PUBLIC HEARING HOW TO UTILIZE PUBLIC-PRIVATE PARTNERSHIPS (P3s) TO REPAIR AND IMPROVE NEW YORK STATE'S TRANSPORTATION SYSTEM

1 BEFORE THE NEW YORK STATE SENATE

STANDING COMMITTEE ON TRANSPORTATION 2 -------------------------------------------------- 3 PUBLIC HEARING 4 HOW TO UTILIZE PUBLIC-PRIVATE PARTNERSHIPS (P3s)

TO REPAIR AND IMPROVE 5 NEW YORK STATE'S TRANSPORTATION SYSTEM 6 ----------------------------------------------------- 7 8 Farmingdale State College

Lupton Hall, IRTT Room T-101 9 2350 Broadhollow Road

Farmingdale, New York 11735 10

September 27, 2011 11 10:00 a.m. 12

PRESIDING:13

Senator Charles J. Fuschillo, Jr. 14 Chair 15 16 SENATE MEMBERS PRESENT: 17 Senator Martin J. Golden 18 Senator Owen H. Johnson 19 Senator William J. Larkin, Jr. 20 Senator Carl L. Marcellino 21 Senator Jack M. Martins 22 23 24 25 1 SPEAKERS: PAGE QUESTIONS 2 Stanley Gee 7 21

Deputy Commissioner 3 NYS Dept. of Transportation 4 Marc Herbst 47 59

Executive Director 5 Long Island Contractors' Association 6 Tom Osborne 65 72

Managing Director 7 UBS Investment Bank 8 Roger Clayman 96

Executive Director 9 Long Island Federation of Labor 10 William K. Duffy, Jr. 100 104

