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46 T R A N S P O RTAT I O N F I N A N C E the public sector, and the state is now working diligently accountability and the need to maintain the capacity to to bring the partnership to an equitable balance. conduct required oversight functions. Setting the Stage: Private-Sector Perspective on Discussion Roles and Risk Sharing John Flora Worth Blackwell John Flora led the group through a discussion that In his presentation of the private-sector perspective on focused on risks associated with compliance with envi- publicprivate partnerships, Worth Blackwell described ronmental laws and on identifying who takes on associ- how the transportation sector has lagged behind other ated risks. The group also addressed the pitfalls infrastructure sectors and noted that there are numerous associated with the public sector's retrospectively com- arrangements in other sectors, such as the water and pensating private partners for added costs that are theo- wastewater management arena. He drew attention to retically already built into the private-sector bids for a the prohibition of tax-exempt debt by private owners of job. The publicprivate partnership model of risk sharing highways. can fall apart when the terms of the original agreement Blackwell observed that private parties are involved for are altered midcourse. profit and they must consider how much profit is neces- The group also had an in-depth discussion comparing sary, how it compares with other investment opportuni- partnership projects in different states and some of the ties, and how it compares with the associated risks. In advantages and disadvantages of the various approaches. describing the risks to be considered, Blackwell highlighted Both the public-sector agencies and private-sector firms are risks in the following categories: still learning from these early experiments and adjusting the form of new partnership projects. · Construction and operations, · Payment and liability, · Environmental and permitting, SESSION 2: PUBLICPRIVATE PARTNERSHIPS: · Legal, A MATTER OF SURVIVAL · Political, and · Right-of-way acquisition. Mario Marsano, Raymond James & Associates, Inc. (Moderator) In conclusion, Blackwell noted that private-sector Gordon Linton, WageWorks, Inc. (Discussant) players are willing to take on risks that they can quantify Ron Marino, Salomon Smith Barney and manage. Susan Sanchez, Seattle Department of Transportation Monica Conyngham, Foley Hoag LLP Highway Robbery Mario Marsano David Kusnet Mario Marsano introduced this case study session, not- ing that the projects presented may serve as potential Speaking from a recent article, "Highway Robbery: How models for future partnership projects. Contracting-out the Design, Engineering, Inspection and Management of Federally Funded Transportation Projects Produces Problems with Cost, Quality, Safety & Las Vegas Monorail Accountability," David Kusnet described a danger that the public sector will not be able to protect public inter- Ron Marino ests. He described a situation where increased contract- ing out is leading to more expensive projects as well as Ron Marino provided the participants with an quality and safety issues. He also described a "brain overview of the Las Vegas monorail project, focusing drain" that resulted from contracting out whereby agen- on the publicprivate partnership elements. He cies are losing experienced and dedicated staff to the pri- described it as one of the few transit projects that have vate sector. Ultimately, according to Kusnet, agencies a sole pledge of fare box revenues supporting the debt. could lose the capacity to oversee work of consultants. In He described how the next phase of the project would his remarks, Kusnet stressed the need for greater depend on the following innovative finance tools: