NEW YORK STATE SENATE PUBLIC HEARING HOW NEW YORK STATE CAN UTILIZE PUBLIC-PRIVATE PARTNERSHIPS IN ORDER TO EXPEDITE AND BETTER FUND INFRASTRUCTURE PROJECTS THROUGHOUT THE STATE

Legislative Analyst 7 AAA New York State 8 9 * * * * * 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1 CHAIRMAN FUSCHILLO: My name is 2 Senator Charles Fuschillo, chairman of the Senate 3 Transportation Committee. And today, myself and the 4 members of the Transportation Committee in the 5 Senate will be conducting a public hearing on 6 public-private partnerships. 7 I want to thank my colleagues who have 8 attended the hearing. 9 And, making his grand entrance is the ranking 10 member, Senator Dilan. 11 Senator Dilan, thank you for being here. 12 And to my right, Senator Valesky, 13 Senator Carl Marcellino, Senator Johnson, 14 Senator Marty Golden, Senator Billy Larkin. 15 And to my left, Senator Lee Zeldin, 16 Senator Malcolm Smith, and Senator Diaz. 17 Thank you very much, gentlemen, for being 18 here today. 19 I just have a brief opening statement, and 20 then we'll get started with the hearing. 21 We're here today to examine how 22 New York State can use public-private partnerships, 23 also known as "P3," to help expedite and fund 24 transportation-improvement projects. 25 The state's transportation infrastructure is 1 a massive and vital economic artery which supports 2 more than 130 billion vehicle-traveled miles every 3 year. Our total highway and bridge system 4 encompasses more than 113,000 miles of highway, the 5 equivalent of driving from Albany to Los Angeles, 6 and back, 20 times. 7 We are also home to one of the largest mass 8 transit systems in the world, the MTA. However, our 9 infrastructure is facing a very real crisis that 10 requires immediate attention. 11 Consider that, New York State is ranked among 12 the bottom ten states in the nation, in both highway 13 and bridge conditions, according to the New York 14 State DOT. 15 Our state should be replacing or 16 rehabilitating more than 300 bridges, and 17 1,150 miles of highway lanes, each year. However, 18 in 2009, only 121 bridges, and 661 lane miles, were 19 replaced or rehabilitated. 20 Nearly half of the 17,400 state and local 21 highway bridges in New York State are either 22 deficient now or will become deficient within the 23 next ten years. The number of corrective actions 24 required to address critical structure components' 25 issues have more than tripled over the last 1 five years. 2 Current funding sources alone are not enough 3 to solve these problems. Project courses are 4 getting more and more expensive, while traditional 5 revenue sources are declining. 6 The DOT's two-year capital plan is currently 7 in its final year. 8 The MTA's five-year capital plan faces a 9 nearly $10 billion funding gap. 10 We cannot allow the system to crumble, which 11 is why we must explore creative solutions, like P3s. 12 P3s have been utilized throughout the world. 13 Here in the United States, 29 here in the U.S., 29 14 other states, and Puerto Rico, have enacted laws 15 authorizing public-private partnerships for highway 16 and bridge projects. 17 Given the private sector's vested interest in 18 completing projects on time and under budget, P3s 19 have helped to expedite projects and contain costs. 20 P3s have been used successfully in New York State 21 before. 22 The Strategic Asset Management, "SAM," report 23 which was issued in 2009, noted that the JFK Airport 24 Terminal 4, the JFK Airport AirTrain, and the 25 rehabilitated Grand Central Terminal were all highly 1 successful projects financed by P3. 2 The same report encouraged New York State to 3 explore P3s as a way to fund other improvement 4 projects, and specifically identify several ideal P3 5 candidates. 6 We are fortunate today to be joined by a 7 number of experts, from government agencies to 8 private sector, non-profit organizations, and labor 9 organizations. These individuals will offer their 10 opinions on how New York State can most effectively 11 use P3s to perform these desperately needed 12 upgrades. 13 I want to thank all of you for taking the 14 time to be here, and we look forward to your 15 testimony. 16 I just want to state on the onset, that we 17 have a lot of individuals that we have asked to 18 testify, and they've all agreed. So, we're going to 19 ask you to try to limit your comments to, maybe, 10; 20 the most, 15 minutes. 21 Joan, you're looking at your watch already. 22 [Laughter.] 