New York State should consider privatizing assets and using design-build strategies to fill funding gaps for capital projects, a state commission said in a preliminary report yesterday. The report identifies transportation and education projects as candidates for public-private partnerships.

New York State Commission on State Asset Maximization chairwoman Charlotte Hitchcock, who is Gov. David Paterson's chief of staff and director of financial regulation, said that the report laid out a framework under which recommendations will be made to the governor by April 2.

Last year, the state determined that it needs to invest $175 billion in highways, rail, transit, and aviation over the next 20 years. However, the state Department of Transportation's current commitment level would provide just $75 billion, leaving a $100 billion shortfall.

Declining traffic forecasts, reliance on debt, and potential debt burden from the proposed $16 billion Tappan Zee Bridge replacement could put a strain on the New York State Thruway Authority's credit rating, hampering its ability to finance the $9 billion it needs for capital projects from 2012 to 2031, the report said.

The commission's transportation recommendations are evolving in part because of uncertainty over what kind of infrastructure funding the federal government could provide under the incoming administration of President-elect Barack Obama, Hitchcock said.

Possible P3 approaches include having a private company collect tolls on an asset it maintains while making debt service payments or "availability payments" under which a private company receives periodic payment in exchange for constructing and maintaining an asset.

The commission said it will work with the Thruway Authority and the department of transportation to identify potential P3 projects over the next 30 days.

New legislation could allow the Dormitory Authority of the State of New York to expand the kind of bonding it is allowed to do, enabling it to finance P3 projects on State of University of New York campuses that it is not permitted to do now, the report said. Currently, DASNY can only directly finance dormitory projects on SUNY campuses. Also, the state is not permitted to lease SUNY land for more than five years.

Removing those restrictions would permit DASNY to sell bonds to finance design-build projects such as academic facilities, business incubators, foundations, and even senior living communities on SUNY campuses. The report suggests that such lease arrangements could be overseen by a new oversight board and that state laws could be temporarily exempted to create pilot projects.

The report also suggested design-build P3s could be used for public schools, leasing state land to natural gas companies to raise as much as $540 million, and selling or leasing surplus state property.

Scott Trommer, a senior managing consultant at Public Financial Management Inc., said that the report's broad scope was a good first step.

"They have the opportunity to see what has worked and what hasn't," Trommer said.

While using P3s can deliver capital projects faster and cheaper, "when you're entering into a longer term concession, you have to have the necessary safeguards in place that protect the public and the public sponsor in case the private concessionaire encounters financial problems," he said.

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