President 11 IUOE Local 138 12 Michael Polimeni 110 117

COO, Polimeni International; and, 13 Association for a Better Long Island

(member of) 14

Phil Russell 133 154 15 Director of P3 & Alternative Delivery

H.W. Lochner, Inc. 16

John Buttarazzi 166 176 17 Representative of

Skanska USA Civil, Inc. 18

Kevin Thibault, P.E. 184 185 19 Vice President

Parsons Corporation 20

Marty Glennon, Esq. 197 199 21 Partner

Archer, Byington, Glennon & Levine 22 23 24 25 1 SENATOR FUSCHILLO: Thank you very much for 2 being here today, and those that are watching us 3 live on the Internet throughout the entire country. 4 My name is Senator Charles Fuschillo, and 5 I am Chairman of the Senate Transportation 6 Committee. 7 And before I start my remarks, I want to 8 introduce my colleagues. 9 To my far left is Senator Owen Johnson; 10 To my esteemed left is 11 Senator Carl Marcellino; 12 To my right is Senator Billy Larkin; 13 And, to his right is Senator Jack Martins. 14 Today's hearing will focus on how 15 New York State can use public-private partnerships, 16 also known as "P3s," to help expedite and fund 17 transportation improvement projects. 18 New York's massive transportation 19 infrastructure, which supports more than 20 130 billion vehicles-travel miles every year is 21 facing a serious crisis that requires immediate 22 action. 23 Consider that, New York ranks among the 24 bottom ten states in the nation for both highway and 25 bridge conditions, according to the New York State 1 DOT. 2 Our state should be replacing or 3 rehabilitating more than 300 bridges, and 4 1,150 miles of highway-lanes miles each year. 5 However, in 2009, only 121 bridges and 6 661 lane-miles were replaced or rehabilitated. 7 Nearly 6,200 of the state's 17,400 bridges 8 are either structurally deficient or functionally 9 obsolete. 10 The number of correction actions required to 11 address critical structure-component issues has more 12 than tripled over the last five years. 13 We can't solve these problem by relying only 14 on current funding sources. Traditional revenue 15 streams are declining, our project costs continue to 16 grow. Both the DOT and MTA lack capital plans which 17 are funded beyond this year. 18 Allowing the system to crumble would 19 devastate our economy and our quality of life. 20 Forcing already overburdened residents and 21 businesses to pay even higher taxes and fees and 22 tolls is certainly not the answer. 23 We're faced with a challenging problem: How 24 do we pay for projects which we can't afford, but 25 also can't afford to do without? 1 Challenging problems demand creative 2 solutions, and that's exactly what P3s can do for 3 New York State. 4 P3s have been utilized throughout the 5 world. 6 Here in the U.S., 29 other states and 7 Puerto Rico have enacted laws authorizing 8 public-private partnerships for highway and bridge 9 projects. 10 Given the private sector's vested interest in 11 completing projects on time and under budget, P3s 12 have helped expedite projects and contain costs. 13 They have been used successfully in 14 New York State before. 15 The Strategic Asset Management (SAM) report, 16 which was issued in 2009, noted that JFK Airport 17 Terminal 4, the JFK Airport AirTrain, and the 18 rehabilitated Grand Central Terminal were all highly 19 successful projects funded by P3s. 20 The same report encouraged New York to 21 explore P3s as a way to fund other improvement 22 projects, and specifically identify several ideal 23 P3s candidates. 24 P3 would help improve both our infrastructure 25 and economy. 1 The U.S. Department of Transportation noted 2 that 25,000 jobs are created for every $1 billion 3 spent on transportation infrastructure projects. 4 For a state with over 744,000 residents who 5 are unemployed, getting these projects off the 6 ground is a critical step to helping people get back 7 to work. 8 I have introduced legislation, co-sponsored 9 with my colleagues here today, which would allow 10 New York State to better utilize this important 11 tool. 12 The Innovative Infrastructure Development Act 13 would give the State DOT, MTA, New York State Bridge 14 Authority, and New York State Thruway Authority the 15 flexibility to enter into P3 agreements to finance 16 and deliver transportation infrastructure projects. 17 During the course of today's hearing, we will 18 hear from a number of experts, from government 19 agencies to private sector, non-profit 20 organizations, and labor organizations. 21 These organizations and individuals will 22 offer their opinions on how New York State can most 23 effectively use P3s to perform these desperately 24 needed upgrades. 25 I want to thank everybody for coming, and my 1 colleagues here as well. 2 I also want to thank Farmingdale State for 3 allowing us to hold the hearing here once again. 4 Our first speaker -- 5 Do you have anything you want to add? 6 SENATOR MARCELLINO: No. 7 SENATOR FUSCHILLO: Do you have anything you 8 want to add? 9 (Senator Johnson, Senator Larkin, and 10 Senator Martins indicate to the negative.) 11 SENATOR LARKIN: Our first speaker is 12 Stan Gee, Deputy Commissioner of New York State 13 Department of Transportation. 14 Stan, thanks so much for being here. 15 STANLEY GEE: Good morning. 16 Good morning, Senators. 17 Thank you for this opportunity, and thank you 18 for being here. 19 My name is Stanley Gee, the executive deputy 20 commissioner for the New York State Department of 21 Transportation. 22 The concept of public-private partnerships as 23 a tool to accelerate projects through innovative 24 financing for transportation infrastructure projects 25 is important. 1 As you know, Commissioner McDonald provided 2 testimony before this Committee last May. 3 And, I appreciate the opportunity to be here 4 today, and discuss the possibilities that P3s 5 provide to us, as well as update you of some of our 6 efforts since this spring. 7 I'd like to take this opportunity to call out 8 the professionalism, dedication, and the hard work 9 of our staff at DOT, especially related to the 10 recent storm-related recovery and restoration that 11 we have been under -- has been underway. New York 12 DOT's dedicated employees continue to keep our 13 state's aging transportation system in operation. 14 Each and every day the Department performs 15 critical, unscheduled maintenance of our state's 16 highways and bridges, and immediately responds to 17 emergencies, to protect the safety of the traveling 18 public. In fact, because of our continuing 19 collective actions, the infrastructure has been 20 reliable, making it possible for New Yorkers to take 21 our transportation system for granted. 22 These recent storm events have been no 23 exception. Over the last month, tropical storms 24 "Irene" and "Lee" damaged about a third of the 25 state's total highway system, resulting in closure 1 of nearly 400 road segments and bridges. 2 As of September 26th, all but 7 bridges and 3 14 segments have been repaired and reopened. Those 4 that remain closed suffered the most extensive 5 damage and require significant reconstruction or 6 replacement. 7 To address the damage caused by 8 hurricane-related flooding, DOT deployed an average 9 of 950 workers and 650 pieces of equipment over each 10 day over the three-week period immediately following 11 the storms. 12 New York State DOT fielded teams to complete 13 approximately 4,600 damage assessments of pavements, 14 bridges, streams, signals, and utilities. This 15 included approximately 2,900 damage estimates on the 16 state highway system and 1,700 damage assessments on 17 the local system. 18 Maintenance crews cleared storm debris, 19 initiated restoration work on approximately 20 5,700 miles of roadway, and repaired approximately 21 1,200 miles of roadway, in response to the two storm 22 events. 23 And I would be remiss if I didn't acknowledge 24 the response of the industry, both the contractors 25 and labor who responded in force to this 1 unprecedented situation. 2 In short, this has been a truly remarkable 3 response to such an unprecedented number of events, 4 and I want to applaud the Governor and the 5 Commissioner for their leadership during this 6 difficult time. 7 If nothing else, the recent storm-related 8 flooding events should bring to the forefront the 9 critical nature of our transportation 10 infrastructure, and the transportation -- and 11 transportation's importance to the state's economy 12 and quality of life for our citizens. 13 Too often we take our transportation 14 infrastructure for granted; that is, at least, until 15 it's no longer available to us. 16 More generally, it's clear, the needs of our 17 infrastructure, like those of the nation, are far 18 greater than resources available to address such 19 needs. 20 Our state's transportation infrastructure, 21 like most of the northeast, was built before and 22 during the Eisenhower Interstate Era. 23 In addition to the infrastructure being old, 24 it is heavily used, and subject to harsh weather 25 conditions more so than southern and western states. 1 These facilities are critical to providing 2 transportation service that supports the economy and 3 provides mobility for our citizens and travelers. 4 But, as these heavily used facilities continue to 5 age, it is becoming a greater challenge to maintain 6 them to ensure their continued use. 7 As one example: The average age of a bridge 8 in New York State is 46 years, while the average 9 life of a bridge is about 50 years. 10 Consistent with the findings of 11 two congressionally mandated national transportation 12 commissioners -- commissions, as well as the 13 American Association of State Transportation 14 Officials, New York DOT estimates that meeting 15 current and projected demands would require nearly 16 doubling of our current investments in 17 transportation infrastructure annually from all 18 levels of government. 19 Given the fiscal climate, both within the 20 state and nationally, this is not likely to occur in 21 the short term. 22 The use of public-private partnerships 23 (P3s), including infrastructure banks and other 24 prog- -- similar programs, should be explored, to 25 leverage private funding as tools for accelerating 1 the projects or facilitating delivery of some 2 projects. 3 Though innovative financing mechanisms cannot 4 substitute for the critical need for ongoing, 5 stable, predictable funding necessary to maintain 6 the core transportation infrastructure, their use 7 can serve as a complement to stable and predictable 8 funding. 9 New York's current and future transportation 10 infrastructure needs traditionally have been 11 addressed through a partnership of federal, state, 12 and local government resources. 13 As we discussed in May, the severe fiscal 14 constraints at all levels of government have had an 15 impact on the level of current investment, and 16 presents significant challenges moving forward. 17 Federal aid has historically comprised about 18 50 percent of the State's multi-year capital 19 programs. 20 At the federal level, the Highway Trust Fund 21 no longer remains solvent as a user-supported fund, 22 and has required more than $34 billion in general 23 fund transfers since federal fiscal year 2008, just 24 to maintain current funding levels. 25 In addition, the most recent federal surface 1 transportation program, known as "SAFETEA-LU," 2 expired on September 30, 2009. The nation's surface 3 transportation program has been operating under a 4 series of extensions since then. 5 Most recently, this past September 16th, 6 President Obama signed the eighth extension, 7 authorizing current funding levels through 8 March 31, 2012. 9 A critical issue that remains to date, 10 Congress has not found a way to sufficiently finance 11 a long-term, multi-year transportation bill. 12 While Congress and Administration support 13 increased funding for transportation infrastructure, 14 neither has identified the resources necessary for 15 this to occur. 16 It is fully expected that, absent any clear 17 ability at the federal level to increase support to 18 states in maintaining their transportation 19 infrastructure, Congress will move away from direct 20 funding and will provide states more flexibility to 21 leverage the use of limited resources through 22 innovative financing techniques. 23 As such, New York should position itself to 24 leverage innovative financing efforts that Congress 25 may provide, and such infra- -- and -- such as, 1 infrastructure banks and public-private 2 partnerships. 3 New York State DOT welcomes the opportunity 4 to utilize innovative finance mechanisms, such as 5 P3s, infrastructure banks, design-build, and other 6 similar programs, to leverage the resources 7 necessary to maintain infrastructure conditions. 8 This is, however -- some confusion -- there is some 9 confusion between privatization and 10 public-private partnerships. 11 New York State DOT is not advocating for 12 private companies to own and operate public 13 facilities; or privatization. Rather, we support 14 the use of P3s where it makes sense. 15 P3s involve the sharing of risk, 16 responsibilities, and funding, between the 17 governmental entity and one or more private-sector 18 partners. 19 Traditionally, for highway and bridge 20 projects, New York State DOT has used, what is 21 referred to as, "design-bid-build" approach. 22 Under this approach, projects are designed by 23 the State, put out for bid, and constructed by 24 private contractors. The facilities are then 25 operated and maintained by the State. 1 While this represents a form of 2 public-private partnership, most of the 3 responsibilities and risks associated with project 4 delivery fall to the State. 5 New York State DOT believes that P3s would 6 be helpful tools to have available as we balance the 7 needs of the transportation system. This will allow 8 more leveraging of private-sector expertise, risk, 9 and finance. 10 However, these tools would not replace our 11 traditional means of delivering projects, as only 12 certain types of projects would be appropriate for 13 P3s. Projects that would lend themselves to P3s 14 need to be able to attract private-sector interest 15 while providing a benefit to the public. 16 Approximately 90 percent of New York State 17 DOT's capital program is devoted to core 18 infrastructure projects required to maintain the 19 system in a state of good repair. Design-bid-build 20 will continue to be used to deliver the vast 21 majority of our projects, but we believe there is a 22 place, and there are opportunities, for P3s. 23 New York State DOT would be particularly 24 interested in the ability to use design-build 25 techniques to accelerate project delivery. 1 Design-build is a project delivery technique 2 that allows project design and construction to occur 3 under a single contract. It is a tool that has been 4 widely used, and successfully, over the last decade, 5 and is available to about 40 state departments of 6 transportation. 7 Here in New York, the MTA and the 8 Port Authority of New York and New Jersey can 9 utilize design-build. 10 This technique is also promoted by the 11 Federal Highway Administration as one of its 12 15 tools to accelerate project delivery under its 13 program known as "Every Day Counts." 14 While New York State DOT does not have the 15 statutory authority to undertake design-build, under 16 the authority of Governor Cuomo's Executive 17 Order 19, issued on September 1st, in response to 18 the flooding caused by tropical storms "Irene" and 19 "Lee," the Department has issued a request for 20 proposals using a modified design-build procurement 21 process for the emergency repair work along Route 42 22 in Greene County. 23 This project consists of replacing 24 two bridges, reconstructing washed-out roadway 25 segments, removing debris, undertaking all the 1 miscellaneous work items needed to restore the 2 transportation access within this corridor. 3 This project provides an opportunity to 4 utilize the design-build delivery method for a 5 project that includes a series of diverse repairs 6 within a defined geographic corridor. 7 The procurement process for this project will 8 be based on New York State DOT's nationally known 9 "Design-Build Manual." Full quality assurance and 10 quality control will be undertaken throughout the 11 project. 12 The Governor's Executive Order has expanded 13 the array of tools available to respond to the needs 14 of the State in making required emergency repairs. 15 To respond to this need for emergency 16 infrastructure repairs, New York State DOT is using, 17 not only design-build, but it is also relying on 18 more traditional mechanisms, including engaging our 19 State forces, using emergency stand-by contracts, 20 supplementing existing contracts with orders on 21 contract, employing a regional job-order contracts, 22 and undertaking new quick-response contracts. 23 The design-build delivery technique is one 24 additional tool available to meet needs where it 25 makes sense. 1 Similarly, the ability to undertake P3s, 2 where appropriate, would expand the Department's 3 ability to respond to its ongoing infrastructure 4 needs with the broadest possible array of tools. 5 Another potential use for P3 techniques would 6 be to address the State's bridge needs. 7 Bridges are a prime example of our state's 8 and the nation's aging infrastructure. 9 As I mentioned earlier, New York and the 10 northeast lead the nation in building -- led the 11 nation in building new freeways more than 50 years 12 ago, at the dawn of the interstate Eisen- -- of the 13 Eisenhower Interstate Era, making our 14 infrastructure, particularly bridges built during 15 this period, among the first in the nation to age to 16 a point where replacement will become necessary. 17 New York State DOT sees an opportunity to use 18 the design-build technique to address the backlog of 19 bridge-improvement needs. DOT's exploring the 20 possibility of addressing its growing need for 21 bridge improvements through an 22 Accelerated Bridge Program. 23 Currently, 35 percent of the state's 24 bridges -- nearly 6,200 of the more than 25 17,400 bridges -- representing about 54 percent of 1 the deck area of bridges, requires repair. 2 While safe for travel, they need some form of 3 work to extend their surface life -- service life. 4 Of those bridges, about half are local 5 bridges, 40 percent are state bridges, and the 6 remaining 10 percent are the responsibility of other 7 owners, such as the Thruway Authority and the 8 State Bridge Authority. 9 I want to make it very clear: The Department 10 continues to comply with all federal and state 11 requirements for bridge inspections, and exceeds 12 those requirements when the bridge's condition 13 indicates the need for more frequent inspections. 14 A bridge in need of repair does not mean the bridge 15 is unsafe. 16 The Department's objective under this 17 program, would be to reduce the number of bridges 18 requiring repairs or replacement by accelerating 19 investment. This would improve bridge conditions 20 across the state, and decrease the overall cost of 21 maintaining the bridge system over time. 22 To further develop this initiative, 23 New York State DOT held a workshop in May of this 24 year, that brought together engineering consortia to 25 discuss all aspects of an Accelerated Bridge 1 Program, including project selection, delivery, and 2 finance. 3 New York State DOT gained valuable insight 4 from this and further outreach, and has since 5 considered options for developing such a program. 6 Enabling legislation for New York State DOT 7 to utilize this innovative delivery method would be 8 necessary. 9 As I conclude, I want to restate: That 10 New York State DOT welcomes the opportunity to work 11 with you on developing and implementing the use of 12 public-private partnerships, and other similar 13 innovative finance techniques, to accelerate project 14 delivery. 15 While the use of P3s can serve as a 16 complement to stable and predictable funding, it 17 needs to be recognized that P3s are not applicable 18 to most routine and recurring repair and 19 rehabilitation activities. As such, the vast 20 majority of projects delivered by the Department of 21 Transportation will continue to use the traditional 22 design-build-bid -- design-bid-build approach. 23 All options, however, to maximize and 24 leverage resources should be considered. 25 New York State DOT appreciates that this 1 Committee, and its Chairman, is considering 2 legislation that would expand our ability to take 3 advantage of a broader array of these techniques. 4 This will become increasingly important as 5 Congress, in reauthorizing federal transportation 6 legislation, will be considering expanding 7 opportunities to use P3s. 8 New York State should be in a position to 9 take full advantage of all funding opportunities. 10 Thank you again for this opportunity, and for 11 me to provide this testimony, and to speak to you 12 today. 13 Thank you again. 14 SENATOR FUSCHILLO: Thank you very much, 15 Stan. 16 We -- the panel has a few questions for you. 17 Senator Marcellino. 18 SENATOR MARCELLINO: Thank you, 19 Senator Fuschillo. 20 I appreciate the invitation to come, and 21 I appreciate the fact that you're holding this 22 meeting. 23 I don't appreciate this chair. It's 24 uncomfortable. And the table's too small. 25 [Laughter.] 1 SENATOR MARCELLINO: But other than that, 2 we're working under ideal circumstances here. 3 Commissioner, we're here to figure out, or 4 listen to, some recommendations, as to how the 5 private-public partnerships can be used to help 6 stimulate, if you will, the economy, as a state. 7 At least that's what I'm here for. 8 And, so far, what I've heard, is, same old, 9 same old. 10 I mean, I'll lead from your second paragraph 11 on page 3 of your statement, that -- which we were 12 presented with. 13 "Traditionally, for highway and bridge 14 projects, New York State DOT used, what is referred 15 to as a 'bridge'" -- "as a 'design-bid-build' 16 approach. 17 "Under this approach, projects are designed 18 by the State, put out for bid, and constructed by 19 private contractors. The facilities are then 20 operated and maintained by the New York State DOT. 21 "While this represents a form of 22 public-private partnerships, most of the 23 responsibilities and risks associated with the 24 project delivery fall to the State." 25 What is the incentive for a company to engage 1 in a public-private.partnership with the State of 2 New York? 3 This process, which you outline, and which 4 you've talked about at length, frankly, is the same 5 thing we've been doing for a hundred years. I 6 haven't heard anything new here. 7 I was looking for, and I was hoping we would 8 hear, some kind of suggestions for the kinds of 9 projects. 10 High-speed rail. You see you have 11 Mr. Polimeni here, who wants to build a bridge under 12 the Sound. 13 What is the incentive for a company to come 14 in and engage in a partnership with the State? What 15 do they get out of it? -- other than a fee, which 16 they get paid the way we've been doing it, again, 17 for the last hundred years. 18 What's new here? 19 STANLEY GEE: Well, several things. 20 Statutorily, our Department is prevented from 21 doing the full complement of public-private 22 partnerships. 23 I think you will hear from other speakers 24 from the private sector what would be an incentive 25 for them to -- 1 SENATOR MARCELLINO: I'd like to hear from 2 you. 3 Excuse me for interrupting. I don't mean to 4 be rude, but time is limited here. 5 STANLEY GEE: Sure. 6 SENATOR MARCELLINO: I would like to hear 7 from you, as the professional, as the New York State 8 representative: What do you need from this 9 Committee; from Senator Fuschillo's Committee? -- 10 which I'm am not a member of. 11 And he's thanking himself right now for not 12 letting me on. 13 But, what do you need from us in the 14 Legislature, so that you can actively engage in 15 public-private partnerships? 16 STANLEY GEE: Okay. As I indicated in the 17 legislation, we are prevented from pursuing any type 18 of public-private partnership, other than what I 19 described as "design-bid-build," because of 20 statutory requirements. 21 We do not have the ability -- if you provided 22 us that -- those -- that ability, we would engage in 23 discussions with the private sector. 24 We are being approached by a lot of partners, 25 people that will testify in this room, about the 1 ability to work with us. 2 Generally speaking, where we assume -- the 3 State assumes all the risk, all the knowns, and we 4 contract out, the ability to attract them is to 5 pro- -- maybe they will be able to deliver projects 6 more timely as we transfer some of the risks to 7 them. 8 We assume all the risks. 9 Example: We own all the right-of-way. We 10 take all the right-of-way, take care of all the 11 environmental process. That's risk that the State 12 does because that's a governmental function. And, 13 the rest of it is, the construction part is, 14 assigned to the private contractors. 15 We can transfer some of that risk. Some of 16 that risk you would want retained as a public 17 entity. But, we don't have the ability right now, 18 to engage in discussions, and talk to them, about 19 how they would participate in such a partnership. 20 SENATOR MARCELLINO: You mention the fact 21 that the federal government is showing more 22 flexibility; offering you more flexibility in how 23 you can do your business. 24 They're only doing that because they're 25 broke. They don't have any money. 1 Well, last time I talked to Governor Cuomo, 2 which wasn't all that long ago, we're broke too. 3 So, the State of New York has no money, the 4 federal government has no money, hence we're looking 5 at alternative means of financing these projects; 6 these very important projects. 7 I would like to see high-speed rail between 8 New York City and Albany. I would like to see it in 9 the whole northeast. That would be, in my mind, a 10 fantastic way. 11 Much like the highway system opened up 12 Upstate New York, much like Cross-Continental 13 Railroad opened up the country, I'd like to see 14 high-speed rail do that, and shorten the time of 15 travel, and the time of transport of goods, back and 16 forth. 17 I don't hear that. 18 Again, I'll ask you again: What kind of 19 legislation do you need from us, so that we can give 20 it to you, so that you can do what we want, and that 21 is the -- and what you say you want? 22 And I believe you. 23 What do you need from us, so that we can give 24 you, so that you can engage in these public-private 25 partnerships? 1 STANLEY GEE: Again, we need enabling 2 legislation. 3 SENATOR FUSCHILLO: Which you have. 4 And we've introduced that in the Senate, and 5 you're a co-sponsor of it, which will allow for 6 P3s, which will allow for the opportunities for 7 design, build, and maintain, everything you don't 8 have the option for right now. 9 You want to ask me another question, Senator? 10 SENATOR MARCELLINO: No. 11 But the idea of -- what I'm hearing is, 12 again, I was kind of hoping that we would get: The 13 kind of examples that they want to engage in. The 14 kind of projects that they would like to open up. 15 SENATOR FUSCHILLO: Yeah, and I think that's 16 a fair question. 17 Stan -- 18 SENATOR MARCELLINO: But I'm not hearing it. 19 SENATOR FUSCHILLO: -- Tappan Zee Bridge; 20 myself, and Senator Skelos, the majority leader, we 21 toured that with the county executive from 22 Westchester, Astorini [sic], back in July of this 23 past summer. 24 And, in my mind, that's a perfect candidate 25 for a P3 -- for a public-private partnership -- 1 which you don't have the option, right now, because, 2 it's been estimated, anywhere from 6 billion to 3 $16 billion, or, 9 billion to $16 billion, for the 4 cost of that, with rail, or without rail. 5 Would you, in -- whether you can answer this 6 or not, I don't know. I'm not asking to you speak 7 on behalf of the Commissioner. 8 But, would that be ideal candidate for a 9 possible P3? 10 STANLEY GEE: Well, I think it's a candidate 11 that's talked about. 12 SENATOR FUSCHILLO: Right. 13 STANLEY GEE: Again, our ability to have 14 those discussions is limited, because -- 15 SENATOR FUSCHILLO: You don't have the option 16 right now. 17 STANLEY GEE: -- we don't have -- we don't 18 really have the option. We're talking 19 hypotheticals. 20 But, generally speaking, you know, as you 21 mentioned, the State is tight in resources, and so 22 is federal government. 23 The private sector, you know, has resources 24 they want to invest. 25 SENATOR FUSCHILLO: Right. 1 STANLEY GEE: How -- you know, an opportunity 2 for them to speak to us about making some of those 3 investments is something we want to listen to, and 4 where appropriate, we want to use those resources. 5 Leverage what -- those, to what we have, to expand 6 our programs through just the needs of the State. 7 SENATOR FUSCHILLO: Right. And we've made it 8 clear in our first hearing, and this is our second 9 hearing -- and I appreciate you being here -- that, 10 P3s aren't the ultimate answer for this 11 infrastructure crisis that we're facing here in 12 New York State. But, at least it gives you an 13 option, and the -- through authority, and other 14 authorities, that are responsible for our roads and 15 bridges throughout New York State. 16 Bundling of small bridges is -- repairs and 17 rebuilding of them has been very successful in other 18 states that have the option for P3s as well. 19 And that's our goal here: To get a law, that 20 gives the Department of Transportation, and other 21 departments throughout the state, this option of 22 availability, in what Senator Marcellino had 23 described, the lack of funding from states, and the 24 federal government as well. 25 SENATOR MARCELLINO: Again, let me make 1 myself clear: What's the incentive for the private 2 sector? What do they get out of it? 3 SENATOR FUSCHILLO: Well, I mean -- 4 SENATOR MARCELLINO: Besides -- I 5 understand -- 6 SENATOR FUSCHILLO: -- we -- you know, that 7 wouldn't come up -- 8 SENATOR MARCELLINO: -- the union gets the 9 work, and all that sort of stuff. 10 SENATOR FUSCHILLO: -- yeah, all right. 11 SENATOR MARCELLINO: But, what is their 12 incentive to come and get involved? 13 SENATOR FUSCHILLO: And I think the next 14 speakers that will come up will properly answer 15 that, rather than myself. 16 SENATOR MARCELLINO: All right. I'll wait. 17 SENATOR FUSCHILLO: Senator Martins. 