranking Member Capuano,
Mr. Shuster, members of the Panel on Public-Private
Partnerships, I want to thank you for the opportunity to
present our testimony and our story in Denver on P3s.
Various P3s have been very crucial in the success of our
program called the FasTracks Program, which I believe is still
the single largest voter-approved transit expansion program in
this country.
We encourage Congress to increase the focus on P3s to spur
faster development of transit assets. We believe the new
transportation reauthorization bill is a great vehicle to
assist in that. We also strongly urge Congress to preserve and
expand the financing tools that make P3s possible, those being
TIFIA and private activity bonds.
What I would like to focus on today is some of the
innovative public-private partnerships approaches that we have
employed in Denver. One is the Eagle P3 project. This is a
design, build, finance, operate, maintain, or DBFOM P3 buildout
over 36 miles of commuter rail that will connect downtown
Denver to the Denver International Airport. The second one is
our Denver Union Station project. This will be the new
intermodal hub of our system. And what's very unique there is
the enhanced real estate value of the land adjacent to the
transit assets is being used to pay off the transit
development.
And while not discussed extensively here today, we are in
partnership with the Colorado Department of Transportation on a
P3 to deliver a high-occupancy toll lanes project, or BRT
system, bus rapid transit system, between Denver and Boulder.
RTD Denver, in that FasTracks program, this is 122 miles of
additional light rail and commuter rail, 18 miles of bus rapid
transit, and 57 new stations, which brings into-- brings the
opportunity of transit-oriented communities, as well.
The RTD's Eagle program, which is a line to the airport, or
two-and-a-half lines, we pursued this as a public-private
partnership because of the efficiencies that we believe could
be attained through the P3 approach. This Eagle project is
being procured through a concession agreement between RTD and
the Denver transit partners to design, build, finance, operate,
and maintain these components for a 34-year period. The agency
will retain all assets--ownership of all assets at all times,
set the fares, fare policy, keep all the project revenues. We
will make payments through what is called availability payments
to the concessioner, based on established performance metrics.
That project is about 60 percent complete. And funding consists
of Federal dollars, a full funding grant agreement, TIFIA,
private activity bonds, and, of course, private sector equity.
The Denver Union Station project, which is the hub of our
system, is a huge engine for transit-oriented communities and
downtown Denver, significant expansion of mixed-use
neighborhoods surrounding that station. It has been the
catalyst in attracting some $1 billion in development around
that station, which, as I mentioned earlier, is helping to pay
off the transit elements and the loans.
The TIFIA loan program, along with the railroad
rehabilitation improvement fund, or RIF program loans--the
TIFIA loan is for $145 million, RIF is $152 million. Those are
the backbones of financing of this project, and they constitute
about 64 percent of this $500 million program, which is the hub
of our system.
Finally, let me say that with the P3 delivery method and
other financing mechanisms previously mentioned, we are moving
forward with plans for the construction of these projects that
I mentioned. However, we don't see them as a substitute, of
course, for the strong support for the general transportation
investment, or the new transportation reauthorization bill.
I will say that the jobs that have been created, the
transit-oriented communities that have been created around
these projects, is extraordinary. I invite the panel to come
out on May the 9th for the opening of this Denver Union Station
hub to see firsthand a public--successful public-private
partnership that will open on May the 9th.
I look forward to your questions.
Mr. Duncan. Well, thank you very much. And from all
reports, your project has been very successful, so we will look
forward to hearing your answers to some of our questions.
Mr. Fierce?
Mr. Fierce. Chairman Duncan, Ranking Member Capuano, and
members of the Panel on Public-Private Partnerships, I am
Richard Fierce. I am a senior vice president at Fluor
Corporation, speaking here today on behalf of Associated
General Contractors. Fluor has been a proud member of AGC for
many years. AGC represents over 26,000 firms in our industry.
I also serve presently as the president of the Association
for the Improvement of American Infrastructure, AIAI, an
organization that was formed a little over a year ago, a
nonprofit advocacy group promoting the use of P3s in the United
States.
A couple of introductory comments about Fluor and Fluor's
history in P3s. We are a 100-year-old company with about $27
billion in revenues last year, and 41,000 employees on 6
continents. We have been involved in P3 delivery for over 20
years now, and have been involved with a number of firsts in
the United States: the Conway Bypass in South Carolina; E-470
in Denver; the 895 project in Virginia, now known as Pocahontas
Parkway; and segments 1 through 4 of SH 130 in Texas.
We are also proud to be presently delivering the Eagle P3
for Mr. Washington, and we recently completed the Capital
Beltway HOT Lanes, here in the District of Columbia. We are
also currently delivering the Tappan Zee Bridge in New York.
My comments about P3 are fairly simple. I don't want to
oversell P3s, they are not a magic bullet that somehow convert
projects that aren't feasible into showpieces. But they are an
important tool in project delivery, we think an important tool
that should be in every procurement agency's toolkit. And it is
a tool that can help close financing gaps by delivering private
sector debt and equity. But I don't like to focus on the
finance gap; there is others eminently more qualified to speak
to that than I am.
But I like to speak to a feature of P3 that I don't think
as many people appreciate, and that is we truly believe that
public-private partnerships deliver more project for the
dollar. And you might say, ``How does that happen?'' It happens
because of increased collaboration between the public and
private sectors.
The private sector gets involved earlier in project
definition, and is involved later through delivery of the
project in operations and maintenance. That early involvement
enables construction and design and the public sector to
communicate and help shape the project while you can still
shape the project. It allows life-cycle costing to be taken
into account while the design is underway. And then, that long-
term involvement through operations and maintenance is, in
part, the private sector's skin in the game.
So, how do we deliver innovation? We deliver innovation
frequently through a process they refer to as alternative
technical concepts. During the procurement process, the private
sector comes up with ideas, ways to try to deliver a better
project, a more economical project, a more efficient project.
You might think that that collaboration could happen with any
project delivery. But the fact of the matter is, when the
private sector has skin in the game in the form of equity, when
it has skin in the game in the form of a long-term operations
and maintenance contract, we think the public sector is a
little bit more receptive to our innovative ideas, because they
know that we have to live with them for 30 years.
In addition to the harder issues of project scope, we also
like to point to some of the soft issues. We believe public-
private partnerships better deliver small, disadvantaged, and
minority business content. We are very proud of the content we
delivered on the Capital Beltway, over $540 million of DBE SWaM
content on a project that started out at $1.4 billion. So we
think that we deliver more project for the dollar, and better
ability to deliver some of the soft items, as well.
Thank you, and I look forward to your questions.
Mr. Duncan. Well, thank you very much. You have been a very
helpful and informative panel. And to have an expert here from
the Congressional Budget Office, and a highway expert, and a
transit expert, and an expert from the private sector added to
the three witnesses we had at our first meeting a couple weeks
ago, we have gotten off to, I think, a great start here.
We are doing this panel at the request of Chairman Shuster,
who has been a great leader for this committee. And I would
like to call on the chairman at this time for any comments or
questions that he might have.
Mr. Shuster. Well, thank you very much. I appreciate that,
and appreciate all the witnesses being here today. Just a
couple of questions.
On the design-build--I think I ask this question every time
I get in front of folks. And were you able to quantify the
savings by design-build? Any of you that operate on them have
an answer?
Mr. Kile, you want to start?
Mr. Kile. I am sorry, I don't have an immediate number in
front of me, Mr. Chairman. But in the report we wrote in 2012,
and in doing some research updating that for today, we did look
at some of the design-build and the operate and maintain
experience, and learned that they are somewhat cheaper to
build, and come to fruition somewhat more quickly than under
the traditional approach. And I think it is a matter of the
communication that can go on between designers and builders and
those who operate and maintain, and some additional reference
to life-cycle costs of projects.
And I guess the only cautionary note I would throw on that
is that the experience with these types of public-private
partnerships is relatively limited, and so it is difficult to
apply the general lesson to any specific example.
Mr. Shuster. So there is a savings, but you just can't
quantify, you can't say 10 percent, 20 percent?
Mr. Kile. I think that that is hard to say, and I think
that that would depend on the specifics of the project at hand.
Mr. Shuster. Right, right. Mr. Bass, why don't you go,
because you talked pretty extensively. And then I will go to
Mr. Washington.
Mr. Bass. I would say, like Mr. Kile just stated, we don't
have any objective figures to show. One of the things--we have
comparisons to what we were--we would have estimated the cost
to be under a design-bid-build, but since we didn't go that
route and went with the design-build, it is really just
speculation, compared to what our estimates were. But we have
certainly seen by--under the design-build, allowing the overlap
of design and construction to go on at the same time, rather
than the historic sequential process, the project is being
delivered sooner to the public than the traditional methods.
We also think coming with that is some cost savings, as
well.
Mr. Shuster. Mr. Washington?
Mr. Washington. Yes, sir. I would comment on our design,
build, finance, operate, and maintain Eagle project, where that
project came in $305 million below our internal estimates. This
was very interesting to us. Mr. Fierce mentioned alternative
technical concepts, or ATCs. We began to see the ATCs that were
submitted during the procurement phase, and we knew that we had
tremendous savings there. So the ATCs really, really helped.
