Louisiana is Developing an Appetite for Public-Private Partnerships.

Decaying Infrastructure Everywhere

While driving through the Mississippi Delta last week on my way to Lafayette - from New Orleans - I had the chance to experience the malaise facing transportation infrastructure in the USA. I saw miles and miles of roads, bridges, and river transport facilities that needed immediate attention.

The reason why I was driving to Lafayette was to participate in a Public-Private Partnership panel that was going to discuss future PPP prospects in Louisiana. The event was organized by the New Orleans World Trade Center and One Acadiana – an economic development organization for 9 parishes in southern Louisiana. 

The headliner for the well-attended event was “The Road Forward - Harnessing Public-Private Partnerships.”

The demand for PPPs to address infrastructure needs in Louisiana, which include both maintenance and improvements of existing facilities and the construction of new facilities, was personally further highlighted as I drove along Federal Highway 10 and State Highway 90 to and from Lafayette.

It became evident - very quickly - that these two highways (as well as many others in Louisiana and along the Gulf of Mexico) are at risk to flooding, need to be immediately improved and upgraded as are their supporting facilities such as bridges.

It was also evident that infrastructure improvement needs are not limited to roads. My personal observations from the road included decaying shipping channels, locks and port infrastructure in the Mississippi Delta around Baton Rouge and New Orleans that left me with the impression that much needs to be done if the USA’s agricultural and energy export gateway to the world’s markets is to maintain its ability to provide essential transportation services to the up-river states that rely so much on the Mississippi for their economic livelihood.

An Appetite for PPPs

The reality of the current large state infrastructure funding gap has compelled the State of Louisiana to pragmatically and willingly exploring programmatic partnerships with the public sector that will be able to provide alternative financing and introduce innovative ways to address the infrastructure needs of the next 30 years. Because of this realization, it can be bluntly said that Louisiana has developed an appetite for PPPs.

It was against this backdrop that the event was organized. Panelists were carefully selected to be able to speak to the point about specific PPP challenges and opportunities facing public and private sector PPP advocates in Louisiana. Panelists included:

• Shawn Wilson - Secretary, Louisiana Department of Transportation and Development (DOTD)
• Chris Kane - Partner, Litigation, Adams and Reese, LLP
• Kristin Johnson - Chief Operating Officer, International Resilience Center

I served as the moderator of the panel.

Panel Discussion Topics

Topics that were discussed by the panelist during the event focused on the PPP enabling environment in Louisiana; efforts that are underway to promote responsible PPP procurements; and ways to attract foreign and domestic investor interest in critical infrastructure projects. General discussion topics that were discussed by the panel included the following:

• What Louisiana has done to explore innovative international PPP best practices that might attract experienced foreign investors and companies.
• How current and new State PPP enabling legislation enables PPP projects.
• What Louisiana is doing to develop a robust statewide PPP pipeline.
• Louisiana’s preferred PPP model and duration of a PPP contracts.
• What can be done to address resilient infrastructure and improve risk mitigation for climate change induced adverse weather events in Louisiana.

The New PPP Enabling Environment

Both Secretary Wilson and lawyer Chris Kane pointed out that the state has worked hard and diligently to improve Louisiana’s enabling legal framework so that PPPs can be implemented successfully. This includes focused transportation specific efforts designed to support transportation PPPs. Efforts are also being made to ensure that expectations are being managed though guidelines and legislation that define the potential of PPPs and their ability to deliver infrastructure under well-defined contracts.

It was pointed out that the PPP enabling environment has being strengthened by Louisiana’s political leadership which has pushed through PPP legislation, including Act 519, that authorizes the Louisiana Department of Transportation and Development (DOTD) to utilize PPPs to finance projects for qualifying transportation facilities. This Act has strengthened the existing PPP Guidelines. Additionally, it was pointed out that the potential for transportation PPPs was enhanced in mid-December 2017 - with the approval of the use of the PPP contracting process to negotiate cooperative arrangements with the private sector - by the Louisiana Joint Transportation Committee and Governor John Bel Edwards.