23 CHAIRMAN FUSCHILLO: And we'll be happy to 24 ask questions, or take any questions that you may 25 have of us. 1 TESTIMONY OF JOAN McDONALD 2 COMMISSIONER 3 NEW YORK STATE DEPARTMENT OF TRANSPORTATION 4 CHAIRMAN FUSCHILLO: And, the first to 5 testify is Joan McDonald, who is the commissioner 6 of the New York State Department of Transportation. 7 Ms. McDonald, thank you very much for being 8 here. 9 MS. McDONALD: Is this on? 10 Is it on now? 11 CHAIRMAN FUSCHILLO: It's on now. 12 MS. McDONALD: Thank you. 13 Chairman Fuschillo, Senator Dilan, members of 14 the Senate Transportation Committee, thank you for 15 inviting me to provide testimony today. 16 I am Joan McDonald, commissioner of the 17 New York State Department of Transportation. 18 The subject of public-private partnerships as 19 a tool to address financing for transportation 20 infrastructure projects is important, and I 21 appreciate the opportunity to provide New York State 22 DOT's perspective. 23 As this committee is well aware, and as 24 Chairman Fuschillo mentioned, the transportation 25 system in New York State is vast. It encompasses 1 more than 240,000 miles of highway and more than 2 17,400 bridges. These support approximately 3 133 billion vehicle miles of travel annually. 4 There are more than 130 public transportation 5 operators serving more than 8 million passengers 6 each day. 7 There is an extensive 3,500-mile rail network 8 over which more than 8.5 million passengers travel, 9 and 70 million tons of equipment, raw material, 10 manufactured goods, and produce are shipped each 11 year. 12 Our state has 464 public and private aviation 13 facilities, 4 port authorities, the Port of Buffalo, 14 and numerous private ports, which handle more than 15 100 million tons of freight each year. 16 Our infrastructure, like the infrastructure 17 in most of the northeast, is aging, and faces the 18 realities of harsh winters. The demands on our 19 transportation system, particularly as the economy 20 recovers, are increasing. 21 Consistent with the findings of two federal 22 commissions, and the American Association of State, 23 Highway, and Transportation officials, New York 24 State DOT has found that our infrastructure needs 25 are far greater than the resources available to fund 1 such needs. 2 To address current and expected needs would 3 require nearly a doubling of our current investment 4 in transportation infrastructure annually. 5 Despite these challenges, Governor Cuomo 6 remains strongly committed to ensuring that our 7 transportation infrastructure remains safe, and 8 supports the recovery of our state. The governor's 9 continuing support is evidenced by his support for 10 New York State DOT's fulfilling its commitment to 11 the current two-year capital program. 12 New York's current and future transportation 13 infrastructure needs traditionally have been 14 addressed through a partnership of federal, state, 15 and local government resources. The severe fiscal 16 constraints at all levels of government have had an 17 impact on the level of current investment, and 18 present significant challenges moving forward. 19 Federal aid has, historically, comprised 20 approximately 50 percent of the state's multi-year 21 capital program. At the federal level, the Highway 22 Trust Fund no longer remains solvent as a 23 user-supported fund, and has required more than 24 34 billion in general-fund transfers since federal 25 fiscal year 2008. 1 In addition, the most current -- the most 2 recent, excuse me, federal surface transportation 3 program, known as "SAFETEA LU," expired on 4 September 30, 2009. 5 The nation's surface transportation program 6 has been operating under seven extensions, with the 7 current extension expiring on September 30, 2011. 8 To date, Congress has not discovered a way to 9 sufficiently finance a long-term, multi-year 10 transportation bill. 11 The House Transportation and Infrastructure 12 Committee is developing a six-year surface 13 transportation authorization bill that would 14 significantly scale back funding levels, limiting 15 them to only the funding levels supported by the 16 trust fund receipts. This would provide states with 17 25 percent less than what currently is provided 18 under SAFETEA LU. 19 The Senate Environment and Public Works 20 Committee and Senate Banking Committee have also 21 indicated that they are working on a multi-year 22 reauthorization bill, but neither has released 23 details of their proposals. 