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Virginia Rolls Out the Red Carpet for 22 P3 Projects

WASHINGTON — In a move that is likely to make Virginia the leading state for public-private partnerships, Gov. Robert McDonnell has announced 22 transportation and infrastructure projects that may be developed as P3s.

The governor is asking for public input on the projects, which include highway, seaport and spaceport projects that are either under active consideration or flagged as possible candidates for P3s.

“It’s a fairly major step forward for P3s in Virginia,” said Secretary of Transportation Sean Connaughton.

Virginia’s 1995 legislation enabling P3s allows private companies to submit unsolicited proposals that meet certain guidelines, and that is how most of the commonwealth’s P3 projects have emerged, Connaughton said.

In April, APM Terminals Inc. submitted such a proposal to operate the Port of Virginia as a P3. That project is among those announced by McDonnell. Virginia is now making an effort to harness more interest from the private sector, said Connaughton.

“We’re trying to develop a systematic program,” he said. “We think this will put Virginia at the forefront.”

Virginia’s partnerships with the private sector create “tremendous synergy, offering the very best of government and private sector innovation and financing,” Connaughton said. “This is a very exciting time for Virginia business and transportation.”

State agencies involved include the Virginia Commercial Space Flight Authority, the Department of Motor Vehicles, the Virginia Department of Transportation and the Department of Rail and Public Transportation.

The move toward P3s stems comes as traditional financing is becoming more unable to meet infrastructure needs, Connaughton added. Gas tax revenues, historically the main source of road financing, are declining. Raising taxes at both the state and federal levels has proven politically difficult or impossible. Congress has been unable to pass long-term transportation legislation for more than two years, and apprehension is rising that House and Senate conferees will not be able to negotiate a longer-term transportation bill before the temporary law expires.

But the move to a P3-driven program has its opponents. Some detractors question whether public interests are protected when private companies gain control of critical infrastructure. Sen. Jeff Bingaman, D-N.M., authored language in the Senate transportation bill that would prohibit states from receiving federal funds for existing highways leased to private companies, and would also extend the depreciation period for such property.

McDonnell and other governors voiced their opposition to the provisions in a letter to congressional leaders in May, though Bingaman’s office maintains they would help protect taxpayers from exploitation.

Richard Norment, executive director of the National Council for Public-Private Partnerships, said Virginia’s latest move foreshadows national developments and stems from “a confluence of factors.”

“Virginia has always been a little bit out in front,” he said, noting that the commonwealth has had P3-enabling legislation for almost 20 years while many states still do not. Texas adopted legislation similar to Virginia’s last year, he said.

Falling revenues are one factor, as is the expensive prospect of maintaining infrastructure that many states and localities have long neglected. Virginia and other P3-progressive states like Pennsylvania have and continue to provide inspiration to other states to pursue the model, according to Norment. “You’ve got the budget crisis, deferred maintenance, and now you’ve got enough examples on how to do this,” he said. “You’re going to see a lot more of this coming down the pike.”

Fears stemming from the U.S. government’s credit downgrade last year are also a factor spurring P3 growth, said Norment. Although Virginia still maintains a triple-A rating, Moody’s Investors Service has warned Virginia and other states could be weakened by further slippage in the nation’s credit. Lower credit ratings would likely mean higher borrowing costs.

“Private financing can actually be less expensive than public financing, which is surprising to a lot of folks,” Norment said.

D.J. Gribbin, a managing director at Australia-based financial firm Macquarie Capital, said the announcement is “very significant” and proves the effectiveness of a dedicated P3 office within state governments. Gribbin said he hopes more states will dedicate staff to P3 development, as Virginia and Puerto Rico have done. “It’s a far more effective way to do P3s,” he said.

Gribbin also lauded the wide range of projects cited by McDonnell. “I think it’s encouraging that they’ve moved past pure highway projects,” he said.

The commonwealth will be accepting feedback on the announcement through July 2, McDonnell’s office said.

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