Public Private Partnership Opportunities for Alaska Associated General Contractors November 9, 2016

Public Private Partnerships (P3 or PPP) Public sector partners with private sector in delivering, operating and maintaining public infrastructure to gain synergies, expertise, innovation, lifecycle cost management, financing etc. Many forms of P3s are available and applicable to different situations Usually a mix of public and private funding - not a panacea for government funding shortfalls – but a means of finance Contracts are generally long term (25-35+ years are typical) Government retains ownership of infrastructure Private sector expects to make a profit Many risks are transferred to private sector in exchange Typically set up as a Special Purpose Vehicle (SPV) – basic project finance Public Private Partnerships (P3 or PPP)

Examples of public infrastructure where P3 may be used/applicable Roads and bridges Buildings (e.g. courthouse, office, prison, school, convention center, etc.) Sea ports Airports Transit (bus, light rail, ferries, and related facilities) Water, wastewater, desalination and related distribution facilities Rail Parks Rest areas Examples of public infrastructure where P3 may be used/applicable

P3 Procurement methodology Usually a two step process RFQ/SOQ leading to shortlist of 2-4 teams Industry review with shortlisted teams leading to RFP Shortlisted teams will typically spend $5-$10 million to go through industry review and prepare proposals Procurement process typically takes 10 months or more End result is a set of performance based contract documents all shortlisted teams are bidding on Because of long contract terms, considering everything for 25-35 years is very complex Objective is risk sharing/transfer with reliable private sector partner to achieve optimized lifecycle cost/management P3 Procurement methodology

Professional support for public sector owner Procurement council Traffic and toll revenue consultants Bond council Financial advisor(s) Technical consultant (engineering firm) Professional employees of public agency THESE PROFESSIONALS DO NOT COME CHEAP! Professional support for public sector owner

P3 FUNDING SOURCES – nearly always a combination of public and private Public Sector owner Tax exempt bonds TIFIA Federal aid/grants State funds RRIF WIFIA Toll revenue Private Partner Private equity Private activity bonds TIFIA State funds RRIF WIFIA Bank credit Toll revenue P3 FUNDING SOURCES – nearly always a combination of public and private

Indiana sample projects East End Crossing $1.3 billion bridge (including financing cost) over 35 year availability payment concession Connect Louisville Kentucky to Southern Indiana over Ohio River Indiana Toll Road 75 year revenue risk concession sold for $3.8 billion Included reconstruction of 156 miles of interstate Toll Revenue risk concession Illiana Corridor Suspended in 2015 due to Illinois budget constraints Sound familiar? Indiana sample projects

Florida sample projects I-4 Ultimate Improvement Project $2.3 billion project Added 4 toll lanes to I-4 Port of Miami Tunnel $1 billion project Twin tunnels under Biscayne Bay connecting Port of Miami to I-595 Took 7,000 trucks per day out of downtown Miami First availability P3 in USA I-595 Express Lanes $1.8 billion project in Fort Lauderdale – 35 year concession Three reversible managed lanes plus reconstruction of segments of I-595 Florida sample projects

California sample projects Presidio Parkway $1.1 billion reconstruction of Doyle Drive in San Francisco (south end of golden gate) Availability payment P3 over 30 years South Bay Expressway (SR-125) $843 million San Diego area toll road Private concessionaire bankrupted at no cost to SANDAG SANDAG repurchased road in 2011 for pennies on the dollar Long Beach Courthouse $500 million courthouse and parking facilities 35 year availability concession SR-91 Express Lanes 10 miles of express lanes in Orange county California Eventually repurchased by government UC Merced $1.3 billion 39 year concession California sample projects

Virginia sample projects I-66 Outside The Beltway Project $2.1 billion congestion relief near Washington DC I-395 Express Lanes Another WDC congestion relief project I-95 Express Lanes Yet another WDC congestion relief project Elizabeth River Downtown/Midtown Tunnels $2.1 Billion project in Portsmouth and Norfolk VA area VDOT Travel Plazas Virginia sample projects

Texas sample p3 projects I-635 LBJ Express Managed Lanes Project $2.7 billion reconstruction of LBJ Freeway and addition of managed lanes Revenue risk concession SH-360 $300 million road project with a five year term and two five year extension options Sh-288 $800 million project under a P3 concession agreement North Tarrant Expressway (I-35W, I-820, SH 121/183) $1.6 billion project Texas sample p3 projects

