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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2019. Leveraging Private Capital for Infrastructure Renewal. Washington, DC: The National Academies Press. doi: 10.17226/25561.
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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2019. Leveraging Private Capital for Infrastructure Renewal. Washington, DC: The National Academies Press. doi: 10.17226/25561.
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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2019. Leveraging Private Capital for Infrastructure Renewal. Washington, DC: The National Academies Press. doi: 10.17226/25561.
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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2019. Leveraging Private Capital for Infrastructure Renewal. Washington, DC: The National Academies Press. doi: 10.17226/25561.
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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2019. Leveraging Private Capital for Infrastructure Renewal. Washington, DC: The National Academies Press. doi: 10.17226/25561.
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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2019. Leveraging Private Capital for Infrastructure Renewal. Washington, DC: The National Academies Press. doi: 10.17226/25561.
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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2019. Leveraging Private Capital for Infrastructure Renewal. Washington, DC: The National Academies Press. doi: 10.17226/25561.
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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2019. Leveraging Private Capital for Infrastructure Renewal. Washington, DC: The National Academies Press. doi: 10.17226/25561.
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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.

Leveraging Private Capital for Infrastructure Renewal A Synthesis of Highway Practice Bryant Jenkins Lisa Amini Krista deMello Samuel Benford Charles Doherty Sperry Capital inC. Sausalito, CA Michael Bennon Rajiv Sharma Global projeCtS Center at Stanford UniverSity Palo Alto, CA 2019 Research sponsored by the American Association of State Highway and Transportation Officials in cooperation with the Federal Highway Administration Subscriber Categories Highways • Finance • Maintenance and Preservation N A T I O N A L C O O P E R A T I V E H I G H W A Y R E S E A R C H P R O G R A M NCHRP SYNTHESIS 540

Published reports of the NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM are available from Transportation Research Board Business Office 500 Fifth Street, NW Washington, DC 20001 and can be ordered through the Internet by going to http://www.national-academies.org and then searching for TRB Printed in the United States of America NCHRP SYNTHESIS 540 Project 20-05, Topic 49-13 ISSN 0547-5570 ISBN 978-0-309-48062-8 Library of Congress Control Number 2019946567 © 2019 National Academy of Sciences. All rights reserved. COPYRIGHT INFORMATION Authors herein are responsible for the authenticity of their materials and for obtaining written permissions from publishers or persons who own the copyright to any previously published or copyrighted material used herein. Cooperative Research Programs (CRP) grants permission to reproduce material in this publication for classroom and not-for-profit purposes. Permission is given with the understanding that none of the material will be used to imply TRB, AASHTO, FAA, FHWA, FMCSA, FRA, FTA, Office of the Assistant Secretary for Research and Technology, PHMSA, or TDC endorsement of a particular product, method, or practice. It is expected that those reproducing the material in this document for educational and not-for-profit uses will give appropriate acknowledgment of the source of any reprinted or reproduced material. For other uses of the material, request permission from CRP. Cover photo credit: Photo of Presidio Parkway Project, San Francisco, courtesy of California Department of Transportation. NOTICE The report was reviewed by the technical panel and accepted for publication according to procedures established and overseen by the Transportation Research Board and approved by the National Academies of Sciences, Engineering, and Medicine. The opinions and conclusions expressed or implied in this report are those of the researchers who performed the research and are not necessarily those of the Transportation Research Board; the National Academies of Sciences, Engineering, and Medicine; or the program sponsors. The Transportation Research Board; the National Academies of Sciences, Engineering, and Medicine; and the sponsors of the National Cooperative Highway Research Program do not endorse products or manufacturers. Trade or manufacturers’ names appear herein solely because they are considered essential to the object of the report. NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM Systematic, well-designed, and implementable research is the most effective way to solve many problems facing state departments of transportation (DOTs) administrators and engineers. Often, highway problems are of local or regional interest and can best be studied by state DOTs individually or in cooperation with their state universities and others. However, the accelerating growth of highway transporta- tion results in increasingly complex problems of wide interest to high- way authorities. These problems are best studied through a coordinated program of cooperative research. Recognizing this need, the leadership of the American Association of State Highway and Transportation Officials (AASHTO) in 1962 ini- tiated an objective national highway research program using modern scientific techniques—the National Cooperative Highway Research Program (NCHRP). NCHRP is supported on a continuing basis by funds from participating member states of AASHTO and receives the full cooperation and support of the Federal Highway Administration, United States Department of Transportation. The Transportation Research Board (TRB) of the National Academies of Sciences, Engineering, and Medicine was requested by AASHTO to administer the research program because of TRB’s recognized objectivity and understanding of modern research practices. TRB is uniquely suited for this purpose for many reasons: TRB maintains an extensive com- mittee structure from which authorities on any highway transportation subject may be drawn; TRB possesses avenues of communications and cooperation with federal, state, and local governmental agencies, univer- sities, and industry; TRB’s relationship to the National Academies is an insurance of objectivity; and TRB maintains a full-time staff of special- ists in highway transportation matters to bring the findings of research directly to those in a position to use them. The program is developed on the basis of research needs identified by chief administrators and other staff of the highway and transportation departments, by committees of AASHTO, and by the Federal Highway Administration. Topics of the highest merit are selected by the AASHTO Special Committee on Research and Innovation (R&I), and each year R&I’s recommendations are proposed to the AASHTO Board of Direc- tors and the National Academies. Research projects to address these topics are defined by NCHRP, and qualified research agencies are selected from submitted proposals. Administration and surveillance of research contracts are the responsibilities of the National Academies and TRB. The needs for highway research are many, and NCHRP can make significant contributions to solving highway transportation problems of mutual concern to many responsible groups. The program, however, is intended to complement, rather than to substitute for or duplicate, other highway research programs.

