Transit Public-Private Partnerships: Legal Issues (2014)

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

311 APPENDIX E—SUMMARY OF TRANSIT AGENCY RESPONSES TO THE SURVEY 1. Ten transit agencies responded to the survey that within the past 10 years their agency had used a PPP for the purpose of acquiring, improving, constructing, developing, operating, maintaining and/or financ- ing an infrastructure project or used a PPP for TOD. The City of Lacrosse Municipal Transit Utility reported that in 2010 it had used a PPP for the Grand River Station, a $30-million joint development project that included transit and housing, parking, and com- mercial space. The private partner was Gorman & Company, which has continued responsibility for leasing, operation, and maintenance. The Transit Manager of the Connecticut DOT reported on a project now being initiated known as the Stamford Transit Oriented Development with the date of the project and identity of the private partner to be determined; however, there is a state commitment of $40 million for the project. The RFP indicates that the private partner would be committed to a 3-year contract with two 3-year renewable terms at the state’s discretion. The Director of Economic Development for DART stated that there had been one “borderline” PPP, a $6- million pedestrian project funded 80 percent by the FTA with a 20 percent local match that was shared 50 percent by the city and 50 percent by the developer. The Milford Transit District in Milford, Connecticut, advised that the Westfield Shoppingtown, Inc., $525,000 project is “currently in design,” and the private partner will be responsible for maintenance, trash collection, snow removal, utilities, and security. New Jersey Transit has had two projects within the past 10 years. The first project, the $1-billion River Line Light Rail Project, opened in March 2004. The private partner Southern New Jersey Rail Group (Bom- bardier) has continued responsibility for operation and maintenance of the project. The second project, the Weehawken Ferry Terminal, which opened in May 2006, was a $44-million project for which the private partner, New York Waterway, is responsible for leasing and maintaining the terminal. PVTA in Springfield, Massachusetts, reported that its HMTC project, a joint development transit center with educational office, classroom space, and café, was an $8.1-million project undertaken with HIF, LLC, as the private partner that has continued responsibility for leasing and operating the facility to tenants, in- cluding the PVTA. SANDAG advised that it had one PPP—the $7.9-million Grossmont Trolley Station, for which the private partner was Fairfield Realty, which also has continued responsibility for the station. SEPTA reported that it has had two PPPs in the past 10 years. One PPP was for the $2,200,000 SEPTA Wayside Energy Storage System, a project that included a unique combination of advanced energy storage and software technologies to recover excess train braking energy at a substation and store the energy for later use as train traction power. SEPTA reports that excess energy may be sold through the wholesale and regulatory markets. The private partner serves as an intermediary between the local electric utility com- pany and SEPTA. A second PPP project is still in the proposal stage, but a private partner will be selected to design, build, own, operate, maintain, and finance a combined heat and power plant on SEPTA’s property. The private en- tity will finance the plant and sell electric power and heat to SEPTA under a long-term energy service agreement.