18 SENATOR MARCELLINO: Not long. 19 SENATOR MARTINS: Thank you. 20 Commissioner, thank you very much for being 21 here. I appreciate it. 22 I think what I'm hearing is, that we one 23 "Chuck Fuschillo bill" away from actually 24 authorizing our State to begin engaging in these 25 kinds of transactions and partnerships that will 1 allow us to deal with issues, like the 2 Tappan Zee Bridge, like our infrastructure 3 improvements, other bridges, and, perhaps, a -- 4 I guess, a bridge under water is a tunnel. 5 Right? 6 STANLEY GEE: As long as it doesn't leak in. 7 [Laughter.] 8 SENATOR MARTINS: Exactly. 9 You know, as I envision this, right now, it's 10 a question of, whether or not to allocate risk to 11 taxpayers, as far as funding these improvements; or, 12 allowing for private investment, and then repaying 13 that investment to private investors, as opposed to 14 asking the taxpayers to bear the risk, and bear the 15 cost of these improvements. 16 And that there are items, like bridges, like 17 highway improvements, or new highway construction, 18 that will allow us to do that, but, again, take the 19 burden off taxpayers, and allow us to partner with 20 private investors who have, the capacity, and the 21 will, to place their money, essentially, for a 22 public good. 23 And, again, their incentive is going to be, 24 that there's going to be a return, and a stable 25 return, on their investment. 1 STANLEY GEE: Right. 2 SENATOR MARTINS: We don't have that ability 3 now, since we don't have a statutory authority to 4 engage in those types of investments, but, we're 5 working on that. 6 STANLEY GEE: Right. 7 SENATOR MARTINS: And if we do that simple -- 8 take that simple step, which has already been 9 introduced, that will open up the opportunities that 10 we speak of. 11 STANLEY GEE: Right. 12 SENATOR MARTINS: Okay. 13 We have a need, which you detailed. 14 We have a trained and capable workforce, 15 which I think everyone agrees, not only a skilled 16 workforce, but also private investment and money 17 that's available. We just need to allow that 18 trigger, which is the statute. 19 Correct? 20 STANLEY GEE: Yes. 21 SENATOR MARTINS: Thank you, Senator. 22 SENATOR JOHNSON: I would like to ask a 23 question. 24 SENATOR FUSCHILLO: Senator Johnson. 25 SENATOR JOHNSON: Yes, I'm 1 Senator Owen Johnson. 2 And, there's a road, goes from Babylon, over 3 to Robert Moses State Park. And, the bridge going 4 across there has been on your watch list, the DOT 5 watch list, because of corrosion; the salt water 6 corrosion, and so on. And, that has to be replaced. 7 Now, would that be a vehicle for a 8 public-private partnership? And, how would the 9 private people be compensated? 10 Now, formerly, there was a toll on that road, 11 some years ago. 12 With a new bridge, with a toll, is that some 13 kind of a method that you could recompense the 14 investor? They could get a piece of toll money on 15 that road, to pay for their investment? 16 STANLEY GEE: As I mentioned in my statement, 17 we're looking at an Accelerated Bridge Program, that 18 we would bundle numbers of projects/bridges. 19 Perhaps that one. I'm not familiar with 20 that, in detail, but, we would bundle a number of 21 bridge replacements. 22 And what we're looking at, is more towards 23 bundling, and using the leverage of the private 24 sector's ability to schedule and to work quicker. 25 We would still fund those with traditional 1 funding. But, we would be -- that's one example of 2 a P3, that we don't have the authority to do now, to 3 negotiate a price that we assure a public benefit, 4 without a toll. But, we would pay it back with 5 traditional funds, but we would get a number of 6 bridges done quicker. Okay? 7 And we've documented, many of these bridges, 8 if we can do them now while we're getting good 9 prices from our partners in the construction 10 industry, rather than spreading it out over the next 11 10 to 20 years, we'd pay, we'd get it done now, 12 address our backlog. 13 So, there is some public benefits, without a 14 toll, on some of the programs I just mentioned, that 15 we utilize it, one of the techniques that would be 16 authorized under our P3 legislation; not the full 17 panoply of private-sector financing and maintenance 18 that some states, and some authorities, are trying 19 out. 20 SENATOR JOHNSON: So, you think your 21 Department has $300 million somewhere in a sock, 22 that they can pull out, and then rebuild that 23 bridge? 24 [Laughter.] 25 STANLEY GEE: I didn't know it was a 1 $300 million bridge, but, we're looking at a sizable 2 program under an Accelerated Bridge Program, yes, 3 sir. 4 SENATOR JOHNSON: Well, is there a schedule 5 for these accelerated bridges? 6 STANLEY GEE: Yes. 7 SENATOR JOHNSON: Is there something -- they 8 say this is on their watch list. 9 Do they have a date where they'd like to 10 rebuild this bridge -- 11 STANLEY GEE: I'm not -- 12 SENATOR JOHNSON: (inaudible). 13 STANLEY GEE: -- familiar with this 14 particular bridge, but our idea of an 15 Accelerated Bridge Program is, bridges that don't 16 have environmental problems; or, essentially, are 17 ready to be -- just for lack of funding -- at this 18 time, ready to be replaced, that we can address in a 19 package, that make it attractive for a design-build 20 consortium to bid on it, and give us the best price 21 now. 22 And there's interest among the industry to do 23 that. 24 SENATOR JOHNSON: Well, I agree on 25 design-build. That's a great procedure. You've 1 done a lot of rebuilding that way. And the bridge 2 coming from Long Island to go over the Hudson River, 3 a design-build, a couple years ago. It was a good 4 project. Worked out fine. 5 But, being that the government from every 6 level is broke, and, China doesn't even want to send 7 us anymore money, that, where are we going to get 8 the money from to rebuild these bridges? 9 Do you think there's a schedule that you 10 would actually, with the current revenues, do all 11 this stuff in a few years? 12 STANLEY GEE: Well, I think there's some 13 opportunities here to make investments now, while we 14 have good prices, that we would pay back over the 15 longer term. 16 SENATOR JOHNSON: Well, I'm curious how -- 17 where the money comes from, though. 18 The design-build is great. They contract, 19 he; designs it, he builds it. 20 But, where is the money coming from? 21 STANLEY GEE: Well, it would be coming from 22 our traditional funding sources, like dedicated 23 highway-and-bridge fund, and from the federal 24 government. 25 SENATOR JOHNSON: Well, I understand that. 1 It's surprising that that much money is available, 2 yet these bridges haven't been replaced over the 3 years. We know that they're defective. 4 Okay, that's all. 5 Thank you. 6 SENATOR FUSCHILLO: Senator Larkin. 7 SENATOR LARKIN: Thank you very much. 8 Commissioner, last week Monday, this week 9 Tuesday, we got to be careful (inaudible) in your 10 schedule. 11 You know, last week we were honored by the 12 deputy commissioner-to-be in Orange County, and 13 talking to the economic growth of the county, and 14 where it was going. 15 A couple of things that raise a question to 16 me, living in the Hudson Valley, and understanding 17 what our position actually is in the transportation 18 in the northeast. 19 We've been talking about the 20 Tappan Zee Bridge for -- you know, it will be DOT, 21 it will be the Thruway Authority. And, you know, we 22 go back and forth. 23 And I think there's a misconcept, if you 24 looking really at this public-private partnership. 25 I was at a reunion over the weekend, and I 1 talked to some people who were still working, like I 2 am, after retirement. And they're talking about 3 Indiana, and Governor Daniels's action on it. 4 It brings to me the thought, that, are we 5 exercising -- when I say "we," from the 6 Governor's Office, on down, you know, you can't do 7 anything until all the procedures are done. 8 But, is there any way, going in the second 9 floor, that they're saying: Hey, let's get this 10 moving while we're processing the legislature [sic], 11 so that we would be in a position, because the 12 Tappan Zee, the Australians -- 13 There's some people here that I know were at 14 our meetings. 15 You were. 16 -- when the Australian group originally 17 started, I think it was, what, 8 bill- -- 18 Right behind you. 19 -- $8 billion? Now it's up to 16. 20 Is there any way we can start doing 21 something, that you see? 22 We're the legislators. We can prepare the 23 legislation. But I think we need to have a good 24 sit-down with, really, all the partners, whether 25 it's the feds or whatnot. 1 The business community that I see, is saying: 2 Give us a project. We can raise the money. 3 Because, you're always going to have 4 environmentalists who are going to say: Oh, no, you 5 know, we can't do this, or we can't do that. Or, 6 not in my back yard. 7 I think we have to attack some of these 8 issues right now. 9 We can talk about, down the road, having 10 money, but if we don't clear ourself as to what we 11 really want to do, and provide you with the 12 authority, because, somebody wants to take over the 13 Tappan Zee Bridge. 14 How much were they going to take in tolls? 15 You know, that was the summary of -- Indiana, 16 was the big thing, which Governor Daniels, rightly 17 so, took charge of it. 18 But I think that there's something that -- 19 dollars are always going to be the issue. But I 20 think that, every day we delay, is going to be 21 costly to the taxpayers of the state. 22 STANLEY GEE: Let me respond to it, this way: 23 We have been working, and the Governor's Office has 24 been working, closely with our delegation -- 25 congressional delegation. 1 I -- we appreciate your support, too, to make 2 the case down in Washington, on the need -- our need 3 for transportation infrastructure. 4 The long-term needs, they've been unable to 5 pass any type of legislation to ensure some 6 dedicated stream for transportation. 7 I think, as you know, that that requires -- 8 you know, transportation projects don't happen 9 overnight. We'd like them to move quicker, but, it 10 takes planning and design, and we need long-term 11 stable funding. 12 That's what the federal government has always 13 been able to provide, at least, a backbone for 14 funding our projects. 15 We don't have that right now. They just 16 can't come to an agreement. 17 And we would -- we're strongly pushing that. 18 And we have a short -- we bought some time with the 19 six-month extension, at the current levels. 20 I think we need something like that over the 21 long term. 22 The recent storms has really highlighted the 23 fragility of our transportation system. The 24 Governor is well aware of that. 25 And as we work with you, to put our next 1 multi-year transportation program -- hopefully, a 2 five-year program -- together, we would like to talk 3 to you about the options and the investments levels 4 we need to build, not only create jobs as part of 5 transportation, but to sustain our economy in the 6 years to go. 7 And I think Governor's focused on that, and 8 he'll be engaged in that conversation also. 9 SENATOR LARKIN: Well, I think it would be a 10 savings to us, overall, in the end, because, when 11 people -- everybody's now talking: create jobs, 12 create jobs. 13 But if you fix the bridge, when the bridge is 14 finished, those employees don't belong to the State. 15 They go back to their contract, and I think we're 16 forgetting that. 17 You know, putting five people to dig us -- 18 dig a hole in the ground today, and the hole in the 19 ground is finished tomorrow, they don't have a job. 20 I think that -- when we bring in the private 21 partnership, I think the management tools that the 22 DOT has will enable us to move forward on our own 23 reconstruction. Because, if you look -- you were 24 kind enough -- 25 But, Diane, I thank you for accepting our 1 photographs last week. 2 -- but, we have lot of small municipalities, 3 especially Upstate, that bridges are out. They're 4 not even under the consideration because they don't 5 fall in it. 6 FEMA says: You know, it's -- you got a 7 problem, drive 15 miles around, to get back into 8 your village. 9 I think we have to -- you know, we really 10 have to -- you know, we've been talking about this 11 for, how many years? 12 I mean, before he was even the chairman, he 13 used to complain about it. But, now -- 14 SENATOR FUSCHILLO: I thought you were going 15 to say, before I was born. 16 SENATOR LARKIN: -- oh, well. I can remember 17 that too. 18 [Laughter.] 19 SENATOR FUSCHILLO: I know you can. 20 SENATOR LARKIN: But, we really need to move 21 on it. I mean, I think that -- you know, people 22 start to say, you: When are you going to shut up 23 about it and do something? 24 And I think it's reached that stage, that, 25 you know, we look to you, and blame you, but what we 1 really should be doing is, looking at the mirror, 2 and say: When are we going to do that which is 3 essential for to you move forward? 4 I thank you for your help. 5 Especially, personally, and I thank you, 6 Diane, for coming down the second trip, through the 7 Hudson Valley, with what we lost. I know the people 8 appreciate it, what both of you have done. 9 STANLEY GEE: Thank you. 10 And I'll just repeat again: I -- we want to 11 work with you. 12 We're putting our next multi-year program 13 together. We need to work together, to ensure that 14 we have the investment levels, and the tools, to 15 implement that program. 16 We're all -- you know, we're all interested 17 in the sound, efficient transportation system to 18 serve our state. 19 And, I can say it again: I know we have the 20 support of this Committee, so, I look forward to 21 working with you. 22 SENATOR FUSCHILLO: And we agree, Stan. 23 Senator Golden. 24 SENATOR GOLDEN: Thank you, Mr. Chairman. 25 I want to thank you, of course, and your 1 staff, for putting this together. 2 This is a responsible and a good meeting for 3 the state, and a good direction for this state. A 4 lot of people looking to go to work. A lot of work 5 for those people in this state. 6 Financing is, obviously, an issue. And it's 7 got to be practical and it's got to be responsible. 8 Obviously, traditional funding is much easier 9 for you to access than trying to make a return on 10 P3. You can get money at almost zero, for projects. 11 Of course, you have that money available to do that 12 borrowing on those bonds. 13 But, if you could identify some project, the 14 P3, what percentage of the total budget, would be, 15 or could possibly be, P3 work. 16 And, if could you identify that by giving a 17 list to the Chairman, so that the Chairman could 18 have list, going forward, that -- of projects that 19 have potential of being P3 projects. 20 STANLEY GEE: We can develop such a list. We 21 would have to work with our partner agencies to come 22 up with such a list. But -- 23 SENATOR GOLDEN: If you could do that, I'd 24 appreciate it. 25 Thank you very much, Commissioner. 1 SENATOR FUSCHILLO: All right, thanks. 2 What we can provide Senator Golden with is 3 the Strategic Asset Management -- the "SAM" -- 4 report, that was done a few years back, and had 5 outlined some specific projects. 6 What our legislation does, Commissioner, as 7 you know, is, it's not project-specific. It gives 8 you broad authority to utilize this way beyond any 9 specific projects. But, I'll be happy to provide 10 that -- 11 SENATOR GOLDEN: I think what I'm trying 12 to -- 13 SENATOR FUSCHILLO: - to the members of the 14 Committee. 15 SENATOR GOLDEN: -- Mr. Chairman, what I'm 16 trying to get to, is that, the -- what the actual 17 dollars that he could actually use, if identifying 18 projects, going forward. 19 We know we have a list. We know that he has 20 the capability of putting that list together. 21 We'd like to know what the potential is, so 22 that you have some access to actual dollars that can 23 be put to work right away in a P3. 24 And, of course, the people out here that are 25 going to be our partners in P3, understand that 1 these projects will be available, and that they can 2 start to put a think-tank together, to put money and 3 funding towards these projects, and we can get these 4 up and running. 5 As many of my colleagues are anxious about 6 putting -- and getting these projects underway, I 7 think that would be the first responsible approach, 8 is, looking, identifying, see where we can get some 9 of these projects off the ground, and identifying a 10 percentage of your budget. 11 We have a percentage of your budget, and MTA, 12 and whole host of -- or, the other agency -- that 13 were going to be a bridge and tunnel, correct, is 14 going to be the other agency that gets the funding 15 from this legislation -- 16 SENATOR FUSCHILLO: Yes. 17 SENATOR GOLDEN: -- so we can identify what 18 type of funding we can use, what type of funding -- 19 traditional funding's going to have to be used on 20 it. 21 That's what we would like to identify, if you 22 could. 23 STANLEY GEE: Okay. 24 We'll work with the Committee. 25 SENATOR FUSCHILLO: Thank you, Commissioner. 1 Any further questions? 2 Thank you very much for your testimony. 3 STANLEY GEE: Thank you, again. 4 SENATOR FUSCHILLO: Appreciate you taking the 5 time to be here. 6 Our next speaker is Marc Herbst, who's the 7 executive director of the Long Island Contractors' 8 Association. 9 And after Mr. Herbst, is Tom Osborne. 10 A former colleague of ours in the 11 Legislature, appreciate you taking the time to be 12 here, and your testimony today. 13 MARC HERBST: Thank you. 14 Good morning. 15 My name, as you know, is Marc Herbst. I am 16 the executive director of the Long Island 17 Contractors' Association. 18 LICA is grateful to have the opportunity to 19 testify today. 20 As you know, LICA is an advocate for 21 public works; and what is the taxpayer's biggest 22 investment, our state's infrastructure. 23 We also represent the interests of 24 Long Island's premiere heavy-construction general 25 contractors, subcontractors, and other industry 1 supporters. 2 We're focused primarily on building our 3 transportation system, such as the highways, 4 bridges, and also the sewers and other public works. 5 LICA's member companies play a direct role in 6 the economic development of, Nassau, and 7 Suffolk County, and its 2.8 million people. 8 Chairman Fuschillo, members of the Committee: 9 We compliment you for seeking views on how to 10 utilize public-private partnerships to repair and 11 improve New York State's transportation system. 12 Allow me to begin by suggesting: We 13 recognize that some partnerships now exist, and the 14 building upon the strengths of both the public and 15 private sectors can most effectively protect the 16 taxpayer and their wallets. 17 A common view is to look at P3s as a 18 financial scheme to support the construction or 19 repair of a major facility. 20 LICA suggests that this Committee sharpen 21 that view to properly include the overall 22 administration, management, and care of the public 23 infrastructure investment. In doing so, the State 24 can effectively achieve your goal to repair and 25 improve our state's transportation system. 1 We can reflect upon the emergency conditions 2 in New York State created by "Hurricane Irene," that 3 the Commissioner just spoke of, and the 4 collaborative response of the State and industry as 5 an example of the existing private-public 6 partnership in the infrastructure sector. 7 As "Hurricane Irene" barreled up the 8 Atlantic coastline towards New York, LICA mobilized 9 our private firm's manpower and equipment for 10 immediate dispatch. 11 Before, during, and even continuing today, we 12 collaborated with the Offices of Emergency 13 Management for New York State, Nassau and Suffolk 14 Counties, as well as the many local municipal 15 agencies. 16 Our highly trained workforce, and heavy 17 equipment, such as cranes, pay-loaders, trailers, 18 and tub grinders, were instantly dispatched to aid 19 in the emergency response. This response effort 20 certainly is a private-public partnership. 21 In addressing the industry's leaders 22 immediately following "Hurricane Irene's" aftermath, 23 New York State Commissioner Joan McDonald conveyed 24 Governor Andrew Cuomo's appreciation and thanks for 25 the outstanding response our industry has already 1 provided in response to the need for emergency 2 assistance. 3 The Commissioner praised the industry's 4 response today, observing, and I quote: 5 "We have painted a positive picture of what 6 our industry is capable of doing in response to an 7 emergency situation, and what can be performed 8 unrestrained in normal situations." 9 End quote. 10 We believe formalized P3s offer the 11 unrestrained environment the Commissioner correctly 12 suggests. 13 New York State is presently under siege by 14 another type of storm that is battering the 15 foundation of, not only our roads, bridges, and 16 structures, but our overall economy. 17 Our mindset to combat these battering forces 18 should be the same as when we were compelled to face 19 the damaging felled trees, downed electrical wires, 20 and flooded homes and businesses. 21 An effective public-private partnership must 22 be employed. 23 This disastrous "perfect storm" involved the 24 collision of an aging and deteriorating 25 infrastructure badly in need of safety upgrades, 1 with staggering government budget deficits, and the 2 incapability of the public to shoulder any crushing 3 tax burdens. 4 It's been three years now, three consecutive 5 construction seasons, since our industry has been 6 saddled with unprecedented unemployment levels 7 hovering near 30 percent. 8 For three years, we have painfully watched 9 idle government officials place more and more 10 emergency red-flag markers on structures in need of 11 repair. 12 With empathy, we observed that our government 13 partners can barely even post the emergency markers 14 because of their own finance woes. Diminishing tax 15 receipts, employee health-care costs, ballooning 16 public-pension contributions, are often cited as the 17 cause. 18 Here on Long Island, both county executives 19 have proposed 2012 budgets that, combined, include 20 the elimination of over 1,400 positions. 21 Practically all the towns and villages are 22 enacting similar cutbacks, whether through attrition 23 or layoffs. 24 We know that you, as our State 25 Representatives, are faced with the same challenges 1 at the state level. 2 In times of financial adversity lies the 3 perfect opportunity for public and private 4 partnerships to most effectively protect the 5 taxpayer and their wallets. 6 Drastic times call for drastic measures. 7 We are compelled to make a choice: Either 8 stand unprotected and risk the storm's deadly 9 destruction, or, strategically employ an emergency 10 management strategy to protect our assets and 11 livelihood. 12 LICA suggests we fight for our survival by 13 implementing a public-private partnership that 14 maximizes each sector's strengths. 15 While leadership must come from the State, we 16 boldly recommend significant changes to traditional 17 transportation infrastructure 18 private industry/government roles at various 19 municipal levels of government. 20 LICA provocatively calls for dramatically 21 changing the customary function of the local 22 government highway department. 23 P3s are the platform by which local 24 municipal governments can achieve substantial and 25 effective efficiencies and cost savings. 1 Senators, we are cognizant of the precarious 2 position you and your fellow elected officials find 3 yourselves. 4 Public funds are more scarce than ever, and 5 the State DOT's current five-year capital program is 6 only funded for the first two years of its planning 7 period. That means the State's capital funding for 8 road and highway infrastructure dries up in only 9 six months' time with no new funds in sight. 10 The viable innovative response can be 11 implemented in short order are P3s, engaging the 12 private workforce with local municipal entities to 13 accomplish State priorities. 14 With P3s, the State has no ready mechanism 15 to maintain -- without P3s, the State has no ready 16 mechanism to maintain safety and a transportation 17 system in good repair. P3s are the innovative 18 response to the lack of the public funding. 19 The Downstate economy is thirsting for 20 economic development, to generate jobs, and to move 21 the region from its recessionary climate into an 22 environment of sustained economic growth. There are 23 a number of projects which are well advanced in the 24 planning-and-approval process which require 25 enhancement of state infrastructure. Those projects 1 are ripe for P3 financial plans in which private 2 developers and local governments are contributing 3 financial assets to project development. 4 The Heartland proposal in Brentwood will 5 require the expansion improvement of the 6 Sagtikos Parkway and other area roadways. 7 The Ronkonkoma Hub plan will advance with 8 direct rail access to Long Island MacArthur Airport. 9 The eventual redevelopment of the 10 Nassau Veterans Memorial Coliseum property will be 11 enhanced with upgrades to the Meadowbrook and 12 Southern State Parkways, and Hempstead Turnpike. 13 The Cerro Wire property in Syosset will only 14 be redeveloped if the community is protected by a 15 supporting transportation network that avoids 16 infringement on the neighboring residential 17 communities. 18 It is clear, that in order to succeed, each 19 of these projects will need a strategic 20 private-public partnership. 21 We urge the State to concentrate on capital 22 projects that are most conducive to P3 financial 23 plans, such as these. 24 Typically, local government transportation 25 agencies handle routine highway maintenance, such as 1 pothole repairs, drainage cleaning, road-sign 2 replacement, snow and ice removal, and leaf 3 collection. 4 Private contractors are selected through a 5 competitive-bid process for new construction or 6 major rehabilitation projects. These arrangements 7 call for municipal employees and adequate equipment 8 inventories to be available full-time for necessary 9 response regardless of the actual need. Private 10 employees are available for specific contracts at 11 limited time periods. The structure contributes to 12 public payrolls in a particular -- and, in 13 particular, to burgeoning public pension costs. 14 This model also contributes to the increased 15 unemployment benefits disbursed to private-sector 16 workers at the completion of government contracts. 17 Given that many public works departments are 18 currently dramatically understaffed and additional 19 layoffs are imminent, and the private infrastructure 20 industry is already suffering unforgiving 21 unemployment levels, now is the time to recognize 22 the strength of both the public and the private 23 sectors in this industry, and act to create a 24 framework that is cost-effective and efficient for 25 the taxpayer. 1 P3s will measurably reduce local payroll 2 and pension costs and State unemployment expenses. 3 Government should concentrate its efforts in 4 its areas of strength; that is, on administration, 5 compliance, and enforcement of public works 6 contract. 7 The State of New York needs to undertake a 8 leadership role in establishing standardized 9 procedures and best practices at all municipal 10 levels to ensure that they meet their fiduciary 11 obligation to the taxpayers. 12 LICA's long advocated this position. 13 Our experience tells us that many 14 municipalities have been unable to provide desired 15 levels of oversight due to competing demands for 16 their employee manpower. 17 If municipalities were to focus their role on 18 oversight, it would minimize the potential for 19 unscrupulous activities. This monitoring could 20 include enhanced inspections of quality and quantity 21 of materials at asphalt plants, and other source 22 points, and at construction sites; as well as, 23 fiscal oversight, such as comparison of employee 24 records, certified payrolls, and daily 25 field-inspection reports. 1 The New York State Department of 2 Transportation and the Office of the State 3 Comptroller should develop a uniform procedure for 4 all government agencies. 5 Standardized best practices are an essential 6 building block for the streamlined role of local 7 governments in P3s. 8 While government ramps up its compliance and 9 enforcement roles, the private sector can absorb the 10 traditional maintenance function, such as potholes, 11 repairs, and snow removal. These functions should 12 be subject to a competitive-bid process similar to 13 new construction and rehabilitation projects. 14 By transferring these maintenance 15 responsibilities, the public can benefit from the 16 extensively trained workforce, and the 17 cost-effective and task-completion attitude the 18 private sector demands. 19 When private-sector equipment is centralized, 20 it can be deployed more efficiently than maintaining 21 duplicative and decentralized equipment, parts, 22 inventories, and maintenance yards. 23 Taxpayers will continue to receive essential 24 services, but they will be relieved of the full-time 25 maintenance employee salaries, benefits, and pension 1 costs, as well as the maintenance and capital 2 expenses associated with heavy equipment. 3 Most importantly, the currently displaced 4 public employee will be afforded the opportunity to 5 continue utilizing their skills and expertise in the 6 expanded private-sector market, and secure 7 private-sector and union benefits. 8 A collaborative division of labor between 9 municipal compliance and enforcement and 10 private-sector maintenance will stabilize employment 11 for the workers now suffering unemployment in the 12 private sector, and probable layoffs in the public 13 sector. 14 Chairman Fuschillo, many of the experts you 15 engage on a regular basis, including some of them 16 testifying today, will steer the conversation 17 towards specific projects, such as financing a new 18 Tappan Zee Bridge, which we've already heard about, 19 or the Cross-Island Sound Tunnel, which I know a 20 speaker will discuss in detail. 21 These are important topics, and LICA 22 wholeheartedly endorses these proposals, but we 23 respectfully ask you to recognize the greatest 24 impact on the taxpayer. 25 You were one of our State's most vociferous 1 champions to relieve the crushing local property-tax 2 burden, and we commend you. 3 Please note, that the largest market share 4 for infrastructure investment is in the towns and 5 villages, the counties next, followed by the state. 