Purple Line stumbles may hamper transportation P3s, analysts warn
The financial and legal obstacles besetting a long-planned Maryland light rail system could hinder other large-scale transportation public-private partnership projects, analysts said.
The Maryland Department of Transportation assumed many contracts from Purple Line Transit Partners this month after the private partner shut down construction of the 16-mile, 21-station light rail line. PLTP is involved in an ongoing legal dispute regarding the termination of a concession agreement, which has put the project an estimated two and a half years behind schedule from its original 2022 expected completion date.
“This could diminish P3s in the public sector and certainly paint them in a negative light,” said Fitch Ratings analyst Scott Zuchorski. “It could cause [the public sector] to think more carefully about pursuing them.”
The Purple Line project has been plagued by $800 million in cost overruns, delays and lawsuits since the Maryland DOT signed a 36-year concession agreement in April 2016 with PLTP to build and operate the rail system. PLTP issued $323 million of private activity bonds through the Maryland Economic Development Corp. in 2016 and received an $875 million low-interest Transportation Infrastructure Finance and Innovation Act loan. It has unsuccessfully negotiated with MDOT since June 2017 to resolve disputes over construction delays.
Paul Lewis, vice president of policy and finance at the Eno Center for Transportation, said he expects near-term challenges completing major P3s due to the Purple’s Line’s stresses, since there is such a small sample size of similar projects. The Purple Line’s pitfalls, he added, come on the heels of similar disruptions last year to a $770 million redevelopment of Denver International Airport’s Jeppesen Terminal, which featured a rail line, following the collapse of the project’s partnership with GDH.
“If I were an investor and I were looking at the two transit P3s with financing components, I’m not seeing a great track record,” Lewis said. “There aren’t many examples of this.”
Zuchorski said the legal cloud hovering over a high-profile project like Purple Line will also make investors more leery to embrace future transportation P3s. Purple Line bondholders may only receive 80 cents a dollar if courts ultimately determine that MDOT is not required to release a termination payment covering full payment of outstanding debt, he said.
“Who is ultimately at fault for the termination will have an impact on how this plays out for bondholders,” Zuchorski said. “The state of Maryland may ultimately get the project done, but that doesn’t necessarily mean the bondholders are protected.”
G. Scott Rafshoon, a partner at Squire Patton Boggs’ P3 practice, said the Purple Line stumbles would likely make states and developers reluctant to pursue complex projects that involve a large number of contracts. Many successful P3s for less risky transportation projects, such as highway improvements, have been completed, and he said he hopes governments will still consider utilizing the private sector for infrastructure projects.
“I’d like to think the days of one project going south killing all other chances for P3s are behind us,” Rafshoon said. "There might be some slowing down on some projects and in particular ones that are as ambitious as the Purple Line, but most of them aren’t that big.”
Previously, transportation P3s faced concerns after the state of Georgia nixed contracts for a $1 billion high-occupancy toll lane project in 2011, he said. While the cancellation slowed P3s in Georgia, nearly a decade later private operators have advanced other smaller transportation projects throughout Georgia.
The MDOT press office did not respond to requests for comment on the status of Purple Line or legal battle with PLTP. The MDOT has said bonds could be issued by the agency or another developer to help finance the project's completion..
PLTP could not immediately be reached for comment.