Public-Private Partnerships: Key Business and Legal Considerations Mountain Connect 2017 Public-Private Partnerships: Key Business and Legal Considerations Jim Baller Baller Stokes & Lide, PC 2014 P Street, NW (202) 833-1144 Jim@Baller.com www.Baller.com

Disclaimer This presentation is for informational purposes only. It is not intended to be legal advice and should not be interpreted as such. For advice on federal, state, or local law, please consult qualified legal counsel.

Program Overview Background Why Fiber P3s? Key Business Considerations Key Legal Considerations Q&A

I. Background Public Broadband Initiatives 1994 - Present First wave – Glasgow, KY, and other municipal electric utilities Most provided “triple play” retail services themselves Some partnered with private entities for some purposes – e.g., Tacoma, WA; Jackson, TN; Powell, WY. First non-utility Broadband P3 – Lynchburg, VA? First public fiber networks ~2000-2001 – e.g., Grant County, WA; Bristol, VA; Kutztown, PA; Provo, UT Today, widespread interest in broadband P3, particularly for FTTP projects (… continued on next slide)

II. Why Fiber P3s? Like electric power networks, fiber networks are general-purpose drivers of, and platforms for, simultaneous progress in just about everything that is important to communities Chattanooga, Google Fiber, AT&T, Comcast, and others have spurred demand for “Gigabit” broadband Federal Broadband Stimulus and Google Fiber for Communities initiative gave communities incentive to learn about themselves and what a fiber network could do for them Cable providers no longer provide free or low cost I-Nets Localities without willing municipal electric utilities lack relevant expertise, need P3 Many new potential private partners have emerged

III. Key Business Considerations Goal: Achieve the Best Case-Specific Balance of Risks, Benefits, and Control Analytical Framework: Base Case: Pure Public Investment and Risk Model 1: Predominantly Private Investment and Risk Model 2: Shared Investment and Risk Model 3: Predominantly Public Investment and Risk

Pure Public Investment and Risk Base Case Pure Public Investment and Risk Public entity alone invests in, builds, operates, maintains, and refreshes the network, takes all benefits, assumes all risks Examples: Chattanooga, Lafayette, Wilson + ~ 100 others Works best for communities with their own electric utilities Anchor tenants: Utility, local government, schools Existing relationships with electric customers of all kinds Experience with high tech, customer service, technical support, billing, etc. Easy access to poles, ducts, conduits, towers, buildings, etc. If no municipal electric utility, community that wants to be sole owner of network must contract out all functions

Predominantly Private Investment and Risk Model 1 Predominantly Private Investment and Risk Public entity makes it easy and fast for private entity to enter Examples: streamlining ROW processes, lowering ROW fees, pre-approving technologies such as micro-trenching, providing dedicated permit inspectors, offering parcels of land, tax benefits, aggregating demand, purchasing services from the private entity, etc. Examples: Google Fiber, C-Spire cities Locality bears little risk, has no control, achieves few direct benefits, but obtains multiple benefits for the community Caution: Incumbents will probably seek similar benefits, without necessarily offering similar community benefits; potential “level playing field” litigation -- e.g., Cox v. City of Tempe, AZ

Predominantly Public Investment and Risk Model 2 Predominantly Public Investment and Risk Based on “Concessionaire Model” used for decades in transportation and civil works projects, particularly in Europe Private entity finances, designs, builds, operates, maintains, and refreshes the network and provides services over it Public entity pays monthly “availability payment” based on “working assumptions” at time of execution of agreement “Availability payment” may be adjusted if assumptions change because of many kinds of “supervening events” Parties negotiate who’s responsible for additional costs for each kind of supervening event, ideally base on who is in the best position to deal with the supervening event

Model 2 (continued) Example: KentuckyWired P3 for a 3,400-mile, $324 million statewide fiber network, serving 1100 government sites and other customers (Bond Buyers Deal of the Year for 2015) Public entity will pay for most of network by redirecting spend by government entities for communications services Commonwealth will also have opportunity to share in revenues from sales of services to non-public users Potential partners have emerged, including inSite Capital, Macquarie Capital, SiFi Networks, Fujitsu, Symmetric Networks Caution: Model not yet proven for broadband. Public entities may face significant political and long term financial risks. Need to be extremely careful about “working assumptions,” particularly about pole attachments and easements.

Shared Investment and Risk Model 3 Shared Investment and Risk Wide range of case-specific opportunities for innovation Examples: In addition to the kinds of benefits under Model 1, the public entity provides access to existing or new fiber or other facilities; shares revenues and risk of shortfalls. The greater the private entity’s downside risk, the greater its incentive to succeed Examples: Westminster, MD; Huntsville, AL; UC2B, IL Locality shares risk but obtains 100 percent of desired benefits for the community Caution: Beware of unrealistic revenue and cost projections. Be sure to include protections for the public entity in case project fails, private entity sells out, etc.

IV. Key Legal Considerations Analytical Framework: Authority Issues Pre-Negotiation Project Planning Negotiation of the P3 Implementation

Authority Issues Federal law does not provide authority for broadband P3s; that must come from state and local law State constitutions and statutes Constitutional restrictions on investing in, or lending credit to, private entities -- “public purpose” exception, value obtained Explicit grants or restrictions on local authority to engage in communications activities (approx. 22 states have barriers) More than 30 states now have P3 statutes Home Rule or Dillon’s Rule to fill gaps Potential local restrictions in ordinances, franchises, pole attachment agreements, other agreements Caution: Essential to identify all applicable substantive and procedural requirements. Early ID can lead to acceptable options.

Pre-Negotiation Planning Financing issues Grants, loans, and other funding available to public entities Equity, debt, equipment, in kind services, co-builds, swaps, etc. available for private sector financing Multiple tax and other incentives for economic development Access to public rights of way and public facilities (poles, ducts, conduits, fiber, buildings, towers, real estate, etc.) Allocation of regulatory burdens and benefits (e.g., Universal Service Program, E-Rate, Connect America Fund, etc.) Organizational issues – including where public entity will be housed and how it will address complex governance issues Caution: Need to strike the right balance. The more the locality contributes, the greater its bargaining power will have.

Solicitation and Negotiation Identify potential private partners Typically through a Request for Information or a Request for Qualifications, followed by a Request for Proposals Opportunity to “sell” the community, learn about additional options, vet respondents Key negotiation issues – Allocation of responsibilities, costs, and benefits Contingencies and supervening events Protecting the community if project struggles or fails Caution: Comply with all procurement requirements. Rank risks, rewards, and responsibilities – which are negotiable, which are not? Be prepared to negotiate on hundreds of issues and to make creative tradeoffs.

Q & A