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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