The 305, no one anticipated that amount of savings from the
internal estimate that we had on the books.
So, I would say, in that respect, tremendous, tremendous
savings. And I would also add that us concentrating on the
performance metrics, not so much being prescriptive with regard
to the technical pieces--let the private sector figure out the
technical pieces--I just want the train to get from downtown to
the airport in 30 minutes. And so that helped us.
Mr. Shuster. Right. Mr. Fierce?
Mr. Fierce. Yes, just offer a bit of anecdotal evidence
here, a quote from the chairman of the New York State Thruway
Authority Board, Chairman Milstein, describing our Tappan Zee
design-build proposal, ``produced a savings of at least $1.7
billion, compared with the original State and Federal cost
estimates.'' So we do think that design-build, done properly,
can really unleash value.
Mr. Shuster. What is your total on that bridge, the Tappan
Zee Bridge?
Mr. Fierce. Our contract value was $3.14 billion.
Mr. Shuster. And they were saying it is going to be closer
to $5 billion.
Mr. Fierce. That may include work on either--may include
work outside of our contract.
Mr. Shuster. Right, right. And, Mr. Washington, you said
the land that is being developed around your project, is that
because of land values going up, tax base? Or is that because
you own the land and you are selling it? How is that money
coming into you?
Mr. Washington. That is tax-increment financing. So the
development going on around by other parties are paying that
TIF revenue into the project. This is a partnership between the
transit agency, the city, and the DOT, as well.
Mr. Shuster. So it is land value increase, you are taxing--
--
Mr. Washington. Yes.
Mr. Shuster [continuing]. Getting property tax to fund it?
OK.
Mr. Washington. Yes, sir.
Mr. Shuster. Thank you very much. I yield back.
Mr. Duncan. Well, thank you very much. And certainly you
get a lot of attention when you talk about savings hundreds of
millions, or even $1.7 billion on projects. So that is great
for everyone concerned.
Mr. Capuano?
Mr. Capuano. Thank you, Mr. Chairman. I want to thank the
panelists. I tell you, I love these panels. I am having fun
with this, and I really want to have more of a conversation
than anything else, because I have a lot to learn.
But when I first started this, when I was asked to chair
this, honestly, I wouldn't have put design-build in as a P3. I
mean I guess it is, but that is not my definition of one. I
accept it as one. So I kind of look at design-build as almost
its own separate entity. I look at--when I think of P3, I think
of more the financing, the operating, and the maintenance
aspect of it. So, to a certain extent, I distinguish that.
But I also want to remind people why design-build wasn't
adopted--well, how we got to the system we have, the design-
bid-build. We did it because a lot of people across this
country stole money. And we, little by little over the years,
separated it out so that the same guy who was designing it
wasn't building it and stealing money.
Now, I am not saying--it was inefficiency intended to avoid
malfeasance. Now, I am not saying it doesn't need to be
tightened up, I actually think it is a good idea. But let's not
forget how we got where we are, and what the potential
downfalls are if we go too far down the road too quickly. It
doesn't mean I oppose it, I actually like the idea, but I am
conscious of not opening up the barn door and forgetting how we
got where we are.
So, I want to take, for me, design-build and kind of put it
to the side. I know it is, but in my mind it is not really the
P3 that I am most interested in. And I want to chase something,
particularly with you, Mr. Kile.
A couple of weeks ago we had some people from Indiana in,
and I asked a simple question. The Indiana toll road was sold--
and I am not sure I got my numbers exactly right--something
like $3.8 billion for a 75-year lease, which works out to
approximately $50 million a year that the State would be
getting. And I asked a very simple question. How much do you
get in tolls off the Indiana toll road? How much did you get
before? How much do you get now? Because if you are getting $50
million a year, and the State is collecting $60 million, why
would you sell it? Or, if you are getting $50 billion and you
are only making $40 million, why would anybody buy it?
So, for me, honestly, the statement that you made--or the
report made that you repeated--I want to quote directly from
the very first page of the CBO report--``The cost of financing
a highway project privately is roughly equal to the cost of
financing it publicly after factoring in the costs associated
with the risk of losses from the project, which taxpayers
ultimately bear, and the financial transfers made by the
Federal Government to States and localities.'' Now, you
repeated that, and I am starting to see that more and more on
some of these projects, not all of them.
Are there--did you--when you made this statement, were you
able to get detailed financial reports on many projects, number
one. And, number two, did you come up with a conclusion as to
which projects might make more sense than others? We all know
there has been some bankruptcies. We all know that we are still
struggling of which--what projects are most subject or most
open to a P3. Did you make any conclusions like, for the sake
of discussion, tunnels are more--are better than bridges, or
express lanes are better than tunnels, or anything like that?
Were there any of those conclusions made?
Mr. Kile. So, in assessing the projects that we looked at,
which are primarily laid out in tables three and four of the
testimony and of the report, we looked at--there were a wide
variety of projects with different amounts of both public and
private financing involved with them. The private firms that
are putting up money are presumably doing so with the
expectation of returns on their investment. And those returns
would ultimately come from either the government--a government,
not necessarily the Federal Government, but a government--in
terms of an availability payment, or through tolls imposed on
users.
And so, from the investors' perspective, I would think that
they would be most interested in making an investment, or they
would be able to feel pretty----
Mr. Capuano. Are you able to distinguish which projects
maybe make more financial sense than others?
Mr. Kile. So we did not look at, specifically, whether
roads or tunnels or other kinds of--one type or another----
Mr. Capuano. Because for me that is--Mr. Bass, Mr.
Washington, Mr. Fierce, have you been able to look at which
projects--I mean you have had more experience with them than I
have--which projects make more sense?
I guess my problem with always asking State or local
officials is your job is to build things. Your job is not
necessarily to worry about the long-term financial aspects of
these things. And I understand that, and I don't think that is
a bad thing. You have a different role than I do. So, to a
certain extent, I understand why you want to build things right
now and get the money any way you can. Don't blame you. But
from my perspective, I got to be worried about the next
generation of people building things, and whether they are
going to have the money, or whether we are going to spend it
all--which I know some of my friends on this panel are always
worried about other things, but I am worried about everything,
including transportation.
Look, I like spending money as much as the next guy, but I
have kids. And hopefully some day I will have grandchildren. I
want them to have decent roads, too. And I don't want to waste
it all--not waste it all--I don't want to use it all for my
benefit and have nothing left. And I am just wondering. Have
you had any experience of which projects might work better than
others?
Mr. Bass. Well, one of the things, on the revenue sharing
in Texas, unlike Indiana--my understanding is they took all of
that future revenue stream in a single, upfront payment. What
we have elected to do in Texas is, in some cases, take an
upfront payment. But on all of our projects we also have
revenue sharing. And if the project performance is greater than
anticipated, over time the share of revenues that come to the
State of Texas increases as well.
Mr. Capuano. Would you agree with CBO's conclusion that,
over time, that the actual cost of doing most of these is
approximately equal to the taxpayer? Do you agree with that or
disagree with that?
Mr. Bass. No, I would agree with that. One of the things is
the access to the capital. So one of the things we do in Texas
when we have a proposal, or we are looking at a project, we
will look at trying to deliver the project through the
traditional method, but we will also look at, well, what if we
just issued toll revenue bonds and did a design-build project.
What we find in many circumstances is that the traffic and
revenue estimates from the public sector show that there is not
enough demand to fully fund the project. So there is going to
be a funding gap that would need to come from fuel taxes or
registration fees. And when we look in our planning documents,
there is no funding to fill that funding gap. What the private
sector brings in many of these projects is that funding.
But then also, the partnership--one of the keys of the
design, build, finance, operate, and maintain, as been
mentioned earlier, that in the initial construction, when that
same party is going to be responsible for maintaining it over
time, they are building in life-cycle costs that, when it is
segregated, design, build-build, and then operate and maintain
over time, I am not sure that really gets integrated into the
delivery of projects under the traditional method.
Mr. Capuano. I apologize, my time is way over. I appreciate
the chairman's indulgence. And I want to come back to this, but
I do want to conclude with that, to me, goes to my last point,
which I will make later, but I want to just draw a big, bold
line under it. Other than the quickness of being able to do
these projects--which, I agree, the design-build does do--the
other part of the problem is I am concerned about spending
tomorrow's money today. But I am also concerned that what this
really does is it draws a big, bold line under Government's
inability or unwillingness to make tough decisions. And some of
those tough decisions are to institute or increase tolls or
other fees to bring those life costs into it. It doesn't mean
we can't do it, we just don't do it. And so, therefore, we are
shifting it off to somebody else to make that project.
I apologize, and I thank the chairman for his indulgence.
Mr. Duncan. Good questions. In fact, most people's main
concern, or one of the main concerns about the public-private
partnership is the question about whether we leave some of the
taxpayers 20 or 30 or 40 years down the road left holding the
bag.
