Looking for ways to accelerate the delivery of light rail, Sound Transit is considering using private-public partnerships (P3) for ST3 projects. But to take advantage of potential savings, CEO Peter Rogoff warned the Board it “would have to cede some decisions to a private vendor that it customarily reserves for itself.”
P3s are a procurement form which uses a single private entity for the design, construction, and possibly the financing, long-term operation, and maintenance of projects. The partnership offers several potential benefits to public entities, including reducing risk and costs, lowering agency workloads and providing additional debt capacity, without having to privatize the project.
Reducing agency workload
In the short term, P3s are more work for public agencies, which are still responsible for completing both the environmental review and design specifications for the bid process. In the long term, however, the partnership can eventually transfer a lot of work to the private company, freeing up agency resources.
“When we are facing a project list [for ST3] this long, if there is an opportunity to have a public/private consortium take on an entire project, and not therefore have to grow the staff as robustly… just relieving us of some of that bandwidth would have some benefit,” Rogoff said during the Thursday Executive Committee meeting.
Risk Transfer and Cost Savings
Once contracts are signed, ST would lock in a cost and timeline for the project, along with (if applicable) a long-term operational cost agreement, passing future risk onto the private company.
“If I am designing [a project] and I know I have to operate it for 10-15 years, I’m really going to think hard about how I design this project so it can be built on budget and operate cost-effectively,” said CFO Brian McCartan. “So by combining all those roles, rather than breaking it up into three different parties, you hope you can gain some efficiencies, and hopefully drive costs and risks down.”
McCartan said the potential for cost savings is greater during the operational phase of the projects.
Increasing Financial Capacity
“In some cases, the private company will bring money to the table,” McCartan said. “Lots of these projects come with 10 to 50 to 100% equity ownership.”
This could free up debt for other projects, allowing the agency to stay under its statutory debt limit while delivering projects faster. Rogoff warned the board there are also some tradeoffs to participating in a P3.
“There is a customary level of engagement in a project that the board is accustomed to … that they would have to cede, or otherwise run up the cost of a P3 type transaction,” Rogoff said.
To take advantage of a P3, the board would have to lock down designs earlier to avoid higher costs later, he added.
According to McCartan, P3s have become the standard method for the delivery of transit projects in Canada, which used this model for much of Vancouver’s train system.
McCartan said the bus-rapid-transit projects on SR 522 and I-405 are good candidates for a P3, as is the expansion of parking facilities planned in ST3. But smaller projects, which are estimated to cost $200M or less, and projects already beyond the 30% design stage, are not ideal.
“If and when you want to start charging for parking, we think that is a good P3 opportunity,” McCartan said. “There are very strong players in the private sector about building, operating and maintaining parking facilities.”
For P3s, many transit agencies partner with the private sector in real estate development in and around transit facilities. However, a new state statute requires Sound Transit prioritize affordable housing by offering at least 80% of surplus property to non-profit developers first.