DALLAS - The recent demises of some high-profile public-private partnership projects suggest that a changing political climate is beginning to slow down the pace of P3s in the U.S., Standard & Poor's said in a new report.
"Only a handful of states have used P3s in a significant way, with lawmakers in many states becoming wary of entering into such long-term contractual arrangements to finance, build, operate, and maintain infrastructure assets," said S&P credit analyst Trevor J D'Olier-Lees.
Financing large and expensive infrastructure projects with P3s seemed to have reached a watershed moment with four deals closing in 2014 and another five transactions in the first half of 2015, D'Olier-Lees said. The successful completions so far in 2015 have been based on policy decisions made between 2008 and 2010, he said.
"The 2014 midterm elections brought new headwinds to the nascent market, delaying or, in some cases, derailing P3s that sponsors were investing so-called 'spade money' into with expectations that the deals would soon close," he said.
"The political churn that has become the norm in many states can quickly shift priorities away from P3s, if only because the previous administration supported the financing as a way to jump-start infrastructure investment," D'Olier-Lees said.
Local officials often opt for conventional public financing of transportation infrastructure projects instead of a P3 because of the low borrowing costs provided by municipal bonds, the analyst said.
"Given there is currently a lot of focus on initial construction costs, any financial products that level the playing field with tax-exempt municipal debt could be beneficial to P3 adoption," D'Olier-Lees said.
"The initial borrowing costs may certainly come across as being lower with tax-free debt, but that doesn't ensure that operational or maintenance costs will be reduced," he said. "The advantage of P3s is that they distribute risk efficiently and often result in quicker project completion."
Many states don't have P3 enabling legislation, and some of those with P3 laws on the book have been hesitant to move ahead with projects.
The Move America Bonds proposal (S. 1186) from Sen. Ron Wyden, D-Ore., and Sen. John Hoeven, R-N.D., could provide lower borrowing costs and make P3s more attractive to states, D'Olier-Lees said. The proposed bonds would be treated as exempt-facility, private activity bonds but would have fewer restrictions and separate state volume caps that could be converted into tax credit allocations.
"This would give states significant flexibility to pursue infrastructure projects using the P3 as a procurement choice," D'Olier-Lees said.
Virginia, Texas, Florida, Indiana, and Colorado have successfully used P3s to fund infrastructure projects, but not all the proposed projects in those states have been realized, D'Olier-Lees said.
In June, Illinois Gov. Bruce Rauner halted work on the $1.5 billion Illiana Corridor, a bi-state toll road set to be delivered as a P3 in both Illinois and Indiana, and the Indianapolis City Council rejected a plan to join Marion County in a $500 million P3 project to build a courthouse and jail facility.
Another segment of interstate highway loop in north Dallas built and financed through a P3 agreement opened to traffic on Sept. 8 with tolled express lanes but the 2015 Texas Legislature put restrictions on the use of state funds in planning or building future toll roads.
The $2.6 billion, 16-mile LBJ Express project in Dallas was financed and built by the LBJ Infrastructure Group, a partnership of Cintra USA and Meridiam Infrastructure, which will operate and maintain it under a 52-year concession agreement signed in 2009.
The LBJ project received $1.2 billion of federal funding, including an $850 million Transportation Infrastructure Finance and Innovation Act loan.
