🔒With infrastructure needs aplenty, Lamont eyes public-private partnerships for new development

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“Public-private partnership” can sound like an overused buzzword with a murky meaning, but Gov. Ned Lamont is looking to get much more specific.

In fact, the governor's administration is seeking to do away with several hurdles it says have effectively blocked such partnerships, called PPPs or P3s, from becoming a reality in Connecticut.

If the legislature plays ball, the changes — which have already been pitched in a bill introduced last month — could open up possibilities for a wide range of public-private projects, from the construction of university dormitories and train stations to the redevelopment of the XL Center, and yes, highway tolls.

The aim of PPPs is to use private capital to finance and build major public infrastructure projects. The investors earn a return, while cash-strapped governments put less long-term debt on their books and complete projects that might otherwise have taken longer, or not happened at all.

For Lamont, public-private partnerships could help finance a bevy of projects that may lose a funding source after he recently pledged to cut annual state borrowing by 39 percent.

P3s, however, aren't free money and come with taxpayer risks, experts say.

“This is really the start of a larger conversation about public-private partnerships,” said Paul Mounds, Lamont's chief operating officer.

A majority of states have some kind of enabling public-private partnership legislation, but many, like Connecticut, limit their scope.

For example, Connecticut caps the length of any PPP at no more than 50 years; limits the public portion of the funding at no more than 25 percent; and requires various reports and other information to justify the existence of the partnership.

Current law also limits PPPs to development of facilities related to early child care, education, health, housing and transportation. Projects must also generate revenue (and draw other funding) sufficient to cover their cost, maintenance and operation.

There was no real legal avenue for PPPs in Connecticut prior to a 2012 law championed by Gov. Dannel P. Malloy, which greenlit the executive branch to enter into agreements with private entities to finance, build and operate a limited set of facilities.

However, Mounds, who previously worked for the Malloy administration, said that law is limited in scope.

“This legislation has a broader scope, with the understanding that we don't know all the various partnerships that could come about,” he said.

One thing Lamont hopes to see is a P3 for the development of several new train stations, including one in Newington, on the Hartford Line — facilities for which the state has not identified funding.

The exact mechanism through which a private partner would recoup its investment in such a facility is not known, but a recent Pennsylvania train-station project, 10 miles outside of Harrisburg, allowed a private partner to build and operate shops and parking around the facility.

Nationally, a few other examples of recent P3s include:

• Construction of a major new civic center in Long Beach, Calif., which is nearing completion, with the city trading valuable downtown land for apartments and other development in exchange for more than $500 million in new public buildings financed by a team of private, long-term investors, according to the Los Angeles Times.

• In 2015, Pennsylvania bundled hundreds of bridge construction and repair projects into an approximately $900 million P3, according to accounting and consulting firm PwC, one of the first deals of its kind in the country.

• Universities in New Jersey, Georgia and Kentucky have used P3s to build student housing, while Purdue University and its home city of West Lafayette, Ind., forged a $73 million P3 in 2016 to transform a key thoroughfare into a pedestrian-friendly urban hub, PwC said.

Learning curve

While P3s have been evolving around the country in recent years — and expanding to new types of projects beyond a historic focus on roads and bridges — they still represent a small portion of infrastructure projects, experts say.

“It's been a slow, incremental hill that's being climbed,” said Darin Siders, a PwC partner who leads the firm's infrastructure advisory practice.

There's also the inevitable controversy connected to P3s.

“The historic controversy with respect to P3s was this perception that you were selling or giving away this thing that belonged to the citizenry,” Siders said.

But the partnerships are not true privatization, he said, as states typically own the assets in the end, after an agreed upon period of time, usually three or four decades.

He said transparency is key in P3 deals, as they often face scrutiny from the public and lawmakers.

While PPPs have often focused on tolls in other states, Mounds said Lamont has his eye on a broader array of projects.

Lamont's bill is likely headed to a public hearing in the next few weeks in the Government Administration and Elections Committee.

Committee co-Chair Mae Flexer (D-Killingly) said there's a “delicate balance” to strike in any consideration of P3s.

“Clearly we've got to do more to get the law working as it was envisioned when it was first drafted, and the state needs private investment in a variety of areas,” Flexer said. “At the same time, we've got to make sure we're good stewards of public dollars and we've got to make sure there are public protections and oversight of these projects.”

Whether Lamont's proposed tweaks will open the floodgates for P3s in Connecticut remains to be seen.

Lamont's bill would alter pieces of the current law, including removing provisions that limit a P3's lifespan to 50 years and cap the amount of state funding for a given P3 project at 25 percent.

Neither of those restrictions are currently a major roadblock, said Michael Freimuth, executive director of the Capital Region Development Authority, which has been looking for a P3-type arrangement to renovate XL Center in Hartford.

“But they were unnecessary hurdles, and we're trying to attract capital, not frustrate it,” he said.

Lamont's bill may not be a panacea for the XL Center, which is in need of a major overhaul or rebuild, according to Freimuth.

“However we change the law, the economics need to make sense and this will remain a challenge for private investors to achieve the desired ROI on their monies for projects like the XL Center,” Freimuth said.

However, he said a change to the P3 law could bring potential for the rundown Hartford Regional Market, which CRDA is now in charge of, after a recent legislative directive.

CRDA last year sought redevelopment proposals for the rundown Regional Market, receiving two, from FreshPoint and Sardilli Produce & Dairy Co.

Freimuth said quasi-public agencies like his have a bit more flexibility than regular state agencies when it comes to PPPs, but there are still limitations. He called Lamont's proposal a “significant upgrade” to the state's public-private partnership statute.

Availability payments

If Connecticut lawmakers can pass a game-changing bill, it'd likely allow for what are known as “availability payments,” said PwC's Siders.

“They de-risk the investment for a private investor,” he said.

To understand availability payments, take the example of a road construction project whose main revenue stream is tolls.

According to the federal transportation department, a tolled “concessions model” would allow a private investor to build the road and then be repaid via tolls revenue. The developer would bank on its traffic projections being accurate, taking a financial hit if they're overly optimistic and toll revenues come in lower than expected.

Under an availability payments model, the investor isn't dependent on toll revenue. Instead the state would agree to make periodic payments to the investor based on a set of agreed upon performance specs for the road. The state would keep the toll revenue, and the associated risks of variance if projections are off.

Approximately half of P3s in the U.S. over the last decade use the availability payments structure, according to the not-for-profit In The Public Interest (ITPI), and the pace has quickened in recent years, according to Siders.

Availability payments have downsides, according to ITPI, which warns public officials that they are still long-term financial commitments that can carry serious future budget implications.