6 Each of those levels of municipal engagement and 7 infrastructure contribute to the tax burden felt in 8 each and every home and business. 9 We believe P3s can help alleviate that 10 burden on the local level. 11 Chairman Fuschillo, we ask that you extend 12 your passion and vision for local property-tax 13 relief to integrate public-private partnerships as 14 an essential tool in your fiscal-management tool 15 kit, and consider the proposal we offer here today. 16 Thank you for the privilege of allowing me to 17 testify before your Committee today. 18 If you have any questions, I'd be happy to 19 respond. 20 SENATOR FUSCHILLO: Thank you very much, 21 Marc. 22 Senator Martins. 23 SENATOR MARTINS: No questions. 24 Thank you. 25 SENATOR FUSCHILLO: Marc, I have to say, 1 that -- 2 SENATOR MARCELLINO: Well -- 3 SENATOR FUSCHILLO: Go ahead. I'm sorry, 4 Senator. 5 SENATOR MARCELLINO: No, that's okay. 6 SENATOR FUSCHILLO: I have to say, that, I 7 concur with everything you testified here today. 8 And, you know, your 30 percent unemployment 9 is adding to the more than 100,000 people that are 10 unemployed on Long Island, along with -- and the 11 projects that you specifically mentioned in here: 12 The Heartland proposal in Brentwood; 13 The improvements necessary for the 14 Sagtikos Parkway; 15 The Ronkonkoma Hub plan; 16 The Coliseum, which has been long debated, 17 way too long, over and over; 18 These are projects that must get off the 19 ground, and the dialogue on whether or not they 20 should start, should end. 21 SENATOR MARCELLINO: I'm waiting for an 22 answer. 23 SENATOR FUSCHILLO: One of the issues that 24 we're trying to highlight here, with the Committee, 25 is, that we understand this is not the answer to all 1 the solutions for the infrastructure crisis that we 2 face here on Long Island, and throughout 3 New York State. But, that, as you say, the DOT, and 4 other authorities, including local governments, 5 should just have the option. 6 And, the speakers coming up next, after you, 7 will testify, the success of this, and the financing 8 available of this. 9 But as I stated in my opening statement, 10 every billion dollars spent puts 25,000 people to 11 work. 12 And that's our goal here: To get this 13 economy going in New York State, keep it on the 14 right track. 15 We had very successful session, as you know, 16 where we did cut spending in New York State, but had 17 an on-time budget, and instituted the property-tax 18 cap, which will take effect next year. 19 But, in order to keep this going on the right 20 track, we have to understand, the Legislature, which 21 we do, and the members here, that: As go our 22 economy, as go our infrastructure. 23 And if we're going to have a robust economy, 24 going into the future, we need to rebuild, repair, 25 and maintain our infrastructure to a better degree 1 than it's been done in the past, with a reliable 2 funding, or option of P3, or an infrastructure bank, 3 or the availability of design, build, and maintain. 4 Because, as you know, Marc, and you and I 5 have had many discussions, the State doesn't have 6 the dollars necessary to really fund an adequate 7 plan, nor does the federal government. And if they 8 just keep doing extenders, that puts us in 9 unpredictable position, because we -- we require, 10 for our budgetary process, and maintain what the DOT 11 needs for their roads, a stable fiscal -- a stable 12 federal funding plan, which just isn't there right 13 now. 14 So, I appreciate you taking the opportunity. 15 You've helped me in the past. 16 And this is -- your testimony here helps us 17 out tremendously in getting this going. 18 Senator Larkin. 19 SENATOR LARKIN: Thanks. 20 Good to see you again, Marc. 21 MARC HERBST: You too, Senator. 22 SENATOR LARKIN: But, you know, we're here on 23 Long Island, and we can see you have, what, 24 2 million people here? 25 You have a lot of infrastructure that's 1 needed for the development that you discussed here 2 today. 3 But, I'm calling upon you to reach out to the 4 other areas of the state that you deal with on a 5 regular basis, and, just say: Let us get together, 6 and make sure that the Governor, and his staff, 7 understand the complicated problems you have, the 8 complications that are in the DOT, because we don't 9 give them the tools that they need to do the job. 10 But, I think people have to understand, when 11 we talk public-private partnership, that we're 12 talking about many aspects: roads, bridges. 13 We just saw the tolls go up on the bridges 14 between New York and New Jersey. Major problems to 15 those bridges are not going to be filled by a nickel 16 and a dime. 17 MARC HERBST: Uh-huh. 18 SENATOR LARKIN: We need investors. 19 And I think that you can help us do that, 20 Marc. You work with these people all over, from 21 Buffalo to, Montauk Point, and the Southern Tier, 22 and that. And maybe you can all get together, and 23 say, as a group: We want to make this happen. 24 Because, it's not going to happen on 25 Long Island at the expense of the rest of the state. 1 And as the Chairman has said, every place 2 he's been going: We are partners. We are partners. 3 So, please help us. 4 MARC HERBST: Well, Senator, just to let you 5 know, that, we do meet constantly. And the 6 Commissioner has done a marvelous job, where she 7 hosts a weekly teleconference call or personal 8 meeting, where we talk and advocate these issues. 9 My major complaint with the Commissioner and 10 her staff is, that the center of the universe is not 11 the Hudson Valley. 12 SENATOR LARKIN: Now, wait a minute. 13 SENATOR MARTINS: Hold on, hold on, hold on. 14 SENATOR LARKIN: I mean, you be -- be 15 careful. 16 SENATOR FUSCHILLO: Senator -- 17 SENATOR LARKIN: West Point was -- has the 18 best college in America. 19 SENATOR FUSCHILLO: Senator, relax. 20 SENATOR LARKIN: We've got education 21 starting. 22 But, I do understand what you're saying, but, 23 you must admit, and I'm not saying it because some 24 of her staff are here, but, she has opened up to us 25 more than has been expected of others. 1 MARC HERBST: I have -- applaud this -- 2 SENATOR LARKIN: I just think -- 3 MARC HERBST: -- this is a wonderful 4 commissioner. And, people are questioning why I've 5 been such a supporter, and so advocately in favor of 6 what she's doing. She's really done a marvelous 7 job. 8 And you should be proud of her -- 9 SENATOR LARKIN: I am -- 10 MARC HERBST: -- by that confirmation. 11 SENATOR LARKIN: -- even though she came from 12 the Bronx. 13 SENATOR FUSCHILLO: Well, we are one state, 14 and we do love New York State. Let's emphasize 15 that. 16 But, you did testify on her behalf at the 17 hearing for her nomination, and I appreciated that 18 opportunity. 19 And you were there as well. 20 So, thank you very much, Marc. 21 MARC HERBST: Thank you. 22 SENATOR FUSCHILLO: Thank you. 23 Tom Osborne, managing director, United Bank 24 of Switzerland. 25 Morning Tom. 1 THOMAS OSBORNE: Morning. 2 SENATOR FUSCHILLO: Just for the record, 3 please state, your name, title. 4 THOMAS OSBORNE: Sure. 5 Good morning, Senator Fuschillo, 6 distinguished members of the Committee. 7 My name is Tom Osborne. I'm the managing 8 director at UBS Investment Bank in New York. I head 9 our infrastructure advisory practice for the 10 Americas. 11 I've had the opportunity to testify before, 12 so I'm going to keep it brief today in recognition 13 of the limited time that you have. 14 Grateful for the opportunity to testify about 15 the innovation in the Innovative Infrastructure 16 Development Act, or "IIDA." 17 Having reviewed the bill, we applaud the 18 State for introducing comprehensive legislation that 19 not only improves the outlook for the state's 20 infrastructure, but also, in my view, provides a 21 solid capital-formation framework for all 22 stakeholders. 23 The future of our state's infrastructure 24 clearly rests on the State's ability to mobilize 25 capital, and to structure P3s in the most effective 1 manner. This is going to result in jobs creation, 2 and the efficiencies and innovation that have been 3 talked about earlier today. 4 So, over the past decade, we at UBS have been 5 closely following developments in the infrastructure 6 legislation across the U.S. We've worked with a 7 number of government entities in structuring their 8 P3 programs. We've had the opportunity to identify 9 the key aims that, in our view, all P3 legislation 10 should seek to attain. 11 I've identified those in my earlier 12 testimony. I'm not going to go into great detail 13 there, but just to quickly summarize: 14 It's really about clarity of process; 15 It's about creating a centralized P3 16 database; 17 It's about having a broad scope of assets. 18 And I know that this is focused primarily on 19 transportation. In our view, the broader the 20 better. 21 And then, perhaps most importantly, it's 22 about having individual project decisions being 23 independent from the political approval process. 24 I can't emphasize that enough, because 25 uncertainty in the execution, combined with the 1 negative experiences of past P3s in the U.S., have 2 caused a number of private-sector investors to turn 3 away from P3 processes, where they see a, 4 quote/unquote, "last look" by the legislative body, 5 where there's lack of clarity about how they're 6 going to get approval to move forward with the PPP 7 project. 8 So, too often, variables that are unrelated 9 to the process cause a P3 to fail. And that's a 10 risk that we've seen investors actually refuse to 11 take in the current market environment. 12 I'm not going in detail about the 13 U.S. precedents that are identified in my pre-filed 14 direct testimony, but I would like to comment 15 briefly on the New York legislation; provide some 16 specific feedback there. 17 We see it as a solid framework for executing 18 P3s in the state. It takes into account many of 19 the industry's best practices. And I think it's 20 reasonably well structured, in the view of the 21 market participants that we've spoken to. 22 We've taken the opportunity to go out to some 23 of the investors with whom we have regular dealings 24 and get their thoughts on it. 25 I think the flexibility of the statute -- or, 1 the bill, it will provide the State's transportation 2 agencies, I think, positive effects on the 3 private-sector participants. I think it will also 4 result in jobs creation. 5 In our view, there are a couple of things 6 that might be tweaked. 7 Firstly, one concern is the scope of the 8 legislation, as I've mentioned; while the breadth of 9 transport infrastructure, as defined in the bill, is 10 adequate to cover all the potential transport P3s. 11 I do see merit in having a more robust P3 12 pipeline. And that could be created by having a 13 scope broader than just transportation. 14 A second concern would be the structure of 15 the cost analysis. 16 We strongly agree, that doing the type of 17 analysis that's proposed in the legislation, what 18 would we call, "value-for-money analysis," is 19 required to make the sound economic decisions that 20 would underpin a robust P3 process. 21 We have learned from our prior P3 experience 22 in the U.S. that there are variables that will 23 influence the market's perception of asset value. 24 Assumptions around growth projections, the 25 cost of capital, process assumptions; these are all 1 things that can result in differing value-for-money 2 analyses. 3 So, what we would say is, to mitigate this, 4 we'd recommend the legislation require third-party 5 independent value-for-money analysis and assessment 6 of any P3. 7 Those reports would ensure that the State 8 receives the proper value for the assets, should 9 they determine to move forward with the 10 public-private partnership. 11 Lastly -- I guess third thing would be, we'd 12 recommend more clarity around how the different 13 State agencies would interact with the IIDB board. 14 That is, as currently proposed, it's not 15 exactly clear to me, how project becomes a P3, or 16 what form of oversight would be put in place over 17 the process. 18 So, I think it's crucial that the authorities 19 be presented a unified process that will allow for a 20 coordinated approval mechanism. 21 The last thing I would say is, that the 22 structure of the board, as is, is one of political 23 appointees. 24 We think there's a real need to ensure that 25 the board itself does not become overly politicized. 1 And, I think there's an important need for 2 continuity, to ensure that the institutional 3 knowledge developed by the board is not lost with 4 each election cycle. 5 So, one quick fix for that might be, to put 6 in place staggered board terms in the political 7 appointees that you would put in place for the 8 board. 9 So, those are some comments on the 10 legislation as we see it. 11 In closing: We very much support the efforts 12 of Senator Fuschillo, and his staff, in drafting 13 what I think is very, very important legislation. 14 If properly structured, I think the 15 legislation will allow the State to mobilize capital 16 and drive infra-development forward. 17 I think it will provide citizens with safer 18 and more reliable assets, and it will definitely 19 contribute to jobs creation. 20 So, thank you for the opportunity to offer my 21 thoughts. 22 Be happy to answer any questions you may 23 have. 24 25 1 SENATOR FUSCHILLO: Tom, I appreciate you 2 being here again. 3 And, you, and your office, have been a 4 tremendous help to my staff in drafting this 5 legislation, which we looked upon as a boilerplate, 6 with certain room for improvement. 7 I agree with you, and one of the things we 8 strive very hard, is to take us out -- take this out 9 of the political process. 10 You had said, "last look." 11 It's critically important, because, we don't 12 want every project to become a political football 13 game. And, it would never get off the ground. 14 THOMAS OSBORNE: Agreed. 15 SENATOR FUSCHILLO: And we witnessed that far 16 too long, in every level of government that we've 17 been involved with, throughout our own respective 18 regions. 19 One of the issues that my colleagues have 20 brought up -- and I don't know if you were here in 21 the beginning when they talked about it -- and maybe 22 you could talk a little bit about it on your end, on 23 the investment banking side, and, why somebody would 24 invest in a P3, and what, you know, they look upon 25 for rate of return, how the rate of returns are 1 structured -- which I know they vary, whether it's 2 tolls or just an investment banking, or an 3 infrastructure bank, or, a design, build, and 4 maintain. 5 But, maybe you can touch upon your 6 experiences with that as well. 7 THOMAS OSBORNE: Sure. 8 So, in our experience, private-sector 9 investors are looking for clarity of process, as I 10 talked about. 11 They're also looking for an equitable balance 12 of the risk transfer. They want concession to be 13 put in place that allows them to get a fair return, 14 of, and on, their capital. 15 It's pretty simple. 16 And, they want to do that in a manner that 17 balances the risks that they're going to take 18 against the risks that they're willing to take on. 19 So, they're going to look at any potential 20 project from the spectrum of, the cost of capital, 21 from the value-for-money analysis that we've talked 22 about. 23 You know, I think it's important that the 24 value-for-money analysis not just incorporate cost 25 of capital, but also importantly, whole-life project 1 costs. 2 The way the legislation is currently 3 structured, the board can only approve a P3 if the 4 net present value of that P3 is less than that under 5 a standard procurement. 6 And I think it's vitally important that that 7 value-for-money analysis reflect what investors are 8 going to look at, and that is, whole-life project 9 costs; the need to incorporate the risk transfer 10 that I've talked about, that is away from the State, 11 and towards the private-sector investor. 12 When I talked about the return, of, and on, 13 capital, you know, the return requirements will 14 vary, depending on the risk characteristics of the 15 project. 16 You can expect that investors will be very, 17 very closely scrutinizing the project risks, as I've 18 said. 19 What we're seeing today for investors in 20 transportation projects will vary, whether it's a 21 brownfield project, a rehabilitation, or a 22 greenfield project. 23 Return requirements are going to be 24 necessarily higher for greenfield because of the 25 higher risk associated with that. 1 But, you're talking, call it, "mid-teens 2 returns," typically, for projects of this type. It 3 could be lower, if it's a brownfield rehabilitation. 4 The form of return generally comes from user 5 fees. It could also importantly come in the form of 6 a -- an availability payment from the State or from 7 the municipality, that would act as a shadow toll, 8 if you will, in the absence of direct user fees. 9 SENATOR FUSCHILLO: Thank you, Tom. 10 Senator Marcellino. 11 SENATOR MARCELLINO: Yeah, you're beginning 12 to talk about what I was interested in trying to get 13 before. 14 An investor wants to come in and put money 15 down on a project, expects a return -- 16 THOMAS OSBORNE: Uh-huh. 17 SENATOR MARCELLINO: -- on that project. I 18 understand it will vary, project to project. They 19 can't all be the same. 20 Who guarantees the rate of return? 21 THOMAS OSBORNE: So, the nature of the equity 22 returns in most P3s, is that they are not 23 guaranteed. 24 And one of the -- the nice things about this, 25 from the State's perspective, is, you have a risk 1 transfer. And the equity capital that supports a 2 concession, or a public-private partnership, is in a 3 first-loss position. 4 So, the investor is taking on the risk, 5 assuming that they will get a fair return, of, and 6 on, that capital, based on their view of their 7 ability to operate the concession for a profit over 8 time. 9 There is no guarantee of the return. 10 SENATOR MARCELLINO: I understand there's no 11 guarantee. I learned that lesson in the stock 12 market recently. 13 [Laughter.] 14 THOMAS OSBORNE: You and me both, 15 unfortunately. 16 SENATOR MARCELLINO: Ah, yeah. 17 But, ultimately, someone is going to be 18 paying the investor. 19 Ultimately, the investor, assuming the 20 project works -- assuming it goes through, the 21 bridge is built, the highway is done, the tunnel is 22 created -- just not in Syosset -- 23 [Laughter.] 24 SENATOR MARCELLINO: -- but -- 25 SENATOR FUSCHILLO: It's not going to be 1 created in Syosset. It's going to be created under 2 Syosset. 3 SENATOR MARCELLINO: Under. I know. 4 -- but, the question is: Who pays? 5 THOMAS OSBORNE: So, ultimately -- I'm an 6 advocate of user-pay facilities. It just makes 7 sense to me, that if you're going to develop a 8 project, those that use it should pay for it. 9 There may be circumstances, however, where a 10 public policy demands that there not be an explicit 11 toll put in place. 12 And, in those instances, you can put in place 13 an availability payment that would compensate the 14 concessionaire for -- 15 SENATOR MARCELLINO: What is an 16 "availability payment"? 17 THOMAS OSBORNE: An "availability payment" is 18 a payment that would come -- it's a subsidy, 19 essentially. 20 SENATOR MARCELLINO: Okay. 21 THOMAS OSBORNE: It would come from the 22 State, or government body, to compensate the 23 concessionaire for taking on the risk of building 24 the project, or rehabilitating the project, and 25 operating it over the life of the concession. 1 SENATOR MARCELLINO: All right, what I'm 2 trying to figure out is, where the taxpayer comes 3 into this thing. 4 THOMAS OSBORNE: The taxpayer would come in 5 in the form of the availability payment -- 6 SENATOR MARCELLINO: That's my -- 7 THOMAS OSBORNE: -- uhm -- 8 SENATOR MARCELLINO: -- okay, so you're just 9 not -- 10 THOMAS OSBORNE: -- and -- 11 SENATOR MARCELLINO: -- and what you're 12 saying is, then, ultimately, the user fee is going 13 to be paid by, whoever crosses the bridge and pays 14 the tolls; whoever goes through the tunnel -- 15 whatever. 16 If it's an availability payment, that is 17 going to come out of the taxpayers, one form or 18 another. 19 THOMAS OSBORNE: Yes. 20 SENATOR MARCELLINO: So what we're saying is, 21 there's no free lunch here? 22 THOMAS OSBORNE: There is no free lunch. 23 But I think the good thing about the 24 legislation, as it's currently structured, is that 25 there is a robust cost-benefit analysis that is 1 provided for. 2 It says: If the net present value of the 3 project under standard, traditional procurement is 4 less than the net present value under a P3, then you 5 go with standard procurement. 6 So, the taxpayer would pay for it in that 7 instance. 8 What I'm saying, though, is, you need to make 9 sure, in that analysis of the net present value, the 10 value-for-money analysis that you do must 11 incorporate whole-life project costs. 12 It needs to talk about project delivery, and 13 not just cost of capital; because, if you're only 14 looking at what the equity investor is going to get 15 back in the form of his return -- and, by the way 16 again, it's not a guaranteed return -- you're going 17 to miss the value of the risk transfer that takes 18 place when the State sheds that risk and pushes it 19 into the private sector. 20 SENATOR MARCELLINO: How does a project fail? 21 THOMAS OSBORNE: Well, projects can fail for 22 any number of reasons. 23 I mean, if it's greenfield projects, there's 24 always construction risks -- there's development 25 risk and construction risk, getting it completed. 1 You know, we've seen some projects fail, one 2 of the most recent examples would be, the 3 South Bay Expressway in Southern California. And it 4 failed because the traffic projections were more 5 aggressive than were realized, over time, partly 6 because, a major real estate development that was 7 going to go in near the road that was being built, 8 didn't get built when the economy turned down. 9 So, the traffic ended up being far less. It 10 was a user-pay system. And, as a result, they 11 didn't have sufficient revenues to cover the cost of 12 having built the road, and then getting a fair 13 return on their capital. 14 It went into restructuring. And, there was a 15 TIFIA loan behind that, which was a federal program 16 that provides for low-cost subordinated capital. 17 In this case, the subordinated capital had a 18 springing lien. So, it was promoted, and became 19 pari passu with all the other debt on the project. 20 And, ultimately what happened, was, the 21 private sector took a loss on that first-loss equity 22 position. The equity was completely wiped out. 23 And, typical with any bankruptcy, or -- I 24 shouldn't say "any" -- but, many bankruptcies, the 25 debt got cents on the dollar, in terms of recovery, 1 for the value of the project. 2 So, there is a very clear mechanism in place 3 for when projects go bad, as to how those get 4 resolved. 5 Before you even get to, you know, that kind 6 of process, there are opportunities for remediation, 7 if you will, of defaults, in giving a concession 8 contract. And, importantly, you have lenders' 9 step-in rights that typically would precede all of 10 the process that I just talked about. 11 So, there are multiple steps along the way in 12 any well-constructed concession agreement, that will 13 allow the project to get back on track, and be a 14 successful one. 15 SENATOR MARCELLINO: How do the environmental 16 laws -- I'm assuming you're somewhat familiar with 17 our environmental laws, and the environmental impact 18 statements that have to be gone through; the 19 timeframe that it takes, anywhere, from a year to 20 two years, in this state -- 21 THOMAS OSBORNE: Uh-huh. 22 SENATOR MARCELLINO: -- to go through an 23 environmental review. 24 How would that impact your projects? Or, 25 would you ask, how that modified? 1 THOMAS OSBORNE: I mean, we would always 2 appreciate streamlining of the environmental review 3 processes where it makes sense to do so. 4 However, we recognize the importance of 5 having that environmental review, and it gets 6 dovetailed into the project-delivery schedule. 7 So, we're not looking to circumvent in any 8 way, through P3, an environmental review process 9 that's already in place. 10 That said, broadly speaking, one of our 11 recommendations for P3s around the country, at the 12 federal level, and at the local level, is 13 streamlining the approvals' process will see faster 14 project delivery. 15 SENATOR MARCELLINO: In New York State, we -- 16 we're a union state. 17 Sitting behind you are some of the members 18 and representatives of the unions. 19 They're well paid. 20 How does that impact these projects? 21 THOMAS OSBORNE: Well, one of more gratifying 22 things we've seen in the last two years is the 23 support of the unions for public-private partnership 24 frameworks. 25 I think there is a recognition, that, by 1 moving forward under a P3 framework, projects that 2 would fail to get built have the opportunity to get 3 built, and to address the high unemployment that 4 currently exists in the construction-worker base. 5 So, we're in favor of their support. We're 6 happy to have it. 7 Obviously, there has to be a wage negotiation 8 in every project. And that, again, gets factored 9 into the analysis done by the concessionnaire, the 10 private-sector investor, as he reviews the 11 opportunity to invest in a project. 12 So... 13 SENATOR MARCELLINO: Who would be doing that 14 negotiation? 15 THOMAS OSBORNE: Well, the -- typically the 16 way it works is, the concessionnaire will factor in 17 what they believe the cost to construct any given 18 project is, which includes time and materials. And 19 they would have a negotiation around what they think 20 the labor costs would be as part of that. 21 SENATOR MARCELLINO: Thank you. 22 I appreciate what your -- your testimony. 23 Thank you very much. 24 THOMAS OSBORNE: Thank you. 25 SENATOR FUSCHILLO: Senator Larkin. 1 SENATOR LARKIN: Tom, good to see you again. 2 THOMAS OSBORNE: Likewise. 3 SENATOR LARKIN: Thank you very much. 4 Just for planning purposes, and eye-opening, 5 let's take a project like the Tappan Zee Bridge. 6 We've discussed this before. 7 And the guy behind you is smiling, because he 8 was working on it too. 9 Let's take a scenario, of: Here's the 10 bridge. We're talking about rail transportation on 11 top or bottom, and then road transportation. And 12 we're taking about the maintenance of it after. 13 THOMAS OSBORNE: Uh-huh? 14 SENATOR LARKIN: How do you see something as 15 complex as that? 16 That, at one time, it was 6 billion. Now, as 17 the Chairman said, it's closer to $16 billion. 18 How would you see that being developed; the 19 union support that you've talked about, the fight 20 today to -- for project labor agreements, and then 21 the collecting of tolls, and the business of raising 22 tolls, as within the cost of operation and 23 maintenance? 24 THOMAS OSBORNE: Well, Senator Larkin, I 25 haven't studied the Tappan Zee Bridge situation 1 closely enough to offer you the kind of intelligent 2 feedback that I would like to. 3 SENATOR LARKIN: Well, let's call it, 4 "any bridge." 5 THOMAS OSBORNE: That's -- you know, one of 6 the problems that we've had in infrastructure, 7 generally, is the legacy of underinvesting, which 8 has only made costs go up over time. And, also, 9 undercharging, relative to the true cost of service. 10 So, when you talk about raising tolls, one of 11 the benefits of a public-private partnership is, in 12 the concession agreement, you have the opportunity 13 to, number one, specify operating standards that, 14 today, may be done only on an ad hoc basis. But, 15 when they're in a concession, you can hold their 16 feet to the fire, to make sure that the bridge is 17 maintained in the way that it's meant to be, and 18 it's operated for the benefit of users over time. 19 The other thing that a concession agreement 20 provides the opportunity for is clarity around toll 21 increases over time. And nobody likes to talk about 22 toll increases, but -- 23 SENATOR LARKIN: Agreed. 24 THOMAS OSBORNE: -- I think the fact of the 25 matter is, that we have a legacy of undercharging 1 relative to the true cost of service, and it has to 2 be addressed. 3 For too long, the public has enjoyed 4 subsidies. And, that's a plain fact. 5 None of us want to pay higher tolls, but the 6 bottom line is, in order to have the kind of 7 infrastructure that we require to keep our economy 8 running, we're going to have to pay more. 9 SENATOR LARKIN: Thank you. 10 SENATOR FUSCHILLO: Senator Martins. 11 SENATOR MARTINS: Thank you, Mr. Osborne. 12 THOMAS OSBORNE: Thank you. 13 SENATOR MARTINS: You mentioned earlier, as 14 far as P3 scopes, "the broader the better." 15 And I take, by that, that you're suggesting 16 that, outside of the cookie-cutter transportation 17 model, tolls on highways or on bridges, that there 18 are other best practices out there? 19 THOMAS OSBORNE: Yes. 20 SENATOR LARKIN: Can you describe those? 21 THOMAS OSBORNE: Sure. 22 You know, I think there is a benefit to 23 walking before you run. And so, I think, with the 24 State of New York not having had design-build in the 25 past, having, now, this legislation that's focused 1 on transportation is a good place to start. 2 SENATOR MARTINS: Sure. 3 THOMAS OSBORNE: When I say "broad scope," 4 that would be the ideal situation, in terms of 5 having additional asset classes to look at. 6 You know, you look at the Commonwealth of 7 Puerto Rico, it's a great example of legislation 8 that's comprehensive. It provides for a very clear 9 approval framework, and includes a broad range of 10 assets; everything, from airports, to ports, to 11 schools, water service, in addition to various forms 12 of transportation. 13 So, I think the SAM Commission Report that 14 Senator Fuschillo spoke about earlier, actually, is 15 an excellent place to start for the State of 16 New York, to identify the kinds of assets that 17 investors might view as feasible for public-private 18 partnerships. 19 SENATOR MARTINS: Thank you, Mr. Chairman. 20 SENATOR FUSCHILLO: Thank you. 21 Senator Golden. 22 SENATOR GOLDEN: Briefly, Tom, listening to 23 your testimony, the availability payment, obviously, 24 in this environment would be a higher interest or a 25 higher rate of return to the -- for the taxpayer 1 than the user payment. 2 Am I correct? 