Transit Public-Private Partnerships: Legal Issues (2014)

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3 TRANSIT PUBLIC-PRIVATE PARTNERSHIPS: LEGAL ISSUES By Larry W. Thomas, The Thomas Law Firm, Washington, DC I. INTRODUCTION The concept of a public-private partnership (PPP) seems to have originated in the United States.1 PPPs may design, build, finance, operate, and maintain transit facilities or entire transit corridors or modalities for a transit agency. Using the value of total PPPs as a guide, the transporta- tion sector is the largest user of PPPs in the United States.2 A PPP is not a partnership in the legal sense.3 Rather, a PPP is a contractual ar- rangement between a public agency as sponsor and a private partner for the design and construc- tion and possibly the financing, management, and operation of infrastructure, such as transit sta- tions and rail corridors.4 PPPs are “essentially a form of procurement”5 in which a “public entity ‘retains a substantial role’…and exerts control and oversight of the asset or infrastructure.”6 A PPP seeks to create “the most economically effi- 1 E.R. YESCOMBE, PUBLIC-PRIVATE PARTNERSHIPS, PRINCIPLES OF POLICY AND FINANCE 2 (2007), hereinafter referred to as “Yescombe.” 2 POLICY, FINANCE & MANAGEMENT FOR PUBLIC- PRIVATE PARTNERSHIPS 200 (Akintola Akintoye & Matthias Beck eds., 2009), hereinafter referred to as “Akintoye & Beck.” PPPs may be known by other names, such as a Cooperative Development Agreement (CDA) in Texas, Performance-Based Infrastructure (PBI) in California, State Asset Maximization (SAM) in New York, or Private Finance Initiative (PEFI) in Europe. 3 YESCOMBE, supra note 1, at 3. 4 R. Richard Geddes & Benjamin L. Wagner, Why Do U.S. States Adopt Public-Private Partnership Enabling Legislation?, at 2 (Dec. 2010), hereinafter referred to as “Geddes & Wagner,” abstract available at http://www.human.cornell.edu/pam/people/upload/Why- Do-States-Adopt-PPP-Leg-Dec-2010.pdf. 5 FEDERAL TRANSIT ADMINISTRATION, REPORT TO CONGRESS ON THE COSTS, BENEFITS, AND EFFICIENCIES OF PUBLIC-PRIVATE PARTNERSHIPS FOR FIXED GUIDEWAY CAPITAL PROJECTS 1, hereinafter referred to as “FTA Report to Congress on PPPs,” available at http://www. fta.dot.gov/documents/Costs_Benefits_Efficiencies_of_ Public-Private_Partnerships.pdf. 6 Chasity H. O’Steen & John R. Jenkins, Local Gov- ernment Law Symposium: Article: We Built It, and They Came! Now What? Public-Private Partnerships in the Replacement Era, 41 STETSON L. REV. 249, 256 (2012) cient and politically acceptable arrangements for coordinating public and private efforts to improve mobility and to apportion the costs and benefits among the many stakeholders.”7 In a PPP the public authority specifies its re- quirements, leaving it to the private sector to con- struct a facility meeting the transit agency’s speci- fications or “outputs.”8 PPPs make use of alternative contracting methods as well as inno- vative financing to take advantage of the private sector’s expertise and possibly financial resources to construct transit projects.9 Because of rising costs and ever scarcer funding for public transit, there is increasing interest in PPPs.10 Neverthe- less, the use of PPPs for public infrastructure pro- jects remains controversial. Moreover, there may be “significant political and legal impediments” to a public agency’s decision to engage in a PPP.11 A significant, recent development for PPPs and transit is that, in 2012, Congress enacted the Moving Ahead for Progress in the 21st Century Act (MAP-21).12 Section 1301 of MAP-21 states that it is United States policy “to accelerate pro- ject delivery and reduce costs” for transit projects (footnote omitted), hereinafter referred to as “Chasity H. O’Steen & John R. Jenkins.” 7 Public-Private Policy Partnerships 77 (Pauline V. Rosenau ed., 2000), hereinafter referred to as “Rosenau.” 8 YESCOMBE, supra note 1, at 4. 9 Public-Private Partnerships: Innovative Contract- ing, Hearings Before the House of Representatives, Be- fore the Subcommittee on Highways and Transit, House Committee on Transportation and Infrastructure, H.R. REP. NO. 110-24, at 3 (2007), hereinafter referred to as “H.R. REP. NO. 110-24, Hearings on PPPs.” 10 Nadine Fogarty, Nancy Eaton, Dena Belzer & Glo- ria Ohland, Capturing the Value of Transit, hereinafter referred to as “Capturing the Value of Transit,” at 29, Center for Transit-Oriented Development (2008), avail- able at http://www.reconnectingamerica.org/ assets/Uploads/ctodvalcapture110508v2.pdf. 11 EDWARD FISHMAN, MAJOR LEGAL ISSUES FOR HIGHWAY PUBLIC-PRIVATE PARTNERSHIPS 3 (Legal Re- search Digest No. 51, Transportation Research Board, 2009), hereinafter referred to as “FISHMAN,” available at http://onlinepubs.trb.org/onlinepubs/nchrp/nchrp_lrd_5 1.pdf. 12 Pub. L. No. 112-141, 126 Stat. 405 (2012).