312 SARTA describes its PPP as “clean energy for the operation of a public compressed natural gas (CNG) fa- cility.” The private partner for the $1.6-million project, which opened in May 2011, was Clean Energy, which has continued responsibility for the maintenance of the facility. TriMet of Oregon reported on a 2008 PPP for the Patten Park TOD, a mixed-use commercial/residential with low-income housing project that cost $15.5 million. The private partner, REACH Community Develop- ment, owns and operates the project. 2. Transit agencies having PPPs noted a variety of advantages and disadvantages of PPPs for infrastruc- ture projects, TOD, or joint development. Advantages included the following: • The city was able to complete a large housing project downtown that increased the tax base (City of La- crosse Municipal Transit Utility). • There are shorter durations for the design and construction phases and sharing of risk with resulting benefits for the commuting public (Connecticut DOT). • There may be no acquisition cost for land (Milford Transit District). • The “sole sourcing of the architectural/engineering firm” for a project was reported to be an advantage (Milford Transit District). • New Jersey Transit states that an advantage to its agency is the ability to use private sector manage- ment efficiencies with New Jersey Transit overseeing the project’s and the public’s goals. • A PPP eliminates some ownership issues and costs, reduces the risks in developing a project, and main- tains control of the design (PVTA). • SEPTA states that PPPs simplified the procurement process by having the vendor procure the required equipment. For SEPTA’s energy storage system project, “SEPTA receives energy savings [and] reduced ex- pense with little upfront investment.” For its combined heat and power plant project, the PPP simplifies the procurement process by having the private entity construct the plant without the requirements [being] placed on the public entity.” Once more, “SEPTA expects to receive energy savings in reduced expenses with no upfront investment.” • For TriMet, its PPP TOD project allows TriMet to fully utilize TriMet-owned property in a manner that supports the transit district, with risk taken by a private developer. TriMet states that there were no disad- vantages in using a PPP for its TOD project. Disadvantages were: • A PPP may be a lengthy, complicated project (City of Lacrosse Municipal Transit Utility). • There is a need for confidentiality during the selection and negotiation process (Connecticut DOT). • One agency reported that although its PPP project is currently in the design phase, thus far the insur- ance requirements are excessive (Milford Transit District). • Another agency states that there is a disadvantage in that there is less control over the use and opera- tion of a project (PVTA). 3. Transit agencies reported on the form of contracting that the agency had used for the delivery of its PPP project or projects.

313 No agency reported using simply a DB form of contracting for project delivery. Three agencies used a DBOM contract.893 One agency used A+B contracting.894 Four agencies used the CMGC form of contracting for project delivery.895 SEPTA explained that it “used a Request for Qualifications procurement process and entered into a development agreement with REACH,” the private partner that used a CMGC for construc- tion. One agency used a design-build-operate-maintain-manage form of contracting,896 whereas one used a design-build-manage contract for a PPP.897 Several agencies provided contracts and related documents. 4. Agencies also were asked whether they had used a method of contracting for a project that included fi- nancing to be arranged or provided in whole or in part by the private partner. SARTA stated that it had used DBFO form of contracting, whereas SEPTA stated that it had used the DBFO type of contracting in regard to “limited operations.” Both the Connecticut DOT and SEPTA reported using the DBFOM form of contracting for a PPP, but the Connecticut DOT stated that its DBFOM contract “allows for” the DBFOT method of project delivery. TriMet explained that the developer used the DBFOM form of contracting as TriMet had transferred the property in question via a developer agreement. Finally, although the financing aspect was not discussed in its response, the PVTA reported that it used a design-build-lease method. 5. The transit agencies using PPPs were asked whether, in addition to any form of contract delivery that they previously identified in their responses, there was an umbrella agreement, memorandum of under- standing, or other separate document between or among the PPP partners that set forth their obligations in respect to the PPP or the project. Only a few agencies had additional agreements. However, one agency reporting having used a develop- ment agreement (City of Lacrosse Municipal Transit Utility); another agency had used an access and opera- tions agreement (New Jersey Transit); another agency said it had separate agreements without further identifying them; and one agency had used an agreement for disposition and development of real property (TriMet). 6. Transit agencies were asked whether in evaluating a prospective project for a PPP the agency under- takes a VfM or other analysis of the project. Six agencies said that they did undertake such an evaluation,898 with two agencies indicating that they do not899 and two agencies not responding to the question. As for the factors that the agencies are considering before proceeding with a PPP, the agencies state they evaluate or consider the following: • One agency determines the useful life of the facility and ensures that it will be used as such for at least the determined useful life (Milford Transit District). • New Jersey Transit states that it considers “[p]rice, past performance, customer service record and other factors.” • SEPTA states that it considers return on investment. Furthermore, “SEPTA’s upfront cost outlay is primary factor”; however, SEPTA’s response notes that the agency has not undertaken many PPPs. SEPTA 893 Response of Connecticut DOT; New Jersey Transit; and SARTA. 894 Response of PVTA. 895 Responses of City of Lacrosse Municipal Transit Utility; Milford Transit Authority; Pioneer Valley Transit Author- ity; and SEPTA. 896 Response of New Jersey Transit. 897 Response of SEPTA. 898 Responses of Lacrosse; Connecticut DOT; Milford Transit District; NJ Transit; SEPTA; and TriMet. 899 Responses of PVTA and SARTA.

