What s Next for NC Public Private Partnerships?

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Alexandra Watkins
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1 What s Next for NC Public Private Partnerships? NCEFP Performance for Dollars II Mary Nash Rusher, Esq. James N. Copeland AIA

2 PPP for Schools Senate Bill 2009 Statute N.C.G.S. 115C Statute contemplates that developer/private party will build the school and lease it to school district Must be a capital lease (i.e., school district will own the school at the end of the lease for a nominal sum; developer cannot take depreciation) Developer must enter construction contract in compliance with public bidding rules; therefore, no true design-build possible

Center/Hotel Stadiums Turnpike Authority projects PPPs in

3 Use of PPP Structure in North Carolina PPPs in development and operation of public assets Jails Public parking decks Convention Center/Hotel Stadiums Turnpike Authority projects PPPs in support of private development Roads Water/Sewer extensions Parking Decks

4 PPP for Schools Iredell-Statesville, Wake, Cumberland, Mecklenburg Counties (maybe others) all considered and even started down that path Why was N.C.G.S. 115C not used? Counties saw no financial benefit Developers loss of flexibility in complying with bidding laws BOE concerns with developer owning and operating school facilities on a long term basis Developers not enough financial incentive

5 Legislative Study Commission on PPP Senator Samuel Clark Jenkins Rep. Deborah K. Ross Legislative Members: Rep. Larry Bell Rep. Becky Carney Rep. William McGee Rep. Joe Tolson Sen. Margaret Dickson Sen. Martin Nesbitt Sen. Robert Rucho Sen. Richard Stevens Charge: The Commission shall study issues related to Public-Private Partnerships (PPPs), including examination of the appropriate authority for State, regional, and local government units to engage in PPPs for public capital projects through a regulatory framework Public Members: Angela Carmon - City Attorney for City of Winston-Salem James Copeland Moseley Architects Mary Nash Rusher Hunton & Williams Richard Vick Wooten Company Bill Klein BE&K Gloria Shealey President and CEO The Daniele Company

6 PPP Study Commission Commission received public comment on PPP s Historically Underutilized Business AIA NC Contractor s Association NC Dept of Admin. NC DPI NC Economic Development Local Government Commission League of Municipalities

7 PPP Study Commission Commission received information regarding PPP s in other states and in various contexts Virginia Public Private Education Act of 2002 (PPEA)

8 Comparison Project Delivery VIRGINIA PPEA NORTH CAROLINA PPP Design Build Approach Construction Manager at Risk Approach Developer can self-perform Leasing is an option Authority rests with local County Early GMP = more risk to Developer Flexible Bidding Procurement Selection of $ and Qualifications CMAR should not self perform Law is written as a BTS - Capital Lease LGC approval GMP usually established after public bid NC statute requires public bid process Team chosen on qualifications only

9 Cosby High School Chesterfield, Virginia 1750 student high school 257,000 sf 2006 Accelerated schedule GMP Pick your team

10 T. C. Williams High School Alexandria, Virginia Alexandria Public Schools 460,000 sf 2,400 student replacement high school on 22 acres GMP Complexity of project

11 James Monroe High School Fredericksburg, Virginia 1200 High School 93,000 sf 2006 Accelerated schedule GMP No change orders Pick your team

12 Green Ridge Multigenerational Recreation Center Roanoke, Virginia 78,952 sf 2009 Revenue Producing

13 Virginia s PPEA Outcomes: PPP Study Commission Very flexible Design-Build procurement Was not necessarily cheaper Pick your team, GMP, no change orders None of the schools were built using private money Did save time (site procurement/fast-tracking) Requires trust between County and Schools Manage Expectations - School staff needs to establish scope and quality and have knowledgeable staff Most successful PPEAs were based on qualification selection best value, not lowest price Contractors who wish not to compete on low-bid love it Not for everyone

14 PPP Study Commission Commission summarized the issues to be considered in any new PPP legislation: Primary Goal behind encouraging greater use of PPP s Faster product delivery Sharing of risk Additional financing methods Goal should be transparency and open participation, particularly by local, small, minority and women-owned business. No unsolicited bids (not currently in SB 822)

15 PPP Study Commission Key Issues to be Addressed: Legislation should establish objective guidelines for qualification and pricing but offer flexibility from current bidding laws Private entities should not have to pay to enter competition Oversight should be required, but method of oversight (legislative committee? citizens committee?) should be left to local government What is the role of the LGC in PPP? Stipend for unsuccessful proposals

16 PPP Study Commission Commission also investigated innovative financing tools: Infrastructure Banks: method by which state level entity lends funds (grants, borrowed money) to local governments. Already exists in NC for specific infrastructure: (NC DOT ) for federal grant dollars, NC revolving water funds Could be used for pooling (i.e. multiple local governments borrowing through a central issuer) or for state to borrow and lend to local governments Commission also discussed special assessment bonds and other existing financing tools

17 Financial Impediments to PPP Financial issues that arise in structuring PPP s Revenue producing assets versus governmental assets Revenue producing assets (water and sewer systems, toll roads) offer an opportunity for the private party to benefit from lower costs, efficient operation, etc. For a non revenue producing asset, private party may be able to benefit from tax credits (such as historic tax credits, new market tax credits, state mill tax credits) and depreciation On the other hand, if the private entity builds the asset, it loses the sales tax exemption available to local governments Cost of capital for public body versus private entity In general governmental entity can borrow at a cheaper rate (because of tax exempt nature of debt and credit strength) than for profit developer This may be less true lately, given stresses on local governments and the very low interest rate environment. Private ownership of the asset is likely to result in the loss of tax exemption, which may be a disincentive for the financing. Value to developer of ability to take depreciation of asset, get tax credits may have cost.

18 PPP Study Commission Specific Motion and Recommendations: 1. Amend N.C.G.S. 115C to extend the sunset beyond July 2011 and to make it more flexible (e.g. permit both operating and capital leases, perhaps other changes). 2. Examine SB 822 to determine whether it can be revised to permit local governments to use, if they choose, some level of design/build for a variety of public infrastructure, but with some clear guidelines. 3. Consider creating infrastructure financing authority that could be used for two purposes: Pooling: multiple units seeking funding for similar assets through similar repayment scheme could join together for a single issue, thereby achieving economies of scale and sharing costs Key element is some sort of debt service reserve fund, line of credit, or other facility that evens and enhances credit Such an issuer could also act for various kinds of infrastructure like the water fund a revolving loan fund funded by federal and/or state appropriations

19 PPP Study Commission Current Status: Senate Bill 243 was introduced by Senator Robert Stevens which extends the sunset of the capital leasing bill ( 115C- 531 and 532) for schools to 2015, but does not add any provisions that might add additional flexibility Representative Ross expects to introduce legislation calling for a study commission to study infrastructure banks in order to consider the possibility of creating such a financing vehicle in North Carolina No action currently being taken regarding SB 822

20 QUESTIONS? NCEFP Performance for Dollars II Mary Nash Rusher, Esq. James N. Copeland, AIA

21 Virginia s Outcomes Process allowed public sector to pick the A Team. Projects completed through the PPEA process were for the most part within budget, completed on time, and with minimal change orders. Projects were good quality construction - No low bid mentality Process is considered the best value approach. Many project were completed that otherwise would not have been done. Most projects did not include a financing structure. Turn key process was less head aches for clients. Process created a more collaborative team environment. Outside the comfort zone for many agencies. Managing expectations in a design/build environment.

MEMORANDUM. Introduction. Enabling Legislation

MEMORANDUM. Introduction. Enabling Legislation To: Jan McHargue, Winston-Salem/Forsyth County Utility Commission From: Abby M. Goldsmith, R. W. Beck, An SAIC Company Subject: Solid Waste Management Authorities Date: Introduction Currently, the Winston-Salem/Forsyth