Colorado P3 Projects Eagle P3 RTD Denver Fast Tracks I-70 P3 Hot lanes, intermodal facility, light rail and buses Ongoing program I-70 P3 Under procurement Northern part of Denver One of largest infrastructure projects in the country 256 unit low income housing project in Colorado Springs Colorado P3 Projects

Alaska examples of P3 Red Dog Mine road and port JBER housing DOD Alaska Mat-Su Goose Creek Correctional Center Dena’ina Center WHAT ELSE CAN WE ACCOMPLISH? Alaska examples of P3

Spectrum of infrastructure delivery methods Most Public Most Private DBB DB DBM DBOM DBFOM (AVAILABILITY) DBFOM (REVENUE RISK) Design, Bid, Build Design-Build Design-Build, Maintain Design-Build, Operate, Maintain Design-Build, Finance, Operate, Maintain Public sector puts out prescriptive RFP specifying design Public sector puts out performance based RFP but only includes construction and perhaps limited warranty period Public sector puts out performance based RFP and includes perhaps five year maintenance period with two five year extension options Public sector puts out performance based RFP and includes perhaps five year maintenance and operations period with two five year extension options Private sector provides financing and agrees to operate for an extended period of time (typically 35 years) in exchange for periodic payments from the government Private sector provides financing and agrees to operate for an extended period of time (typically 35 years) and takes revenue risk (e.g. toll revenue) Spectrum of infrastructure delivery methods

Alaska’s P3 potential Port of Anchorage expansion and operations Watana hydro Road to Umiat Road to Ambler mining district Knik Arm Crossing Alaska gas line And many more! Alaska’s P3 potential

Knik arm crossing history $900+/- million toll bridge and roadway connecting Anchorage and Mat-Su across Knik Arm north of Port of Anchorage and Port MacKenzie Originally conceived as an availability payment P3 and three teams had been shortlisted under a procurement and contract documents developed with extensive industry review ($$$) Converted to a publicly financed DB project in 2014 legislative session and P3 in progress cancelled Project highly developed and in a state ready to build Administration cancelled project in June 2016 citing state budget woes and low oil prices (even though tolls and Federal funds would pay for project) Watana and eight other road projects were also cancelled in the same administration action Knik arm crossing history

Knik arm crossing funding plan

Knik arm crossing status at cancellation $85 million of federal and state investment in project development and rights-of-way acquisition $148 million of $300 million total federal highway funds appropriated Record of Decision under NEPA secured (December 2010) Completed investment grade traffic and toll revenue study ($2 million) Two investment grade ratings opinions secured ($500K) Nearly secured $365 million TIFIA loan in progress (2.30% interest rate at time) 86% of rights-of-way acquired (14% remaining all government) Draft procurement and contract documents for design-build and tolling systems nearly completed Knik arm crossing status at cancellation

Some Consequences of cancelling knik arm crossing Jobs forgone - 1,500 FTEs times 4-5 years of construction Still only one way in and out of Anchorage to north Potential repayment of Federal aid highway funds invested No close proximity resolution to Anchorage land shortage Increased volumes on Glenn and need for capacity improvements without tolls/financing available to pay Longer commutes for future population growth settling in Mat-Su Higher vehicle miles travelled, fuel consumption and emissions translates to higher costs and environmental consequences Loss of KAC project momentum, institutional knowledge and need to update studies if project resurrected in the future Some Consequences of cancelling knik arm crossing

Closing P3 Thoughts Everybody is doing it because it makes sense Alaska has lots of potential Large projects practically dictate P3 Risk transfer/sharing is part of the value proposition Life cycle cost management is an important part of the equation We can get large projects done that would otherwise bust the budget Political support is key to success If we don’t finish what we started, we lose credibility in the market Don’t pursue projects that can’t happen Need to have a revenue source Closing P3 Thoughts

Kevin P. Hemenway C (907) 382-4425 H (907) 345-7366 HemenwayK@aol.com Thank you! Kevin P. Hemenway C (907) 382-4425 H (907) 345-7366 HemenwayK@aol.com