314 states that for another PPP, its “net present value” was determined on the return on investment and that “SEPTA’s upfront cost outlay is a primary factor.” • SARTA considers the time lines for construction with penalties when time lines are not met. • TriMet considers property value, increased ridership, and projected lease payments and sales price. 7. As for the key legal issues that should be addressed in the contract or contracts for a PPP project, the agencies reported: Agencies should ensure a project’s compliance with federal regulations (City of Lacrosse) and an “envi- ronmental planning approach [to allow] for transparency to prospective developers regarding mitigation” (Connecticut DOT). Milford Transit District noted that the parties’ responsibilities should be defined and that the agreement should address public safety, for example, regarding site selection. Likewise, the PVTA advised that the contract should have a “very detailed description of responsibilities of each entity,” alloca- tions of cost, and an “accounting process showing how the private investment requirements are satisfied.” The contract should contain provisions regarding liability insurance (SEPTA) and provide for penalties if the project is not completed on time (SARTA). The contract, in addition to addressing and meeting FTA re- quirements, should provide for appropriate remedies if a developer fails to perform its obligations (TriMet). Finally, New Jersey Transit stated that the key legal issues are “highly dependent” on the facts related to the project. 8. Only two agencies responded that they had encountered any real property or land use issues in connec- tion with their PPP projects (e.g., for New Starts or other facilities, TOD, or joint development). PVTA stated that because zoning-required parking was not satisfied, a variance was required from the city. The owner had to obtain the approvals because the issue was not anticipated in the joint development agreement. The costs (legal and architectural fees) to the owner were used to satisfy its private investment requirement. TriMet explained that it encountered issues with zoning, relocation of tenants of a prior facility, and other encumbrances on the property, such as parking requirements. 9. No agency having had a PPP project in the past 10 years stated that it or its private partner(s) had any federal or other tax issues for PPP projects (e.g., issues relating to 63-20 corporations, the preservation of the status of tax-exempt debt, qualifying an issuance of bonds as tax exempt, private activity bonds or ex- empt facility bonds, certificates of participation, or long-term leases or lease/purchase agreements). The PVTA did state that “PVTA issued [a] long-term lease at nominal cost given PVTA federal pass-thru funding to build [the] facility.” 10. Six agencies reported that, for each PPP project that the agency identified in its response to the sur- vey, the contractor was required to provide performance and payment bonds for the full amount or value of the applicable contracts under federal and/or state law.900 SANDAG stated that neither bond was required. SEPTA stated that neither bond was required for one PPP project but also there was no request for a waiver or exception with respect to any bonds. As for its second PPP, SEPTA stated that the requirements have not been determined as of the time of its response, but a performance bond “most likely” will be required and there has been no request for a waiver or exception to any bond sought or required. 11 and 12. Transit agencies reported on whether they received a federal grant for the PPP project(s) iden- tified in their responses, and, if so, (a) the type of grant; (b) the amount; and (c) the percentage of the project that was federally funded. 900 Responses of Lacrosse; Connecticut DOT; Milford Transit District; NJ Transit (also stating that no waiver was re- quested); Pioneer Valley Transit Authority.

