Public-Private Partnerships: At the intersection of Finance and Design

Matti Siemiatycki Geography and Planning University of Toronto

Presentation Overview

1. The Global Rise of Transport Public-Private Partnerships

2. PPP models and motivations

3. Implications of PPPs on Hub formation– The project scale: system design and function– Land development: form, function, timing– Community planning: managing short and long term change

4. Conclusions: leveraging the intersection of finance and design to achieve successful transit oriented communities

Transit and Land Use: The Financial Connection

Transport PPPs: A Truly Global Phenomena

Transit PPPs have Attracted Interest in Toronto

“Our view is we’re open for business, we’re open to do P3s, we want to do P3s to help deliver this $50 billion program. The question for us is, a simple question, can P3 deliver better value than traditional build methods.”

Robert Prichard, Board Chairman,

Metrolinx

Models of Public-Private Partnerships to Deliver Large Infrastructure Projects

(Source: CCPPP, 2009)

PPP Motivations and Concerns

Motivation for PPP Concern with PPP

Raise private money to pay for capital costs of infrastructure

More costly than when delivered using traditional methods; windfall profits

Stimulate innovative project designs Non-competition clauses limit system wide planning and service integration

Deliver value for money by transferring project risks from the public to the private sector

Contractual obligations reduce long-term policy flexibility

Encourage competition to bring down project costs and improve efficiency

High need for data confidentiality can limit meaningful public consultationCost savings achieved by reducing worker wages and benefits

Are Transport PPPs an Urban Phenomena? Do they Support Sustainable Transport?

All Transport PPPs, 1984-2009 Urban Rail PPPs, 1984-2009

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Potential Impacts of PPP at the Project Scale

1. There can be different expectations, incentives and risks for public and private sector partners

– Design to reduce costs may not encourage greatest system integration into wider landscape upon which effective hubs are formed

2. PPP process can limit project innovations and long-term flexibility in the system design in order to save costs and manage risks

– Value engineering means station designs more likely utilitarian than inspiring

3. Fast tracked, integrated, design and construction process can lead to tension between the public and private partner

“You’ve got the risk on the private side where they really have a timeline with a lot of financial implications if they don’t meet, and on the public side you have a lot of years spent getting what they want and those two come together and can create tension.”Doug Ewing, Partnerships BC

4. PPP process may limit meaningful and ongoing community engagement

5. Long-term contractual arrangements associated with PPP can make it difficult/costly to retrofit system as the hub takes shape over time

Urban Transport PPPs Highly Sensitive to Strength of Economy

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PPP and Design ProcessConstruction methods may be more invasive but lower cost

Can impact on station design/integration

• Design process proposed by each concessionaire– If RFP does not specified to

detailed design features, proponents may minimize station length, access points, escalators, elevators, design quality, etc.

– Do not necessarily build in flexibility to expand system• Eg. stations built only 40m

long; already nearing capacity

Design Features

No underground pedestrian walkway initially planned to connect adjacent stations

Trubnaya Station, Moscow Jubilee Line, London

Canada Line, Vancouver

Community Consultation and PPP

• Tension between commercial confidentiality and need for transparent, accountable public decision making

• "On the one hand, disclosure of proposed projects is necessary for them to gain public legitimacy. On the other hand, the private sector will be unwilling to participate if certain information about them and their business secrets must be disclosed”

Hedlund and Chase, 2005

• “Recent experiences in Australia would indicate that Government agencies are tending to use the pretext of commercial confidentiality as a shield against the disclosure of information which is commercially embarrassing to the Government or which raises issues of probity.”

Australasian Council of Auditors General, 1997

Best Practices for Data Release

Involving the Private Sector Through Land Value Capture

Transportation Improvement

Increased Accessibility to

destinations, lower travel times

Higher Land Values

Value Capture

Land Value Capture Approaches: How is Private Sector Integrated into Project

The Asian Model: Bundled

• Integrate land developers directly into the consortium of private firms financing and delivering the projects

• Land development joint ventures (Hong Kong MRT)– Build rental apartments that generate

long-term income to pay for transit operation costs

– Leverage publicly owned land

• Private land and transportation companies integrated (Japan)

Land Value Capture Approaches: How is Private Sector Integrated into Project

The North American Model: Unbundled

• Raising real estate related revenues occurs outside of the PPP concession;– leverage increased value of privately owned

land– Sell publicly owned land adjacent to transit

stations for development

• Use taxation powers on added land value to raise real estate related revenues. Can apply this money to offset capital or operating costs of transit investment

• Tax increment finance• Special assessment areas• Density bonuses

Success and Failure of Land Value Capture Approaches

Land Value Capture Approaches: Potential Challenges• May not encourage mixed use: residential

most profitable; office or industrial less valuable

• Very high density: opposed by communities in TO

• Get residential buildings built, but not necessarily well integrated with transit if no incentive for developers (wasted density)

• Timing and financial value strongly impacted by strength of property market

• Special assessment areas/benefit assessment districts can be challenged in court; limits ability to borrow against future revenues

• Higher localized taxes around transit stations may displace or delay investment to lower tax locations

Conclusions: Leveraging the Intersection of Finance and Design

• Align incentives so that private sector DBFO partner has an interest in encouraging facility designs that are integrated at the local level, service coordination, and land use development– Share traffic volume risk

• Performance specifications for PPPs must identify necessity for project level integration features

• Involve end users early and meaningfully in the project design process

• Leverage planning policy tools to ensure that buildings are well integrated with transit; gross density not as significant as good design. This requires strong planning framework, since in the short term it does have additional costs