Public–Private Partnerships: What Are the Lessons Learned? (2020)

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22 SESSION 4 Political Risks and Opportunities for Approving P3s Peter Kirsch, Kaplan Kirsch & Rockwell, Moderator Panelists Susana Carbajal, Austin–Bergstrom International Airport Lois Scott, Epoch Advisors Peter Kirsch introduced the panelists and stated that the purpose of the session was to discuss how to convince elected officials to consider a P3 and educate them on the benefits and challenges of P3s, particularly as political turnover occurs in the community. Susana Carbajal provided highlights of the Austin South Terminal rehabilitation project, which was prompted by dramatic airport growth and demand from the airport and airlines for additional service and gates. In 2015, the airport began talking to third-party investors interested in renovating and reactivating low-cost terminals to accommodate low-cost carriers. Carbajal stated that political support for the transaction was due in part to the completion of a previous P3 project. The airport also had built a strong relationship with the Airport Advisory Commission, which was made up of citizens, and the Austin Chamber of Commerce. Lois Scott stated that she was the Chief Financial Officer for the City of Chicago in 2011, when Mayor Rahm Emmanuel came into office. A live bid for a P3 at Midway Airport ended in 2008 after the financial recession, and there was general distrust of P3s after a highly unpopular P3 concession agreement for the city’s parking meters several years earlier. She noted that Mayor Emmanuel was interested in looking at long-term, financially sustainable solutions to infrastructure challenges. Carbajal stated that for Austin, political pushback was felt from the airlines—legacy carriers in particular. The airlines were seeking additional capacity in the main terminal to grow service and did not want additional competition from low-cost carriers. She noted that the airport’s engagement with the commission, mayor, and council to justify the South Terminal expansion and increased competition helped maintain support for the project. In response to a question from Kirsch, Scott noted that the impact of the parking meter P3 cannot be overstated. The city had to renegotiate what was a 99-year contract. She noted that there was significant political resistance to even evaluating P3s as an option for Midway. The city created and published a “Traveler’s Bill of Rights” with six major categories that established how the city would be held accountable to the traveling public.

23 The city also created an advisory panel with representation from labor interests, parking experts, civic leaders, and city council members. Scott noted that she attended public meetings to explain what the city was doing and why, and most negotiation was done in a public setting. Ultimately, the city decided not to move forward with a P3 for Midway. Carbajal noted that the airport worked with a private entity to develop the main terms of a deal before taking it to the public and political leadership to get support—the same process used for previous deals. She noted that there is a long tradition of trust between the airport, mayor, and city council. Scott stated that she was answering to both elected officials and finance experts, which created a much stronger process. She added that the advisory council was charged with addressing three questions: Was there a fair and transparent process from start to finish? Was the city receiving fair value for what was being exchanged? and Was a P3 the right option? The city publicly posted the proposed terms being considered. Scott noted the importance of avoiding finance jargon when communicating about P3s. The public does not care about concepts like VFM and financial modeling; it cares about whether enough scrutiny has been applied to ensure that all terms are acceptable. She added that the chairperson of the advisory council was the transportation lead for the Metropolitan Planning Council, which is highly trusted in the city. He helped to translate the information about the process to the public. Carbajal stated that the previous airport director was able to speak eloquently about the P3 deals with the advisory panel and city council and present the terms of the deal in a simple way. Additionally, an Allegiant Air representative spoke publicly and very authentically about the benefits of the project. Scott noted that it is important to be clear with investors up front regarding expectations and rules of engagement. However, it can be challenging for the investors to get the clarity they want from local government. She stated that the shortlisted bidders were frustrated when the city shut the process down. Carbajal stated that the New York–based private firm involved in the South Terminal deal hired a local lobbyist, who was able to translate its approach to local elected officials. She added that it would have been helpful to engage the local business community earlier in the process. Scott noted that Chicago required bidders to disclose their lobbyists. Benjamin DeCosta asked to what extent the airlines helped shape the deals. Carbajal responded that it was important to ensure that no costs associated with the South Terminal project were charged to the legacy carriers in the main terminal, especially if the contract with the private developer had to be terminated. Scott responded that the city had an excellent relationship with Midway’s airlines, who were kept informed throughout the process and pledged to remain neutral regardless of the outcome. In response to a question from David Hopkins, Scott clarified that the city ended the bidding process primarily because the number of bids at the final stage was insufficient.

24 She added that it would have been very difficult to demonstrate to the public that it was receiving a fair value without multiple bidders at the final stage. Scott noted the importance of articulating goals on how to treat labor in P3 transactions up front. Carbajal noted the importance of transparency and information. Carbajal stated that the legacy carriers in the main terminal ultimately benefitted from the South Terminal project, as they were able to increase capacity in the main terminal.