But I want to go--I am going to reserve my questions to the
end and go now to Mrs. Miller.
Mrs. Miller. Thank you, Mr. Chairman. To the panel,
particularly to the gentlemen from Texas and Colorado, I am
just very excited about Chairman Shuster actually having the
Federal Government taking sort of a lead, I guess, if I will,
from the States, where--they are always the incubators of
innovation, and really, creative thought, and creative
financing, and all these kinds of things, because certainly our
country--and every country, a really developed nation--doesn't
have enough--it doesn't have adequate funding to do all the
infrastructure investment that we want to. So, I was
particularly interested to hear how you are doing in your
States.
As you might be aware, there is--I think there are 27
States currently that even have legislation allowing for a P3.
I am from Michigan. My State does not. And so, my question is
sort of how could you--what kind of advice could you give to a
State that is contemplating doing a P3, but yet we don't have
any legislation yet?
You know, there must be some sort of best practices that
you learned from your current legislation. Did you look at a
particular State as a model, as far as their legislation is
concerned, to assist their State legislatures or their DOTs in
proceeding with a P3?
And then, in addition to that, was there anything in your
particular legislation that was really helpful? Or, if you
could go back and tweak your legislation, so sort of, you know,
helping the others to come along behind you, and whether or not
you think it is appropriate for us at the Federal level, I am
all about the Tenth Amendment, and never want to get
interfering with the State, but rather, helping them a bit. And
perhaps we should be telling the States early on here that
there is a strong possibility this kind of thing may be
included in our transportation reauthorization, so they might
be thinking about looking to their State associations, et
cetera, to put legislation in place for the State so that they
can advantage themselves of this kind of a P3, if they are
interested. If they are interested.
So, I know it is sort of a broad-based question, but really
wanting to position the various States. I mean, as I said, my
State does not have P3 legislation. But I can think of a number
of projects, one in particular, that I am going to be pushing
here with my Governor and my State senators and House Members.
And yet, I would like to be able to say, well, you know, you
guys want to take a look at maybe Texas or Colorado, or some of
the best States' practices, what they have done, and that could
assist us in other States. So I throw that out there.
Mr. Bass. Well, I would first say many of the successes in
the States wouldn't be possible without your assistance. A lot
of our P3s would not have moved forward without TIFIA and
private activity bonds. They just would not have been moving
forward.
As far as other States' legislation, I believe we looked
to--one of the forerunners in P3s in the U.S. was the State of
Virginia. And so, we looked at that as perhaps a template.
What I would tell other States is that it is not a silver
bullet. It won't solve all of the problems. There are risks,
and with those risks come pro and cons. For a while, the USDOT
Office of Innovative Program Delivery had a group of P3 States
that would meet and kind of share experiences, and was going to
make those P3 experts, if you will, available to States that
were considering P3 legislation, with the thought being that
hearing from a colleague, rather than someone perhaps with a
financial interest in it, they might be more comfortable with
that.
Lastly, one of the benefits in our legislation in Texas
currently is before we move forward with any P3 project, we
have a committee of local stakeholders that receives
information from the DOT on the risk allocation for the
particular project. And those local stakeholders then give
their approval for the project to move forward under one of the
different forms of P3s. And I think that is very helpful for
us, because you have the grass roots effort in support of the
project, and then also an understanding of what the risk
allocation are.
Mrs. Miller. Yes?
Mr. Washington. And I would echo some of the things that
Mr. Bass said. I think one of the big things is what this panel
is doing right now. I mean you are bringing P3s out in the
open. And so many States, it is thought to be some sort of
black box, some sort of dangerous thing.
So, I think part of this is education, education of the
various States, education of city leaders, State leaders, on
what P3s are, and the understanding that this is just one tool
in the toolbox that, in our case, and in many of the other
cases, can get projects done quicker. And there is mechanisms
to put in the program that protects--and all of us are doing
this--to protect future generations when we talk about
operating and maintaining, in our case, for a 28-year period,
and looking at various performance metrics and assigning
penalties and incentives through that 28-year period.
So, I think it is an education piece to educate the various
States on the risk allocation and all those other things.
Mr. Fierce. I would like to point out that--or offer that
the AIAI would be happy to help and provide best practices. We
are actively in the process of collecting best practices. And
again, not only from all of the States that have enabling
legislation, but also many of the members are active in P3 in
other jurisdictions in Europe and in Canada, where it is much
more prevalent.
And so, one of the goals of AIAI is to collect best
practices and share that with States who are either looking to
enact enabling legislation for the first time, or perhaps to
amend existing legislation.
And I would also point out, as Mr. Bass said, Virginia's
PPTA has absolutely been a model for the industry, and they
have certainly gotten a lot of good projects out of their
statute there in Virginia.
Mr. Duncan. All right.
Mrs. Miller. Thank you very much.
Mr. Duncan. Thank you very much. Ms. Norton?
Ms. Norton. Thank you very much, Mr. Chairman. This is a
real learning experience, certainly for me, because all of my
experience with public-private partnerships has been in real
estate, which is far more traditional.
I must tell you that when it comes to building, with the
Federal Government itself building, and we have to deal with
the CBO, much of what I have heard today wouldn't fly past the
CBO because of where the risk is.
Mr. Bass, I really want to take off from how you candidly
answered just a few minutes ago that you did not think that you
would have moved, or been able to move, without the TIFIA and
the like. I would love to see what I have seen in real estate
apply in this committee. Increasingly, I am coming away with
the notion that there is no free money and no easy money
anywhere in the public or private sector. And I am troubled,
frankly, by the increasing reliance on public funds: the
private activity bonds, the TIFIA, and the like.
You know, this is in an experimental stage, and I think we
ought to let the experiments play out. I regard the Dulles Toll
Road as very different and interesting, and perhaps
instructive, but certainly not typical of what we have been
talking about today. I regard Mr. Washington's project as far
more typical.
And I must say, Mr. Washington, I had staff to compile the
amount of Federal funding, and I am flummoxed by it, by the
high level of public assistance involved. Of the $2 billion
project, $1 billion from the Federal New Starts grant. I mean
you have been very fortunate. It says a great deal about how
well perceived what you are doing is. That is $1 billion, $280
million from a TIFIA loan, $396 million in private activity
bonds. A private partner put in $54 million in equity. That is
less than 3 percent of the project cost. I try to imagine my
work in real estate and trying to get through CBO with that
kind of risk transference.
The private activity bonds are expected to reduce the cost
of financing. But I must say, compared to what? I mean, for
example, compared to the cost of financing traditionally? I
would like to see what control there would be.
I am not sure about the performance metrics--what would
happen if they weren't met. Apparently, even the risk of
ridership is not assumed by the private partner. I am left to
wonder what risk there is. I think this is a good deal for the
private partner, which makes me wonder whether it is an
equitable or fair deal for the public, particularly when you
consider how much Federal money is involved here.
And I would like to see how you would respond, Mr.
Washington, and whether you would agree with Mr. Bass, that
such a project as this could not have proceeded without the
very high level of public funding and low level, frankly, of
private risk. Yes, sir?
Mr. Washington. Yes, ma'am.
Ms. Norton. I am just using you as a case study. Please
forgive me. I happen to have some of the rundown of figures
there, and they amaze me in some respects.
Mr. Washington. Sure.
Ms. Norton. So I am trying to find out what the real
advantage here----
Mr. Washington. Right.
Ms. Norton [continuing]. Was of the public-private
partnership.
Mr. Washington. Well, I will--thank you for the question,
madam.
Let me say that the private activity bonds, the transit
agency was the issuer. And the private sector is paying that
back. So the $396 million, that is the arrangement there, that
we are the--the Government agency is the issuer. So I would add
that, actually, to the $54 million in equity. So that is one
thing. And that was an arrangement that----
Ms. Norton. So how much is that, $300 million? So if you
add the amount they are going to pay back with interest?
Mr. Washington. Yes, ma'am.
Ms. Norton. And that would be in what amount?
Mr. Washington. I believe it is about 6 percent, if you
will. And I will get that exact figure for you. I believe it is
about 6 percent.
So, that was the arrangement. So if you add those two up
that the private sector is paying back on the $396 million, the
public activity bonds, and then the private equity of $54
million that they brought to the table, you are up over $450
million or so. In terms----
Ms. Norton. Still a fraction of the public contribution.
Mr. Washington. Pardon me, ma'am?
Ms. Norton. Still a fraction of the public contribution.
Mr. Washington. Yes, yes, yes. There is no way that we
could have done this project without the help of the Federal
Government, both on the full funding grant agreement of $1.03
billion and also the TIFIA. We could not have done this
project.
I think we were happy to be--to have been selected to go
into FTA's Penta-P program back in 2007, 2008. This program was
designed to expedite the New Starts process. And so, we are the
only agency left, as I understand it, in that program to see if
the private sector can be encouraged to invest in transit
projects. And so, I think that had quite a bit to do with it,
this pilot program, in our case, being the only agency left.
And I am happy to say that we are about 60, 65 percent complete
with the project, and about to open in less than 24 months. So
I think that had a lot to do with it.