4 in “an efficient and effective manner.”13 MAP-21 requires the Federal Transit Administration (FTA), for example, to streamline its approval process for FTA grants and to streamline its envi- ronmental review and approval process. MAP-21 “supports the development and revitalization of public transportation[] with an emphasis on en- couraging cooperation between public transporta- tion companies and private companies.”14 The FTA is required to provide technical assis- tance when requested by project sponsors and grantees on best practices for using PPPs for al- ternative project delivery of fixed-guideway capi- tal projects.15 FTA must identify public transpor- tation laws, regulations, or practices that impede the use of PPPs or that discourage private in- vestment in transit capital projects.16 As FTA ob- serves, a new pilot program established by MAP- 21 for expedited project delivery under 49 U.S.C. § 5309 may provide opportunities for PPPs.17 Thus, MAP-21 encourages private participation in tran- sit projects.18 On January 9, 2013, FTA published a final rule that sets forth “a new regulatory framework for FTA’s evaluation and rating of major transit capi- tal investments seeking funding under the discre- tionary ‘New Starts’ and ‘Small Starts’ programs” 13 MAP-21, Pub. L. No. 112-141 § 1301(a)(1)(A) and (B) (126 Stat. 527) (2012). 14 Anita Estell & Christian Washington, Special Transportation Report: The Moving Ahead for Progress in the 21st Century Act (MAP-21), at 3 (discussing MAP- 21’s amendment of 49 U.S.C. § 5301), hereinafter re- ferred to as “Estell & Washington,” available at http://www.polsinelli.com/~/media/Articles%20by%20At torneys/Estell_Washington_July2012. 15 MAP 21, § 20013(b), entitled Actions to Promote Better Coordination between Public and Private Sector Providers of Public Transportation, amended 49 U.S.C. § 5315(b) to provide that the Secretary shall 1) provide technical assistance to recipients of federal transit grant assistance, at the request of a recipient, on practices and methods to best utilize private providers of public transportation; and 2) educate recipients of fed- eral transit grant assistance on laws and regulations under this chapter that impact private providers of pub- lic transportation. See also FTA, Moving Ahead for Progress in the 21st Century Act (MAP-21), A Summary of Public Transpor- tation Provisions, at 9 (Aug. 2012), hereinafter referred to as “FTA Summary of MAP-21,” available at http://www.fta.dot.gov/documents/MAP21_essay_style_s ummary_v5_MASTER.pdf. 16 FTA Summary of MAP-21, supra note 15, at 10. 17 Id. 18 FTA Summary of MAP-21, supra note 15, at 10. and invited comment “on revised proposed policy guidance that provides additional detail on the new measures and proposed methods for calculat- ing the project justification and local financial commitment criteria specified in statute and this final rule.”19 In its proposed policy guidance, FTA pointed out that the final rule and proposed guidance “do not cover new items included in MAP-21 that have not yet been the subject of…rulemaking.”20 FTA issued its final policy guidance in August 2013.21 MAP-21 tasked the U.S. Department of Trans- portation (USDOT) and Federal Highway Ad- ministration (FHWA) to develop “standard public- private partnership transaction model contracts for the most popular types of public-private part- nerships for the development, financing, construc- 19 FTA, Major Capital Investment Projects; Notice of Availability of Proposed New Starts and Small Starts Policy Guidance; Final Rule and Proposed Rule, 78 Fed. Reg. 1992 (Jan. 9, 2013), hereinafter referred to as “Ma- jor Capital Investment Projects,” available at http://www.gpo.gov/fdsys/pkg/FR-2013-01-09/pdf/2012- 31540.pdf. See FTA, Proposed New Starts and Small Starts Policy Guidance (Jan. 9, 2013), hereinafter re- ferred to as “Proposed New Starts and Small Starts Policy Guidance,” available at http://www.fta.dot.gov /documents/NewStartsPolicyGuidance.pdf. 20 FTA Proposed New Starts and Small Starts Policy Guidance, supra note 19, at 3. The changes made by MAP-21, for which there was no rulemaking as of January 2013, include “core capacity improvement program evaluation and rating process, the program of interrelated projects evaluation and rating process, the pilot program for expedited project delivery, and the process for an expedited technical capacity review for project sponsors that have recently and successfully completed at least one new fixed guideway or core capacity project.” Id. Furthermore, FTA’s rulemaking as of January 2013 has not addressed how the steps in the New and Small Starts process will be implemented by FTA because of changes made in MAP-21 to those steps that were not considered in the NPRM. …While the final rule includes the names of the steps in the New and Small Starts process as defined in MAP-21, further detail on how those steps will be implemented will be the subject of future interim policy guidance and rulemaking, after an opportunity for public comment is provided. Id. 21 U.S. Department of Transportation, Federal Tran- sit Administration, New and Small Starts Evaluation and Rating Process, Final Policy Guidance (Aug. 2013), available at http://www.fta.dot.gov/documents/ NS-SS_Final_PolicyGuidance_August_2013.pdf.