1. 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)

2. 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.

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

4. 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 ~ – 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)

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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.

11. 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.

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

13. 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.

14. 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 be.

15. 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.

16. Q & A