315 The City of Lacrosse Municipal Transit Utility received § 5309 capital grants in the amount of approxi- mately $9 million, which was about 30 percent of the cost of the project. It appears that the local contribu- tion was $11 million, or 70 percent, with TIF being the source of the funding. Milford Transit District’s PPP was funded 80 percent by the FTA and 20 percent by the State of Connecti- cut. The FTA capital grants were for the amounts of $41,000 and $494,000. New Jersey Transit reported that for one PPP there was no federal funding but the other project received a “100% federal earmark grant.” PVTA received $4.4 million for its PPP project from the FTA, about 54.3 percent of the cost. PVTA ex- plained that the federal grants required $1.1 million in Massachusetts grants and that the total local and state contribution to the project was $2.7 million. Neither SANDAG nor SEPTA received a federal grant for their PPPs. SARTA received $1.6 million in funds from the FTA and $500,000 in ARRA funding. The local match was 20 percent for the FTA funds and 49 percent for the ARRA funding. TriMet’s PPP received 60 percent of its funding from the FTA under a New Starts grant for the Interstate MAX Light Rail Project, with local government contributions providing the remaining 40 percent. 13. Agencies that have had PPPs in the past 10 years reported also on whether the private partner as- sumed responsibility for securing the insurance cover. The City of Lacrosse Municipal Transit Utility stated that there had been no problems in working with the private developer to procure insurance, which included the coverage for the building and general liabil- ity with insurance for crime and directors’ and officers’ coverage along with an umbrella policy. Other agencies reported that the private partner assumed responsibility for the insurance cover,901 whereas the private partner did not do so with respect to other PPPs.902 New Jersey Transit stated that the agency holds owner’s insurance.903 Milford Transit District also advised that the private partner did not as- sume the responsibility for insurance for the PPP. With respect to details regarding insurance, for the Mil- ford Transit project the coverage included $10 million for commercial general liability, $1 million for prod- ucts/completed operations liability, $1 million for advertising injury coverage, and $5 million for automobile liability, as well as statutory workers’ compensation and $1 million for each occurrence, $1 million for each employee for employer’s liability. PVTA’s private partner assumed responsibility for insurance only for the building.904 14. As for revenue sharing with a private partner, three agencies reported sharing revenue;905 three agen- cies reported that their PPPs did not involve revenue sharing.906 15. In regard to FTA approvals, TriMet reported it had encountered some issues or problems (e.g., delays in approvals, additional expense) because of the FTA grant approval process for New Starts (or other FTA funding programs) that affected the agency’s use of PPPs. TriMet reported that “FTA concurrence” and the “cost of staff time” were issues. TriMet was the only agency that reported that it had encountered issues or problems with the process for environmental reviews that had affected the agency’s use of PPPs. TriMet’s response noted that NEPA review was required prior to the purchase of property for the project. 901 Responses of Connecticut DOT; SEPTA (stating that coverage included liability, pollution, worker’s compensation, and automobile insurance); Stark Area Regional Transit Authority; and TriMet. 902 Response of SANDAG. 903 See NJ Transit contract for the Weehawken Ferry Terminal project that provides details on the insurance. 904 See Response of PVTA, Joint Development Agreement in App. C for details. 905 Responses of NJ Transit (Weehawken Ferry Terminal project); PVTA; and SEPTA. 906 Responses of Lacrosse; NJ Transit (River Line Light Rail project); and Milford Transit District.

