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

Chapter: Session 6: Lessons Learned

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Suggested Citation:"Session 6: Lessons Learned." National Academies of Sciences, Engineering, and Medicine. 2020. Public–Private Partnerships: What Are the Lessons Learned?. Washington, DC: The National Academies Press. doi: 10.17226/25718.
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Suggested Citation:"Session 6: Lessons Learned." National Academies of Sciences, Engineering, and Medicine. 2020. Public–Private Partnerships: What Are the Lessons Learned?. Washington, DC: The National Academies Press. doi: 10.17226/25718.
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Page 39
Suggested Citation:"Session 6: Lessons Learned." National Academies of Sciences, Engineering, and Medicine. 2020. Public–Private Partnerships: What Are the Lessons Learned?. Washington, DC: The National Academies Press. doi: 10.17226/25718.
×
Page 39
Page 40
Suggested Citation:"Session 6: Lessons Learned." National Academies of Sciences, Engineering, and Medicine. 2020. Public–Private Partnerships: What Are the Lessons Learned?. Washington, DC: The National Academies Press. doi: 10.17226/25718.
×
Page 40

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29 SESSION 6 Lessons Learned Sheri Ernico, LeighFisher, Co-Moderator Peter Kirsch, Kaplan Kirsch & Rockwell, Co-Moderator Panelists Stephen Van Beek, Steer David Narefsky, Mayer Brown Geoff Stricker, Edgemoor Sheri Ernico and Peter Kirsch introduced the panelists and asked them to give their perspective on the previous panel discussions and keynote address. Stephen Van Beek stated that he was pleased to hear discussions about VFM and spending significant time pre-procurement to evaluate options. He noted that the delineation regarding VFM for the sponsor and establishing goals for the public, as Chicago did with its Traveler’s Bill of Rights, is very helpful. David Narefsky stated that he was heartened by how much time is being devoted to stakeholder participation. Geoff Stricker noted that his company is developing the new terminal in Kansas City, Missouri, and that the project became significantly more political than originally expected. It is important to recognize the range of stakeholders going into a transaction and the potential impacts of competition between airlines. Kirsch asked how the airport P3 market differs from other P3 markets. Stricker responded that in other sectors, there is usually a single stakeholder, while in aviation there are many stakeholders with different priorities. He noted that the appeal of P3s for airports is the various revenue streams that airports generate. Narefsky stated that across the transportation sector, airport P3s are consistently the most complicated to implement successfully. He noted that local citizens have a strong connection to the airport compared with other transportation infrastructure. Ernico asked how developers manage competing interests between the airport and airlines. Stricker responded that the airlines have been involved in the planning and design process from the start. When Edgemoor was awarded the project, it was provided an older program and went through a program validation process to ensure that the program was still in line with what was best for the airlines and the city. He stated that material changes emerged

30 from that process, including more gates, a larger building, and slightly more parking. However, there are still conflicts between the city’s desires and the airlines’ desires—for example, the city’s desire for aesthetic amenities versus the airlines’ desire to limit costs. The contract sets up a governance structure under which such issues are vetted through a program management committee and, above a certain dollar threshold, a steering committee. Stricker clarified that the Kansas City structure is a design–build–finance project, and Edgemoor is arranging and structuring tax-exempt bond financing. He stated that as developers and owners of the assets, Edgemoor is very sensitive to operating costs of project for the firm and clients. Long-term capital repair and replacement costs and O&M costs drive the costs of these projects. Van Beek stated that the common perception is that commercial providers want to drive down the cost of capital expenditures. He noted that modeling usually showed that O&M costs are the greatest expense, so the focus is in fact on driving down O&M costs and making capital expenditures that help limit long-term O&M costs. He added that even for airports that are not pursuing a P3, bringing in advisors with a commercial mind-set to develop a business plan for airport facilities can be helpful and provides a very different perspective than the status quo. Narefsky stated that much of how Midway operates today derives from the insights it gained during the P3 procurement process, even though it was never executed. Van Beek stated that before going out to investors, airports should bring in an independent financial advisor to understand how much the airport is worth and what the value drivers are. Kirsch asked what the impediments are to operating an airport like a private enterprise. Van Beek responded that there are political barriers at any airport, and it is important to know what they are and limit them. Stricker stated that there are best practices that are intuitive to the private sector, but less so to the public. Certain ways of operating can be rethought. Narefsky noted that one key threshold consideration for P3s is the education process for airports and their level of comfort with P3s. He noted that the airline education process has generally been successful. Lynn Hampton stated that financial reporting requirements and access to less expensive capital are two key reasons why P3s are not as widespread in the United States. Van Beek added that he believes that in the United States, the airlines have an oversized influence and impact and more regulatory protection than in the rest of the world, particularly as the large carriers have consolidated. Stricker stated that to justify a P3, it is important to look at the financial premium being paid versus the risk being shed. He noted that understanding risk transfer and the costs associated with carrying risks is a challenge for the public sector.

