DALLAS — More public-private partnerships for transportation projects are on the horizon for 2014 due to declines and uncertainties in state and federal funding streams for highways and bridges, Fitch said in a recently released report.
Availability payments, which provide annual state subsidies to the private partner rather relying on fee revenues to support debt issued for P3 projects, will probably be considered as state-supported debt, the rating agency said.
"We expect more P3s and other alternative financing methods by states in light of the current federal funding environment," said Eric Kim, director of U.S. public finance at Fitch Ratings.
"Some states have P3 legislation that allows the public-private partnerships, but a number do not," he said. "We expect to see more P3 projects, but it is going to be on a state by state, project by project basis."
States with active P3 programs include Virginia, Maryland, Florida, and Indiana, he said, adding, Kentucky and Nevada are considering their first P3 projects.
Transportation P3 projects will become more attractive to states as aging infrastructure must be replaced while at the same time public funding sources could be impaired, he said.
"All of this is happening together," Kim said. "Either circumstance would be enough, but handling them both at once will require new ideas."
The two-year federal highway funding program will expire at the end of fiscal 2014, Kim said. It is expected to be extended for a longer term this time, he said, but meager revenues from the federal gasoline tax may not be sufficient to adequately fund needed highway and bridge projects.
"Some states, including Virginia and Maryland, have already taken action own their own to replace the gasoline tax with a sales tax," Kim said. "We expect to see more of that."
The recent decision by Ohio and Kentucky to include P3 funding as an option for a $3.6 billion bridge replacement project linking Covington, Ky., with Cincinnati is an example of an innovative bi-state approach, he said.
Kentucky doesn't have P3 enabling legislation, but the governor supports the idea, Kim said. A state P3 bill under development in the Kentucky legislature is expected to be considered in the current session that begins this week and end in mid-April.
The Brent Spence Bridge replacement project would use a design-build-finance-operate-maintain-model. The states hope to begin work on the bridge work in late 2015 or early 2016 and complete it in 2020.
The preliminary financial plan filed with the Federal Highway Administration said alternative funding options, including tolling, are needed to ensure the project is built "in the foreseeable future."
"At existing funding levels, constructing the project would absorb both states' entire major new funding capacity for several years," the plan said.
State support for the bridge project includes availability payments, which Kim said could be considered state debt.
"For our purposes, availability payments are state debt however it is categorized by the state," he said. "The state is committing to pay a certain amount over a specified time."
