The evolution of Virginia's public-private partnership enabling statutes.

• Author: Gifford, Jonathan

1. INTRODUCTION II. BACKGROUND III. ANALYSIS A. Program Flexibility 1. Qualifying Proposal, Facility, and Partner Definitions 2. Delivery Approaches 3. Funding and Financing Approaches 4. Procurement Processes B. Public Concerns 1. Ensuring Public Value 2. Managing Risk 3. Accountability and Transparency IV. CONCLUSION I. INTRODUCTION

   Public-private partnerships (P3s) have become an increasingly popular tool for infrastructure development in the United States. This interest arises out of concern about cost overruns, late project delivery, deferred maintenance, declining public funding, and increasing calls for infrastructure renewal and expansion. Used most frequently for transportation infrastructure, the term encompasses a variety of contract types that shift facility construction, financing, operation, and maintenance activities partially to private partners. (1) In contrast to traditional design-bid-build (DBB) procurement approaches, P3 arrangements increase private-sector participation in infrastructure delivery and financing (2) by bundling design, construction, financing, operation, and maintenance phases into a single private-sector delivery arrangement (e.g., design-build (DB), design-build-operate-maintain (DBOM), design-build-finance (DBF), design-build-finance-operate-maintain (DBFOM), and operation and maintenance (O&M)). (3) While the public sector retains facility ownership, P3 agreements typically allow the private partners to recoup their investment through tolls, user-fees, or public payments. By increasing private-sector involvement in infrastructure development, such P3 arrangements can bring new funding to public projects, accelerate development, and support ongoing upgrades or maintenance. (4) Since the United States lacks a generalized, federal P3 statutory framework, each state has developed its own approach to P3 law. (5) While federal programs and legislation have enabled experimentation and alternative financing options, (6) state legislatures have possessed primary responsibility for allowing or denying P3 approaches and for establishing program characteristics. (7) State executive branches are then responsible for implementing appropriate P3 programs within the established statutory guidelines.

   At the most fundamental level, effective P3 enabling statutes generate and support operating environments in which public entities can form successful facility or service delivery partnerships. However, given the funding, expertise, and public-interest protections required to evaluate and manage complex P3 arrangements, the enabling statutes must also specify allowable program activities, operating procedures, and lines of authority. (8) The private sector's greater role in P3 delivery mechanisms, compared to traditional public-sector facility and service delivery, challenges P3 enabling statutes to preserve a delicate balance between program flexibility and addressing public-interest concerns. (9) Broader program flexibility enables innovative facility design, financing, and procurement solutions, potentially allowing the public sector to capture broader private-sector benefits. However, when delegating authority to executive and private entities, P3 enabling statutes must also adequately protect the public interest.

   As of July 2015, 33 states, the District of Columbia, and Puerto Rico have enacted statutes enabling P3 approaches for transportation infrastructure delivery. (10) As one of the first U.S. states to enable P3 procurement, Virginia's 25 year history with P3 enabling statutes provides a unique opportunity to study the balance between program flexibility and public interest concerns, and its evolution in practice. (11) The following discussion explores the evolution of Virginia's public-private partnership enabling statutes through both program flexibility and public interest frameworks. The discussion begins with a brief historical background of Virginia's enabling statutes, focusing on its four primary P3 enabling acts: the Virginia Highway Corporation Act of 1988 (HCA), the Qualifying Transportation Facilities Act of 1994 (QTFA), the Public-Private Transportation Act of 1995, and the Public-Private Education Facilities and Infrastructure Act of 2002. (12) The discussion then analyzes the four acts and their subsequent amendments to evaluate the authorized programs' flexibility, public concerns, and evolution. The Article concludes with a summary of major findings and areas for additional consideration.