But there is no doubt that we could not have done this
public-private partnership, had we not been in the Federal
Government's pilot program, and without the funding that came
with it.
Ms. Norton. Just so long as the Federal Government knows
what it is doing--that it has simply got to fund these
projects. I do think that has to be on the record, if we want
them to succeed, and whatever advantages accrue. Let me ask
you, though----
Mr. Duncan. Well, and Ms. Norton, we will come back to you.
I have got to get to some of the other Members.
Mr. Barletta?
Mr. Barletta. Thank you. You know, time is money. And I was
mayor for 11 years, and when I was running for mayor, the main
road in my city was going to be redone, total reconstruction. I
was all excited, thinking how lucky am I, I am going to walk
in, we are going to get a whole new downtown, everyone is going
to think I had something to do with it. I served 11 years, and
now the project is just starting. So the new mayor now is
pounding his chest, he--the new road.
But the point is that 10 years, because of all the delays,
this $10 million project became a $26 million project, and the
scope of the project has been cut almost in half. So time is
money.
You know, America's infrastructure needs to be fixed, and
fixed in a hurry, our roads, bridges. You know, and we are
struggling on ways on how to do that. At the same time, the
private sector--my family was in the road construction
business, as well--the private sector is sitting on the
sidelines, dying for work, looking for work. And we all know
competition drives down the price.
So, I want to go back to, Mr. Kile, your comment about the
financing of the highway project privately is roughly equal to
the cost of financing it publicly. And a couple things were
going through my mind as--you know, for example, a 30-year--and
that may work out on paper, but on a 30-year maintenance
project, for example, where the private sector is obligated to
maintain that road for 30 years, versus the public sector.
You know, maybe on paper, you know, the numbers may look
different. But in reality, in that 30 years the public sector
probably won't maintain the road, because they don't have the
money to do it. And at the end of the 30 years, I believe it is
going to cost the taxpayers a lot more money for reconstruction
of that road, because it wasn't maintained, versus us doing
that.
As well as, you know, this competition again, also in the
private sector, forces them to use technology. For example, I
know the contractor that is doing the I-75 down in Florida.
They are doing toll maintenance, total control of I-75. And I
know that the technology that they are using, that they are
buying, the equipment that they are buying to be able to
deliver that for less money, will allow the private sector to
go out and bid these projects and be able to do these projects
less, which is a savings to the taxpayer.
So, I guess what I am getting at is, Mr. Kile, in your
analysis, does it take into account how P3s can provide, in the
30-year maintenance contracts, the security and the savings to
the taxpayer? Does it take that into account?
Mr. Kile. So, in our review of existing studies, we did--I
do note that we found that public-private partnerships that
combine together elements of operations and maintenance with
designing and building do tend to, on average, lower costs by a
small amount. And I think that would be a reflection of some of
the competitive forces of which you speak.
I would also presume that in any particular contract that
includes a 30-year maintenance component, that that is bid into
the price of the contract, as well. And I can't speak to
whether or not any particular State or locality would be able
to maintain or operate that road either more or less
effectively than that particular bid would be, simply because
we didn't look at that issue.
Mr. Barletta. Because I truly believe, in reality, that we
are going to save the taxpayers a lot of money. When we get the
private sector involved and doing projects, maintaining
projects, and these public-private partnerships, and all
different types that exist, I do believe the bottom line,
because of the competition and how the private sector works,
that there will be a savings to the taxpayer.
But I guess our biggest hurdle is scoring, and how we
overcome that. And the problem is that Government is so rigid
in the way we do things. And sometimes the way we looked at
things was because of the way things were done for the last 30,
40, 50 years, but business and the private sector is more
flexible. They are different, and it operates differently. And
how do we get the Federal Government to begin--to be more
flexible in realizing that, at the end of the day, in 30 years,
we have saved the taxpayers money, but we may not be able to
score and prove it to the Members of Congress here today who
will decide whether or not we do that.
Mr. Kile. Right. So, any time the Federal Government would
enter in a contract--and CBO doesn't normally assess the cost
of any particular contract; we are, rather, assessing
authorizing legislation--but to the extent that the Federal
Government is entering into a long-term commitment, it is our
job to try to present the information about the cost of that
commitment upfront, and that is a principle that CBO has, and
OMB has, and has actually preceded the existence of CBO as a
long-held budgeting principle in the Federal Government. And I
think the idea is that, by providing that information on a
consistent basis, project-by-project, long-term, short-term,
that allows you and your colleagues to assess the cost and
understand the benefits that----
Mr. Barletta. But there are upfront costs where you are
talking about--but how about over the 30-year time, 40-year
time, 50-year time? How do we calculate that into----
Mr. Kile. So, again, as I said, we don't estimate the cost
of any individual project. But in understanding the nature of a
long-term commitment, it is our job to provide information to
you about the cost of that long-term commitment, whether it is,
you know, a few years, or 30 or 40 or 50 years. And hopefully
that allows you the information that you need to have to judge
whether or not the savings that would come from the alternative
approach are valuable. And I think that that is a judgment
that, ultimately, you and your colleagues need to make, and it
is not something that comes directly out of the cost estimate.
Mr. Barletta. All right. Thank you.
Mr. Duncan. Thank you very much. Mr. DeFazio?
Mr. DeFazio. Thank you, Mr. Chairman. Mr. Washington, you
didn't go into detail, and I wanted to get that, about the
value capture district around Union Station. I am trying to
understand that. How did that work?
Mr. Washington. Yes, thank you for the question. Denver
Union Station, as I said, is the multimodal hub of our whole
system. We purchased Denver Union Station in 2001, I believe it
was, for about $50 million, with the idea of that being the
hub. I would have to say at that time we did not anticipate
that there would be--that that hub would be such a tremendous
attraction for developers.
Mr. DeFazio. Right. I am just trying to get to--I
understand that. I mean in Portland we have special taxation on
light rail routes for beneficial property owners. What I am
trying to get is the vehicle you are using for the value
capture district. What is it? Is it property taxes? Is it--what
is it?
Mr. Washington. Yes, it is tax incremental finance, so TIF
revenue.
Mr. DeFazio. OK.
Mr. Washington. Yes, sir.
Mr. DeFazio. OK. That is what I was trying to get at.
Mr. Washington. OK.
Mr. DeFazio. OK. Just to all the panel, if you could, I
think we have come a long way on P3s since I held initial
hearings on this about 6 or 7 years ago. We have got best
practices now that have been put out by DOT, or at least
partially recently that I think are quite good and instructive,
to avoid some of the early abuses, like with Mitch Daniels and
Mayor Daley.
But given that, given that it is a useful tool and we know
how to better use it now, what percentage--you all know how
massive our infrastructure deficit is. I am sure you have both
read the Commission reports from the Bush era, you know how far
behind we are. What percentage of that can P3s realistically
address? You have to have a revenue stream, or you can have
availability payments. Otherwise, it is mostly tolling.
I come from the West, we are not going to toll the
interstate system. Of the 140,000 bridges that need repair or
replacement, we are not going to toll 140,000 additional
bridges in America. What percent--because I just want to make
the case here that P3s are a tool, part of the toolbox, but
they aren't the solution. What percent could it address?
Anybody got an idea? Go ahead, you are brave.
[Laughter.]
Mr. Washington. Yes, I would just have to speculate. I
would think between 10 and 20 percent. I mean that is my best
guess.
Mr. DeFazio. And that would be using all the tools--I mean
that would be both tolling and/or availability payments or
other methods.
Mr. Washington. Yes, sir.
Mr. DeFazio. Of leveraging. Yes. Mr. Bass, you wanted to--
--
Mr. Bass. For what it is worth, my guess would be less than
that. As you said, you need unique characteristics in order for
a P3 to work. Sometimes it needs to be a revenue-generating
project. If you go to an availability payment model, in my
opinion, at the end of the day that is just another way of the
State issuing debt or borrowing money long-term, and there
might be other, more efficient ways to do that within debt
limits at the State level. So, I would probably say, overall, 5
percent or less.
Mr. DeFazio. Interesting. I am interested about your
skepticism on availability payments. Mr. Kile, you addressed
availability payments in your report, and you studied some of
them. Do you have a--do you agree with his potential--his
criticism and his concern there?
Mr. Kile. Well, so I certainly would say that, ultimately,
if the private sector is putting out money, it is doing so in
expectation of a return, whether that is tolls or availability
payments. And to the extent that they are availability
payments, they are really drawing on the resources of either a
State and local government, or the Federal Government.
Mr. DeFazio. OK. Anybody else got a comment on that? Mr.
Fierce?
Mr. Fierce. Yes, I would like to make a comment on
availability-style P3s.
One, it is not really an either-or. You can have a toll
facility that is--where the private-sector concessionaire is
compensated on an availability basis, rather than a real toll
basis. But if you look at some of the nations where P3 is much
more active, Europe and Canada in particular, the vast majority
of their transportation P3s are done on an availability basis.