3 THOMAS OSBORNE: I don't look at the analysis 4 that way. 5 Actually, I would say, that there first has 6 to be public-policy decision for any given project, 7 as to whether a user fee, a toll, makes sense in 8 that situation, or whether an availability payment 9 would be preferable. 10 In situations where user fees may fall short 11 in attracting the kind of capital needed for a 12 project to get built, it may make sense to put an 13 availability payment in, that provides for a 14 contractual stream of revenue, in order to get the 15 project built. 16 SENATOR GOLDEN: So you could use both, 17 you're saying? 18 THOMAS OSBORNE: Well, no. Typically, it's 19 one or the other. 20 SENATOR GOLDEN: Or the other? 21 THOMAS OSBORNE: But, typically, the 22 availability payment comes in when, for 23 public-policy reasons, you don't want a toll; or 24 when tolls themselves are not projected to be 25 adequate to cover the cost of capital and the 1 project-investment requirements. 2 SENATOR GOLDEN: Now, is this approach that 3 the State of New York has taken, similar to that of 4 the federal approach with the infrastructure bank? 5 THOMAS OSBORNE: Uhm, you -- the 6 infrastructure bank is a project of great interest 7 to me personally. 8 It is -- there are some similarities. 9 The national infrastructure bank, actually, 10 is probably best thought of, in its current 11 proposals, as, maybe TIFIA, in an expanded sense, 12 where you're going to be providing, 13 subordinated capital, subordinated loans, and, loan 14 guarantees, that will enhance project economics, and 15 allow projects to move forward. 16 There's been debate about the form of the 17 national infrastructure bank. There are 18 four different proposals that are out there. 19 The White House, week before last, put out 20 the "AJA," which is its own form of proposal, the 21 American Jobs Act, for a national infrastructure 22 bank. 23 I think it would be terrific. 24 The State of New York, as well as other 25 49 states, and Commonwealth of Puerto Rico, could 1 benefit from implementation of that. 2 The approach that you're taking in New York 3 is more specific, and I think it's appropriately so. 4 You need to have a framework here that is 5 enabling projects to move forward at the local 6 level. But, having a national infrastructure bank 7 would be a good adjunct, if you will, to provide 8 capital, to allow projects to move forward. 9 SENATOR GOLDEN: Last question: How do you 10 participate in that infrastructure, or do you, in 11 that bank? 12 THOMAS OSBORNE: How does UBS participate? 13 SENATOR GOLDEN: Yes. 14 THOMAS OSBORNE: We have long been advocates 15 of developing a national infrastructure bank, 16 because we believe that it will promote the kinds of 17 public-private partnership projects that we're 18 talking about. 19 So, we've had the opportunity to work with 20 various members of the Administration, we've worked 21 with various members of Congress, in putting forward 22 a proposal, the most advanced of which is a 23 bipartisan proposal, the Kerry-Hutchinson Bill, that 24 we had the opportunity to work with staff, and 25 provide some input on. 1 So, we're longtime advocates of it. 2 SENATOR GOLDEN: We're looking forward to 3 working with you here in the State of New York. 4 THOMAS OSBORNE: Thank you. 5 SENATOR GOLDEN: Thank you. 6 SENATOR FUSCHILLO: Tom, briefly go into 7 infrastructure bank. I think it's important for the 8 members to understand that, the investment, and how 9 the states can utilize those dollars as well. 10 THOMAS OSBORNE: Sorry, the question, sir? 11 SENATOR FUSCHILLO: I have -- well, let me 12 rephrase it. 13 Do you have a -- other states have 14 infrastructure banks, that you've worked with, 15 where, pension funds, or other investors, have made 16 funds, and how other states utilize those dollars. 17 THOMAS OSBORNE: Yeah, it's a really 18 interesting question. 19 And I think there's been a lot of advocacy 20 recently for state infrastructure banks. 21 You know, my one critique of state 22 infrastructure banks, to date, has been, that they 23 really have been too small and too limited in their 24 ability to provide meaningful support for projects. 25 So, probably, a good example of one would be, 1 the California State Infrastructure Bank. They have 2 had a broader scope, and they've been able to 3 support a larger number of projects than most 4 others. 5 But, I've been somewhat cautious in my view 6 on state infrastructure banks because I felt that 7 they haven't had the kind of muscle behind them that 8 they need to make a meaningful impact. 9 SENATOR FUSCHILLO: And New York State's a 10 perfect example. 11 Many years ago, they had and agreement with 12 three of these agencies and authorities. And then, 13 a few years ago, it was rated. 14 THOMAS OSBORNE: Yeah. 15 SENATOR FUSCHILLO: But, it was -- certainly, 16 it wasn't enough of an investment. And I think 17 we're a perfect example of what you're talking 18 about. 19 THOMAS OSBORNE: Yep. 20 SENATOR FUSCHILLO: Look, I appreciate your 21 help. 22 THOMAS OSBORNE: Thank you. 23 SENATOR FUSCHILLO: You've been a tremendous 24 help to my staff -- 25 SENATOR LARKIN: Can I just get one more 1 question? 2 SENATOR FUSCHILLO: Sure. 3 Senator Larkin has one -- 4 SENATOR LARKIN: Tom, you talked about the 5 capital that would be required in some of these 6 infrastructure banks. 7 What are we talking about, in capital? 8 THOMAS OSBORNE: Well, the national 9 infrastructure bank -- 10 UNIDENTIFIED SPEAKER: (inaudible) the 11 Tappan Zee Bridge. 12 SENATOR LARKIN: Be quiet. 13 UNIDENTIFIED SPEAKER: It's (inaudible) 14 bridge. 15 THOMAS OSBORNE: The national infrastructure 16 bank proposals vary in size. 17 The Kerry-Hutchinson Bill would call for a 18 $10 billion infusion, which seems like a low number 19 when you think about the level of investment 20 required. But, actually, it's much larger than 21 that. 22 The way the $10 billion would work, under 23 federal-budget scoring rules, it's thought that 24 there would be, roughly, 10-to-1 impact. 25 So, it's, essentially, a loan subsidy amount. 1 It's a loan-loss reserve, the 10 billion. 2 If you have 10 to 1, then you've got 3 100 billion of loans that could actually be put out 4 there. And the loans themselves would comprise only 5 a small portion of any project's actual value. 6 So, if you had, you know, call it, 7 20 percent, or 25 percent, of the project, no more 8 than that, as national infra-bank funding, then you 9 would have four or five times the total project 10 value being supported by that investment. 11 So, you could have, you know, four or 12 five hundred billion dollars of impact if you had 13 just the ten billion up-front investment. 14 So, the leveraging effects are quite 15 substantial there. You just have to structure it 16 the right way in order to take advantage of that. 17 SENATOR LARKIN: Thank you very much, Tom. 18 SENATOR FUSCHILLO: And I will say, Tom, 19 that, once we started proposing, and discussing, 20 this legislation, myself and Senator Golden, and 21 Senator Skelos, our leader, have met with 22 individuals that wanted to invest in an 23 infrastructure bank here -- 24 THOMAS OSBORNE: Good. 25 SENATOR FUSCHILLO: -- in New York State, at 1 great lengths, I would say, and significant dollars. 2 Did you want to add anything Senator Martins? 3 SENATOR MARTINS: No. 4 SENATOR FUSCHILLO: Okay. 5 THOMAS OSBORNE: The one thing -- sorry -- 6 you did mention the pension-fund investments. 7 SENATOR FUSCHILLO: Uh-huh. 8 THOMAS OSBORNE: And, it's a great thing to 9 envision pension-fund investment in local 10 infrastructure. 11 The one bit of caution that I would note 12 there, is that pension funds have a fiduciary 13 responsibility, and they have to look at all of the 14 investment opportunities that are out there. 15 And what you can have is pressure on them, 16 implicit, or otherwise, to invest in state 17 infrastructure, if it's not in the best interest of 18 the pensioners that they're looking to support. 19 So, I'm a little bit cautious about keeping 20 funds within the state. There needs to be, I think, 21 freedom for the chief investment officer of the 22 pension fund to operate in accordance with the 23 fiduciary responsibility they bear. 24 SENATOR FUSCHILLO: Tom, thank you very much. 25 THOMAS OSBORNE: Thank you. 1 SENATOR FUSCHILLO: Appreciate your 2 testimony. 3 Roger Clayman, executive director of 4 Long Island Federation of Labor. 5 Roger, good morning. 6 ROGER CLAYMAN: Good morning. 7 Good morning, Senators. 8 I want to thank you for this opportunity to 9 speak before the Committee, and for your interest in 10 exploring new ways to rebuild our transportation 11 infrastructure. Nothing could be more significant 12 for our region's recovery than the process you've 13 undertaken. 14 In recent years, our labor movement has 15 emphasized our infrastructure needs on Long Island, 16 and pointed out, they're really fundamental to our 17 quality of life. 18 Major investments are needed to attract new 19 business, retain young men and women on Long Island, 20 and add to our available housing, as well as, move 21 the next generation efficiently to their jobs. 22 What people are talking about on Long Island 23 is, creating vibrant downtowns. That means 24 refurbishing older communities, and considering some 25 major new developments close to major transportation 1 hubs. 2 It is clearly the focus of the 3 Regional Economic Development Council, and countless 4 other forums, but none of these best ideas will move 5 forward without a better use of our capital 6 resources. 7 Transportation infrastructure has emerged as 8 one of the top considerations for community 9 redevelopment on Long Island. Projects like, the 10 third track from Bellrose to Hicksville, the second 11 track to Ronkonkoma, parking at railroad stations, 12 intersection and bridge upgrades, and improvement to 13 our parkways, are essential for practically all the 14 projects that are being discussed and considered 15 here on Long Island. 16 In the interest of time, I won't go into the 17 problems that you know, as well as I do, about our 18 capital funds, and fact that they really are not 19 delivering for the kind of projects that are needed 20 to us. 21 We think they need to be funded in a 22 different way, but the fact remains that they are 23 not. 24 We support the goals of S5445: rebuilding our 25 transportation infrastructure and creating jobs. 1 Our concern is to ensure, that when the 2 public agencies enter into public-private 3 partnerships, they impact our workforce positively. 4 The jobs created must be good jobs, and the careers 5 of our State workforce must not be jeopardized. 6 The bill should state that all projects 7 authorized as P3s are public works projects, and 8 must have prevailing rate, apprenticeship, and other 9 labor standards. 10 It should be specified in the language of the 11 bill that project labor agreements should be 12 incorporated into the delivery methods. 13 The public-sector workforce should not lose 14 jobs in the design and maintenance aspects of the 15 projects that are undertaken. 16 In addition, the selection and financing of 17 P3 projects should be transparent and well 18 understood by the public. 19 Nassau County's intention to privatize 20 Long Island Bus is a striking example of the dangers 21 inherent in public-private partnerships. 22 The selection of the private operator was 23 handled secretly, with no information provided to 24 the public or the County Legislature. 25 The County's projected investment in the 1 privatized bus system is completely unrealistic when 2 compared to similar bus service in neighboring 3 counties. It is very troubling that the terms of 4 the contract beyond the first year have not been 5 made public. 6 Without such disclosure, fare hikes and 7 service cuts seem to be inevitable. Moreover, it is 8 clear that salaries, benefits, and job security will 9 be slashed in the race to the bottom on employee 10 costs. 11 This misguided privatization will surely 12 inflict substantial damage on Long Island's economy. 13 The issues and principles outlined here are 14 the same ones we are fighting for every day within 15 local projects on Long Island and projects funded by 16 IDAs. We believe that community consensus and 17 support will become key factors in the success of 18 any of the projects. 19 We urge you to consider that the workforce is 20 an important component of our community, and amend 21 the bill to protect good jobs and good wages. 22 We would just urge you to look at that 23 example of Nassau County as -- as a pitfall. 24 And, I know it's not what you're considering. 25 I know you would do it better. 1 But, that's an example of a P3 gone wrong. 2 SENATOR FUSCHILLO: Roger, thank you very 3 much. 4 Senator Marcellino. 5 SENATOR MARCELLINO: No, that's okay. 6 Thank you. 7 SENATOR FUSCHILLO: Questions or comments? 8 I appreciate you taking the time. 9 Your testimony is very important. 10 Please send our regards to John Durso. 11 ROGER CLAYMAN: Will do. 12 SENATOR FUSCHILLO: Thank you, Roger. 13 William Duffy, Jr., president of Local 138. 14 WILLIAM DUFFY, JR.: Thank you. 15 I would like to thank the Committee, and the 16 Chairman, for this opportunity to speak to you 17 today. 18 Mr. Chairman, I sit here wearing two hats. 19 I am the president of Local 138 of the 20 International Union of Operating Engineers, and the 21 chairman of the Public Works Alliance of 22 Long Island. 23 There was once a time when the construction 24 trades and the companies that employed its members 25 would sit on the opposite sides of the table. They 1 viewed themselves as labor and management, with a 2 great divide between them. They met -- they might 3 meet to discuss projects and budgets, but both were 4 wary of each other's agendas and their motives. 5 That era is long gone. 6 The construction trades and the companies 7 that seek to build Long Island now work closely 8 together. There is recognition that we have far 9 more in common than ever before. There is 10 appreciation that we are facing an economic crisis 11 of enormous proportions that threaten the very 12 viability of our industry. 13 If I can employ that totally misleading 14 cliche, this is a "perfect storm." 15 We are facing failed federal stimulus 16 strategies, a financially desperate state 17 government, and sustained recession has become 18 historic in size and duration. 19 There is nothing "perfect" about it. 20 In retrospect, Washington was cynical in 21 creating a program that failed the nation's 22 construction industry. It has become obvious that 23 the American Recovery and Reinvestment Act was 24 political theater. Infrastructure was used as a 25 backdrop to sell the plan. We were misled into 1 believing that it would be similar to the successful 2 programs of our nation's past. 3 It was not, and was never meant to be. 4 So, where does that leave us? 5 If we are to build our way out of a 6 recession, it's going to take a public-private 7 partnership to fund the projects that put men and 8 women back to work. It will take public-private 9 partnerships to give us the means to build our 10 future. 11 But, these funding mechanisms are under 12 attack. 13 Some, like Senator Durban from Illinois, are 14 suggesting that the taxpayer is poorly treated in 15 these scenarios. 16 Trust me, Senator, I have 30 percent 17 unemployed in my industry, and they would be happy 18 to pay the taxes if they only had a job. 19 Let's bust the fiction surrounding the 20 Triple Ps. 21 Critics say they create windfall profits for 22 the private sector. 23 The truth is, revenue sharing between public 24 and private sectors is based on gross revenue or 25 maximum return to shareholders. And that formula is 1 usually built into P3 agreements. 2 In addition, that agreement often creates a 3 profit-sharing structure with government so that a 4 percentage of the revenues go back into the public 5 coffers. 6 Critics say the cost of money for the project 7 is higher. 8 The truth is, competition forces the 9 private sector to deliver projects as cheaply as 10 possible. The private entity assumes the risk of 11 cost overruns during construction and operation, not 12 the taxpayer. The private sector is better 13 positioned to leverage third-party investment to 14 reduce the cost. They are compelled to comb the 15 financial marketplace to find the lowest-cost 16 capital to get a P3 funded, so that men and women in 17 unions, like mine, could go back to work. 18 Critics say that P3 ultimately leads to 19 competitive -- to complete privatization of public 20 infrastructure. 21 The truth is, the public sector defines 22 project requirements, and the private sector gets 23 paid only for the services that meet those 24 standards. There is no mission creep here -- 25 simply, a performance-based contract to get the job 1 done and put people back to work. 2 What an irony that, AECOM, an American-based 3 management company, has won a $23 million 4 public-private partnership award to help the 5 Russians rebuild one of the most important highways 6 between Moscow and St. Petersburg. 7 As a reflection of how other nations, intent 8 on building their future, are using the power of the 9 P3 to get started. 10 This crisis in our economy has given us 11 reason to reexamine how we build the infrastructure 12 that powers our nation and our state. 13 This hearing needs to become the agent of 14 change that puts P3s to work on the behalf of 15 New York. 16 Thank you for the opportunity to speak to you 17 today. 18 SENATOR FUSCHILLO: Thank you very much. 19 And I want to really express my appreciation 20 for your friendship. And I go way back with your 21 family, for many, many years -- my father as well -- 22 and know, firsthand, the plight you're facing right 23 now on the unemployment, in your union, and your 24 industry. It's just staggering, here on 25 Long Island, and throughout this area. 1 But, you stated something in your testimony: 2 "To get the job done, and put people back to work." 3 And that's the goal of what P3s are all 4 about. 5 We realize, myself, as a member, Chairman of 6 this Committee, and my colleagues here, that in 7 order to get our economy back together, there goes 8 the infrastructure as well. 9 And, if we don't explore, or give, the 10 Department of Transportation, and other authorities 11 and agencies, the availability of P3s, it's not 12 going to happen. 13 You know, we've cut significant amounts in 14 our State budget last year, in order to do away with 15 the potential $10 billion budget gap. 16 Facing a potential $15 billion budget gap, 17 which is now estimated, because of the work that the 18 Legislature has done, down to about, two, 19 two and a half billion dollars. 20 But, it's still billions and billions of 21 dollars, and, the revenues through our state are 22 still declining. 23 A tremendous instability down in Washington, 24 with the federal government. 25 To know that we just got another extension, 1 just to March 31st, really don't help us out 2 tremendously. 3 So, your testimony is important. It's 4 important that, we, the members, hear it. 5 And I'm sure my colleagues have some 6 comments. 7 Senator Martins. 8 SENATOR MARTINS: Billy, great to you see 9 you. 10 WILLIAM DUFFY, JR.: Thanks, Senator. 11 SENATOR MARTINS: You know, I appreciated 12 your comments, because they were direct, and to the 13 point. 14 We have a problem. 15 Obviously, we can all agree that there's need 16 for infrastructure improvements. Our bridges are 17 collapsing, our roadways are deteriorating, and we 18 need to put people back to work. 19 We can tiptoe around the edges, and argue 20 about how it's going to happen. 21 This is just one more tool that allows us to 22 get it done. 23 Now, I use the example, from time to time, 24 you know: You have a Phillips-head screw driver and 25 you have a flat-head screwdriver. You can get that 1 nut in with a flat-head screwdriver, but you're 2 better off using that Phillips-head screwdriver. 3 This is "that" tool. 4 It's more appropriate, and it will save us 5 money, put people back to work, and allow us to 6 ultimately achieve the infrastructure improvements 7 that we're talking about here. 8 You know that I am acutely aware of the 9 impacts to the construction industry here on 10 Long Island. And, certainly, anything that allows 11 us to get our guys back to work, is important, and 12 it's important that we get it done. 13 So, thank you very much. 14 I appreciate your testimony. 15 WILLIAM DUFFY, JR.: Thank you, Senator. 16 We appreciate your efforts on our behalf as 17 well. 18 SENATOR FUSCHILLO: Senator. 19 SENATOR LARKIN: Mr. Duffy, I really 20 appreciate what you said. 21 This is the same message I'm getting from the 22 union leaders in the Hudson Valley: Cut out all the 23 BS, find a way to get the investment out there for 24 the money, and we'll do the projects. 25 And, I appreciate the kind words you had 1 herein. 2 WILLIAM DUFFY, JR.: Thank you. 3 SENATOR FUSCHILLO: Senator Golden. 4 SENATOR GOLDEN: Real brief, Mr. Chairman. 5 I, too, want to thank you for being here. 6 If this discussion had taken place -- has 7 been taking place, but had it been acted on earlier, 8 this country might be in a different place today 9 than it is. 10 I want to, again, thank the Chairman here, 11 our, Senator Fuschillo, Senator Skelos, for leading 12 the discussion, and getting us to where we have to 13 be in order to put the people, the working men and 14 women, of this great state back to work, and, to 15 rebuild the infrastructure that is ailing. 16 So, we're looking forward to working with 17 you. 18 And, to get that opportunity, I don't know 19 where your pension funds, but, we'd like to sit down 20 and talk with you as well, as, investing in this 21 infrastructure bank as we go forward. 22 WILLIAM DUFFY, JR.: Well, I can guarantee 23 you that we'll definitely be at the table with you. 24 SENATOR GOLDEN: Thank you. 25 SENATOR FUSCHILLO: Billy, what's your 1 unemployment rate now? 2 WILLIAM DUFFY, JR.: We're currently around 3 30 percent. But, the true reflect -- 4 SENATOR FUSCHILLO: Just in your local. 5 WILLIAM DUFFY, JR.: Just in our local. 6 But the true reflection is, contribution, and 7 manhours worked, are down, probably, 45 to 8 50 percent. 9 We have eligibility periods for medical 10 coverage, that we just went through one. And about, 11 roughly, 16 percent of our membership lost their 12 coverage, because of lack of work. 13 SENATOR FUSCHILLO: Because of lack of work. 14 What type of work are you doing right now? 15 WILLIAM DUFFY, JR.: We're not doing a lot. 16 SENATOR FUSCHILLO: Right. 17 WILLIAM DUFFY, JR.: I mean, we're doing a 18 couple private building projects -- 19 SENATOR FUSCHILLO: Nothing major. 20 WILLIAM DUFFY, JR.: -- and some roadwork. 21 It's just started. 22 You know, unfortunately, major projects that 23 we thought would be, halfway, three-quarters of the 24 way done -- 25 SENATOR FUSCHILLO: Right? 1 WILLIAM DUFFY, JR.: -- are just getting into 2 the ground. Some of them haven't even started. 3 SENATOR FUSCHILLO: Right. 4 WILLIAM DUFFY, JR.: So, we're really -- 5 we're struggling. And, we're looking for, anything 6 and everything, we can do. 7 SENATOR FUSCHILLO: And that's why we're 8 here; to give the State the option, and get people 9 back to work, as you stated, and get the job done. 10 So, thank you very much for your testimony. 11 We really appreciate it. 12 WILLIAM DUFFY, JR.: Thank you very much, 13 Chairman. 14 I appreciate the opportunity. 15 SENATOR FUSCHILLO: Thanks. 16 Michael Polimeni. 17 It's still, good morning, Michael. 18 MICHAEL POLIMENI: Good morning to you, 19 Senator. How are you? 20 Good morning, Mr. Chairman. 21 My name is Michael Polimeni, and I'm the 22 chief operating officer of Polimeni International. 23 I'm also a member of the Association for a Better 24 Long Island. 25 If I may take us back for a moment: 1 October 14, 1963, just about a week before his life 2 ended in Dallas, President Kennedy told Maryland -- 3 told a Maryland gathering, that it was a pleasure to 4 join them in the opening of a new portion of the 5 newest interstate highway. 6 He said, and I quote: 7 "This great interstate highway represents a 8 cooperative effort between the United States 9 Government and the people of various states, through 10 which this long ribbon will pass." 11 He went on to tell his audience: 12 "It symbolizes, first of all, the partnership 13 between the federal government and the states, which 14 is essential to the progress of all of our people. 15 "And, secondly, it symbolizes the effort we 16 made to achieve the most modern interstate system in 17 the world. 18 "And, third, it symbolizes the effort, which 19 we are giving, and must give, to organize an 20 effective communication system here in the 21 United States of America." 22 Of these public works projects, JFK would 23 observe: 24 "No industry has a greater impact upon the 25 nation, and no industry has a greater opportunity to 1 affect our economic progress. 2 "This administration proposed to" -- 3 "proposed a new, comprehensive national 4 transportation policy, and our goal is the 5 development of the most effective, economic, and 6 safe transportation system for all of our people." 7 President Kennedy closed by stating: 8 "Because people, several years ago, made the 9 plan, and took the initiative, this highway is now 10 being dedicated. 11 "I hope, in the year 1963, we will again take 12 stock of the needs of our country over the next 13 decade, and we will begin, today, this year, this 14 decade, this" -- "the things which will make this 15 country a better place to live in for the rest of 16 the century." 17 And, so, Senator Fuschillo, living in the 18 era, here we are. Living in the era when "can do" 19 has replaced the vision and the energy that 20 John Kennedy expressed during his last days on 21 earth. 22 The infrastructure he dedicated is still 23 doing its job, but probably -- but it is most 24 probably being ignored, poorly maintained, 25 indifferently funded, and woefully inadequate to the 1 task. 2 The harsh realities are, that public 3 infrastructure, such as highways and roads, don't 4 have a large political constituency. 5 People use it but don't want to pay taxes at 6 the pump for it. 7 An MTA tax for mass transit brought about the 8 end of some political careers. 9 And, yet, without a viable infrastructure, 10 this country, our state, and our region will come to 11 a screeching halt. 12 Some would argue we already have, we just 13 haven't acknowledged it yet. 14 Polimeni International has proposed the 15 outrageous. We have suggested that, not only can we 16 strengthen our infrastructure in profound and 17 strategic manner, but we can do so with private 18 investment. 19 We are proposing to build a tunnel beneath -- 20 and that was Senator Marcellino, "beneath" - the 21 Long Island towns, which will, we hope, bring 22 commerce, investment, taxes, jobs, and tax revenues 23 into a region that is in danger of stagnating. 24 The technology is there. The financing, as 25 we just heard, is there. The engineering is there, 1 and has certainly been used around the world. The 2 benefits are obvious. 3 There could not be a better time than right 4 now. 5 What is not there, is a regulatory structure 6 that would allow the public-private partnership to 7 proceed on a project as important, and with such 8 regional significance, as this one. 9 Let's revisit what Polimeni International is 10 proposing. 11 Entitled "The Cross-Sound Link," plans call 12 for the creation of a $10 billion tunnel that goes 13 underground, at the existing northern terminus of 14 the Seaford-Oyster Bay Expressway on Long Island, 15 and reappears 16 miles later in Rye, New York, 16 significantly reducing vehicular air emissions and 17 energy consumption in the region, and greatly 18 prolonging the life span of the Whitestone and 19 Throgs Neck Bridges, and other existing arterials, 20 adding strategic debt to the emergency-response 21 options on Long Island and Westchester, and creating 22 thousands of jobs at a time of historic economic 23 pain. 24 The tunnel has enabled an estimated -- will 25 enable an estimated 20 -- 800 -- excuse me, an 1 estimated 80,000 vehicles per day to bypass 2 congestion on roads in Westchester and Bronx and 3 Queens. 4 In addition, high-speed rapid bus transit 5 will directly link Long Island Railroad to 6 Metro North stations, adding additional access to 7 the mass transportation options available in the 8 region. 9 And, we would look for the government to 10 decide whether a rail component to this facility 11 would be favored. 12 We have been assured by our design team and 13 engineers that a rail component is indeed a viable 14 option. 15 We are challenging the region to consider a 16 very big idea, and one whose time we believe has 17 arrived. 18 We are proposing that twenty-first-century 19 technology be employed to create solutions to 20 environmental and transportation issues that are 21 guaranteed to grow if left unaddressed. 22 Polimeni International has already invested 23 over a million dollars to document whether the 24 tunnel beneath the Sound should be -- excuse me -- 25 right -- should be considered as a strategic 1 response to many strategic problems. 2 A public-private partnership is the only 3 mechanism by which, this, or any other strategic 4 project, is going to be -- is going to achieve 5 John Kennedy's vision. 6 Tax-free bonds would be employed, and 7 investors around the world would have the option to 8 purchase them, as they do for any significant 9 infrastructure project. The bonds would be paid off 10 by the drivers, who will pay for the convenience and 11 the driving experience the facility will offer. 12 The price would rise and fall depending on 13 congestion-pricing strategies employed in concert 14 with transportation officials throughout the region. 15 Oftentimes, the words of a visionary are not 16 enough to create the environment for positive and 17 sustained change. Sometimes one crisis -- sometimes 18 one needs a crisis to create the momentum to provide 19 us with, the will, and the resources, to get the job 20 done. 21 The Great Depression built our 22 twentieth-century infrastructure. 23 The Soviets launched our missions to the 24 moon. 25 A viable public-private partnership will 1 allow us to escalate -- to escape the clutches of an 2 aging and obsolete infrastructure that is now 3 wrapped around a destructive recession. 