The committee met to consider the following interim charge:
Review the statutes and state agency rules pertaining to public-private partnerships to ensure a fair, competitive, and transparent process that benefits all parties engaging in the partnership. Review how other states and countries utilize public-private partnerships and make recommendations on how to improve the process in Texas, specifically looking at whether there needs to be a single state entity responsible for administering the public private partnership program.
Rodney Moss, Legislative Chair, Association for the Improvement of American Infrastructure
- The Association is comprised of the most significant private infrastructure investors in the world for the purpose of advocating for P3 at the federal and state level across the country
- When Texas enacted the P3 statute in 2011 it was viewed as an early leader following Virginia
- Since then, about 12 other states have adopted similar statutes
- Those states are now surpassing Texas in terms of infrastructure being built under those statutes because they have established Centers for Excellence, among other reasons
- Without a Center of Excellence it is a bit ad-hoc and intimidating to do these projects
- Chairman John Davis asked what a Center of Excellence is
- It takes the form of a quasi-governmental agency funded in part by the government; talent from the private sector is brought in which becomes a resource for the government entity to help them understand the projects
- They bill to the project’s development cost to provide the service; generally at a large discount from a private group performing the same service
- When these entities become functional, a pipeline is created for capital projects that are needed
- The entity basically helps the government decide what can be financed through bonds and what can be funded alternatively
- About 1 of 7 state projects can be funded through P3
- They also help write RFPs and evaluate proposals
- Davis asked who staffs the Centers
- Primarily financial analysts; underwriters, etc.
- Ontario has the most successful Center currently; they have lawyers, finance experts, investment experts involved
- In Canada, a law was passed stating a presumption that the public sector has to make a business case to finance projects the old fashioned way which makes the P3 model more necessary there
- This forces a government to question its assumptions and think about why things are done the way they have always been done
- Davis asked for an example of a bad project versus a good project
- Trying to determine whether a project is affordable over its lifecycle, 30-40 years; also, whether the project is bankable in terms of certainty around revenue streams, whether it is investment grade; effectively the same determination process for rating bonds
- The world sees the economic prosperity in Texas as well as the infrastructure needs; Texas is the 17th ranked market in the world over all other states, countries, provinces, etc.
- It is important that Texas find a way to create a Center of Excellence to catch up with the needs and abilities of the state
- The original P3 bill had a Center of Excellence built into it that would have been tied into the Comptroller’s office
- There was a fiscal note attached to that and the Center was taken out of the bill
- The statute will not get any more inertia without a Center
- A new agency is not the best answer to this issue
- Davis asked what the cost to the state would be to create a Center
- Merging existing resources would drop the cost to around $1-2 million per biennium
- As resources begin to flow the growth is paid for through the projects
- Rep. Eddie Rodriguez asked how the Center is structured in other states
- It is generally a totally separate entity; some states have it set up as a subset of their transportation agency; three states have a completely independent entity
- Rep. Mary Ann Perez asked what Florida uses for seed money
- Not sure; it comes from the Governor’s office
- Davis noted transportation projects were excluded from the original bill in Texas
- Rep. Paul Workman asked if the Centers in other states evaluate proposals when they come back
- Yes; they have no decision making authority though just evaluation; provides a consistency of evaluation
- Workman asked if entities are required to use the Centers in other states
- Both ways dependent upon the state
- The value the entity would create is immense; projects are happening in every metropolitan area and university, and could be saving a lot of time, effort and money
- Workman asked if there is an opinion of how the current statute is working
- Haven’t heard anything fundamentally wrong with it; the Partnership Advisory Commission is concerning to the private market though, there is a lack of certainty in that a project could have millions spent on it and then be terminated
George Tapas, Vice President, URS Corporation
- URS does a lot of work on the private side but a majority of work done is for the government
- In Canada the model is extremely successful; it is driving their economy and their ability to get small and midsize companies involved in these projects
- The public’s interest must be protected
- There must be governance in the P3 procurement process; there must be a proven set of tests and criteria that a project is measured against
- Alternative Financing Projects is becoming a new term for P3 because of the connotation privatization has
- P3 transactions must be biddable and bankable
- If a P3 project is not supposed to be a P3, a lot of time and money will be wasted trying to turn it into one
- In Canada the P3 review entities are small, maybe 10-15 people; they create a pool of advisers from across industries then pull them in as they need
- In Texas municipalities and counties need the most help because P3 is a new idea in this country and is unfamiliar to those smaller entities
- Canada is just larger than Texas in population and does around 18-20 P3 projects per year
- Davis asked about the negative connotations around P3
- Many people look at P3 as privatization and taking away from the public sector; it is also seen as a windfall for the private sector
- Davis asked how many P3s have been done in Texas
- Around 5 or 6; land development deals are sometime called P3s but they really aren’t; design-build and CMAR aren’t really P3 models
Tim Merriweather, Bannister Group
- Spent the last 15 years involved with public finance
- Texas is growing at such a rate that resources are necessary and additional methods must be uncovered to deliver those resources
- In Texas the P3 statute has been in existence for 2.5 years and no deals have been delivered on the social infrastructure side (non-transportation); this is due to Texas not having a Center of Excellence
- The Texas statute divides entities into two groups, state level and smaller municipal and countywide entities; the Center in Texas should be an alliance of statewide and county level individuals
- The state should provide a statute and startup capital to get the Center going
- Perez asked how much startup capital Texas needs to provide
- Agree with Mr. Moss; $1-2 million per biennium
- Rodriguez asked how a partnership at the local level should look
- There is no exact model; it could be that cities have a representative on the board, maybe similar to LCRA where the state creates it but it operates and is funded independently; could have a city representative, a county representative, etc.
- In each situation, the entity responsible for the project would have the final say on whether the project is brought to fruition
Tommy Callan, Texas Society of Architects
- Last project worked on was a P3 within the A&M System
- Good design, transparency and financial viability are the most important aspects of a good P3 project
- Anything that can be done to de-politicize the process and make it more transparent will benefit the P3 process
- When projects are completed on-time and efficiently the taxpayer wins
- Using P3 will allow local communities to complete projects they could not fund under any other system
- The P3 guidelines should limit the short list of proposals to three to save on time and expense
- Perhaps a stipend should be made available to the two runners up to keep an interest in competition with P3 proposals
- Davis asked if any other states use the stipend model
- North Carolina does and there are others
Russell Zapalac, Chief Planning and Projects Officer, Texas Department of Transportation
- TxDOT is facing extreme challenges from lack of funding to an exponentially growing population
- Comprehensive Development Agreements (CDA) are one tool TxDOT uses that is similar to P3 models
- TxDOT has about $22 billion worth of projects in the CDA program currently; about 30 projects
- About $11 billion worth are presently under construction right now; about $5 billion in active procurement right now
- TxDOT has a pool of trusted advisers who are used as needed to supplement TxDOT staff
- Rep. Jason Isaac asked if there is a possibility that any CDA project toll roads would ever convert to non-tolled roads
- That would be up to the Transportation Commission
- TxDOT has a mature P3 program that plays a vital role in how transportation infrastructure projects are delivered to the state
- Workman asked how many staff people are dedicated to CDA processes within TxDOT
- Probably about 90 people including field supervisors; consultants are also used to supplement those staff people
- Workman asked if all CDAs are toll projects
- No; last session the legislature gave TxDOT the ability to use CDAs for other projects such as the new bridge in Corpus Christi; the revenue stream for the bridge is partly from a Transportation Reinvestment Zone, partly from Fund 6 and partly from bond funds