We believe that delivers all of the value benefits, the
innovation, et cetera, without saddling the private sector with
some things that are totally beyond----
Mr. DeFazio. Right, but how do they finance those
availability payments? I think it is through massive taxation
that would be somewhat objectionable here, like $3 a gallon,
and things like that.
Mr. Fierce. It would be taxation or, again, user pay in the
form of tolls, but where the private sector is only exposed to
keeping the facility open for----
Mr. DeFazio. Right, right. But do you agree that this is
still--I mean the estimates we have had here, it is a tool, but
it is a limited tool.
Mr. Fierce. Yes, absolutely.
Mr. DeFazio. OK.
Mr. Fierce. In fact, I tried to make that point in my
verbal comments----
Mr. DeFazio. Yes, OK, great, thank you.
Mr. Fierce. But I would agree with Phil's estimate, that 10
to 20 is probably not a bad ballpark for----
Mr. DeFazio. OK.
Mr. Fierce [continuing]. The market.
Mr. Bass. If I could expand on the availability payments, I
think it is a valuable tool. I am not a huge fan currently, at
the current market price. What we have heard in many cases is
there is toll revenue generated by the project. And if it is
sufficient, then everybody gets paid. If not, the State steps
in and fills in the funding gap, which, in other sectors, would
be known as an appropriation risk.
Mr. DeFazio. Right.
Mr. Bass. Well, an appropriation risk in Texas is nowhere
in the double-digit interest rates. It is much more at 5
percent or less. Even though the availability payment funding
element may be 10 to 15 percent of the overall project, my
understanding is that currently, the market pricing for that
element is 10 to 11 percent.
Mr. DeFazio. Well----
Mr. Bass. To me, for the risk being assumed, an
appropriation risk of various States, that seems a little
expensive, given other options that might be available.
Mr. DeFazio. Well, I hadn't heard that number. Thank you.
Thank you, Mr. Chairman.
Mr. Duncan. All right. Thank you, Mr. DeFazio. Mr. Rice?
Mr. Rice. OK, I think we are kind of beating this--
everybody is kind of asking the same question in a different
form.
But if you have a properly structured design bill--let's
just talk about a new construction project, just for
simplicity--a properly structured design bill, the Government,
theoretically, should be able to replicate the time, compressed
time, either with a PPP or without one, correct? Does everybody
agree with that? Mr. Kile?
Mr. Kile. So I think that the advantage of--that the
literature has found of linking together some elements--say
design and build, just for example--is that it allows the
designer to take into consideration issues that would not arise
until the build. And, by putting those together, it may allow
some savings that way.
Mr. Rice. But you could do a design-build with or without a
PPP, correct?
Mr. Kile. I think that is probably correct.
Mr. Rice. And so, the time constraint should be the same,
either way. Is that right, Mr. Bass?
Mr. Bass. Yes. I think it gets back to the earlier
statement, whether or not you consider a design-build to be a
P3 or not. I think it is a P3 101. But a design-build with or
without financing from the private sector, you are still going
to get the time benefits of accelerated delivery.
Mr. Rice. Right. Mr. Washington, do you agree with that?
Mr. Washington. Yes, I do. I would agree with that.
Mr. Rice. And, Mr. Fierce, you agree with that?
Mr. Fierce. Yes.
Mr. Rice. All right. So, if it is not a time factor--and
you should be able to replicate the cost savings, as well,
assuming you have a properly structured design-build, whether
you do it with a P3 or without a P3, is that correct, Mr. Kile?
Mr. Kile. So, again, I think that goes back to who bears
the risk in these public-private partnerships. And----
Mr. Rice. Well, I am not talking about--I will get to risk.
Mr. Kile. OK.
Mr. Rice. I am talking about pure construction cost.
Mr. Kile. So again I go back to what we found earlier, that
there is some evidence that the cost can be lower. That is a--
taking into account the contracting issues. And presumably,
those contracting issues are bringing together some
communication that otherwise wouldn't have existed. That, in
principle, could be replicated. Whether that happens in
practice I think my colleagues on the panel would probably be
in a better position to----
Mr. Rice. What confuses me is you could do a design-build
without having a public-private partnership.
Mr. Kile. I think that is right.
Mr. Rice. You could use the same contractor with or without
a public-private partnership. Why would the cost be lower with
a public-private partnership than without one?
Mr. Kile. So I think it is just a matter of the experience
shows that communication does actually in fact occur more with
when those elements are coupled together than when they are
not, and that the public-private partnership is the vehicle
that has brought that together.
Mr. Rice. So you think it actually saves money to do a
design-build inside of a P3, or coupled with a P3, versus a
design-build without private financing?
Mr. Kile. All right. So, again, I go back to the studies,
and the experience is relatively limited. As I mentioned in my
statement, there are only about 100 of these in the United
States that have been over $50 million. And so the experience
with them is relatively limited. But, based on that limited
experience, they have been delivered slightly faster and
slightly less expensively than they otherwise would have been.
Mr. Rice. Do you agree with that, Mr. Bass?
Mr. Bass. Yes, I would say one of the--on the design-build,
if you are just talking those elements, again, I think the cost
savings are going to be the same. Where it becomes savings to
the State and the taxpayers, I think, is once the operation and
maintenance responsibilities are packaged together in that. So
you have private sector looking at the initial cost, knowing
that they are going to be the ones responsible for maintaining
whatever they build for 15, 30, 50 years, depending upon what
variety of P3 is utilized. I think that is where you get a lot
of synergy and you get overall--you get savings over time.
Maybe not as much upfront in just the construction of it, but
in the 30- to 50-year operations, that is where a lot of the
benefits come.
Mr. Rice. So you think that comes from the--if a private
contractor knows he is going to have to maintain it forever,
maybe he is a little more careful when he builds it?
Mr. Bass. Yes.
Mr. Rice. And it should be that way, because if you do
design-build either way, inside or outside of the----
Mr. Bass. Correct. And some of it gets--I think Mr.
Washington was talking before--in the traditional design-bid-
build, the State is very--generally speaking, the local
government is very specific on the specifications. In a design-
build and P3 over time, it is more--this is the maintenance
standard that needs to be achieved. We are not going to tell
you and proscribe how to get there. It is just this needs to be
maintained and attained, and then that allows the private
sector to look at it and figure out how they can do that most
efficiently.
A lot of times the life-cycle cost from the public sector
perspective, in my opinion, those life-cycle costs are not
always integrated as well as they could be into the initial
design.
Mr. Duncan. Mr.----
Mr. Fierce. One comment on the timing. You had indicated is
the time for procurement and project delivery the same, and all
of us here nodded our heads. You also, though, have to look at
when the project can be delivered.
So, I believe when we did the 895 project in Virginia, that
project was on the State's wish list. We were able to bring it
forward by about 17 years, and deliver the project earlier. So
there you kind of get into the comment Mr. Barletta made
earlier about waiting 10 years for this improvement to be made.
So, not only do you deliver the project quicker, when costs are
lower, but you also have that public sector benefit of there is
10 years that the traveling public is enjoying the congestion
relief, and enjoying the asset that you have delivered earlier.
So the actual procurement might take the same amount of
time, and the design-build may take the same amount of time as
in a straight D-B delivery, but it may be that the P3 opens up
funding much earlier, and they bring the project forward in
time by many years. Again, I think on 895 it was estimated to
be 17 years.
Mr. Rice. I understand the financing advantage of a P3, and
that, you know, it is not public financing. At least some of it
is private. And it would appear to me--I don't understand why,
I guess--except that maybe the contractor pays a little more
attention when he is building upfront--but why the cost would
be any different if you did the design-build inside or outside
of a P3. It would appear to me the cost should be exactly the
same in a normal world.
But--so when you get into the financing mechanism, that
financing costs money. Private companies are not going to--they
are not going to put their money up unless they get a
reasonable return.
Mr. Duncan. I am sorry, the----
Mr. Rice. The taxpayers are paying that--I am sorry. The
taxpayers are paying that return as an additional cost on the
project, in exchange for shifting risk.
Mr. Duncan. We have got to move on to----
Mr. Rice. Sorry.
Mr. Duncan. So Mr. Maloney?
Mr. Maloney. Thank you all for being here. Thank you, Mr.
Chairman, for convening the panel. I just have some questions
on the Federal Government's role in all this TIFIA. Is TIFIA
program the right size? Or should be bigger?
Mr. Bass. I think, under MAP-21, it is much closer to the
right size than it was previously. And so I think, and would
hope going forward, that you and your colleagues are able to
continue it at least under the MAP-21 levels.
Mr. Washington. And I would agree with that. You know,
bigger is always better. So I would say if we can increase it,
that would be great. I think if--streamlining the process would
be wonderful, both on the TIFIA, the RIF, and the PABs. The
public activity bonds definitely, we would like to see that
increased. I think that is a huge tool for P3s around the
country.
Mr. Fierce. Yes, we believe that TIFIA is a great program.
I think the word ``streamlining'' is exactly what we would like
to see happen there, make the process more efficient----
Mr. Maloney. Could have been a little faster on the Tappan
Zee?