4 I would argue, that JFK's vision can still be 5 accomplished by the work of those on this Committee, 6 and those who preside in Albany. 7 I would like to thank you all for the 8 opportunity to speak today. 9 And, I would be happy to answer any of your 10 questions. 11 SENATOR FUSCHILLO: Well, thank you very 12 much. 13 Senator Golden. 14 SENATOR GOLDEN: I don't know where the -- 15 this tunnel is -- is in the Long Island future, but, 16 I would suggest, that if you are going to do a 17 tunnel, that the rail freight is obviously included. 18 We have George Washington Bridge that brings 19 in 90 percent of our freight. 20 You need to have other accesses for freight 21 getting in and out of Long Island. And, I would 22 strongly suggest that that be considered -- not 23 considered, but as a definite for that project going 24 forward. 25 But, thank you, Michael. 1 SENATOR FUSCHILLO: Senator Martins. 2 SENATOR MARTINS: Thank you. 3 Mr. Polimeni, how viable is this project? 4 MICHAEL POLIMENI: Extremely viable. 5 SENATOR MARTINS: So, as a project moving 6 forward, from a design phase to a construction 7 phase, this is something that could happen 8 short-term? 9 MICHAEL POLIMENI: Define "short-term," 10 Senator. 11 SENATOR MARTINS: You tell me, Mr. Polimeni. 12 MICHAEL POLIMENI: It would take about 13 a year and a half to institute a regional traffic 14 study, which we have requested already. 15 We're doing this, effectively, to be able to 16 prove to those people who would come against the 17 project, that, in fact, this is going be a positive. 18 This is going to be a regional 19 pressure-release valve, as opposed to an originator 20 or creator of trips. 21 In order to do that, we have asked for a 22 position or -- of security, in connecting the 23 two nodal points that are necessary for this 24 facility; namely, the terminus of 135 and the 25 interchange of I-287 and I-95. 1 After that year-and-a-half study, and we get 2 the findings, we could, theoretically, be ready to 3 go in about, three years, four years. In and around 4 there. 5 SENATOR MARTINS: And the goal here is, not 6 only to facilitate transportation, on and off 7 Long Island, you mentioned, 70,000 cars. 8 That's 70,000 less cars on any of our 9 bridges, off of Long Island, being taken, actually, 10 a short-cut for many people, across the Sound; as 11 opposed to going through New York City? 12 MICHAEL POLIMENI: Very astute. 13 Typically, it's something I have to pass -- 14 point out to people: It is an unquantifiable 15 positive. 16 That, you know, throughout the years of 17 bringing this project to people, we've been very 18 strict in what we present, and the fact that it be 19 mathematically sound, and, certainly not 20 unquantifiable. 21 The positive that you speak of, at this stage 22 of the game, is unquantifiable; taking the volumes 23 off of Long Island Rail -- off of the LIE, and all 24 the other arterials involved, and putting it through 25 the tunnel, is difficult, at this point, with our 1 regional traffic study, to assign a number to. 2 But, certainly, we believe that that number 3 is going to be exceptional. 4 And, you know, I often pose to my audience, 5 the question: How you would like to be on the LIE 6 on Monday morning at 8:00, and not have any 7 18-wheelers? 8 SENATOR MARTINS: Well, we've all spoken 9 about, and had the opportunity to speak about, 10 east-side access, which is, a tunnel to 11 Grand Central Terminal, which will, in essence, save 12 15 to 20 minutes on most commutes, in the morning 13 for people who are going to the City, or, coming 14 home from the City. 15 We're saving half an hour in the day. And we 16 spent billions of dollars building, or committed to, 17 infrastructure improvements, and billions of dollars 18 to make that improvement. 19 This would provide, not only the facility, 20 but also the time-savings in people's lives, as well 21 as impacts to our infrastructure that may go well 22 beyond that. 23 And, so, I'm intrigued. 24 Certainly, if there is a time frame, and it 25 looks like you're well advanced on that, as far as 1 the design, that three- or four-year time frame 2 certainly seems short-term. 3 Thank you, Mr. Polimeni. 4 MICHAEL POLIMENI: Thank you, 5 Senator Martins. 6 SENATOR MARCELLINO: As one who met with your 7 father years ago, and others -- I believe you were 8 there, too, in my office -- talking about this 9 project, originally, when you started the concept, 10 and you started talking about it, there was no rail 11 link. 12 And I think, at the time, I mentioned that 13 that was something that was missing, and it -- and 14 needs to be part of the concept. 15 If you look at all of the infrastructure 16 changes that would have to be made, in order to make 17 that possible, just the connection of the railroad; 18 just bringing the railroad component into the 19 project, not only on the Long Island end, but on the 20 Rye, New York, end, so that there would be a place 21 for the trains to go, and once they get out of the 22 tunnel. 23 You're talking about a massive quantity of 24 money -- huge amounts of money -- because I think it 25 would easily double, possibly triple, the cost of 1 your tunnel. 2 Talking about the environmental impact 3 statement required, there is no way that gets done 4 in a year or two. 5 There's no way. 6 I'm somewhat familiar with those laws. And 7 that review procedure would require huge amounts of 8 time, to look at the impact of moving that railroad, 9 and shifting those changes, and redirecting roads, 10 and all of the rest that goes into it, that comes. 11 Yes, should this project be looked at? 12 Absolutely. 13 Should it be considered, and studied, and 14 worked up? Absolutely. 15 Should you think, possibly, about a change of 16 entry point? 17 And, I only say that because of where I live, 18 which is right next to the 135 entry point, which is 19 a significant point in my life -- because my wife 20 will kill me. But, it suffers the same negatives as 21 the Rye-to-New York bridge, that my predecessor, 22 Ralph Marino faced, when they proposed that bridge. 23 It's too close to the most congested area of 24 the Island. It needs to move further east, where 25 there is more opening, where you want more access, 1 where you want to create access to the east-end 2 farming community. 3 Some of my east-end colleagues might not 4 appreciate this, but that's where it's necessary. 5 That's where the Rye Bridge should have been 6 placed. 7 We have, already, the congestion of, the 8 Throgs Neck, the George Washington, the 9 Midtown Tunnel. You've got all of these access and 10 crossing routes that are existing now. 11 But, if we want to open up access to east -- 12 to the east end of Long Island, and the produce 13 produced by the farmers out there, I think that's 14 where your project needs to be looked, and needs to 15 be moved, and needs to be thought of. 16 I do think that it's worthy, and I do think 17 it has a lot of possibilities and a lot of 18 potential. 19 But, I think you're in the very beginnings of 20 the planning stage here. I don't think you're at 21 the point where you can say, you can get started in 22 a year or two. 23 I really don't think that's possible. 24 But, I'm willing -- I'm willing to work -- 25 and I'm willing to talk to you, I'm willing to talk 1 with you. 2 MICHAEL POLIMENI: If I may -- 3 SENATOR MARCELLINO: The rail's gotta be part 4 of it. 5 MICHAEL POLIMENI: If I may qualify, the 6 year-and-a-half timeline was specifically in 7 relation to the regional traffic study that we would 8 perform in order to see whether or not the project 9 is viable. 10 After that one-and-half-year study was taken, 11 then we would go towards the SEQRA, on to all the 12 necessary environmental impact statements. And then 13 toward, we'd seek the, "ROD," or the record of 14 discovery. 15 So, that was the four-year window that I was 16 referring to. 17 And by saying, I was ready -- we'd be ready 18 to go, I was referring to the fact that, not that we 19 would be going into the ground, but we would be at 20 the ROD. 21 To touch on what you said about the rail, you 22 were integral, Senator Marcellino, in us instituting 23 the component -- the rail component. It has, in 24 fact, been instituted into the project. 25 In terms of the amount of money you think 1 that it will add onto the project, I would like to 2 slightly tweak it, because, if you remember 3 correctly, when we did the presentation, we did the 4 utilidor, the central bore? It's a three-bore 5 system? 6 In fact, what we did, was, we inside -- we 7 enlarged the central bore, from a 35-foot diameter 8 to a 55-foot diameter, to match the outer bores. 9 And in that central bore, we, effectively, 10 made it a double-deck. 11 Underneath that bore, will be the rail. 12 Above that bore, above the center of the 13 bore, will be the utilities, and the logistics of 14 the actual train and rail, and the system itself. 15 In terms of linking to Metro North and LIRR, 16 we have, at every one of our presentations, made it 17 very, very clear, that we, as a design-build team, 18 never intended to have, the train, or the rail, in 19 the project. 20 What we have been tauting, is that, the 21 project will be rail-accessible. We will design and 22 build the project now, in the spirit of 23 sustainability, to accept a rail, at the time that a 24 rail can actually be brought to the facility. 25 So, in essence, we'll go, from a 1 35-foot-diameter-bore facility, to a 2 55-foot-central-diameter-bore facility, which will, 3 inevitably, be able to accept rail at the time that 4 rail is indeed at the facility. 5 So, we, actually, aren't looking to put the 6 rail in ourselves. 7 Clearly, Long Island Railroad and Metro North 8 would have to be involved in that, if, not only for 9 the simp- -- single reason that they're two 10 different trains themselves. They can't ride on 11 each other's rails. 12 SENATOR FUSCHILLO: Michael, a few questions. 13 The -- you would be the example of what a 14 public-private partnership would be. 15 What would you look for from the State of 16 New York? 17 MICHAEL POLIMENI: Put very simply, 18 proprietary position. 19 Due to the fact that -- I would probably 20 be -- consider us more of a hybrid, due to the fact 21 that we are an alternate route. We are not a 22 mandatory route. 23 So, for instance, we would not be akin to a 24 Tappan Zee Bridge 3P, because that roadway exists, 25 and it is, in fact, a mandatory crossing. 1 We are an alternative route. And if that -- 2 quite frankly, if the facility doesn't want to be 3 utilized, they can continue on their way. 4 We would look for, and we are looking for, 5 and seeking right now, legislation, or an agreement, 6 in the form, of which we will have proprietary 7 position between the two nodal points. 8 And, to speak to what Senator Marcellino said 9 earlier, on terms of incentive, we want -- very 10 much, want to see this project, not only through to 11 its completion, but then, own and operate in 12 perpetuity. 13 That is how these projects will work; by 14 allowing it, so that is a product of which you can 15 have ownership of, and you can manage, and it can, 16 in fact, be its own company. 17 So, right now, as I said, there are a handful 18 of corporations, worldwide, that are capable of 19 doing this. 20 And, you know, it's been about four years 21 that we've -- or maybe five years, that we've been 22 on this path. 23 SENATOR FUSCHILLO: Right. 24 MICHAEL POLIMENI: And to go into the next 25 step, it's not only costly, but it is also quite 1 time-consuming. And, the focus of our corporation 2 would have to focus on it. 3 So, we would need to know that, in fact, if 4 the project is viable, and a positive, that we would 5 be the ones that would be able to institute it. 6 SENATOR FUSCHILLO: How long would a project 7 like this take? 8 MICHAEL POLIMENI: I have been told by the 9 engineers -- 10 SENATOR FUSCHILLO: When I say, "does it 11 take," starting to dig. 12 MICHAEL POLIMENI: Starting to dig. 13 So, starting to dig, to the first car 14 through, 10 to 11 years. 15 SENATOR FUSCHILLO: Uh-huh. 16 MICHAEL POLIMENI: I've been told, about 17 eight years for the bores. It's three TBMs, or a 18 total of -- 19 SENATOR FUSCHILLO: There's no bedrock; 20 right? 21 MICHAEL POLIMENI: Oh, there is. There is, 22 actually. 23 On the Rye side, there is, what is called 24 "schist," or it's -- or, bedrock. It's actually the 25 bedrock that the Island of Manhattan is built on. 1 SENATOR FUSCHILLO: Right? 2 MICHAEL POLIMENI: Which is what they're 3 currently boring through. 4 SENATOR FUSCHILLO: (inaudible) on the Rye 5 side? 6 MICHAEL POLIMENI: Correct. 7 They're currently boring through that right 8 now on the Second Avenue extension. 9 On the Long Island side, you have glacial 10 sedimentary redeposits, primarily, Raritan clay, a 11 very viscous, soft material. 12 SENATOR FUSCHILLO: Right. 13 MICHAEL POLIMENI: So, in actuality, it's 14 easier to bore through a harder material than it is 15 to bore through softer material. 16 So, quite frankly, the project will ramp up 17 once we get closer to -- 18 SENATOR FUSCHILLO: We've had a lesson on 19 that with the study of the visit of the east-side 20 access; the difference between the bedrock and the 21 soft material as well, and the time and the cost, 22 really, going through soft, how, what you have to do 23 to it. 24 MICHAEL POLIMENI: Uh-huh. 25 Yes. 1 SENATOR FUSCHILLO: Bold, creative, 2 innovative, is really how I'll describe this 3 project. 4 MICHAEL POLIMENI: Thank you, sir. 5 SENATOR FUSCHILLO: And, you know, we have 6 the Holland Tunnel, the Lincoln Tunnel. 7 And I think it's long overdue to have the 8 "Marcellino Tunnel." 9 [Laughter.] 10 MICHAEL POLIMENI: I couldn't agree with you 11 more, Senator. 12 SENATOR LARKIN: Not next to Marcellino's 13 house. 14 [Laughter.] 15 SENATOR LARKIN: I have a question. 16 SENATOR FUSCHILLO: And, Senator Larkin has 17 the final question. 18 SENATOR LARKIN: You know, I sat back here, 19 and you talked about President Kennedy: 1963. 20 I've heard about this bridge almost for the 21 same time. 22 I heard, when the late Senator Mar- -- ack, 23 Marcellino -- the late-Senator Marino was here, we 24 talked about a bridge. 25 Now we're talking about a tunnel. 1 You know the one thing that we haven't -- I 2 haven't seen yet, and it goes back to the 3 Tappan Zee? We haven't seen a concentrated effort 4 to get the people to understand what this operation 5 could mean, for both, Long Island, and that part of 6 the Bronx -- 7 SENATOR FUSCHILLO: That's your area. 8 When you come out, in Rye. 9 SENATOR LARKIN: That's right. 10 Be careful. 11 -- but, you know, we hear this talk about 12 this here. And I really -- I'm serious about it. 13 I just think that, somehow or other, you've 14 got to put Long Island and the Bronx, or up there in 15 Rye, or whatever you're going to do it -- not next 16 to Marcellino's, of course -- but, sometime, you got 17 to get a group of people, some leaders, in both of 18 it. 19 You're from the production side of it. We're 20 from the government. 21 But, here's all these people that are willing 22 to build it. 23 Over here, is all the people that are going 24 to have to put up with what is negative about it. 25 You know, the "NIMBYs." 1 And I don't see anybody trying to reduce that 2 NIMBY anymore today than I did 35 years ago. 3 So, you know, you can talk about: We're 4 going to do this in a year. We're going to do this. 5 This isn't putting a man on the moon. That 6 was really short. But, we're talking here, about 7 something that all sides haven't come together. 8 You say, rail has to be a part of it. 9 30 years ago, it was just a bridge. 10 Now we find rail. 11 But, we haven't brought together the concept 12 of, this is really needed. 13 And, when are we going to get the support 14 from Long Island, the Bronx, feds, and State, to do 15 this project? 16 Because, I don't know that I would even be 17 thinking of investing, unless I knew, right 18 up-front, from day one, that everybody here in this 19 room supports it. 20 And I don't think that -- you know, I believe 21 in it. 22 MICHAEL POLIMENI: Thank you. 23 SENATOR LARKIN: I think it's something that 24 is 40 years late, but better late than never. 25 And I think that somebody ought to start 1 putting feet on the ground, and, you know, stop 2 talking, and start deciding: This is what we will 3 do. 4 Your environmental impact statement; 30 years 5 ago, you could have got by with six months. Now, 6 you're going to take a year and a half to two years 7 to get that done. 8 I support the idea, but I think you got some 9 homework to do. 10 MICHAEL POLIMENI: Thank you, Senator. Yes. 11 Actually, we've changed NIMBY to "NUMBY," 12 which would be, "not under my backyard," in this 13 case. 14 Thank you. 15 SENATOR LARKIN: Thank you. 16 MICHAEL POLIMENI: Thank you. 17 SENATOR FUSCHILLO: Thank you very much. 18 MICHAEL POLIMENI: Thank you. 19 Thank you, Senators. 20 SENATOR MARCELLINO: Say "hello" to your dad. 21 MICHAEL POLIMENI: I will. 22 Thank you, Senators. 23 SENATOR FUSCHILLO: Phil Russell, director of 24 P3 project delivery, for H.W. Lochner. 25 Good afternoon, Phil. 1 PHIL RUSSELL: Good afternoon, Chairman, 2 members of the Committee. 3 Again, I'm Phil Russell, director of P3 and 4 Alternative Delivery, for H.W. Lochner, an 5 engineering firm headquartered in Chicago. 6 Previously, I retired as the 7 assistant executive director at TxDOT, with 8 responsibilities of developing and building their P3 9 and design-build program. 10 And what I've done today, Committee members, 11 is, changed pace a little bit. 12 This is a presentation I gave to some agency 13 personnel not long ago, and I've modified it to be a 14 bit more apropos for today's discussion. 15 Before I get into it, let me kind of set the 16 table, and talk a little bit about where the 17 practice and where the industry is going. 18 I have to tell you, I've been very impressed, 19 sitting here, listening to some of the comments, and 20 the questions, back-and-forth. 21 Senator Martins, you used the analogy of a 22 flat-head screwdriver; trying to find a Phillips 23 screwdriver to drive the screw. 24 And I will tell you, in some jurisdictions 25 that I go to, they have neither a flat-head nor a 1 Phillips. They simply have a hammer. And that's 2 what they use to drive the screws. 3 So, from what I've heard today, I think you 4 guys are well beyond where many other jurisdictions 5 are. 6 You know, in Texas, again, whether I'm in 7 Virginia or Washington or Texas or Florida, Texas, 8 everybody has the same challenges. And I think what 9 you see are some common threads that always permeate 10 the process to develop a P3 program. 11 You know, Texas, in the '90s and 2000, is 12 very similar to where you guys are as a traditional 13 design-bid-build, pay-as-you-go, state. 14 And we embarked on a very aggressive program. 15 We experimented. We had small design-build, big 16 design-build; little, big, P3s. 17 And I know some of the questions have been 18 project-specific this morning on: How could we 19 develop, this project, or that project? 20 I would simply say, that, the sky's the 21 limit. You know, one size does not fit all. You 22 have to look at the individual projects. 23 We had billion-dollar design-build projects 24 that worked very well. We had P3 projects. 25 There's one in Austin, that's under 1 construction, that should be completed next year, as 2 a $1.3 billion project. And it required no State or 3 federal dollars to build it or operate it. And, in 4 fact, the State of Texas will also get a revenue 5 share out over 50 years. 6 So, we got a project developed that would 7 have taken decades to build with traditional funding 8 patterns. And on top of that, we'll a future 9 funding source out over the next 50 years. 10 On other end of the spectrum, there are 11 two large projects that are now underway in the 12 Dallas-Fort Worth area -- the I-635, and the 13 North Tarrant Express -- that are very similar to 14 the sorts of projects that I see, probably here in 15 New York, but other places as well. It's heavy 16 reconstruction of the existing freeway, 8 or 10 or 17 12 lanes. 18 And, so, the 3P project is to come in, 19 reconstruct those existing lanes, but they 20 desperately need some additional capacity. 21 And, so, the challenge is, is pushing in some 22 additional managed toll lanes in the median. 23 And so, obviously, where you have managed 24 toll lanes and non-tolled access right next it, 25 financially, there was no way that we could get a 1 deal like the project that we had in Austin. 2 So, the Department did have to spice up. We 3 put on the order of about $500 million on each one 4 of those projects, to attract that private equity. 5 And as Tom Osborne commented earlier, the use 6 of the TIFIA loan program -- the federal TIFIA loan 7 program -- was incredibly important to both of those 8 projects. 9 So, you know, some of the criticism was: 10 Well, you spent 500 million, or $600 million, of 11 traditional gas-tax dollars. 12 But, the reality is, one of those was a 13 $2 billion, the other was a $2 1/2 billion, project, 14 neither of which would be under construction right 15 now but for the ability to blend those State dollars 16 with those federal -- or, those private-sector 17 dollars. 18 So, again, just a little background to give 19 you some bookmarks on what the realm of 20 possibilities are. 21 As I mentioned earlier, there's some common 22 threads, regardless of the venue or jurisdiction 23 you're in, that seem to come up always as you begin 24 to think about launching a P3. 25 (PowerPoint slide show begins.) 1 PHIL RUSSELL: We -- there's been a fair 2 amount of discussion about political commitment and 3 public acceptance. Again, I'll talk a little bit 4 more about it, but... 5 "Education": Education to the public, the 6 traveling public, the political leadership. 7 It's extremely important to make sure people 8 understand, why you're contemplating a P3, what the 9 needs are, the value of infrastructure, and the 10 challenges -- the financial challenges that are 11 before us. 12 "Interest Groups." 13 Again, I think you guys are doing a terrific 14 job of making sure that everybody is part of that 15 process. 16 Venues are always different. It may be 17 contractors, it may be engineers, it may be local 18 unions, it could be environmental groups. But, I 19 think that it's incumbent on the folks to make sure 20 that everybody has a chance to be a part of that 21 solution, rather than on the outside throwing rocks 22 at you. 23 "Span of Control/Risk Transfer." 24 We'll talk about it a bit more, but, risk 25 transfer, really, is the heart of a P3 -- of a 1 successful 3P. 2 Ascertaining, what government does best, what 3 the private sector does best, and then separating 4 those, and, taking a hands-off viewpoint. Not 5 getting into weeds, and micromanaging how the 6 private sector would deliver that project. 7 The "Development Process." 8 Again, I think there's been some good 9 discussions on the clarity of the process. 10 The "Commercial Terms" and the "Ability to 11 Finance," I think are incredibly important. 12 Chris, could we go ahead and go to the next 13 slide. 14 (New slide presented.) 15 PHIL RUSSELL: "Building the Right Integrated 16 Team." 17 I've seen that in several jurisdictions. 18 It's a bit of a challenge. 19 We had some good discussion this morning 20 about post-World War II, the interstate program. 21 Frankly, you know, the engineers at the DOTs 22 have done a tremendous job. I'm biased; I was one 23 of those DOT engineers. They've done a terrific 24 job. 25 But, what I'm seeing on developing 1 design-build and P3s, you have to augment that 2 team. You still need that core, that cadre of 3 engineers. But, a P3 is a very, very complex 4 transaction, both, technically and financially and 5 legally. 6 And so, in Texas, and, again, I see it in 7 Virginia and Washington, and most other 8 jurisdictions, we always try to bring in the best of 9 the best. We try to bring in: 10 A great legal firm that has been involved in 11 these sorts of transactions; 12 A great financial team; 13 And, an engineering team that understands, 14 traditionally, we always used to have a cookbook, 15 and we would tell the developer exactly, step by 16 step, how to build the project. 17 And, now, in a P3, we have to go to more 18 performance-based. Tell them what the end goal is, 19 but, again, kind of get out of their hair and let 20 them develop the project. 21 So, the legal and financial will be critical 22 elements. I assure you, the private sector will 23 have the best-and-brightest on their team. 24 The State should also have that same 25 component. 1 (New slide presented.) 2 PHIL RUSSELL: "Government Policy and Public 3 Opinion." 4 Again, talked about education. 5 I think we've done a wonderful job building 6 infrastructure in this country, particularly over 7 the last 60 or 70 years. 8 Communications probably haven't been our 9 forte, again, on the value of infrastructure, and 10 how people pay for that infrastructure. 11 Always look at this as a two-prong approach 12 to education/communication, internally and 13 externally. 14 I was very pleased to hear Commissioner Gee, 15 this morning, talk about their support for P3. 16 I assure you, that is no small measure. 17 Engineers typically are fairly conservative. They 18 don't like to change. 19 SENATOR FUSCHILLO: Let me just interrupt you 20 for a second. 21 PHIL RUSSELL: Yes, Chairman. 22 SENATOR FUSCHILLO: You talked about 23 Commissioner Gee. 24 Your prior life, why don't you explain to the 25 panel what you did before you went to work for 1 H.W. Lochner. 2 PHIL RUSSELL: And I mentioned that, 3 Mr. Chairman. 4 Again, I was the assistant executive director 5 at TxDOT, with responsibility over developing their 6 Innovative Development Project process. 7 And, specifically, one of the issues that I 8 found early on is, again, we had wonderful 9 engineers, but they were very set (inaudible) on how 10 they wanted to develop it -- 11 SENATOR FUSCHILLO: (inaudible.) 12 PHIL RUSSELL: -- State of Texas. 13 SENATOR FUSCHILLO: Right. 14 PHIL RUSSELL: And, so, I think that internal 15 communication is extremely important, to make sure, 16 from the top, from the commissioner, on down, that 17 the rank-and-file employees, understand that this is 18 the future. This is how we need to deliver 19 projects, maybe not all the project, but significant 20 mega-projects. 21 And, so, we can't forget about that internal 22 communication. 23 "External Communication." 24 The criticisms that I've seen, again, I think 25 the panel has done a great job at talking about some 1 of those. 2 If it's a toll project, then it's -- there 3 should be discussions on, toll rate, and toll 4 escalations. 5 I looked in the Dallas projects. I had a 6 pretty good sense for what the toll rate should be; 7 that, I didn't want to come from, you know, the 8 State Highway building, and tell people what it had 9 to be. 10 We worked closely for -- or, through the 11 Metropolitan Planning Organization, who were 12 composed of representatives of the various cities 13 and counties. And we tried to have an iterative 14 process of suggesting: Okay, you guys have been 15 waiting very patiently to reconstruct this I-635 16 project, say, for the last say 25 years. We have a 17 method to do it, but let's talk about, toll rate, 18 and toll escalation. 19 And, so, if the toll rate is this, and the 20 escalation is this, this is the sort of facility we 21 think we can build. 22 If you can't support that toll rate, and it 23 needs to be flatter, with a smaller toll escalation, 24 then this is the project we can build. 25 So, we tried to get them involved in the 1 project. They're no different than any of the rest 2 of us. 3 If you ask us, do we want to pay taxes? No. 4 Do we want any -- to pay a toll? No. 5 But the alternative is, that you don't get 6 the infrastructure you need to build. 7 So, that iterative process I found very, very 8 important to establishing that communications in 9 Dallas -- Dallas and Fort Worth. 10 Other things, again, constant criticisms 11 you'll hear, is the: If you privatize it, or you 12 have a long-term lease, they won't build it by state 13 and federal standards. 14 That P3 document is wonderfully flexible. 15 You can mandate anything you want in it. 16 Now, again, you're trying to attract the 17 industry, and you're trying to make sure they come 18 to New York, but, State and federal standards are -- 19 you can clearly articulate those in a contract. 20 "Hand-Back Standards." 21 I would always get the criticism of: Well, 22 Phil, if we do this wonderful thing, what protects 23 us in year 30 or year 40, from the facility being 24 poorly maintained, and then the State gets it back 25 in a deplorable condition, and we have to spend 1 countless dollars to upgrade it? 2 Well, we had hand-back standards, and in most 3 jurisdictions do, which begin kicking in several 4 years before the end of that lease. And, it 5 requires that they spend the available dollars to 6 make sure that that infrastructure is up to speed, 7 and -- at those hand-back standards. 8 "Term of Lease," we'll talk a bit more about 9 it. 10 In Texas, we found the sweet spot to be about 11 50 years. 12 I know you guys are looking at, maybe, 13 35 years here. Indiana, and Chicago, looked at, 75, 14 and 99 years. But, I'll discuss that a bit more. 15 But, 50 years is about right. 16 "Risk Management." 17 It's the thing that I think we do absolutely 18 the worst job of explaining to the constituency. 19 On the traditional DOT role, we have huge 20 amounts of risk that we maintain on our ledger, and 21 we really don't understand that. 22 The private sector is a machine. They know 23 how to price risk. 24 Now, early on, when we started the program in 25 Texas, you know, I was kind of drinking the 1 Kool-Aid. I had heard, everybody said: Phil, let 2 me handle the risk. We'll handle it. 3 And, so, I said, "Sure, here it is." 4 And I pushed as much risk as I could to the 5 private sector. 6 The private sector can price it, but at what 7 price? 8 And, so, as we became a bit more 9 sophisticated, and got a bit more education and 10 experience, we started pulling back some of those 11 risk elements. 12 And one that I -- comes to mind very readily 13 is, environmental risk. 14 Frankly, the government just does a better 15 job of managing that process, maybe even the 16 permitting. But, certainly, the environmental 17 process. 