24 The President's federal fiscal year 2012 25 budget for transportation provided the conceptual 1 framework for the still-to-be-released, 6-year, 2 $556 billion surface transportation reauthorization 3 bill. 4 However, it should be noted, that adequate 5 revenues to support the proposed funding levels have 6 not been identified, and the proposal would require 7 an additional $200 billion in new revenues to 8 implement, this at a time when we are realizing the 9 volatility of the federal gas tax. 10 It is fully expected that, absent any clear 11 ability, the federal level to support states and 12 maintaining existing transportation infrastructure, 13 Congress will move away from direct funding, and 14 will provide states with more flexibility to 15 leverage the use of limited resources through 16 innovative financing techniques. 17 As such, New York must position itself to 18 leverage innovative financing efforts that Congress 19 may avail, such as infrastructure banks and 20 public-private partnerships. 21 New York State DOT, and our partners at the 22 MTA and transit authorities throughout the state, 23 will need all of the tools that are available to be 24 able to leverage federal and state resources. 25 Design-build, and other forms of 1 public-private-partnerships, should be made 2 available to New York State DOT. 3 P3s, which signify a sharing of risks, 4 responsibilities, and funding between a government 5 entity and one or more private-sector partners, 6 encompass a range of relationships. 7 Traditionally, for a highway and bridge 8 projects, New York State DOT uses a design-bid-build 9 approach, where projects are designed, either by 10 New York State DOT or consultants, are put out for 11 bid and are constructed by private contractors. The 12 facilities are then operated and maintained by 13 New York State DOT. 14 Thus, in a sense, New York State DOT already 15 uses a form of public-private partnerships to 16 deliver its projects, but has retained most of the 17 responsibilities and most of the risks associated 18 with project delivery and operations. 19 P3s could range from the less-involved 20 design-build project-delivery techniques, to 21 arrangements where a private entity could design, 22 build, finance, operate, and maintain a facility 23 over an extended period of time. 24 We believe that P3s would be helpful tools 25 to have available as we balance the needs of the 1 transportation system. They would allow for most 2 more leveraging of private-sector expertise and 3 finance. 4 However, it must be noted that these tools 5 would not replace our traditional means of 6 delivering projects, as only certain types of 7 projects would be strong candidates, and 8 appropriate, for P3s. 9 Projects that would lend themselves to P3s 10 need to be able to attract private-sector interests 11 while providing a benefit to the public. 12 Approximately 90 percent of our capital 13 program is devoted to core infrastructure projects, 14 required to maintain the system and a state of good 15 repair. 16 Design-bid-build will continue to be used to 17 deliver the vast majority of our projects, but we 18 believe there is a place, and there are 19 opportunities, for P3s. 20 New York State DOT is particularly interested 21 in the ability to use the design-build 22 project-delivery method. It allows project design 23 and construction to occur under a single contract, 24 and is a tool that has been used widely over the 25 last decade. It is available to approximately 1 40 state departments of transportation around the 2 country. 3 This tool is recognized by the Federal 4 Highway Administration as one of 15 tools it will 5 promote with state DOTs, to accelerate project 6 delivery as part of Federal Highways' "Every Day 7 Counts" initiative. That tool also is used today by 8 the MTA and the Port Authority of New York and 9 New Jersey, and can be expanded to include other 10 forms of P3. 11 A particularly successful use of the 12 design-build-operate-maintain model is the 13 AirTrain/JFK project sponsored by the Port Authority 14 of New York and New Jersey. 15 The AirTrain provided transit access to JFK, 16 and the project broke new ground, both, for 17 innovative financing, as well as for the contracting 18 process. The agency won FAA approval to collect 19 Passenger Facility Charges for this on-airport 20 circulator, and dedicate that to the debt service 21 that was issued. 22 AirTrain/JFK stands out, not only as an 23 example of the flexibility of this approach, but it 24 allowed for coordinating AirTrain's construction 25 with other public works investment in the corridor. 