[Laughter.]
Mr. Fierce. The Tappan Zee was quite remarkable. But I
would also echo everyone's comments on PABs, absolutely the
life blood of P3 and transport in the United States. And we
would love to see PABs topped off, or the cap lifted.
Mr. Maloney. Mr. Kile, you have an opinion about that?
Mr. Kile. CBO doesn't have an opinion on the size of these
programs.
Mr. Maloney. Fair enough. Is--if $1 billion is about right,
would $5 billion be better? Or is there an upper limit that you
would like to see? In other words, what is the right size? Do
you have a view on that for TIFIA?
Mr. Washington. On the--oh, TIFIA. Not sure what the right
size is, but doubling it would be nice.
Mr. Maloney. And what about the project--what about the
percentage of the project that it covers? Is that--do we have
that right, at 49 percent? Or is that too high, too low?
Mr. Bass. I think Congress has it right at 49 percent.
However, the implementation remains at 33 percent. Even though
MAP-21 allows for the participation to be up to 49 percent, I
am not aware of any project that receives more than 33 percent.
I am aware of a few that asked for the 49 percent and were told
to reapply at 33 percent.
Mr. Maloney. Right, right. And I take it, then, by your
answers, which anticipated my question, that the cap on PABs,
you would like to see that higher, as well?
Mr. Washington. Absolutely.
Mr. Maloney. And is this a diminishing return? I mean and--
I mean we--I think what people need to understand about TIFIA,
right, is that it--that for the amount of credit assistance we
are giving, the amount of project cost is a multiplier of that
that we are supporting. And I think with 49 loans, we are at
something like $59 billion of project costs that TIFIA has.
I mean let me just ask you all. Of those 41 loans that the
TIFIA program has made, how many of those projects would be
going forward without those TIFIA loans? Do you know? Do you
have a sense of that? Is the answer none of them?
Mr. Bass. I can speak for in Texas, and without TIFIA
assistance for the projects in Texas, I am not aware that any
of them would be moving forward.
Mr. Maloney. Certainly not the Eagle project, right?
Mr. Washington. No.
Mr. Fierce. Few, if any.
Mr. Maloney. Right. Is it fair to say that the TIFIA
program has probably been the most successful Federal
infrastructure policy of the last 15, 20 years?
Mr. Fierce. I think we would certainly add our voice to
that.
Mr. Maloney. Let me ask about DOT's role. Would you--what
do you think about the creation of a P3 unit within DOT to
assist States with sort of best practices?
Actually, excuse me. Before I leave TIFIA--because I have
only got a minute left--on SH 130, are we going to see--what is
going to be--are we going to see a bankruptcy on that? And what
is going to be the hit to the TIFIA program if we do?
Mr. Bass. I am not sure on the southern segments 5 and 6 on
State Highway 130. Been reported and downgrades by Moody's
rating agency for the bank loans that are on there. I think
there is another payment coming up this summer, and after that,
and it will be interesting to see if the developer and their
investors are able to work to restructure. But I think we will
know more by the end of this year.
Mr. Maloney. Let me just ask you in the time I have
remaining, Mr. Fierce, DBEs. Would you support increasing the
prominence of the DBE requirement within an expanded TIFIA
program?
Mr. Fierce. Well, the devil is in the details, but we
certainly see P3 as a platform that allows better delivery
against those goals.
Some of the goals can be quite demanding already. Our goals
on the Capital Beltway for DBE and SWaM content was 40 percent.
So we are not here advocating let's continue to tighten,
tighten, tighten. Let's actually deliver against the goals we
have. Let's see better progress against what we are doing
already. And we think that P3, through the best value
procurement process, really enables folks to give those
programs their due. And we think they do deliver better results
than conventionally delivered road and bridge programs.
Mr. Maloney. Well, thank you, Mr. Chairman. My time has
expired, but I--in a future opportunity, I would love to hear
more about the role of DOT, creation of a P3 unit within DOT,
what the proper Federal role is in assisting the States who are
obviously on the front lines of this. And I appreciate the
indulgence. Thank you.
Mr. Duncan. Well, thank you very much. Mr. Meadows, thank
you for your patience.
Mr. Meadows. Thank you, Mr. Chairman. Appreciate your
leadership. Thank each of you for your testimony, and sharing
your ideas today.
Mr. Washington, I will start with you. Your written
testimony was very detailed, extremely detailed, and so I want
to compliment you on that and, obviously, ask you, in your
experience, what is the greatest danger of a P3 becoming
nothing more than a Big Government program with all the
inefficiencies of perhaps Government agencies? Because I heard
your testimony earlier. You said you really just care about
getting somebody from one place to the other and it taking 30
minutes, which was refreshing to me, because as we add rules
and regulations and review processes on top of it, you know.
So, what advice would you have for this panel on how we can
avoid just becoming a bigger bureaucracy, as it relates to P3s?
Mr. Washington. Well, thank you for the question. I would
say the greatest danger is not putting together a comprehensive
concession agreement. I go to bed every night on Saturday
nights reading the concession agreement for the Eagle project.
I think where P3s get sort of sideways is not being very, very
tight on what you expect, especially in the operating and
maintaining phase.
Mr. Meadows. So what you are saying is to go with that
concession agreement, to make sure that you have dotted your
I's, crossed your T's, and that there is not things that are
either left out, or cost overruns that say, well, that was not
part of our concession agreement, we are going to charge you
extra for that? Is----
Mr. Washington. Yes, sir.
Mr. Meadows. Put in laymen terms?
Mr. Washington. Yes, sir.
Mr. Meadows. OK. So let me bounce back to TIFIA and some of
the questions as it relates to that. What--in terms of
concurrent review with regards to TIFIA and speeding up the
process, is that something that you think that we could do? Or
is there a certain pecking order that must take place, or would
that help?
Mr. Washington. Concurrent reviews are always welcome. We
were really blessed to be, one, in the Penta-P program that DOT
FTA put together, that streamlined approach. We have a term
that we went from concept to contract in 3 years. And that is
really unheard of, I think, when you look at new starts and
projects and all of that. So, going into the Penta-P program,
concurrent reviews, the fact that the Federal Transit
Administration brought on a consultant team, a third-party
consultant team, to review some of the submittals further,
helped streamline that process.
So, I do believe that, in our case, the streamline approach
was instrumental in our success, and I would encourage that to
continue.
Mr. Meadows. All right, because we are all--each one of
these projects are very different. And so, to say one is
successful, and more successful because--it is comparing apples
and oranges.
Mr. Washington. Right.
Mr. Meadows. Can you help this panel and this committee
actually work with the chairman to define some of those what is
a--how do we define success, you know? Is a 3-year approval
process success? Is a 5-year? Can you help us, based on the
success of your project, define those limits, in terms of where
we should look more for concurrent review and approval
processes?
Mr. Washington. Well, to define success, some of the things
that I put in my report talked about those performance
specifications, rather than detailed design specifications.
Establishing a rigorous schedule and timelines. I think a lot
of times we get sidetracked, as public agencies, with missing
deadlines.
Mr. Meadows. So you would suggest that procurement and
those timelines be tied to the TIFIA application and
procurement process, then?
Mr. Washington. As best as you can, I would say. But the
schedule that I am talking about is just the general, overall
procurement schedule.
Mr. Meadows. Right.
Mr. Washington. And that could be extended to reviews by
DOT and other entities, as well, sticking to those.
Mr. Meadows. My time is about to expire. I will yield back,
Mr. Chairman. I thank you for your leadership in this matter.
Mr. Duncan. Well, thank you very much, Mr. Meadows. We will
go--Mr. Barletta, do you have anything else you--all right. We
will go back to Mr. Capuano, and then I will conclude at the
end.
Mr. Capuano. Thanks, Chairman. And, again, gentlemen, thank
you. I think this stuff is great. I like this much better than
the typical hearings we have. I have actually stayed awake, and
alert, and involved.
[Laughter.]
Mr. Capuano. But I do want to raise a couple of, obviously,
issues that both are on my mind, and some of them that came up
in the meantime.
I just want to be clear that everybody here understands.
Private activity bonds exist because, and solely, because of
Federal tax policy. And, by the way, for those of you who
haven't read it, the--Chairman Camp's proposal would repeal
private activity bonds. And his estimate--actually, not his
estimate, the estimate of the Joint Committee on Taxation--is,
over the next 10 years, that would raise--by repealing, it
would save our paying out $23.9 billion of taxpayer money.
So, when you say that private activity bonds are not
taxpayer-funded, they are. They only exist because the Federal
taxpayers are actually giving tax dollars to investors.
Otherwise, those investors go someplace else and make more
money. Natural thing. So I just want to be clear about that,
that is a big, bold line I want to draw under that.
I also want to go back to what I said, Mr. Bass, Mr.
Washington, especially the comment you made, Mr. Washington. I
know--I am a former mayor. Your job is to build things and to
move people. I get that. My job is a little bit different. And
that is why I don't blame you for taking the money from any
place you can get it. Mr. Fierce, you are in the private
sector. Your job, your people's job, is to build things. You
get the money from anywhere you want.