18 And the private sector does a better job on, 19 say, you know, putting together the schedule, 20 maintaining the schedule, maintaining their 21 workforce. 22 So, again, it's all about that proper balance 23 of risk allocation. 24 (New slide presented.) 25 PHIL RUSSELL: And, again, I'm not going to 1 go through these, but this just gives you a flavor 2 for some of the risk elements that are out there, 3 both, on a traditional and a P3. 4 And we could discuss, or argue, whether the 5 owner or contractor has this on the traditional or 6 P3, but, my point here is, just giving you a flavor 7 of the number of factors that are there in every 8 traditional project, and will be there in the P3. 9 And they have to be thought about, and they 10 have to be contractually handled, so that we clearly 11 know who is bearing that risk. 12 I think there's one more slide like this. 13 Chris, go ahead. 14 (New slide presented.) 15 PHIL RUSSELL: Again, same general slide. 16 Go ahead and go to the next one. 17 (New slide presented.) 18 PHIL RUSSELL: "Selecting Projects." 19 There's been a great deal of discussion this 20 morning, and I think there should be, about 21 selecting projects. 22 There have been projects in the past, certain 23 DOTs, where, for whatever reason, they pushed a 24 project, and it just didn't make sense, for whatever 25 reason. 1 I always try to run through a "filter," and I 2 try to look at the projects that somebody, whether 3 it's a local constituency said: Here are the, 4 top five, or top ten, projects. 5 I try to start running through those filters, 6 and checking those boxes, to prove to myself that 7 they are ready for a P3 development. 8 You know, "Public Support": If you don't 9 have a project, where the public has been clamoring 10 for that project, for, you know, generations, 11 practically, it's probably not a good project to try 12 to foister or push on them. 13 "Political Champions." 14 I cannot -- uhm, I cannot emphasize enough, 15 the importance that you folks, as well as the 16 Governor, as well as the local constituency, the 17 local elected officials, will have on supporting 18 that project. 19 It's something new. There will be a lot of 20 challenges. You have to maintain that political 21 support. 22 I assure you, the environ- -- the private 23 sector will look at that political support before 24 they move into that region. 25 "Environmental Clearance." 1 We talked a little bit about that. 2 We talked about the SR-125 in 3 Southern California. That was a project, frankly, 4 that kind of languished early on, because they 5 didn't have environmental clearance. 6 We have had projects that didn't have 7 environmental clearance, but we always tried to get 8 that clearance approved, that wrecker decision, or, 9 we want it within grasp, because that is a huge risk 10 factor that the private sector, if they look at a 11 project that is nowhere near getting that 12 environmental risk, they are not predisposed to 13 invest countless millions of dollars and resources 14 in that domain until that project has arrived. 15 So, environmental clearance is extremely 16 important. 17 "Financial Viability." 18 Again, I gave you the bookmarks at the -- of 19 some of the projects in Texas, whether you need some 20 subsidy or some help from the locals, or not. 21 And the last two elements, Tom Osborne did a 22 good job talking about, "Value for Money," and 23 "Public Sector Comparator." 24 Those are kind of industry words of art, but 25 I don't get too hung up on those. Everybody's 1 definition is slightly different. 2 The main concept here is: Value for Money. 3 You have to run that analysis early on, to 4 ascertain: Is it more appropriate to develop that 5 project as a traditional project, or is it more 6 appropriate to develop it as a P3? Which offers the 7 better value to the State? 8 And, then, "Public Sector Comparator": If 9 you make that decision to develop it as a P3, you 10 want, on your side, an independent comparator. 11 Somebody to look at that, and say: These are 12 the ranges of values that we think we're going to 13 receive from these proposals. 14 And if those projects fall outside that 15 range, then it should give you pause, and make you 16 think about whether we move forward with this 17 proposal, or not. 18 You have to benchmark whether those proposals 19 that you're receiving is what you expected. 20 And, again, "Implementing a Program." 21 Every jurisdiction is different. 22 There are some areas that they have a single 23 project. That's it. It's a landmark project. 24 Everybody, it's, all for one and one for all. 25 And if that's the situation, terrific. 1 If you're in a state, like I think New York 2 is, and many others, that you have several projects 3 that are in the hopper, then you want to create real 4 deal flow. You want to show that you have the 5 environment, you have the clarity of documents, you 6 have the political support. 7 That's what will attract the industry 8 partners. 9 Whether it's a Tappan Zee, whether it's the 10 Goethals Bridge, or whatever the infrastructure 11 project is, that's how you create that momentum and 12 that buzz in the community so that the industry 13 comes here, rather than Texas or Florida or Virginia 14 or Washington, because it is a very competitive 15 environment. 16 Just a couple of quick comments, and I think 17 they've been touched on. 18 I get the opportunity to have been involved, 19 and reviewed, different P3 legislation across the 20 country. 21 And, I'm very impressed with this one. 22 I think, you guys, and Chairman, my 23 congratulations. I think it is a great bill. I 24 think you guys have done a good job at it. 25 Couple of things that I would want to throw 1 out: 2 The "35 years" I talked about? Again, I 3 realize there's 35 years, and there are some 4 abilities to extend it beyond 35 years with a 5 majority vote of the board. 6 If that's what works in New York, then, fine. 7 I would suggest, again, to take a hard look 8 at that. 9 When we ran the numbers, we found that, at 10 30 or 35 years, we couldn't generate enough capital 11 to build the projects we needed. 12 The flip-side is, if we went beyond 50, to 13 75 or 100, what we found was, it was the point of 14 diminishing return. 15 We could get some additional dollars, but at 16 what cost? 17 And the cost was, an additional, 25 or 18 50 years of the concession length. 19 So, we chose 50 years, which kind of -- in -- 20 at least, in our opinion, kind of maximized the 21 revenue-generating capability with the lease. 22 Clearly, Mitch Daniels in Indiana, and 23 Mayor Daley in Chicago, had different views. They 24 spread theirs out to, 75, or 99. 25 But, I would suggest looking at that closely. 1 And, the "Role of the Board" as well. 2 Again, I think Tom did a terrific job. 3 Clearly, there has to be some sort of signoff 4 on a project of this magnitude. And what is 5 appropriate for every gener- -- or, every venue, is 6 different. And that may be the solution here in 7 New York. 8 I know, the Governor, Lieutenant Governor, I 9 forget who all appoints those positions. 10 I agree completely with Tom; I would stagger 11 those terms. That gives, the aura, the impression, 12 of stability. 13 But, regardless of how you guys ultimately 14 determine what's appropriate, I cannot emphasize, 15 again, the need to get -- to depoliticize, if that's 16 possible, as much as possible. 17 Whenever these concessionaires, whether it's 18 here in the States, in Spain, Germany, France, 19 England, when they're looking at those domains where 20 they're going to do business, the politics give them 21 great anxiety. 22 And, so, we all know it's always in the 23 system. But, to the extent that you can diminish 24 that in the role of this board, clearly articulate 25 what the role of the board is, hopefully, more -- 1 their involvement will be more at the beginning, 2 less at the end, after the proposals have been 3 reviewed. 4 But, overall -- 5 I think that's the last slide. 6 Overall, again, I think you guys are on the 7 right track. 8 I'm very pleased, and very impressed, with 9 the track you're on. 10 Any questions? 11 SENATOR FUSCHILLO: Phil, let me, first, 12 thank you for coming up from Texas. I appreciate 13 you being here. 14 You and I have met before. 15 And, your PowerPoint was very powerful. 16 You know, that is, when we drafted the 17 legislation -- 18 And, again, it is a draft. It is introduced 19 in my House, in the Senate. 20 -- the goal was, to make New York attractive 21 for P3s; attractive for individuals to want to 22 come here and invest in a P3. 23 And, certainly, to take the politics out of 24 it, because, we've talked -- I've talked, with many 25 people that testified today, and those who couldn't 1 make it, in some states where it's not attractive, 2 it's a disincentive, whether to invest in an 3 infrastructure bank, or even participate in a P3. 4 And that's the ultimate goal, obviously, to 5 make it attractive for investments here in New York. 6 So, I do appreciate your comments. 7 And, also, the comments on possible 8 amendments. I think that's critically important. 9 You've seen them on both sides: On the 10 governmental end, through all the years in Texas, 11 when you worked there in transportation, and even 12 now, in the private sector. 13 And I think that you've explained to me, 14 there is life after government, which is always nice 15 for us to hear. 16 PHIL RUSSELL: There's life after government. 17 SENATOR FUSCHILLO: But, that is the goal, 18 obviously. 19 And, you know, to get back, we know it's not 20 the answer. 21 The only answer to solving the infrastructure 22 crisis we face here in the state, but it is an 23 option that should be made available. 24 And our first speaker, I don't know if you 25 were here for Stan -- oh, you were here for Stan -- 1 he was kind of imploring us to give him that option, 2 because, you know, some questions asked by 3 Senator Marcellino, he didn't even have the 4 availability to start even talking to individuals 5 about bringing them in for public-private 6 partnerships. 7 PHIL RUSSELL: Yeah. 8 SENATOR FUSCHILLO: Which, in this day and 9 age, the size of our state, is really wrong. And, 10 hopefully, we'll enact this legislation into law, 11 and give them the option to do it, and, to take out 12 the politics. Because -- 13 PHIL RUSSELL: Absolutely. 14 SENATOR FUSCHILLO: -- we don't want any 15 obstructions in an innovative proposal like this. 16 PHIL RUSSELL: And, Chairman, I agree. 17 I think that was what Commissioner Gee was 18 probably trying to articulate. 19 You'll have discussions, but, until you have 20 P3 legislation, the game really hasn't started yet. 21 SENATOR FUSCHILLO: Right. 22 PHIL RUSSELL: So, if this legislation can 23 pass, and move forward, then I think that will help 24 the DOT start having some earnest discussions. 25 So, I think that's a critical first step. 1 SENATOR FUSCHILLO: Any further questions, 2 Senators? 3 SENATOR MARCELLINO: Thank you very much. 4 SENATOR FUSCHILLO: Senator Marcellino. 5 SENATOR MARCELLINO: Mr. Russell, the, 6 uhm -- excuse me -- what kind of projects are 7 typically best suited for P3? 8 PHIL RUSSELL: I think, Senator, it kind of 9 depends. Again, one size doesn't fit all. 10 In the south, where we have lots of growth, 11 we tend to see more of new location. And, those 12 work very well. 13 But, as Tom again pointed out, there are some 14 risks. It's -- you're having to generate revenue. 15 You're hoping that you build it, and it will 16 generate sufficient revenue. And, that hasn't 17 always been the case. 18 But, we see a lot of those projects. 19 You know, Indiana was a bit different. They 20 privatized an existing asset. 21 In Texas, I could find no support or no 22 interest at all in that. So, we didn't -- we didn't 23 really move forward on the privatization of the 24 existing assets. 25 Senator, what I think you're going to see, 1 more and more, is the project of the I-635 that I 2 talked about, in Dallas, where you have an existing 3 asset that desperately needs to be reconstructed, 4 but it also has capacity issues. 5 And, so, I think, people looking to 6 privatize -- not to privatize -- but, to have a 7 concession on the existing roadway, to the extent 8 that it's reconstructed, and then, also, have those 9 folks build some high-occupancy toll -- or "HOV" -- 10 lanes in the middle. 11 You're going to see more and more and more of 12 those popping up, California, to the East Coast. 13 SENATOR MARCELLINO: What did you find you 14 used the most: User fees, or, as Mr. Osborne 15 talked about, the value-for-money analysis? 16 PHIL RUSSELL: Ours all were, to my 17 knowledge -- I'm trying to think through, make sure 18 there's no exception. 19 All of others were user fees. 20 But, everybody has a different situation. 21 In Canada, rarely are there toll roads. 22 Other than 407, around Toronto, they use, 23 nearly, always, availability payments, out over the 24 30 years of the term. And, so, they'll -- they 25 guarantee that cash flow. And, it's not a toll 1 road. 2 So, effectively, the government is paying 3 that toll. 4 So, it can work either way. 5 We use more of a traditional toll-road 6 pattern. 7 SENATOR MARCELLINO: Texas a right-to-work 8 kind of state? 9 PHIL RUSSELL: Yes, sir. 10 SENATOR MARCELLINO: So, unions, and union 11 negotiations? 12 PHIL RUSSELL: Well, Senator, what I would 13 say is, that wasn't a challenge that we dealt with 14 in Texas, but, there were other challenges. 15 And, so, here in New York, that will be an 16 issue. And, again, it's one of those interest 17 groups, that you have to make sure, that, as you sit 18 down and discuss those labor issues, those wage 19 issues, with the union, that, again, they're in the 20 tent and they understand what's going on. 21 And, so, whether New York would have that as 22 a challenge, and Arizona might not, true; but, 23 everybody's going have a list of challenges. 24 And, labor, the labor challenges, are 25 something that most concessionaires work with very 1 well. They understand that process. 2 SENATOR MARCELLINO: And, last question: 3 The -- Mr. Osborne talked about the fair return 4 being somewhere around in the mid-teens, recognizing 5 that it will vary from project to project. 6 Your experience in Texas? 7 PHIL RUSSELL: And I missed the first part of 8 that. 9 Was that, the rate of return? 10 SENATOR MARCELLINO: Rate of return. 11 PHIL RUSSELL: Yes, sir, I think so. 12 You know, my concern, as a former DOT 13 official, always was, the private sector is only 14 going to come in here -- surprise, surprise -- to 15 make money. 16 People always seem to be somewhat surprised 17 by that. 18 So, I realized there was a profit motive. 19 But the flip-side of that is, I could not 20 support some super-profit that, you know, I would be 21 criticized for. 22 So, that is exactly right: Every -- a 23 greenfield is a bit different from a brownfield. 24 The one thing that I tried to put on there, 25 and it was a double-edged sword -- or, not 1 a double-edged sword -- it was two-prong approach, 2 is, I tried to put that revenue share in wherever 3 possible, because that helped inoculate me and the 4 State against criticism of super-profits, because, 5 when they hit a certain level, whether it's measured 6 in rate of return or in revenue, then a revenue 7 share with the State would kick in. 8 So, I wanted them incentivized to push to 9 that level, but, at some point, I wanted the 10 State of Texas to get a piece of that revenue share. 11 So, that seemed to help a little bit. 12 Now, every project is different, and 13 sometimes there's going to be insufficient revenue 14 to support that. 15 But, generally, I was seeing somewhere in the 16 10 to 15 percent range for a rate of return, would 17 be their expectation. 18 SENATOR MARCELLINO: Thank you. 19 SENATOR FUSCHILLO: Comments? 20 Phil, thank you very much. 21 PHIL RUSSELL: Thank you, Chairman. 22 SENATOR FUSCHILLO: Phil, let me ask you a 23 question. 24 PHIL RUSSELL: Yes, sir? 25 SENATOR FUSCHILLO: The HOV lanes we talked 1 about, an option -- 2 PHIL RUSSELL: Yes, sir. 3 SENATOR FUSCHILLO: -- if an individual 4 wanted to use them, they pay a toll, probably 5 through their E-ZPass, or whatever form other states 6 may have. 7 Are you seeing that -- a growth of that in 8 the work you're doing throughout the country? 9 PHIL RUSSELL: To the conversion of HOV to 10 HOT lanes? 11 SENATOR FUSCHILLO: Yes. 12 PHIL RUSSELL: Yes, I am. 13 HOV lanes are -- have been deployed all over 14 the country. They work very well. 15 There is some criticism. You know, typically 16 people that are caught in traffic don't understand 17 why, you know, the guy's whizzing by, next to him. 18 And, so, there was always a tendency to try 19 to figure out a way to fill up some of those 20 lanes -- 21 SENATOR FUSCHILLO: Right. 22 PHIL RUSSELL: -- by changing it to, HO, plus 23 two, plus three, plus whatever. 24 So, I think the notion of having managed toll 25 lanes makes sense. It fills up some of that 1 capacity in between. 2 But, inevitably, and I think the challenge 3 that you guys would have here, is, everybody will 4 want an exclusion. 5 You know: I'm in a hybrid vehicle. I 6 shouldn't have to pay a toll; 7 Or, I am -- you know, I'm a motorcycle rider. 8 I shouldn't to pay; 9 Or, a mass transit. 10 And, all of those things may be appropriate. 11 The only caution I would suggest, Committee 12 members, is: You start on the P3 program because 13 you have a financial hole that you're trying to 14 fill. 15 So, every time those exclusions are offered 16 to a group or a class of people, you're simply 17 digging the hole deeper. 18 And I say that, not as, they shouldn't have 19 it. They probably should have that ability. 20 I'm simply suggesting, that, somebody, and 21 that somebody's probably going to be the State, will 22 have to dig into their pockets and chip in more and 23 more dollars to make those systems work. 24 Senator? 25 SENATOR LARKIN: I lived in D.C. for 1 three years, from '63 to '66, when we were starting. 2 PHIL RUSSELL: Yes, sir. 3 SENATOR LARKIN: But, after I left, there was 4 still talk about, they oversized the project, and 5 made the hole bigger. 6 Is that correct? 7 PHIL RUSSELL: Oversized, which project? 8 Just, in general? 9 SENATOR LARKIN: The HOVs. 10 PHIL RUSSELL: Oh, in -- you know, Senator, I 11 don't know if that's true. 12 I will say, as a -- the viewpoint, as a DOT, 13 and as a private sector, is a bit different. 14 Frankly, when I was in the DOT, I worked in 15 the Dallas district for many years. 16 The 635 Project we talked about, we built 17 additional lanes; not because we needed them right 18 now, but because we thought we would probably need 19 them in the future. 20 So, we always tried to build more 21 infrastructure, more assets, because we knew the 22 problems with, you know, construction delays, if you 23 had to get in there and add lanes. 24 In the private sector, you try to form-fit 25 that to exactly the need: the need of today -- 1 UNIDENTIFIED SPEAKER: (inaudible). 2 MARTY GLENNON: -- and -- but, have the 3 flexibility to add additional, you know, capacity, 4 or whatever, is required in the future. 5 But, you try not to come out with "one size 6 fits all." You try to, very much, form-fit this to 7 what the conditions are today, and then grow it as 8 need be, each year; each subsequent year. 9 So, it's a little bit of a different mindset. 10 SENATOR FUSCHILLO: Have most of your 11 P3 contracts have incentives built in, for timelines 12 and costs? 13 PHIL RUSSELL: Chairman, they're all a little 14 different. 15 I could argue, and I did argue in my previous 16 life, that: Listen, all the incentives that are 17 needed are in that P3, because, on the P3 side, they 18 may have some of their own company's equity at risk. 19 They have bankers -- like Mr. Osborne, or 20 others behind them -- and they are monitoring that 21 very closely. 22 So, there's already tension within that team: 23 Go, go, go, we've got to get this thing open today. 24 Beyond that, I -- typically, depending on the 25 nature, if it's a design-build, I absolutely threw 1 incentive in, to make sure that they opened the 2 project earlier. 3 On a P3, you can do some of that, but there 4 are lots of ingrained incentives in the program. 5 SENATOR FUSCHILLO: Thank you, Phil. 6 PHIL RUSSELL: Appreciate it. 7 SENATOR FUSCHILLO: Appreciate your 8 testimony. 9 John Buttarazzi. 10 Thank you very much for being here. 11 We have your testimony, but I'm going to ask 12 you to summarize it, for the essence of time. We 13 only have the room for a period of time, so, we want 14 to make sure I get everybody in. 15 JOHN BUTTARAZZI: Sure. Certainly. 16 SENATOR FUSCHILLO: But, just for the record, 17 your name, your title, and your affiliation. 18 JOHN BUTTARAZZI: Sure. 19 My name is John Buttarazzi. I'm here today 20 on behalf of Skanska. 21 Mr. Chairman, and members of the Committee, 22 as I mentioned, my name is John Buttarazzi. 23 Skanska is a leading international project 24 development and construction company, developing 25 offices, homes, and infrastructure projects, such as 1 schools and roads. 2 We create sustainable solutions, and aim to 3 be a leader in quality, green construction, work 4 safety, and business ethics. 5 Here in New York, you may have seen the 6 Skanska signs projects, such as the FDR Drive, 7 CitiField, Brooklyn Bridge Park, and the World Trade 8 Center. 9 Furthermore, Skanska is a leader in 10 public-private partnerships. 11 In partnership with governments around the 12 world, Skanska has financed and developed roads, 13 hospitals, schools, hydropower, water-treatment 14 facilities, and power plants. 15 For 6 1/2 years, during Governor Pataki's 16 Administration, I served as senior vice president at 17 the Empire State Development Corporation. There, 18 under the Governor's leadership, and that of 19 ESD chairman and New York-New Jersey Port Authority 20 vice chairman, Charles Gargano, I coordinated 21 State P3 efforts. 22 I would like to mention, I had the honor, and 23 pleasure, of working with Senator Bill Larkin on a 24 number of projects in Orange County. 25 P3 has become the conventional way to provide 1 new financing capacity in many countries. 2 The private sector is financing, building, 3 and operating most of the major new highways in 4 countries as diverse as, Canada, Britain, France, 5 Spain, Italy, Greece, Poland, China, India, 6 Indonesia, South Africa, Australia, Argentina, 7 Brazil, Chile, and Jamaica. 8 Public-private partnerships are not a new 9 concept to transportation infrastructure 10 development. 11 From the earliest of colonial times to the 12 present, the U.S. private sector has had an active 13 and leading role in building, what we now consider, 14 public-transportation facilities. 15 The earliest major roads in the 16 eighteenth century were private toll roads. That 17 boom in turnpike construction resulted in the 18 incorporation of more than 100 private turnpike 19 companies, 67 of which were in New York. 20 Public-private partnership between the 21 federal government and the private railroads drove 22 the expansion westward in the late 23 nineteenth century. 24 After World War II, however, road and transit 25 responsibilities in the United States became more 1 and more concentrated in the hands of government. 2 Passenger rail, transit systems, and 3 virtually all highway construction and maintenance 4 moved into the hands of state and local governments. 5 Yet, public funds have not kept pace with the demand 6 to maintain and improve the nation's extensive 7 surface transportation network. 8 Beginning with the federal reauthorization 9 bills of 1991, which made it easier to blend federal 10 aid with private financing, and authorize more 11 flexible operating arrangements, Congress opened the 12 door for the private sector to once again 13 participate in transportation. 14 Presidents George W. Bush and William Clinton 15 issued executive orders to promote private-sector 16 involvement. However, private-sector participation 17 was tepid, at best, because the states had statutes 18 on their own books that were aligned with 19 traditional funding and procurement mechanisms. 20 Most of the early legislation regarding 21 public-private partnerships in the '80s and '90s 22 authorized single projects, and provide for a 23 limited number of pilot projects. That legislative 24 landscape began to change in 1994, when Virginia 25 enacted the Public-Private Transportation Act. That 1 Act streamlined the process for private 2 participation. 3 Importantly, it did not limit itself to 4 highways, but is applicable to all modes of 5 transportation. Moreover, it allowed for 6 unsolicited proposals. 7 Now, as in business, the private sector could 8 recommend an approach to the public sector and 9 engage in arm's-length negotiations. 10 Building on the success of the PPTA, Virginia 11 enacted, in 2002, the Public-Private Education 12 Facilities and Infrastructure Act, which opened up 13 P3 to all forms of infrastructure and public-sector 14 buildings at the state, county, and city levels. 15 Today, half the states have laws facilitating 16 P3, New York being a notable exception. 17 Gentlemen, the open road is no longer. Built 18 in the '50s, the interstate ribbons that lace 19 throughout this country are currently in a tragic 20 state of disrepair. They are beyond capacity, and 21 in poor condition, and, in some cases, such as the 22 2007 I-35 West bridge collapse in Minnesota, 23 tragically dangerous. 24 Quite literally, the state of America's 25 transportation infrastructure is crumbling. The 1 need for new and upgraded transportation 2 infrastructure in the U.S. is at a key juncture; 3 however, the funding and procurement process is 4 unable to meet those requirements. 5 As we know, New York is not immune from the 6 deterioration contagion. 7 A 2008 infrastructure report card compiled by 8 the American Society of Civil Engineers made the 9 following findings: 10 42 percent of New York's bridges are 11 structurally deficient or obsolete; 12 46 percent of New York's major roads are in 13 poor or mediocre condition; and 14 45 percent of the major urban highways are 15 congested. 16 Also, in 2008, New York DOT completed a 17 Needs Study, that examined what it would take to 18 bring the state's transportation infrastructure to a 19 state of good repair. 20 That study documented $175 billion in 21 infrastructure needs, and that did not include the 22 MTA, the Thruway Authority, or the Bridge Authority. 23 In the words of our first speaker, 24 then-Acting Transportation Commissioner Gee, let me 25 give you a sobering example. 1 That study showed that, based on the average 2 life of a bridge, nearly 1,500 additional bridges 3 will likely be deficient by 2013, increasing to 4 3,000 in the next 3 to 7 years. 5 Maintaining and slightly improving the 6 condition of our state's bridges alone, over 7 20 years, is estimated to cost nearly $31 billion. 8 Through traditional means, the State can fund less 9 than half of that need. 10 In 2009, Governor Paterson's Commission on 11 State Asset Maximization noted, that: 12 "New York lacks the necessary resources to 13 even maintain its current infrastructure." 14 And stated, that: "If the State seeks to be 15 competitive in the twenty-first century, and, at a 16 minimum, ensure the public safety of its citizens, 17 it ought to add more tools to its toolkit, including 18 P3s." 19 Public-private partnerships combine the 20 capital and expertise of the private sector with the 21 management and oversight of the government, to 22 provide public services. 23 Public-private partnership strategies must 24 balance the interests of society, State, taxpayers, 25 industry, and the market for ultimate success. 1 P3 is an alternative. It is not the only 2 option, but it is a concept that is rooted in the 3 tradition of matching public and private strengths 4 to accomplish goals or tackle big problems. 5 There is a misconception that, somehow, 6 governments are giving away public assets. 7 This is furthest from the truth. 8 Through a performance-based contract, P3 9 projects remain in near total control of the 10 government to confine or fire a developer if it 11 fails to perform. 12 Private developers have every incentive, as 13 we heard from Mr. Russell, to build and operate 14 the asset with maximum care, to make the partnership 15 with government as profitable for all sides, 16 including the public, as possible. 17 Another miscon- -- misperception, is that 18 public-private partnerships cost union jobs. 19 Yet, without private financing, many public 20 projects, and the jobs they create, would not even 21 exist. 22 As an aside, I'd like to mention that Skanska 23 is among the largest employers of construction union 24 trades in New York State. 25 As for the benefits, it's access to large new 1 sources of capital. We've heard that. 2 They are attractive to many different types 3 of investors. 4 By the way, I'd like to mention that the 5 New York State Pension Fund invested in overseas 6 public-private partnerships. 7 Reallocation of risk, from taxpayers to 8 investors. P3s distribute duties and risks to the 9 parties best able to handle them. 10 For example: The State is best equipped to 11 handle right-of-way acquisition and environmental 12 permitting, so, those tasks and risks are typically 13 assigned to the State. 14 The private sector generally takes on the 15 risks of construction, traffic, and revenue 16 shortfalls. 17 Public-private partnerships allow necessary 18 new capacity to be delivered much faster than is 19 possible under the current pay-as-you-go funding 20 system. 21 Public-private partnerships offer a 22 methodology for financing and building needed 23 capacity now, when we need it, instead of decades 24 from now, or possibly never. 25 Moreover, they free up resources to deliver 1 to other projects that will have to wait for funding 2 to become available. 3 That's important. There are projects that 4 don't lend themselves to P3 funding. However, you 5 can stretch those scarce capital dollars, where they 6 can be leveraged with private financing in one 7 project, freeing up public resources for those that 8 are not P3-eligible. 9 SENATOR MARCELLINO: Give us an example of 10 (inaudible). 11 JOHN BUTTARAZZI: A potential example is, I 12 believe Senator Johnson, earlier today, mentioned a 13 bridge project that needs to be fixed. 