2. BACKGROUND

   Virginia's interest in alternative infrastructure procurement began in the mid-1980s when Governor Gerald L. Baliles made transportation development one of his administration's top priorities and established the Commission on Transportation in the 21st Century (COT-21) to evaluate the state's transportation needs and funding options. (13) The Commission's report identified seven billion dollars in transportation investment needs, to be met with bond issues and tax increases. Concurrently, private actors submitted draft legislation to the Commission regarding privately-funded toll roads. (14) The Commission recommended this approach to the state legislature, ultimately resulting in the state's first P3 enabling act, the HCA. (15) In their statement of policy, the General Assembly highlighted the "compelling public need for rapid construction of safe and efficient highways" and deemed public-private partnerships in the public interest (with adequate default protections) when speeding up roadway construction and improving costs efficiencies. (16)

   In keeping with this policy, HCA allowed private parties to submit proposals for constructing and operating toll-based roadway projects. (17) The Commonwealth Transportation Board would first evaluate and approve proposals with regard to project cost, location, design, interconnection, and public need, with the Virginia Department of Transportation (VDOT) arranging comprehensive agreements for facility inspections. (18) The State Corporation Commission (SCC) would then review the proposals and either accept or deny them for certificates of authority, allowing the private entities to construct and operate the facility for up to ten years following the original permanent financing term. (19) The SCC would also authorize tolls and regulate the facilities. (20) Upon termination, the state would assume authority over the highway facilities. (21)

   In February 1993, the General Assembly established the Joint Subcommittee Studying Privatization of Certain State Government Functions, which examined infrastructure projects and highway maintenance, among other government activities. 22 As the subcommittee worked through 1994, the General Assembly passed the QTFA (effective July 1, 1995), greatly expanding the range of transportation facilities qualifying for P3 procurement. (23) The act also shifted primary proposal review authority to the "responsible public entity" possessing "the power to acquire, construct or improve the applicable transportation facility." (24) However, the act still treated approved projects as public service commissions or utilities under the SCC's regulatory authority, requiring its certification before projects could commence. (25)

   When the joint subcommittee issued its final report in May 1995, it proposed several changes to QTFA addressing concerns that the act "might unduly restrict privatization efforts." (26) First, it recommended eliminating the SCC's "unnecessarily burdensome" regulatory role. (27) Instead, responsible public entities would have sole responsibility for project approvals and the SCC would simply determine whether those entities could terminate comprehensive agreements with defaulting operators. (28) Second, the report recommended that public entities have authority to pursue P3 projects through requests for proposals (RFPs). (29) Third, the report recommended a clear provision exempting qualifying facilities from state public procurement laws. (30) Finally, the report recommended adding parking and inland port facilities to the list of qualifying transportation facilities, removing redundant restrictions regarding tolling on interstate highways and existing facilities, and emphasizing compatibility with state and local transportation plans. (31) The resulting Public-Private Transportation Act of 1995 (PPTA) amended and re-titled QTFA to address most of the joint subcommittee's recommendations. It adjusted the transportation facility definition, allowed public-agency P3 RFPs, removed the SCC from the approval and oversight process, and removed the ten-year concession limitation. (32) Instead, responsible public entities had sole responsibility for project approvals and for negotiating comprehensive agreements including user-fee setting and termination dates. (33) The SCC's role was limited to declaring facilities officially in default prior to public takeovers. (34) Other changes included dedicating excess earnings to the state Transportation Trust Fund, adjusting procedures and authority for material defaults, exempting new P3s from the Virginia Public Procurement Act, and exempting PPTA projects from the Highway Corporation Act. (35) By 2002, the Virginia General Assembly recognized potential P3related benefits for educational, governmental, and other public infrastructure development, passing the Public-Private Education Facilities and Infrastructure Act of 2002 (PPEA). (36) This act replicated PPTA's provisions for a range of non-transportation facilities, giving qualifying public entities responsibility for project approvals and implementing slightly stronger procurement protections (added to PPTA in a parallel amendment).

3. ANALYSIS

   1. Program Flexibility

      Innovative P3 infrastructure projects and procurement approaches offer a range of benefits for public entities if state statutory frameworks provide sufficient flexibility to support innovative facility design...