The National Academy of Sciences was established in 1863 by an Act of Congress, signed by President Lincoln, as a private, non- governmental institution to advise the nation on issues related to science and technology. Members are elected by their peers for outstanding contributions to research. Dr. Marcia McNutt is president. The National Academy of Engineering was established in 1964 under the charter of the National Academy of Sciences to bring the practices of engineering to advising the nation. Members are elected by their peers for extraordinary contributions to engineering. Dr. John L. Anderson is president. The National Academy of Medicine (formerly the Institute of Medicine) was established in 1970 under the charter of the National Academy of Sciences to advise the nation on medical and health issues. Members are elected by their peers for distinguished contributions to medicine and health. Dr. Victor J. Dzau is president. The three Academies work together as the National Academies of Sciences, Engineering, and Medicine to provide independent, objective analysis and advice to the nation and conduct other activities to solve complex problems and inform public policy decisions. The National Academies also encourage education and research, recognize outstanding contributions to knowledge, and increase public understanding in matters of science, engineering, and medicine. Learn more about the National Academies of Sciences, Engineering, and Medicine at www.national-academies.org. The Transportation Research Board is one of seven major programs of the National Academies of Sciences, Engineering, and Medicine. The mission of the Transportation Research Board is to increase the benefits that transportation contributes to society by providing leadership in transportation innovation and progress through research and information exchange, conducted within a setting that is objective, interdisciplinary, and multimodal. The Board’s varied committees, task forces, and panels annually engage about 7,000 engineers, scientists, and other transportation researchers and practitioners from the public and private sectors and academia, all of whom contribute their expertise in the public interest. The program is supported by state transportation departments, federal agencies including the component administrations of the U.S. Department of Transportation, and other organizations and individuals interested in the development of transportation. Learn more about the Transportation Research Board at www.TRB.org.

C O O P E R A T I V E R E S E A R C H P R O G R A M S CRP STAFF FOR NCHRP SYNTHESIS 540 Christopher J. Hedges, Director, Cooperative Research Programs Lori L. Sundstrom, Deputy Director, Cooperative Research Programs Tanya M. Zwahlen, Senior Program Officer Stephanie L. Campbell, Senior Program Assistant Eileen P. Delaney, Director of Publications Natalie Barnes, Associate Director of Publications Doug English, Senior Editor NCHRP PROJECT 20-05 PANEL Joyce N. Taylor, Maine DOT, Augusta, ME (Chair) Socorro “Coco” Briseno, California DOT, Sacramento, CA Anita K. Bush, Nevada DOT, Carson City, NV Joseph D. Crabtree, University of Kentucky, Lexington, KY Mostafa “Moe” Jamshidi, Nebraska DOT, Lincoln, NE David M. Jared, Georgia DOT, Forest Park, GA Cynthia L. Jones, Ohio DOT, Columbus, OH Jessie X. Jones, Arkansas DOT, Little Rock, AR Brenda Moore, North Carolina DOT, Raleigh, NC Ben T. Orsbon, South Dakota DOT, Pierre, SD Randall R. “Randy” Park, Avenue Consultants, Bluffdale, UT Jack Jernigan, FHWA Liaison Stephen F. Maher, TRB Liaison TOPIC 49-13 PANEL Leon Corbett, Florida DOT, Tallahassee, FL Jill Eicher, Bipartisan Policy Center, Washington, DC Morteza Farajian, Virginia DOT, Richmond, VA Nicholas J. Farber, Colorado DOT, Denver, CO Eric K. Kahlig, Ohio DOT, Columbus, OH Nizar Melehani, California DOT, El Dorado Hills, CA David Mohler, Massachusetts DOT, Boston, MA Suzanne H. Sale, Consultant, Phoenix, AZ Benjamin Hawkinson, FHWA Liaison Katherine A. Petros, FHWA Liaison William B. Anderson, TRB Liaison