But there is a big problem to me--at least a big question
coming on these things. I am getting the feeling slowly that
private activity bonds and TIFIA and P3s are all because we, in
Congress, don't have the courage to put the money into things
that you need: a Highway Trust Fund, transit fund. And I would
just simply ask you, would you really, Mr. Washington and Mr.
Bass, forget the policy and the philosophy? If you want to
build things, wouldn't it be just easier if we did what we need
to do, and find a way to fund the New Starts program? I am
looking at your Eagle. Half the money is coming out of New
Starts. That is traditional.
Mr. Bass, I looked at some of your numbers, though not as
clear, but the same idea. Most of your money is coming out of
traditional financing on State and Federal Government thing.
Wouldn't it just be easier if we fully funded the Highway Trust
Fund, or if we fully funded the New Starts program, or some of
the other traditional programs that we have, rather than trying
to come up with all these fancy ways to avoid us doing
something that no politician wants to do?
Mr. Bass. I would say yes. Generally, the most efficient
way to purchase anything is with cash. However, I didn't
purchase my house with cash, because I am not in that
position----
Mr. Capuano. But even the traditional way is not cash.
States almost always float bonds on these, but they are
traditional bonds in the traditional sense of the word. They
are straightforward. They are not secondary, backed up by
taxpayers another way. They are straightforward State bonds.
Mr. Bass. Right. And so, I would perhaps argue with the
$23.9 billion savings, because if private activity bonds
weren't there, would States then issue--still at tax-exempt
rates, so the Federal Government is still not receiving the
income----
Mr. Capuano. That is a fair point.
Mr. Bass. Or, conversely, do the projects just not happen?
Mr. Capuano. Well, see, that is the other thing----
Mr. Bass. And what does that do to the overall economy?
Mr. Capuano. I understand. But if we put more money on the
table, these projects would happen. And that is part of the
problem, is that--Mr. Fierce, you say 17 years on a project.
Well, of course, if I put more money on the table, projects are
going to happen quicker. And it may not be 17 years, it may be
a different prioritization. But the fact that we are putting
money on the table, even directly or indirectly, makes projects
happen faster shouldn't come as a surprise to anyone.
And I tell you, Mr. Fierce, be careful of your examples,
because the one you picked, the Pocahontas, is in trouble, and
we all know it. So I don't want to nitpick, because I don't
have a real problem with the ones that are in trouble, I really
don't. I am not afraid of all of us making a mistake and
hopefully learning from whatever mistakes we make.
But I also want to talk to Mr. Kile. When you did these
things, I mean some of the things--we talked about cost. First
of all, it bothers me a little bit to say that future elected
officials won't do their jobs. I am a former mayor. I
maintained my roads. Now, I will tell you that I did make
difficult decisions. Some of those difficult decisions? Yes,
some maintenance on roads or buildings didn't happen when I
really wanted it to happen, because I had to hire another cop,
or another teacher, or whatever it might be. So, yes, that is
difficult.
But when we say that we don't trust future elected
officials to do their job, we are also tying their hands in
whatever crisis they may face 20 years from now. Some of the
TIFIA bonds we are doing, the principle and interest don't
become due for 15 or 20 years. Fifteen to twenty years from
now, I don't know what Denver or what Texas is going to be
facing. Maybe the Governor then will want to do something
different with that money, and won't be able to, because the
Governors today and the mayors today said, ``We are tying your
hands, we are going to do this.''
Now, I think that is terrible of us to say that all future
elected officials won't do their jobs as well as we do, we are
better than them. That is ridiculous, it is insulting. And, to
be perfectly honest, I always think that the next generation,
hopefully, will do better than us. Not worse, but better.
But, Mr. Kile, I want to go back. When you did some of your
numbers, did you take into account the tax losses given to
investors for depreciation costs when they buy these things?
Mr. Kile. So on the specifics of the tax loss, the
depreciation, that would be a JCT estimate. But I think the
general principle that you are on here is that the TIFIA is a
loan from the Federal Government, and it is a loan at----
Mr. Capuano. It is a great loan. I wish I could get one.
Mr. Kile [continuing]. At preferred interest rates----
Mr. Capuano. For my house.
Mr. Kile [continuing]. That they can't on the private
market, and that that imposes costs on the Government.
And similarly, tax-preferred bonds like private activity
bonds are a kind of debt instrument that does impose costs on
the taxpayer.
Mr. Capuano. But did you--I apologize--did you take into--I
mean, as I understand it, the people who invest in these
things--Texas cannot, and Colorado cannot depreciate your
highways, because you don't pay taxes anyway, so you don't get
depreciation. Private investors get to deprecate their
investment in these items. And I have--my old days, before I
became a full-time elected official, I was a tax attorney, 100
years ago--so, you know, you don't want me doing your taxes any
more, but I still remember the concepts.
I have never really liked the concept of depreciation, but
that is a different issue. Whether you like it or not, it is a
massive item when you invest in something on a tax sheet. And
did you take--and that costs--that money comes directly out of
the pockets of Federal taxpayers. If you get--if somebody else
gets depreciation, I, as a taxpayer, have to pay it. So did you
take that into account, or did you not?
Mr. Kile. Yes. As a general statement, that is one of the
things that equalizes the cost----
Mr. Capuano. So you did.
Mr. Kile [continuing]. Between public and private
borrowing.
Mr. Capuano. And did you take into--for instance, I read
in--I think it was your report, one of these reports--that both
the people of Illinois and the people of Indiana, one of their
complaints, or two of their complaints, one of which had to do
with maintenance, they said that some of the private people
weren't maintaining, but I will leave that alone. The other
one, they were both pretty uniform that there was traffic
diversion off of the roads that were sold, and on to other
roads.
Now, again, I can't speak for individual projects, because,
obviously, some projects don't divert traffic, but some
projects do, especially when you raise toll rates. Did you take
into effect the--any estimated costs on the increased cost to
those local cities and towns, or to the States, or whoever
maintains those roads, when you divert 10 or 20 or 30 percent
of your traffic off of one road and you put it on another road?
This other road now has to be maintained at a higher capacity.
Were any of those costs factored in?
Mr. Kile. Right. So CBO actually generally does not assess
the cost of any individual project. But I think the experience
with the Skyway, for example, has shown that, as tolls have
gone up, that some traffic has moved to other roads.
Mr. Capuano. I guess, again, for me, I love the idea of
coming up with new tools in the toolbox, I really do. I know I
am probably sounding like I am not a big P3 guy, but it is not
really the fact. I actually like the idea, I just want to make
sure that we are trying to find the ones that work, versus the
ones that don't, and, in the long run, what is best for the
taxpayers. And, in the long run, making sure that tomorrow--
and, again, I come from Massachusetts, and I will tell you that
we have had two major projects in my lifetime that have
actually tied up Federal dollars because they ran into problems
at the time and they had to put bonds out that basically said
we will put up and we will pay for the next 10 or 20 years
future Federal dollars.
Right now, today, the Commonwealth of Massachusetts is
losing hundreds of millions of dollars each year directly from
the Federal Government, because it comes from the highway fund
and goes directly into paying for past activity, which means we
don't get to build the bridges or the roads or whatever it is
today that we would otherwise be doing.
And I am really concerned about that, because my big fear
is you move a project up 17 years, yes, I get to use it. What
happens 17 years from now when the next guy needs to do a road
or a bridge? I have used their money. And I am really not
interested in a drunken evening out, spending the family jewels
to, you know, have a good time tonight. Now, don't get me
wrong. Tonight it is going to be a great idea. But tomorrow it
is not such a great idea.
And that is kind of what I am trying to do. I am trying to
find out the financing of these things. And I would appreciate,
Mr. Bass, Mr. Washington, any details you can send me on the
financing--well, within reason, I don't want 10,000 pages,
because my staff will get killed. But I would really like to
see. Again, I am not trying to prove anything, I am just kind
of trying to figure out where P3s really should fit and where
they shouldn't. And we might not even be there yet. We may not
be able to make that judgment. But, if you can, I really
appreciate that.
Mr. Washington. Just a quick comment, and I really
appreciate your comments. The PABs, TIFIA, all of these things
are great programs. But I would just as soon not do them, and
not have to do them. So, to answer your question whether the
Congress can make this all easier by doing a new transportation
reauthorization bill, amen and hallelujah.
So, I think the other piece of this is project management,
good project management. I think that is a huge key. That is
what I was getting to when I talked to schedule adherence, and
all of those kinds of things. That is a whole other piece. When
you mentioned the projects in Massachusetts, those projects are
all over the country, I think, just bad project management
leading to cost overruns and all those things.
But just to go on record, great programs, PABs, you know,
we love those things. We are doing them because we have to do
them, as I see it. And if we had a good transportation
reauthorization bill, and New Starts programs, and all those
things, we probably would not have to do these things, which I
would welcome.
Mr. Capuano. Thank you, Mr. Washington.
