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Alternative Transportation Finance

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New law establishes office to facilitate public-private partnerships

process chart 2
The proposed P3 planning process.

By MnDOT ATF Staff

The 2013 legislative session was a productive one for the alternative finance initiative at MnDOT. The 2013 Omnibus Transportation Finance Law (HF1444*/SF1173/CH117) added a new Joint Program Office (JPO) for Economic Development and Alternative Finance.

“The JPO is charged with helping Minnesota navigate the world of public-private partnerships, to make sure contracts are structured properly so the public gets the best return on its investment in infrastructure,” said Phil Barnes, MnDOT’s alternative transportation Finance lead.

The JPO concept has been employed in the United States and around the world to manage the development and procurement of public-private partnerships, also know as “P3s.” Barnes said the JPO vision is to be compact and nimble, similar to the private partners with which it interfaces, and to allow for the development of resources critical for P3 procurements.

“The JPO’s goal is to assess P3s’ value to the taxpayers and governments, examine the long-term fiscal impacts of the respective partnerships, and select responsible private partners that can help MnDOT meet its objectives,” Barnes said.

P3s are becoming an increasingly popular option among U.S. policymakers for delivering complex infrastructure projects. Barnes said that by deploying the JPO, MnDOT can establish an office staffed by experts who can navigate the legal, financial and technical complexities of public-private agreements.

Minnesota will be one of a handful states that has a dedicated P3 operating unit. Barnes said entities in the private-sector side maintain personnel devoted to these transactions, and Minnesota does not want to be at a disadvantage if they don’t have equally knowledgeable in-house expertise.

Indeed, a recent report by the National Conference of State Legislatures warned of a “knowledge and experience gap” in the United States, citing a 2009 McGraw-Hill survey that found 61 percent of state and local officials had no experience dealing with P3s and did not fully understand them.

Some foreign P3 units are housed within transportation departments, some are stand-alone entities, and still others are quasi-public corporations. According to Barnes, “more important than the JPO’s exact structure is that the office provides Minnesota government with the capacity to evaluate and engage in P3 procurement processes.” He said projects that offer better value for Minnesota taxpayers under a P3 contract and are strongly supported by local affected jurisdictions may be prioritized and advanced into the procurement phase administered by the JPO.

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The proposed P3 procurement process.

Once a project enters the procurement phase, more extensive outreach to the industry would be conducted, solicitation documents would be developed, and the JPO would recommend a preferred private partner after a rigorous competitive process. To the right is a draft flow chart of the procurement phase.

According to Barnes, the JPO should employ staff that hail from backgrounds in finance, engineering, project management and law. It will perform financial analysis, structure contracts, develop performance-based contract terms and provide support needed to implement P3 proposals.

“The office not only creates opportunity for Minnesota and its local communities to develop the know-how to structure and manage these partnerships, but the very existence of the JPO may act as a sort of promotional tool that helps spur interest from the private sector in P3s,” Barnes said. “One of the JPO’s most important roles is steering stakeholders away from projects that could have long-term pitfalls for taxpayers. The office will provide a reality check to public officials and expectation management.”

Posted 7/1/2013

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