1 New York State DOT and the Long Island 2 Railroad contracted with the same contractor that 3 the MTA used. 4 Bridges are another excellent example of our 5 state's, and the nation's, aging infrastructure. 6 New York led the nation in building more 7 freeways, more than 50 years ago, at the beginning 8 of the Eisenhower Interstate era, making our 9 infrastructure, particularly bridges built during 10 this period, among the first in the nation to age to 11 a point where replacement will become necessary. 12 We see an opportunity to use the design-build 13 technique to address the backlog of 14 bridge-improvement needs. 15 New York State DOT is exploring the 16 possibility of addressing our growing needs for 17 bridge improvements through an accelerated bridge 18 program. 19 Currently, 35 percent of our bridges, nearly 20 6,200 of the state's 17,400 bridges, are rated as 21 deficient. Safe, but not meeting design 22 expectations. Of those bridges, about half are 23 local bridges, 40 percent are state bridges, and 24 10 percent are the responsibility of other owners. 25 I should stress, before I go any further, 1 that the department continues to comply with all 2 federal and state requirements for bridge 3 inspections, and exceeds those requirements when a 4 bridge's condition indicates the need for more 5 frequent inspections. 6 New York State DOT defines a "deficient 7 bridge" as, one with a state deficient rating less 8 than 5. It does not mean that the bridge is unsafe. 9 The average age of a bridge in New York State 10 today is 46 years. The average service life for 11 many of the Interstate-era bridges was 50 years. 12 New York State DOT recognizes that the bridge 13 infrastructure needs are great, and will grow 14 rapidly in the near future without significant 15 investments. 16 Our objective is to reduce the number of 17 deficient bridges by accelerating investment. This 18 would improve bridge conditions across the state, 19 and decrease the overall cost of maintaining the 20 bridge system over time. 21 Addressing the wave of soon-to-be deficient 22 bridges, and bringing those bridges into an ongoing 23 asset management program, improves overall system 24 conditions, and reduces the life-cycle costs of the 25 bridges. 1 We have not determined how such a program 2 would be structured, but other states have 3 undertaken similar efforts to package groups of 4 bridges to accelerate delivery. 5 For example: 6 Missouri's "Safe and Sound Program" is 7 improving more than 800 bridges over a 5-year 8 period, using a combination of design-build, a 9 modified design-bid-build process, and its regular 10 letting program; 11 Pennsylvania's "Accelerated Bridge Program" 12 is rapidly addressing more than 1,000 bridges using 13 design-build. 14 As a first step, DOT, in cooperation with the 15 Empire State Development Corporation, will be 16 hosting a workshop next week, to gain insights and 17 ideas from those with experience in this type of 18 project-delivery selection and finance. 19 New York State DOT also sees the potential in 20 P3 techniques to address uniquely large and complex 21 projects, as well as an opportunity to deploy new 22 technology and innovation, in our transportation 23 network. 24 Examples of large infrastructure projects 25 include: The Tappan Zee Bridge replacement, 1 completion of the conversion of Route 17 to 2 Interstate 86, and the Kosciusko Bridge. 3 The department is also undertaking a study, 4 to look at managed-use-lane strategies in New York 5 City, joining 23 U.S. metropolitan areas that are 6 now operating or implementing managed lanes, 7 considering managed-lanes proposals, or studying 8 their feasibility. 9 Managed lane -- manage-use lanes apply modern 10 technology and real-time traffic information to 11 efficiently manage the movement of traffic. In its 12 more advanced forms, technologies can be used on 13 specific lanes to vary the cost of using the lane, 14 based on the time of day or the number of vehicles 15 in a lane. These are known as "high-occupancy 16 toll," or "HOT," lanes, and can be very effective in 17 allowing reliable travel options in a highly 18 congested area. 19 HOT lanes are in operation in a number of 20 locations throughout the country, including Seattle, 21 Salt Lake City, Denver, and Minneapolis. 22 These strategies could be used in conjunction 23 with high-occupancy vehicle lanes, where those 24 traveling with more passengers in the car could 25 avoid a toll; but, other drivers, valuing time, 1 could opt to pay a toll to use such lanes. 