316 16. Only one agency, SEPTA, stated that the agency had agreed or would agree to an availability pay- ment structure for a PPP project.907 17. As for whether an agency’s state law permitted, encouraged, or restricted the agency’s use of, or a pri- vate party’s participation in, PPPs for infrastructure projects, TOD, or joint development, the Connecticut DOT advised that legislation had been amended to allow for such private participation. New Jersey Tran- sit’s response stated that New Jersey law encourages PPPs and allows the agency to enter into DBFOM con- tracts. SEPTA explained that “Pennsylvania’s Guaranteed Energy Saving Act permits public entities to par- ticipate in PPPs by eliminating the need to meet the requirements of the State Separation Act.”908 The latter act “requires the use of multiple prime contractors when public entities undertake capital projects.” How- ever, TriMet observed that “changes in Oregon condemnation laws potentially restrict [the] ability to ac- quire property to be used in a PPP.”909 18. Several agencies reported that their agency had not funded or financed a PPP with any of the follow- ing sources: qualified private activity bonds, non-qualified private activity bonds, exempt facility bonds, fare box revenue bonds, GANs, bonds issued by 63-20 nonprofit corporations, certificates of participation, TIFIA, a SIB, other bank financing, private investment/financing, TIF, assessment district funds, or development impact fees.910 However, the Connecticut DOT noted that it was to be determined whether the above sources, with the exception of fare box revenue bonds and GANs, would be used for its prospective Stamford Transit Oriented Development project. The City of Lacrosse Municipal Transit Utility reported using private investment/financing, as did the PVTA, the latter in the amount of $1 million. The City of Lacrosse Municipal Transit Utility also used TIF in the amount of $10 million. As for other sources, the City of Lacrosse Municipal Transit Utility used Wisconsin Housing & Economic Development tax credits. For the Milford Transit District, the sources of funding for its PPP were the FTA and the State of Connecticut. The PVTA relied on state and FTA grants and “local land/property donations.” Finally, for one project, SEPTA used a state grant, private funds, and SEPTA funds. 19. Several transit agencies have entered into a long-term lease for the operation or maintenance of the completed project.911 The Connecticut DOT had not determined whether a lease will be involved in the Stam- ford Transit Oriented Development project. 20. Only New Jersey Transit reported that for one of its PPP projects, lease/purchase agreements had been used for rolling stock or other equipment, i.e., ticket vending machines for its Weehawken Ferry Ter- minal project with the contractor making the lease payments toward the purchase. 21. Agencies reported that there had not been any federal or other tax issues concerning long-term leases or lease/purchase agreements. 22. Four agencies had PPP projects that involved TOD or joint development.912 The City of Lacrosse Mu- nicipal Transit Utility stated that the total value of the development was $30 million with $10 million from the private partner’s investment or other contributions and $9 million from the FTA. Revenue from the leases will be used for operating and maintaining the facility. For PVTA, the total value of the development 907 Response of SEPTA regarding Wayne Junction Combined Heat and Power Plant project. 908 Response of SEPTA. 909 Response of TriMet. 910 Responses of NJ Transit; SANDAG; SEPTA (for one project); and SARTA. 911 Responses of Lacrosse; Milford Transit District (see copy in App. C); NJ Transit (32-year lease for the Weehawken Ferry Terminal project); Pioneer Valley Transit Authority (see copy in App. C); SEPTA (5-year lease for one project and an anticipated 20-year lease for the second project); and SARTA. 912 Responses of Lacrosse; PVTA; SANDAG; and TriMet.

317 was $8.1 million with $1 million from the private partner’s investment or contribution and $4.4 million in federal funding. The development is not being used to fund other transit capital improvements or expenses. For TriMet’s PPP project, the total value of the development was $15.5 million with $3.215 million secured through the sale of LIHTCs. There were no “direct federal funds” for the project. The development is not be- ing used to fund other transit capital improvements or expenses. 23. [Omitted] 24. Agencies were asked about their agency’s approach to managing and administering a PPP, for exam- ple, the use of a project manager, dedicated management team, outside specialists, project manual, periodic monitoring, and the use of performance standards. The City of Lacrosse noted that its PPP was a public works project that included planning, engineering, and transit but that outside legal services were used for the development agreement. The Connecticut DOT identified the use of a project manager and “outside specialists.” New Jersey Transit stated that its project management program is managed by New Jersey Transit and that it “follows all requirements of the FTA process. The program is managed with an eye toward providing good customer service with less reliance on the taxpayer.” Milford Transit District also used a project manager for its PPP project. TriMet stated that it uses a project manager and utilizes support from the TriMet legal department and its engineering staff as needed. 25. As for any other PPP transit project in the United States that would be important to discuss in the di- gest, TriMet identified the San Francisco Transbay Transit Center.