1. Government Finance Officers Association of Arizona Public Private Partnerships March 8, 2007 Shawn Dralle Managing Director

2. 2 Public-Private Partnerships – Refining Terms  What are Public-Private Partnerships (PPP or P3’s)? Privatizations of publicly owned infrastructure Long term high-value leases/concessions associated with the operation of public infrastructure Private sector contracts with local governments/authorities for provision of essential services Other optimizations of undervalued contracts, assets and services  Common Characteristics of Interest Often result in significant upfront value recognition Regulated status or monopolistic attributes Long term, stable economic profiles Benefit conferred from private sector involvement

3. 3 The International Experience  International Markets ahead of the US UK & Europe - Private Finance Initiative (PFI) Australia – Partnership Victoria (2000) Canada  Partnerships based on availability payments or user fees  Transferring risk to the private sector

4. 4 Public-Private Partnerships in the US  Budgetary constraints historically have led to innovative financing techniques for infrastructure and was the initial driving force behind PPPs.  Private participation in public infrastructure is emerging as a viable alternative to traditional funding methods for infrastructure in the US.  The trend toward privatization of public assets in the US is highlighted by recent high profile transactions using concession rights to the highest bidder. Chicago Skyway - 99 yr lease by The City of Chicago for nine mile stretch of bridge and toll road generating an upfront payment to the municipality of $1.8 billion Indiana East-West Toll Road (I-90)- 75 yr agreement with $3.85 billion in upfront payment to the State of Indiana

5. 5 PPP Legislation for Transportation in the US – Why Now?  A growing number of state and local governments are using PPP’s for their financing needs.  Recent years have seen an increased legislative push to facilitate transactions and establish rules for public-private partnerships. Most states have some form of legislation to varying degrees and scope. –Majority of legislation has primarily targeted toll roads, other transportation, water utilities. Every state/region is different –Mostly driven by shortage of public funds and need to accelerate lane miles –Need to seek alternate sources to meet demands and maintain current infrastructure

6. 6  22 states formally passed some form of P3 or privatization legislation.  Many local governments also have power or authorization for local P3/Privatization initiatives. Legislation (Highway) Source: US Dept. of Transportation-Federal Highway Administration

7. 7 Demand for Infrastructure Assets  Infrastructure is emerging as one of the fastest growing asset classes. Pension and private equity funds increasingly seek out these investments. Australian Superannuation Funds Canadian Income Trust and Public Pensions Infrastructure Funds- Macquarie, JP Morgan Asset Management, Goldman Sachs, Morgan Stanley Infrastructure Fund Lower risk profiles Long-term assets provide sustainable returns Stable cash-flows Diversification Why Interest In Infrastructure?

8. 8 Common Motivations for PPP’s Governments experiencing strain on their capital and operating budgets. Increasing tax rates to supply funds for capital expenditures, maintenance, and operating needs cannot continue in perpetuity. Rapid population growth has led to increased capital needs for upgrading facilities and expanding essential use transportation systems. Public demands increasing variety and levels of services. Increasingly the federal government is supporting a turn to private firms and their resources. Transfer of financial, construction and operational risk to the private sector.

9. 9 Potential Results of Public-Private Partnerships Accelerate high priority projects Financial benefits – private money Capitalize through private equity and corporate debt structures Technology transfer of private sector standards and know-how Economies of scale Maximize new technologies and engineering Tap private sector management and expertise Accountability for service, financial performance and transparent accounting requirements.

10. 10 Basic Types of Public- Private Partnerships  Service Contracting  Design/ Build/ Own/ Operate/ Finance/ Maintain/ Transfer  Concession/ Long-term Lease of Assets  Sale of Assets/ Privatization Less More Private Sector Involvement Service ContractingSale of Assets Concession/ Long-term Lease D/B/O/O/F/M/T

11. 11 Choosing the Right Model  Economic Considerations What economic benefits are being sought? –Cost efficiencies, transfer of financial responsibility, economic growth  Political Considerations What public reaction will leaders encounter? –Opposition to placing assets in private hands, foreign ownership  Regulatory/Legal Considerations What is the legal/ regulatory framework involved and how does it affect the project –Legislation, legal rights, rate setting mechanisms, environmental regulations  Risk Transfer Considerations What and how much risk can and would be transferred to the private sector? –Construction, financial and operating risk

12. 12 Acronyms to Live By Value Pricing “Using pricing of parking and road usage to manage congestion; encouraging users to vary usage by increasing user costs during peak periods”  HOT Lanes  FAST Lanes  FAIR Lanes  Express Toll Lanes  Variable Tolls for Heavy Vehicles  Cordon Pricing  Queue Jumps

13. 13 The Arizona Experience Existing Authority  Title 28, Chapter 19, Article 4 – County Toll Facilities  Title 28, Chapter 21, Article 1 – Existing authority for Private Toll Roads on a Pilot Project Basis

14. 14 Arizona Proposed Legislation SB 1585: HOV Lane Conversions; Toll Road requires ADOT, by November 15, 2012, to issue a request for proposal (RFP) to convert the HOV lane on I-17 between Loop 101 and I-10 to a HOT lane and allows ADOT to issue additional RFPs to convert HOV lanes to HOT lanes on any other highway in Arizona. Introduced: Senator Ron Gould Passed Senate Transportation Committee 4 – 0. SB 1635: FAST Lanes requires ADOT to issue a RFP by July 1, 2008, for the conversion of a high occupancy vehicle (HOV) lane to a freeway acceleration and sensible transportation (FAST) lane and for the construction of new FAST lanes. Permits ADOT to perform conversions of HOV lanes to FAST lanes and to construct new FAST lanes if responses to the RFP are unacceptable. Introduced: Representative Gorman Passed Senate Transportation Committee 4 – 0.

15. 15 Arizona Proposed Legislation SB 1576: Public Highways Authority The chapter in the transportation code pertaining to private transportation projects is repealed and at least partially replaced with a new chapter authorizing formation of transportation authorities by combinations of local governmental entities with or without state participation. Highway authorities may construct, finance and operate public highways including toll roads. Introduced: Senator Tibshraeny Failed Senate Transportation Committee 2-2. SB 1586: Transportation Projects; Unsolicited Proposals ADOT is required to accept unsolicited proposals for transportation construction projects without charging a fee to the person submitting the proposal. It shall evaluate the proposal based on criteria established by the director and shall submit a report on the evaluation to appropriate legislative committees. Introduced: Senator Ron Gould Passed Senate Transportation Committee.

16. 16 Arizona Proposed Legislation SB 1587: Transportation; Innovative Partnerships Programs Repeals a section on privatized transportation projects and requires ADOT to establish innovative partnerships for planning, acquisition, financing, development, design and construction for leasing and operating of construction projects. The stated purpose of the new section is to develop an expedited transportation project delivery process, maximize innovation, and develop partnerships with private entities. Introduced: Senator Ron Gould Passed Senate Appropriations Committee