2 Technologies can be applied to vary the cost 3 of the toll, depending on the amount of traffic 4 using the lane. 5 Another possible opportunity could include 6 the state's efforts to bring high-speed rail to the 7 Empire Corridor, between New York City and Buffalo, 8 and other passenger rail to the Empire Corridor, 9 between New York City and Buffalo. 10 It may be possible to engage private-sector 11 railroads and investors, to advance the development 12 of rail improvements. 13 To conclude: P3s do offer possibilities to 14 expand investment options available to New York 15 State DOT, as it balances the many needs of its vast 16 transportation system, with limited resources. 17 All options to maximize and leverage 18 resources should be made available to us. This is 19 particularly true, as Congress, in reauthorizing 20 federal transportation legislation, is considering 21 expanding opportunities to use P3. 22 We should be in a position to take advantage 23 of all funding and financing opportunities. P3s 24 cannot substitute for the need for ongoing, stable, 25 predictable funding needed to maintain the core 1 transportation infrastructure. P3s are financing 2 tools, and can be valuable options to leverage 3 resources for certain types of projects. 4 Most of our needs will continue to be core 5 infrastructure rehabilitation projects that require 6 ongoing funding streams in a stable, dedicated 7 highway-and-bridge trust fund. 8 We welcome the opportunity, and the expansion 9 of the ability, to use P3 and design-build. But, 10 regardless of the tools available to us, New York 11 State DOT will continue to deliver the vast majority 12 of its projects using the traditional 13 design-bid-build approach. 14 Thank you for opportunity. And I'm happy to 15 answer any questions. 16 CHAIRMAN FUSCHILLO: Thank you, Commissioner. 17 And I appreciate your testimony. 18 And we've asked you to come first, because 19 the P3s would greatly affect your department, the 20 department of transportation. And as I outlined, 21 and you did as well, the task ahead is enormous. 22 And your comments are critically important of 23 support for P3s. 24 And, really, that's the goal; to provide the 25 infrastructure in your department, and others, just 1 options, to fund these projects where funding is 2 becoming quite scarce. 3 Do any members have any questions? 4 SENATOR MARCELLINO: Sure. 5 CHAIRMAN FUSCHILLO: Senator Marcellino. 6 SENATOR MARCELLINO: Thank you, 7 Mr. Chairman. 8 Commissioner, welcome. A pleasure to be here 9 to talk to you; to get a chance to talk to you. 10 Your process of design, bid, and build, that 11 you claim is going be the predominant process, going 12 forward, and you identified, I believe, four, either 13 projects, or areas, where P3s might be used. 14 Could you review that again, please? 15 MS. McDONALD: Sure. 16 SENATOR MARCELLINO: I think it stays on. 17 MS. McDONALD: Okay, it stays on. 18 Yes, the areas that I identified, and it is, 19 by no means, an inclusive list, I think the message 20 that I'm trying to convey, is that, the use of P3s 21 have to be done on a project-by-project basis. 22 The ones that I identified as examples, 23 potential examples, are the Tappan Zee Bridge, the 24 conversion of Route 17 to Interstate 86, and the 25 Kosciusko Bridge in New York City. 1 I have -- there have been -- the use of 2 public-private partnerships, over the last 20 years, 3 have been used to different degrees of success 4 around the country. 5 So, we have a lot of lessons learned. And 6 I'm sure that the folks who follow me will 7 illuminate some of those examples. 8 Some of the critical points to consider, in 9 determining whether a project is a good candidate 10 for public-private partnership, is: Looking at the 11 size of the project. Identifying what the funding 12 mechanism is, outside of the traditional realm of 13 funding. 14 Some of these successful public-private 15 partnerships have used a combination of, toll 16 revenue, and what are called "availability 17 payments." 18 And those availability payments can mean 19 anything, from an allocation of federal funding 20 dollars that come into the state, dedicated funds 21 from the state's general fund, or a new revenue 22 source. 23 So, each project has to be looked at, in 24 an -- on a project-specific basis. 25 SENATOR MARCELLINO: Right. We're all 1 familiar with the idea of cost overruns, when it 2 comes to construction projects. 