14 And, I don't know where that is, in terms of 15 the capital budget, where, you know, down towards 16 the bottom. But, these projects move up, as the 17 higher priority projects get spent -- get built, and 18 funded. 19 Well, if you can apply private dollars to 20 those that have -- that are P3-eligible, all of a 21 sudden, you're pushing private -- pardon me, public 22 dollars down to those projects that might not fit 23 within a P3 framework. 24 A point that's often missed with P3 projects, 25 we think of them in terms of transportation, or 1 other types of projects, and, we think of actually 2 delivering the project. But, P3 projects are 3 economic development. It's essential to economic 4 growth. 5 When planned, funded, and maintained well, 6 infrastructure plays a vital role in supporting a 7 high standard of living and facilitating commerce 8 and trade. 9 There's a well-documented link between 10 high-caliber infrastructure and economic expansion, 11 but, governments have their backs up against the 12 fiscal wall and may not be equipped to make the 13 necessary investments. 14 P3 projects tend to be large undertakings 15 that bring capital into the market while creating 16 long-term employment. 17 Mr. Chairman, you mentioned the link 18 between transportation investment and jobs. 19 It's right on. 20 SENATOR FUSCHILLO: Yeah, I would ask you to 21 jump ahead a little bit. 22 JOHN BUTTARAZZI: Okay. 23 SENATOR FUSCHILLO: Give me your thoughts on, 24 if you -- 25 JOHN BUTTARAZZI: On the bill itself. 1 SENATOR FUSCHILLO: -- the bill itself. 2 JOHN BUTTARAZZI: Sure. 3 Yeah, I'm right there, right now. 4 We support the bill. We think it will 5 catalyze construction activity in the state. 6 You know, if I could use Mr. Osborne's 7 word, you know, in terms of some tweaks, we 8 certainly would recommend that eligible projects not 9 be simply limited to transportation, but all modes 10 of infrastructure, including water plants, education 11 facility, health buildings, among others. 12 Also, the applicability of the law, not 13 simply to -- and I understand why -- but, not simply 14 to the agencies or authorities mentioned in the 15 bill, but, apply to all levels of government, at the 16 county and municipal levels as well. 17 The other thing, in terms of the board, 18 that's very critical, and central to the success of 19 the legislation. 20 There was a recent study by the "PFM" 21 group -- that's, Public Financial Management -- that 22 looked at that issue, and how important it is. 23 Currently, in the United States, only 24 Puerto Rico actually has an authority, that's 25 constituted as the Public-Private Partnership 1 Authority. 2 SENATOR FUSCHILLO: Right. 3 JOHN BUTTARAZZI: And I would recommend the 4 Committee take a hard look at that. 5 It's been fairly successful. It's relatively 6 new. But, in a short period of time, it's 7 accomplished quite a bit. 8 Let's see, other points -- 9 SENATOR FUSCHILLO: When you say, 10 "it's accomplished quite a bit," be a little more 11 specific (inaudible). 12 JOHN BUTTARAZZI: Sure. 13 They have -- I believe they've already 14 closed -- Prague, the authority came into being, 15 maybe, three years ago? Two and a half years ago? 16 SENATOR FUSCHILLO: Okay? 17 JOHN BUTTARAZZI: They've already closed on a 18 couple of road projects. 19 They have six finalists for the 20 San Juan Airport, currently, they're now 21 considering. 22 SENATOR FUSCHILLO: Uh-huh? 23 JOHN BUTTARAZZI: These are major projects. 24 And, they've opened it up. They're going to 25 look at housing. They're looking at schools. 1 They're looking at hospitals. 2 But, what -- it's -- it came out of the 3 Economic Development Agency authority there, and 4 that's where the expertise is concentrated. 5 The beauty of it is, it really does provide, 6 similar to your board, some one-stop shopping -- 7 SENATOR FUSCHILLO: Right. 8 JOHN BUTTARAZZI: -- as well as -- we've 9 heard from Mr. Osborne, we heard from 10 Mr. Russell -- there are investors out there, but 11 they want to see deal flow. 12 And they -- you know, one-off projects are 13 difficult. They're difficult for the most 14 unquantifiable thing out there: political risk. 15 SENATOR FUSCHILLO: Uh-huh. 16 JOHN BUTTARAZZI: And, you know, if -- you 17 know, there, in Puerto Rico, the governor's a 18 champion of these projects. And cap foreign -- 19 foreign and domestic capital's going to Puerto Rico. 20 SENATOR FUSCHILLO: Right. 21 JOHN BUTTARAZZI: The -- just a couple of 22 other points. 23 Oh, last point, on the legislation I would 24 encourage you to think about, is, to allow for both 25 solicited and unsolicited proposals. 1 We have seen this work. 2 Virginia has that on the books. Their 3 Skanska proposed a conceptual P3 to replace aging 4 tunnels in the Tidewater region. 5 Virginia subsequently decided to compete the 6 project, which is fine; Skanska won that 7 competition. 8 Skanska and the Commonwealth, in negotiated 9 agreement, were, in return for a long-term 10 concession, Skanska and its partners are funding the 11 $1.2 billion construction costs, as well as the 12 1.3 billion in operation and maintenance. 13 That is a $2 1/2 billion investment in the 14 state of Virginia, we are now making. 15 You know, in closing -- 16 SENATOR FUSCHILLO: And how does that -- 17 JOHN BUTTARAZZI: Sure. 18 SENATOR FUSCHILLO: -- contract read for you 19 then, as far as what guarantees a rate of return for 20 you? Is it toll-based? 21 JOHN BUTTARAZZI: It is toll-based. 22 SENATOR FUSCHILLO: Are you going to design, 23 build, and maintain it? 24 JOHN BUTTARAZZI: We are. 25 SENATOR FUSCHILLO: Wow. 1 JOHN BUTTARAZZI: There are no -- there are 2 no guarantees, though. 3 SENATOR FUSCHILLO: Right. 4 JOHN BUTTARAZZI: That, if the project fails, 5 for economic reasons, financial reasons -- 6 SENATOR FUSCHILLO: You bear the risk? 7 JOHN BUTTARAZZI: -- we bear the risk, and 8 our equity vanishes. 9 SENATOR FUSCHILLO: Right. 10 JOHN BUTTARAZZI: You know, it's a very 11 informed decision. 12 The other thing that's important, again -- 13 SENATOR FUSCHILLO: What's the term of a 14 contract like that? 15 JOHN BUTTARAZZI: I believe it's -- I have 16 to -- I believe it's 50 years. 17 SENATOR FUSCHILLO: Okay. 18 JOHN BUTTARAZZI: I have to get that back to 19 you. 20 But, going back to the board, and the 21 importance of creating this deal flow, and 22 certainty, and minimizing political risk, these 23 proposals are not cheap. They can cost millions of 24 dollars for the private party to put together. 25 When we heard about the tunnel under -- you 1 know, that sounds like they've already spent a 2 million dollars. 3 SENATOR FUSCHILLO: Right. 4 JOHN BUTTARAZZI: If you're asked -- if we, 5 as a company, are asked to bid on a project, or 6 propose on a project, under a P3 structure, we're 7 looking at projects, not just in New York, and 8 around -- in -- around the United States, we're 9 looking at them around the world. And, we only have 10 so much capital to deploy. 11 So -- and, it's not just the capital to 12 deploy, and going into the ground, erecting steel or 13 pouring concrete, it's putting the proposal 14 together. And, they can cost millions of dollars. 15 SENATOR FUSCHILLO: Millions of dollars. 16 Okay. 17 JOHN BUTTARAZZI: And, you want some 18 certainty there. 19 I'll just close with this: That, I do 20 believe the potential in New York State is 21 tremendous. It really is. 22 Private capital is flowing to those states 23 that have created the right conditions for an 24 investment. 25 Foreign money is pouring into Texas, 1 California, Georgia, Indiana, North Carolina, and 2 Virginia, to invest in highways and bridges. 3 Without the proper legal framework, other 4 states will continue to reap these benefits at the 5 expense of New York's economy and business climate. 6 Funding for transportation projects goes to 7 those states that have created the right conditions, 8 where the law facilitates public-private 9 partnerships, and where private investment and 10 participation is embraced. 11 Why shouldn't New York also benefit? 12 The State's at a cross-roads. 13 It can choose to open its doors to this 14 innovative approach, or not. 15 New York law needs to be changed to encourage 16 the aggressive pursuit of private-sector 17 participation, not only transportation services, but 18 in all forms of infrastructure. 19 Again, Mr. Chairman, thank you for inviting 20 Skanska to participate in your deliberations. 21 And, I'd be happy to answer any questions you 22 might have. 23 SENATOR FUSCHILLO: I appreciate your 24 testimony, John. You've offered us some insight, 25 and your experience as well. 1 Senator Larkin. 2 SENATOR LARKIN: Well, I've worked with John 3 on a lot of projects. 4 And, I noticed today, he hasn't changed: he 5 tells you like it is. 6 JOHN BUTTARAZZI: Right. Although, I'm 7 wearing glasses now. 8 We didn't back then. 9 SENATOR FUSCHILLO: John, we all are. 10 Thank you. 11 SENATOR LARKIN: A little thinner on the top 12 too. 13 UNIDENTIFIED SPEAKER: John, have you -- 14 (Hearing interrupted by technical 15 difficulties.) 16 (The hearing resumes, already in 17 progress.) 18 KEVIN THIBAULT: ...to where we actually have 19 availability payments, and it is not user-financed. 20 And, so, I'll talk about that very quickly, here. 21 I also had the privilege of serving as the 22 executive director of Florida's Turnpike as well. 23 Very quickly, in Florida, we ran into a 24 situation back in the mid-1990s, where our 25 legislature was looking at: How can we improve on 1 time performance? Keeping it within time, within 2 budget? 3 So even in the mid-'90s, they gave us the 4 ability to start doing design-build in a more 5 broader approach. And, so, for a long time now, 6 we've had the ability to do design-build. 7 And that has actually helped us with the 8 on-time performance. 9 So, the public, and our elected officials, 10 got to see projects completed when they said that 11 they were going to get completed -- sometimes they 12 were even earlier -- and on time -- and within 13 budget. 14 So, that was the biggest thing we could get 15 with design-build. 16 SENATOR FUSCHILLO: It was design-build only, 17 not (inaudible) maintained? 18 KEVIN THIBAULT: Only design-build. 19 We also were given the ability, later on, to 20 do, what we call, "asset maintenance," where we can 21 turn over the maintenance of our State facilities, 22 either by, roadway, or even all the state roads and 23 the county, to a private company, and they maintain 24 them for a period of time. 25 SENATOR FUSCHILLO: For a fee? 1 KEVIN THIBAULT: For a fee. 2 SENATOR FUSCHILLO: For a fee based on tolls, 3 or strictly a fee? 4 KEVIN THIBAULT: There's a fee. 5 So, what would it cost us to maintain that, 6 we would then say: What can do you, as a private 7 sector? 8 Remember the comparative-type thing. 9 SENATOR FUSCHILLO: Right. 10 KEVIN THIBAULT: It's usually a seven-year 11 term. So, what happens is, they get to recoup some 12 of their capital costs over, then, that term. 13 SENATOR FUSCHILLO: Percentage wise, what do 14 you think, during that term, if anything, the 15 department -- the State of Florida had saved? 16 KEVIN THIBAULT: Oh, I'll have to get back 17 you to. 18 But, we've saved millions of dollars in our 19 maintenance budget, just because of (inaudible) to 20 the private sector. 21 We give them the same expectations we would 22 give our own, in fixing the guardrail and fixing the 23 pavement, and so on. But, they're able to leverage 24 that, and do more, in that time frame. 25 SENATOR FUSCHILLO: And how would you rate 1 the level of service? 2 KEVIN THIBAULT: Excellent. 3 SENATOR FUSCHILLO: Excellent? 4 KEVIN THIBAULT: Excellent. 5 They've done tremendous work. 6 All our rest areas, most of them are all 7 privatized with the asset-maintenance contractors. 8 SENATOR FUSCHILLO: Right. 9 KEVIN THIBAULT: And they are very well 10 maintained. 11 SENATOR FUSCHILLO: When you were with the 12 Thruway Authority, and -- DOT you had said? 13 KEVIN THIBAULT: The DOT, and the Turnpike, 14 sure. 15 SENATOR FUSCHILLO: -- Turnpike, did you 16 engage in P3s? Was it available to you at that 17 time? 18 KEVIN THIBAULT: Ah, yes. 19 No, I just left the department a couple 20 months ago. 21 SENATOR FUSCHILLO: Okay. 22 KEVIN THIBAULT: So we've had -- no, I've had 23 the ability to do that. 24 And let me explain just explain -- 25 SENATOR FUSCHILLO: Sure. 1 KEVIN THIBAULT: -- how we want there. 2 The first major one we had was the winding of 3 Interstate 75, down in Fort Myers-Naples area. 4 Have you ever been down there? 5 SENATOR FUSCHILLO: Yes. 6 KEVIN THIBAULT: Heavily congested. We 7 needed to widen the facility. 8 The price tag was over $400 million. 9 And for that geographic area, it was tough 10 for them to accumulate that at one project using the 11 traditional method of, like Stan mentioned, 12 design-bid-build. 13 So, we went forward, and did -- we programmed 14 it in our work program, spread it out over 15 six years, and broke it up into a bunch of these 16 little segments, like we always do. 17 But then we realized, the motoring public who 18 live in Fort Myers and Naples, or commute there, or 19 visit there, were going to see constant construction 20 for over a decade; because, you know, this project 21 gets done, and then the next one starts. 22 And then they'll start wondering: When are 23 you going to get done with this project? 24 SENATOR FUSCHILLO: Right. 25 KEVIN THIBAULT: So, we went forward with a 1 design-build finance. And we clearly said to the 2 concessionaire, or the proposer: You can design and 3 build these 30 miles, widen the Interstate. And 4 you'll get paid back exactly the same year as I had 5 it in my six-year program. 6 So, we didn't have to change anything. It 7 was funded the same traditional way like we usually 8 fund it. 9 Obviously, our -- the bid came in with that 10 cost of finance in there, and we capped it. 11 We told them: All we are had was this 12 $430 million, so your bid has to come in with that. 13 But, because of their ways that they could 14 figure out how to get there, we were able to get 15 that done. 16 And so, in reality, what happened, members, 17 is, we obviously shortened it, from where we 18 originally envisioned, over ten years or so. 19 So, now, with the regular design-build, it 20 came in a year under the design-build schedule. 21 SENATOR FUSCHILLO: Wow. 22 KEVIN THIBAULT: Just because everything's 23 compressed, and he's mobilizing. And, so, as he's 24 finishing this bridge work -- 25 SENATOR FUSCHILLO: Yeah. 1 KEVIN THIBAULT: -- he's moving that bridge 2 crew up further north, or south, wherever it is. 3 And, so, there was a tremendous benefit 4 there. 5 SENATOR FUSCHILLO: Well, that's an incentive 6 to them as well. 7 KEVIN THIBAULT: It is an incentive. 8 SENATOR FUSCHILLO: Right. 9 KEVIN THIBAULT: The second one, which is 10 another incentive -- and I it think goes back to, 11 Senator, what you were talking about -- we had two 12 public-private partnerships, major ones, that we had 13 coming out about the same time. Both of them are 14 over a billion dollars in costs. 15 One was the widening of I-595 in 16 Fort Lauderdale, and the other one was the Port of 17 Miami Tunnel. 18 And, so, I want to talk about the tunnel for 19 a second. 20 The tunnel, today, to get to the Port of 21 Miami, you have to go through downtown streets of 22 Miami. You have get to off the Interstate and weave 23 your way through. 24 Now, for those in the crews, it's an 25 inconvenience. But, obviously, in the trucking, and 1 moving cargo, was a real inconvenience. 2 So, the local governments had an incentive to 3 get that local traffic off the downtown streets, and 4 put it back on the Interstate so it's a direct 5 connection. 6 That's what the tunnel comes in to do. 7 So, the State and the local governments got 8 together, to figure out how we're going to fund 9 this. We have to come up with some revenue stream. 10 We came up with this availability payment, 11 with milestones. 12 And what basically is, is it's structured is, 13 they will -- the concessionaire who won the contract 14 gets certain payment when they complete a certain 15 milestone. And the rest of it is spread out over a 16 35-year term. 17 And, the ones who got that contract were the 18 ones who met those milestones. They can live with 19 their milestone, and, had the lowest annual payment 20 that I was willing to pay. We had to stay within 21 parameters again. 22 And so, now, we get that construction 23 underway, and thousands of people are working on the 24 project. 25 And, in 2014, when it opens, we're going to 1 take traffic off downtown Miami now, and put it 2 through the tunnel. 3 SENATOR FUSCHILLO: Where are you on the 4 timeline of the schedule? 5 KEVIN THIBAULT: It is on schedule. 6 Both projects, actually, are run this way. 7 We just had an update last week, on the 8 595 project. 9 Both of them are well underway, on schedule. 10 The risk is borne by the private sector. 11 You're talking about rate of return, and so 12 on? It's exactly it. There's no guarantee of that. 13 SENATOR FUSCHILLO: Is that a toll? 14 KEVIN THIBAULT: No. 15 SENATOR FUSCHILLO: There going to be a toll? 16 KEVIN THIBAULT: No. 17 SENATOR FUSCHILLO: No? 18 KEVIN THIBAULT: Now, the local governments 19 who chip in, have the option on the port side, since 20 the port is owned by the county. 21 If they want to toll people who are coming 22 out of the portal, that is their decision. 23 SENATOR FUSCHILLO: That's their option. 24 KEVIN THIBAULT: But, that's to cover their 25 costs that they put into it. 1 But, the State is just coming out, using 2 traditional sources, but spreading it out over time, 3 to be able to get it there. 4 SENATOR FUSCHILLO: Is it a "maintained" as 5 well? 6 KEVIN THIBAULT: Yes. It's design, build 7 operate, and maintain. 8 SENATOR FUSCHILLO: For 35 years? 9 KEVIN THIBAULT: For 35 years. 10 SENATOR FUSCHILLO: And what's the span of 11 the tunnel? 12 KEVIN THIBAULT: It's a little bit over a 13 mile long. It's a bore tunnel under the channel, 14 where the cruise ships turn around; the turning 15 basin. 16 If you've been down to the Port of Miami, you 17 probably have been there. 18 SENATOR FUSCHILLO: I have. 19 KEVIN THIBAULT: And, so, it goes, from 20 Dodge Island to Watson Island, and it just connects 21 I-395 to the port. 22 And then the last thing, I think, Senator, 23 you were talking about high-speed rail. 24 Florida, as you know, was in the midst of 25 doing high-speed rail. 1 The contracts that we were providing, or 2 preparing, was a full-blown "design, build, operate, 3 maintain, and finance" contract, where, obviously, 4 we had some federal money. We had some State money 5 that was the match. 6 And, then, the "operation and maintenance" 7 portions was coming out of the fare box. 8 100 percent, that was clear. 9 That, we were telling the private sector, is, 10 that is their risk. We weren't going to put any 11 money into that. 12 So, that's their finance part. 13 Obviously, they'll finance, too, some of the 14 construction, because it's -- it's spread out a 15 little bit, but most of it was -- their risk was in 16 the operations and maintenance. 17 And, so, we've used those contracts. 18 So, we've been able to use these different 19 forms in various -- and then, now, the next one 20 we're looking at are user-financed facilities. 21 So, with that, I know your time is short. 22 So, I will answer any questions. 23 SENATOR FUSCHILLO: No, no. 24 Look, first of all, I appreciate you being 25 here. 1 Have you had a chance to look at the 2 legislation itself? 3 KEVIN THIBAULT: I agree with exactly what 4 the other testimony has been made, about the term: 5 look at the term a little bit. 6 In Florida, we're given up to 50 years. 7 Beyond 50 years, the Secretary of 8 Transportation can make that decision based upon 9 documentation. 10 SENATOR FUSCHILLO: Who makes the decision up 11 to those 50 years? Is it -- 12 KEVIN THIBAULT: This is within the 13 Department. There the no independent board. 14 SENATOR FUSCHILLO: Okay. 15 KEVIN THIBAULT: Now, our annual work program 16 is, obviously, appropriated by the Legislature -- 17 SENATOR FUSCHILLO: Right. 18 KEVIN THIBAULT: -- in the budgeting process, 19 so they see how the project's going to be delivered. 20 Obviously, the elected officials will know if 21 it's going be a P3, like the tunnel, and all that. 22 SENATOR FUSCHILLO: Well, that's what I want 23 to ask you: With respect to projects, are they all 24 project-specific in a budget? In your budget? 25 KEVIN THIBAULT: Our -- 1 SENATOR FUSCHILLO: Or does the Department of 2 Transportation have the authority to engage in 3 projects on an ongoing basis? 4 KEVIN THIBAULT: We have the ability to 5 engage into projects on an ongoing basis. 6 SENATOR FUSCHILLO: Okay. 7 KEVIN THIBAULT: We do not -- the only time 8 we have to get permission -- or, approval, I should 9 say, is if I'm leasing an existing asset. 10 SENATOR FUSCHILLO: Do you sell any assets? 11 KEVIN THIBAULT: No. We tried. 12 The Alligator Alley, was one of those that we 13 looked at doing. And, we just didn't -- we hit it 14 at the wrong time. It was in 2007, when the 15 market -- 16 SENATOR FUSCHILLO: Been on it many times. 17 KEVIN THIBAULT: Yes. 18 SENATOR FUSCHILLO: Yeah, okay. 19 Any questions? 20 Kevin, I really appreciate your testimony -- 21 KEVIN THIBAULT: Sure. 22 SENATOR FUSCHILLO: -- and the opportunity to 23 be here. 24 You also suggest the threshold of 50 years, 25 rather than, 30 years, 35 years? 1 KEVIN THIBAULT: Yes. 2 I mean, it gives you some more flexibility, 3 because some of these major projects -- you were 4 talking about the Tappan Zee -- but, any of these 5 that are in the billions, you need that time frame 6 for them to, you know, recoup their investment in 7 there. 8 SENATOR FUSCHILLO: Right. 9 Okay, thank you very much. 10 KEVIN THIBAULT: Thank you. 11 SENATOR FUSCHILLO: Appreciate it. 12 Marty Glennon. 13 MARTY GLENNON: Good afternoon, Senators. 14 SENATOR FUSCHILLO: Marty, good afternoon. 15 MARTY GLENNON: I know you've heard a lot of 16 testimony today, so I'm going to be brief. 17 My name is Marty Glennon. I'm a partner at a 18 law firm, Archer, Byington, Glennon & Levine. We 19 represent a majority of building trades, here on 20 Long Island, and throughout New York State. 21 Essentially, I have spoken to many in elected 22 office. And, as a representative of the building 23 trades and independent unions, we had spoken about 24 how to stimulate the economy. 25 And the problem that we see is, where 1 40 percent of this nation's wealth is concentrated 2 in the top 1 percent, it's tough to stimulate. 3 So, what do we have to do? We have to move 4 that money down to the working middle class, 5 higher-paying jobs. 6 The building trades on Long Island -- the 7 eight biggest building trades on Long Island, have a 8 combined pension of $4 billion. 9 We looked at that. 10 If we were to take 5 percent of that, that's 11 $200 million. 12 I use that as an arbitrary number, because it 13 was nice and round at the time. 14 The proposal is, that, the building trades 15 and their pensions partner up with government to 16 create a P3 infrastructure bank. A regional 17 infrastructure bank. 18 So, out of the box, you would have a 19 Long Island regional infrastructure bank, with 20 initial funding of $400 million, to address the 21 infrastructure needs on Long Island. 22 This could be paralleled to the Governor's 23 economic development councils throughout New York 24 State. 25 You have ten economic development councils 1 partner with the building trades in each one of 2 those regions, create regional infrastructure banks. 3 One: It decentralizes the control, in terms 4 of the money, and the politics. Everybody's not 5 going to Albany, and D.C. anymore. You're dealing 6 with local banks, for local projects, for local 7 people. 8 The key component to this is three things. 9 One: Dealing with the infrastructure needs, 10 you have to look at the tax burden on the consumer. 11 Right? 12 I have spoken, and you have read all of the 13 studies. 14 The controller's put out -- issued several 15 reports on P3s, and the cautions that have to go 16 with it, but also the need to deal with our failing 17 infrastructure here in New York State. 18 SENATOR FUSCHILLO: Marty, who would decide 19 the projects? 20 And why I ask you that question: I could 21 see, you know, you got eight unions. Just say, they 22 invest $400 million into it, as a supplement, or 23 added to, for what the State and federal government 24 would put into it, or even bond out. 25 Would it still come under the board, as 1 proposed in the legislation, or an economic regional 2 council? 3 Because I could see some -- 4 MARTY GLENNON: I think it would be the bank. 5 The board or the bank. 6 SENATOR FUSCHILLO: The infrastructure bank 7 itself. 8 MARTY GLENNON: Exactly. 9 And the reason that this is the perfect 10 partnership is, who better to partner with 11 government, to address the need for taxes -- to keep 12 a hold on taxes, the need to address infrastructure, 13 and also to create high-paying jobs. 14 The building trades are a perfect match, 15 because they share the same concerns in getting the 16 infrastructure needs in their region addressed on a 17 periodic basis, but most expeditiously. 18 So, what we would envision is, a bank, that 19 would then fund regional projects. 20 Take Long Island, for example. I'll use the 21 Coliseum, as an example. 22 There was a $400 million price tag for a new 23 coliseum. 24 If Long Island had its own infrastructure 25 bank, 10 percent of that could have been set 1 aside -- $40 million for a $400 million project -- 2 that would have alleviated a lot of this. 3 And what do we get in return? The jobs that 4 are created are union jobs. High-paying jobs. 5 This isn't the underground economy that we 6 have currently going on, where all we keep on doing 7 is, undermining the workforce. People that are 8 unemployed can't afford the tax structure that they 9 currently have. 10 So, we keep the people on Long Island. We 11 stop the brain-drain on Long Island, and keep the 12 people here, to work on these jobs. 13 And I noticed the Senator is back. 14 I have clients up in Orange County that are 15 currently doing the same thing, looking into this, 16 because the funding is available. 17 Currently, all their money is invested in 18 Wall Street, where, essentially, a board of 19 trustees, both management and union, look at it on a 20 periodic basis, and do a reallocation. 21 Here, it's a one-shot infusion, 5 percent. 22 And how do you fund it? Primarily, it would 23 be user-fee projects. 24 Suffolk County, for example; only 20 percent 25 of Suffolk County has sewer districts. 1 You create the sewer districts, you attach a 2 user fee to it. 3 How does this affect transportation? 4 Because, on the transportation end of it, it's not 5 as much a high rate of return on these 6 transportation projects. 7 However, if you bundle the projects with 8 user-fee projects, it makes it more attractive to 9 investors to do these projects. 10 So, I don't want to go too long here, but, 11 essentially, you have the perfect partnership that 12 can go into perpetuity. And every money -- any 13 return on investment that comes back, goes back into 14 the bank, to invest more in local infrastructure. 15 And like I said, if you parallel this, on the 16 regional levels throughout New York State, on the 17 ten economic development corps, you would have a 18 partner at each area. 19 So, now -- and we're talking about a State 20 infrastructure bank, and a federal infrastructure 21 bank. Or, if you partnered it up with a regional 22 bank, where regional people are going to decide 23 which projects are their priorities, and fund it 24 with local working men and women, it's a win-win-win 25 for everybody. 1 SENATOR MARCELLINO: Mr. Glennon, I got 2 the -- it's only, strictly an opinion, but I got the 3 impression, in discussing with some of the gentlemen 4 before who were discussing the financing of these 5 projects, that, when you talk about union jobs, the 6 term that Mr. Osborne used was, "negotiations." 7 Has there been any kind of a study or any 8 kind of a look at the impact that PP3s [sic] have 9 had on union wages, construction wages, and those -- 10 MARTY GLENNON: It depends on where they're 11 done. 12 You raised an interesting question before. 13 In the state of Texas, it's a right-to-work 14 state, so, you're not going to have those type of 15 parallels. 16 But it's, the devil's going to be in the 17 details in the legislation. 18 And I know the AFL-CIO had its issues with 19 the present legislation in its present form because 20 there weren't enough protections for a labor 21 workforce. 22 And the key component on these regional 23 banks, is that it's a public entity. So, they're 24 public projects. You can do PLAs. You have 25 apprenticeship language. 1 There is incentives in there to do this with 2 union labor, which is higher-paying jobs. 3 Those studies show, that, the more people, 4 and the more income they have, it's more disposable 5 income. 6 That's what's really going to stimulate this 7 economy. 8 SENATOR MARCELLINO: Thank you. 9 SENATOR FUSCHILLO: Billy. 10 SENATOR LARKIN: I would like to see a little 11 more of them, this -- 12 SENATOR FUSCHILLO: Well, we have your 13 statement here, also, Marty, and I appreciate it. 14 Billy, it is right there as well. 15 SENATOR LARKIN: Yeah, I heard from some 16 people in Orange County that you would probably be 17 here today. 18 MARTY GLENNON: Yeah, I'm working with the 19 electricians and the laborers, and everybody else up 20 there as well. 21 SENATOR FUSCHILLO: Well, I appreciate it. 22 You and I have met before. 23 And appreciate you staying, and being the 24 last speaker, but, it's very important to hear your 25 testimony. 1 An interesting concept. 2 MARTY GLENNON: And, actually, I didn't chase 3 anyone out. I brought them back. 4 SENATOR FUSCHILLO: Yeah, you brought them 5 back. 6 MARTY GLENNON: Thank you. 7 SENATOR FUSCHILLO: This concludes our 8 hearing. 9 I want to thank all of that you participated. 10 I want to thank my staff for the work that 11 they've done, you know, the Senate Operations. 12 And, also, Farmingdale State. 13 Thank you very much for being here. 14 SENATOR MARCELLINO: What about me? 15 SENATOR FUSCHILLO: And Senator Marcellino. 16 17 (Whereupon, at approximately 1:18 p.m., 18 the public hearing, held before the New York State 19 Senate Standing Committee on Transportation, 20 concluded.) 21 ---oOo--- 22 23 24 25