Mr. Bass. I would echo that, and perhaps offer that some of
the concerns you have with private activity bonds, or what I am
hearing you say, is true whether that is a State general
obligation bond or a State revenue bond or a State--the State
is issuing debt and taking future revenues in order to get a
project delivered today, whether that is associated with a P3
or not.
Mr. Capuano. Right.
Mr. Bass. And so, those policy decisions are being made at
the State and local level every day, in part because of the
funding challenges that they are faced with.
Mr. Capuano. That is true. Thank you very much, and I
really appreciate the chairman's indulgence.
Mr. Duncan. Well, good comments. Thank you, Mr. Capuano.
Mr. Barletta, any additional thoughts?
Mr. Barletta. No.
Mr. Duncan. All right. Let me just say this. I am so
pleased that we have had participation, active participation,
by almost all the members of this panel, the congressional
panel, and then we have had a great panel of witnesses. And you
all have been, I think, very helpful, and have really impressed
me.
But let me just say a few things. You know, this is my 26th
year on this committee, and I had several chances to move to
other committees, but I chose to stay here because I think the
work of this committee is extremely important, and I am
interested in all the things that we work on. It has been
referred to over the years as the committee that builds
America.
And I also have liked the bipartisan manner in which this
committee has operated during most of that time. During that
time--we have 6-year limits on chairmanships on the Republican
side. So I chaired the Aviation Subcommittee for 6 years, I
chaired the Water Resources and Environment Subcommittee for 6
years, I chaired the Highways and Transit Subcommittee for 6
years. So all very different kinds of things. But probably the
most frustrating thing to me during all of that time is the
length of time these projects take, when I think they could be
done--and everybody tells me they could be done in half the
time or a third of the time. And some other countries are doing
things much faster.
And then, also, I have noticed through the years that when
we are forced to, we do these projects faster, like the
Interstate 35 bridge in Minnesota, or some of the earthquake
work in California, different things. But it is--in the past,
it has always been the environmental rules and regulations and
red tape that have held things up so much. And I have mentioned
it many times in here.
I will never forget, years ago, the--in front of the
Aviation Subcommittee one time the Atlanta Airport people said
it took 14 years from conception to completion for their newest
runway, which is now many--several years old. But it was all
this environmental stuff. And then, when they finally got all
the approvals, they did the runway in 33 days. Now, they did it
in 24-hour days, they were so relieved to get all the
approvals, so you could say 99 days.
And then, I chair the Highways and Transit Subcommittee,
and the Federal highway people come to us and they tell us two
different studies, the last two studies they had, it said it
took 13 years from conception to completion, and another one
said 15 years from conception to completion on the average
highway project. And these weren't transcontinental roads,
these were 9- and 12-mile projects, and so forth.
Mr. Bass, do you see any--hopefully, some of the things we
put in MAP-21 have helped, but I will ask any of you if you
want to make any comments on that. Are we--we paid lipservice
for years to environmental streamlining. Are we finally
starting to make some progress in that area? And how do you,
Mr. Bass--how has Texas aligned the P3 process with all the
environmental rules and regulations? Any comments?
Mr. Bass. Well, first, commenting on MAP-21, we are excited
and in the process of taking over the lead responsibility,
similar to what California did a few years ago, on the
environmental review. And we think that is going to save a
tremendous amount of time through the environmental process, as
much as 25 percent is what I am hearing.
But you are exactly right. The--on the P3 side, it is
critical as we go through the procurement, to make sure that
the project is on schedule, or already has been environmentally
cleared, so we don't get an elongated procurement with the
private sector as we keep waiting for the next permit, or the
next environmental review. But we are excited by the
opportunity provided in MAP-21 for the State to take over that
primary role.
Mr. Duncan. All right. Mr. Washington, you know from an
earlier comment I made--and Mr. Capuano has been much more
articulate about this--but I have great concern about, you
know, a few years down the road, how these projects turn out.
And what recourse--are you satisfied with the recourse that
your agency has if a private sector operator doesn't meet the
contractual terms of service 5 years from now, 10 years from
now?
Mr. Washington. Yes, sir, we are, because we have put
together a very comprehensive concession agreement. This is a
28-year operating and maintaining agreement with penalties and
incentives. The penalties are much harsher to the private
sector than the incentives are. And so, there is great
incentive, I believe, for the private sector to keep the system
operating in a good state of repair.
One quick example that I thought was very, very relevant in
preparing to come here is we had a couple of bridges that were
not up to the requirements for the program. And because the
concessionaire, the private-sector concessionaire team has, I
think, to maintain and operate those bridges for a 28-year
period, they came to us. It was really a combination of us and
them coming to me and saying, ``Hey, listen, we need to replace
these girders.''
Now, I have to think that some design-build firms would
have tried to give me the key and walk away after the
construction on that defective bridge. Not all of them, but
that could have happened. But the incentive to make sure that
bridge was ready, because they have to operate and maintain it
for a 28-year period, and the specter of penalties, I think,
provided some pretty good incentive to replace those bridges
with no impact on schedule or cost.
And so, that example, when we talk about a full design,
build, operate, maintain, and the life-cycle piece that Mr.
Bass talked about, I think you get that if you put together a
very good concession agreement, and there is great incentive to
operate and maintain without being penalized.
Mr. Duncan. All right, thank you very much. Mr. Fierce, I
thought Mr. Rice, Congressman Rice, asked a real good question.
He asked, ``How do we keep these very big P3 projects from
becoming just another Big Government-type project?'' And we
heard Mr. Kile say that, basically, in the projects of the
limited studies that they have been able to do so far, that the
costs have been roughly the same in the private sector and the
public sector.
Do you--you represent, or you work for a very large
corporation. I know there are some economies of scale, but do
you sometimes--does your company sometimes operate like a Big
Government entity? And how do you keep it from doing that?
And, secondly, in any of the projects that you have
firsthand knowledge about, do you think the public sector could
have done them as cheaply or more cheaply than your company
has?
Mr. Fierce. Well, in terms of the risk of a large
corporation acting like a large bureaucracy, that is very real.
And, you know, we try to avoid that by driving down
decisionmaking authority and accountability as much as we can
into the smaller operating segments. Presumably, that same
lesson works in Government, but that is probably way above my
pay grade.
But in terms of kind of the big bureaucracy in terms of
project delivery and how does it operate in one project to the
next, yes, there is--some are better and more streamlined and
less bureaucratic than others. It really does kind of devolve
to the final P of the PPP, which is the partnership.
When we really hit it out of the park and have a great
project that we are proud of, typically our public-sector
partner is also very proud of it, and it is because everybody
has rolled up their sleeves and really acted in a collaborative
manner, rather than--sometimes conventional project delivery
tends to be a bit confrontational. And the best of the P3s tend
to be very collaborative, and the partnership aspect of it
really delivers value.
Mr. Duncan. Well, you did--Mr. Washington talked about a
$300 million savings on his project, and you talked about the
$1.7 billion in savings, if I understood you correctly, on the
Tappan Zee. Is that correct, $1.7 billion?
Mr. Fierce. Yes. I was quoting from Chairman Milstein.
Mr. Duncan. OK.
Mr. Fierce. Against their internal estimates.
Mr. Duncan. All right. Mr. Kile, why--in your studies that
you have done, why do you think other countries have gone so
much more into public-private partnerships than we have, here
in this country?
Mr. Kile. We really didn't--I don't think I have a complete
answer on that. We really didn't look very carefully at the
reasons that other--some other countries have used them more
heavily than in the United States.
Mr. Duncan. Did you look--so did you look at public-private
partnerships in other countries?
Mr. Kile. I am familiar with some, but I really haven't
looked at them systematically.
Mr. Duncan. I think we are going to try to look into that a
little bit.
Last week, Mr. Capuano and I and others went to an Aspen
Institute breakfast with the president of the World Bank. And
he was--he really impressed me. I thought he was one of the
smartest men I have ever heard. And he was a former president
of Dartmouth.
And, anyway, he said he was becoming obsessed with trying
to figure out a way that the--to help the public sector be able
to deliver benefits to the public as efficiently and at the
same cost or--as the private sector. And he said right now we
are a long ways from that. And he thought the main reason was--
is that it is so hard, it is very difficult to get rid of poor,
or bad, or incompetent employees in the public sector. I mean
do you see that, or agree with that, or--you seem to say--or
the impression I got was that you said the public sector was
delivering efficiencies just as good as the private sector, or
almost as good.
Mr. Kile. So we didn't look at that particular issue, with
respect to employees. Basically, I think in our review of
studies that have looked at both public and private
partnerships in the traditional approach, as I said, they are a
little cheaper and a little faster. And I think that that
experience is probably a reflection of the communication that
goes on and the coordination in different phases of the
program. And that is the evidence for that conclusion.
Mr. Duncan. All right. Well, thank you. Thank you very
much. I have really enjoyed this hearing, and I appreciate your
hard work that you have put into your testimony. And you have
provided a lot of good information to the panel.
And that will conclude this hearing. Thank you very much.
[Whereupon, at 11:51 a.m., the panel was adjourned.]