ABOUT THE NCHRP SYNTHESIS PROGRAM Highway administrators, engineers, and researchers often face problems for which information already exists, either in documented form or as undocumented experience and practice. This infor- mation may be fragmented, scattered, and unevaluated. As a consequence, full knowledge of what has been learned about a problem may not be brought to bear on its solution. Costly research findings may go unused, valuable experience may be overlooked, and due consideration may not be given to recommended practices for solving or alleviating the problem. There is information on nearly every subject of concern to highway administrators and engineers. Much of it derives from research or from the work of practitioners faced with problems in their day- to-day work. To provide a systematic means for assembling and evalu ating such useful information and to make it available to the entire highway community, the American Association of State High- way and Transportation Officials—through the mechanism of the National Cooperative Highway Research Program—authorized the Transportation Research Board to undertake a continuing study. This study, NCHRP Project 20-05, “Synthesis of Information Related to Highway Problems,” searches out and synthesizes useful knowledge from all available sources and prepares concise, documented reports on specific topics. Reports from this endeavor constitute an NCHRP report series, Synthesis of Highway Practice. This synthesis series reports on current knowledge and practice, in a compact format, without the detailed directions usually found in handbooks or design manuals. Each report in the series provides a compendium of the best knowledge available on those measures found to be the most successful in resolving specific problems. FOREWORD By Tanya M. Zwahlen Staff Officer Transportation Research Board The objective of NCHRP Synthesis 540: Leveraging Private Capital for Infrastructure Renewal is to bridge the knowledge gap on the role of equity in surface transportation public–private part- nership (P3) projects and to document current practices relating to private-equity investments in small-scale and large-scale transportation infrastructure projects. P3s are becoming an increas- ingly important option for financing and implementing critical improvements to U.S. surface transportation infrastructure. This synthesis may serve as a resource for U.S. transportation agen- cies and stakeholders evaluating the potential benefits of P3s and assessing issues relating to the role of private equity in these transactions. The information contained in this synthesis was obtained using two sources. First, the consultant summarized existing research in a literature review. Second, the consultant conducted interviews with state departments of transportation that have used the P3 delivery model. A research team led by Bryant Jenkins of Sperry Capital collected and synthesized the informa- tion and wrote the report. The members of the topic panel are acknowledged on page iv. This synthesis is an immediately useful document that records the practices that were acceptable within the limitations of the knowledge available at the time of its preparation.

1 Summary 4 Chapter 1 Introduction 4 1.1 Background 7 1.2 Study Approach 9 Chapter 2 The Use of P3 in the United States for Highway Projects 9 2.1 Summary of Delivery Methods 16 Chapter 3 The Role of Private Equity in Public–Private Partnerships 16 3.1 Equity in the Project Capital Structure 17 3.2 Differentiating Debt and Equity Returns 18 3.3 Project Finance Without Equity: The 63–20 Model 19 3.4 Characteristics of Equity Investments in U.S. Transportation P3s 22 3.5 The Nature and Evolution of Financial Investors in P3s 26 Chapter 4 Considerations for Using Private Equity in Public–Private Partnerships 26 4.1 Balancing Profit Motives and Public Objectives in P3s 29 4.2 Public Perception Issues with P3 Equity Returns – Transaction Costs, Competition, and Ex-Post Cost of Capital Studies 31 4.3 Procurement Tools to Address Public Perception of Ex-Post Equity Returns 36 Chapter 5 Public Sponsor Perspectives on the Use of Private Equity and Optimal Contract Mechanisms 36 5.1 P3 Policies 37 5.2 P3 Office Structure, Authority, and Responsibility 37 5.3 Private-Equity Evaluation and Monitoring 38 5.4 Project Results Pertaining to Private Equity 39 5.5 Private-Equity Return Limitations and Issues 40 Chapter 6 Conclusions and Identified Research Needs 40 6.1 Study Objectives 40 6.2 Findings 43 6.3 Areas for Future Research 46 Glossary 51 Abbreviations C O N T E N T S

52 References 54 Bibliography 58 Appendix A Interview Guide 64 Appendix B List of Entities Interviewed 65 Appendix C Project Profiles Note: Photographs, figures, and tables in this report may have been converted from color to grayscale for printing. The electronic version of the report (posted on the web at www.trb.org) retains the color versions.

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Public–private partnerships (P3s) can provide solutions to the project delivery challenges faced by state departments of transportation (DOTs) and local transportation agencies in delivering surface transportation infrastructure by aligning risks and rewards between public and private sectors, accelerating project delivery, improving operations and asset management, realizing construction and operational cost savings, and attracting private-sector equity investment.

P3s are becoming an increasingly important option for financing and implementing critical improvements to U.S. surface transportation infrastructure. As interest in P3s grows, U.S. transportation agencies and stakeholders evaluating the potential benefits of P3s have raised issues relating to the role of private equity in these transactions.

Recognizing the complexity and challenges of structuring a highway or bridge P3 compared to a conventional procurement, the objective of NCHRP Synthesis 540: Leveraging Private Capital for Infrastructure Renewal is to bridge the knowledge gap on the role of equity in surface transportation P3 projects and to document current practices relating to private-equity investments in small-scale and large-scale transportation infrastructure projects.

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