A Systematic Approach

Panelists agreed that if international interest is to be generated in Louisiana’s fledgling PPP program, it is critical that global PPP best practices be adopted that include comprehensive feasibility studies, Value for Money Assessments (VfM), and determinations of project bankability. All panelists agreed that not all projects that initially might seem to be ideal candidates for PPPs might pass feasibility tests, but that it was better to systematically move forward only with projects that are economically viable, sustainable, resilient, and which had a serious commitment to risk management. This is why the Louisiana is adopting a comprehensive and systematic program for PPPs which will ensure that projects that are chosen for PPPs make sense.

Harmonization with the National Strategic Infrastructure Plan

Secretary Wilson pointed out that the Trump Administration has chosen a national infrastructure strategic plan that will rely less on federal funding and more on a combination of state funds and private sector finance. Because of this new reality, the political and economic establishment in Louisiana needs to find ways to harmonize its approach with the national infrastructure plan and find ways to leverage public-private sector collaboration if its infrastructure needs are to be addressed in a mutually beneficial manner with private sector finance as an alternative to federal funds.

Not all Projects can be Implemented as PPPs

Of the $13.9 billion infrastructure projects in the State’s pipeline, it was acknowledged that only a small percentage of these projects could be implemented as PPPs for a variety of reasons. Because of this pragmatic understanding, it was stressed that it is essential that all parties understand the limitations of PPPs and that promises are not made about PPPs by proponents that cannot be met. 

With these limitations in mind, it was indicated that Louisiana is committed to finding ways to expedite projects that meet PPP compatibility and success criteria. It was pointed out that both state and local government entities need to improve their institutional capacity to identify, plan and monitor PPP projects if effective infrastructure delivery partnerships are to be formed with the private sector. Because of this need, the Louisiana Department of Transportation and Development is making efforts to build a robust PPP office that can implement best practices. The public sector - it was stated - is also focused on committing to outreach events to hear what the general public and private sector have in mind concerning PPPs and their willingness to finance innovative approaches to building desperately needed infrastructure.

Closing Comments

Secretary Wilson stressed that proponents of PPPs must realize that PPPs are not free and that every project is different. He said that project selection scenarios that involve hammering “square pegs into round holes” must be avoided. He was also emphatic that the duration of PPP contracts should not exceed 50% of project life-cycles so as to ensure that obsolete projects would not be handed back to the public sector at the end of contracts.

Caution about unsolicited proposals was also expressed by the panelists. Panelists felt that it was important that strategic infrastructure projects already identified in a PPP pipeline should be first in line for project solicitation and procurement.

Louisiana is eager that its first large transportation PPP projects are successful. An example of a critical “PPP pilot” project that Louisiana will closely monitor is the Belle Chase Bridge and Tunnel Replacement PPP Project that is currently being launched. It is important that the project be successful so that Louisianan’s can see the benefit of proceeding with other large-scale PPPs in the future.

Kristin Johnson - Chief Operating Officer – of the UNECE affiliated International Resilience Center in New Orleans also stressed that future infrastructure that is planned and designed must be resilient and be able to stand up to the impacts of future natural disasters. She stressed that the International Resilience Center is willing to be a steward of resilience best practices for future PPP projects.

Closing comments from the panelists included the following:

• The importance of holding leaders accountable for the development of infrastructure through PPPs
• That it is time to think out of the box when exploring alternative ways to fund public works projects
• That PPPs are not a panacea for all funding approaches to infrastructure projects

It was encouraging to be part of such a pragmatic panel discussion in Lafayette - Louisiana. Events of this nature are important as they can help dispel concerns that private sector investors might have about state sponsored PPP initiatives and their risks. It is important that investors’ concerns be addressed as they are not sentimental about investing in infrastructure. If there is no plan, not commitment, and no enabling environment, they will go elsewhere.

The state and its partners, which include the New Orleans World Trade Center and One Acadiana have much to do. This was a good start.

Links

New Orleans World Trade Center - https://www.wtcno.org/

One Acadiana - https://www.oneacadiana.org/about/contact

International Resilience Center - https://ippprc.org/

Louisiana Department of Transportation and Development - https://wwwsp.dotd.la.gov/Pages/default.aspx