31 In response to a question from Ernico, Stricker stated that Edgemoor has been flexible on financing and design. In Kansas City, Edgemoor held multiple design open houses across the city, took feedback, prepared a report, and shared with the city council what was important to the community. He noted that many ideas dovetailed with what was important to the city and the airlines, but other new ideas emerged. In response to a question from Kirsch on the best time to engage potential private partners, Narefsky stated that, in general, the earlier one can get private-sector input, the better off the public sector will be for shaping the process. However, the procurement process may hinder that. Van Beek stated that the idea of using a stipend was raised several times in other panels, and that it was not clear when to use stipends or who paid the losing bidders for IP rights. Narefsky added that it can be hard to get a stipend approved if specific appropriations are needed for the stipend. Stricker noted that, as a developer, Edgemoor supports stipends and sees them as a commitment of the public sector to a serious procurement process. He added that paying a stipend gives the public sector ownership of the IP of any bidders receiving a stipend. Narefsky responded that a stipend may also eliminate or significantly reduce the possibility of a protest. Stricker stated that stipends are also common outside of P3 work (e.g., for large general contractors). Kirsch noted that panelists and meeting participants had talked very little about FAA, which historically has played a smaller role in discussions about P3s. Narefsky responded that the FAA’s role will expand if use of the AIPP becomes more widespread. He added that in any P3 transaction, it is helpful to have a dialog with FAA about grant assurance requirements. Van Beek stated that with regard to many of the largest airports, ground transport to the airport is one of the biggest challenges for FAA and U.S. DOT, one for which they need clearer policies and greater engagement. He added that as there are more P3s with terminals, and aeronautical charges constitute a larger portion of airport revenue, rates and charges policies may become an issue, particularly if the airport is negotiating agreements to which the airlines have not consented. Danielle Rinsler stated that the Office of Airports is working on a policy guidance letter on the AIPP. Louis Wolinetz asked what airports can do to shorten the time and reduce the costs of P3 transactions. Van Beek responded that airports should plan carefully before entering the process, without overspecifying the transaction. Narefsky agreed. Stricker stated that because all P3s are different, the process has to start from scratch, and negotiation is necessary every time. This adds time and money to the process.

32 Clay McCoy stated that in other sectors, particularly toll roads, the time frame and cost are reduced and contracts get more precise, which results in more P3 transactions by the public sector. Li Pei Wang stated that it would be helpful to have a checklist that walks airports through the process of evaluating their preparedness for pursuing a P3. Sabrina Johnson asked for clarification on the concept of P3s covering social infrastructure and whether there are more formal ways for community stakeholders to be involved in the P3 process. Narefsky responded that social infrastructure generally covers buildings that are not revenue-generating assets, such as schools, universities, and student housing. He stated that every community has a different history of public involvement in infrastructure projects, and the stakeholder process is very jurisdiction specific.

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There are opportunities and challenges in implementing public–private partnerships at airports.

The TRB Airport Cooperative Research Program's Conference Proceedings on the Web 26: Public–Private Partnerships: What Are the Lessons Learned? is a summary of the presentations and discussions at an ACRP Insight Event held July 10-11, 2019, in Washington, DC.

These in-depth, face-to-face gatherings are designed to promote communication and collaboration, foster innovation, and help identify areas of future interest and research, especially for topics of emerging importance.

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