3 Some years back, under a prior 4 administration, there were penalties, and rewards, 5 put in for, either, the project coming in 6 over budget, there was a penalty, or the project 7 coming in under budget, there was a reward, to the 8 contractor. 9 Do you foresee that as part of the situation 10 with P3s? 11 MS. McDONALD: I think it absolutely has to 12 be. And that's -- my discussion about the ability 13 to also use design-build project-delivery methods, 14 guaranteed maximum price, have to have components of 15 penalties for projects that go over; and, also, 16 incentives for projects that come in ahead of 17 schedule and under budget. 18 They absolutely have to be part of the 19 equation. 20 SENATOR MARCELLINO: The projects that are to 21 be selected, is size the predominant factor; in 22 other words, the amount of money that the project 23 will cost? Or is there regional significance, or 24 some other aspect? 25 MS. McDONALD: Not necessarily. 1 You know, one of the projects that I 2 personally worked on, when I was at New York City 3 Economic Development Corporation, is the 4 East 34th Street Heliport. 5 And I know someone from Macquarie is going to 6 be testifying a little later. 7 And that was an agreement between the city of 8 New York and Macquarie bank and the operator of the 9 Heliport. 10 And the way we structured that, I believe it 11 was about an $8 million project, where it was 12 structured in such a way, that the revenues that 13 come off of the Heliport pay for the investments 14 that Macquarie was making. And when the revenues 15 reached a certain threshold, the city of New York 16 and Macquarie split the revenues after that. 17 So, the size is not important. It's, really, 18 getting some creative minds to the table, and being 19 able to look at what the different options are. 20 SENATOR MARCELLINO: This will be my last 21 question, Mr. Chair. 22 "The bid process." 23 I live on Long Island, as you may know. 24 My district is, Nassau; Suffolk, North Shore. 25 We have a project that has been ongoing; on Route 1 110, the northern part of it, which floods. 2 I'm sure you're familiar with it because 3 you're in the courts with it right now. 4 MS. McDONALD: Yes. 5 SENATOR MARCELLINO: This project has been 6 fraught with all kinds of difficulties because, in 7 my mind, of the process. 8 Are you making any changes in the process of, 9 putting out the bids; how the bids are awarded; the 10 time allowed for the people who bid, to make sure 11 that they have a bond, or are capable of putting up 12 a bond? 13 This particular project was delayed by the 14 Governor, during a budget dispute. And, the bond, 15 the person who was the primary bidder, couldn't hold 16 his bond, because he had to go out and get more 17 work. And, by doing so, lost his ability to fulfill 18 his bid. 19 And we're in the courts, now, for over a year 20 and a half, waiting for this project to go forward. 21 Is there any process that you see, any 22 changes in the process that you see, that would 23 prevent something like this from occurring to a 24 community, which is under, literally, water? 25 MS. McDONALD: Right. 1 You know, those are all issues that need to 2 be addressed. And I think that -- 3 SENATOR MARCELLINO: Well, I know they need 4 to be. 5 Will they? 6 MS. McDONALD: Well, I hope so. 7 Many of them are statutory provisions that we 8 need to follow. And they are -- some of the issues 9 that you raised, are the issues that are part of the 10 design-bid-build process. 11 We need to work with our partners in the 12 industry, to accelerate that process, and to have 13 some relief in that process. 14 And I am willing to make those changes, that 15 we can do administratively, absent any statutory 16 changes. 17 SENATOR MARCELLINO: Well, I'm hoping that 18 you'll be working with Senator Fuschillo and this 19 committee -- 20 MS. McDONALD: Absolutely. 21 SENATOR MARCELLINO: -- of which I'm not a 22 member. But, he's allowing me to be a guest here 23 today, and I appreciate that. 24 I don't want to overuse my welcome; but, I'm 25 hoping you'll work with us, so that, if you need any 1 legislative assistance, that you'll come to us early 2 in the process, so that we can do this, because I 3 really do believe the system has to be changed. 4 MS. McDONALD: It does. 5 SENATOR MARCELLINO: It isn't working well, 6 in my mind, and it needs to be. 7 If you're going to make these public-private 8 partnerships work -- and we all hope they do, 9 because I think that is the way to go -- we need 10 some changes in the process. 11 MS. McDONALD: You're absolutely correct. 12 And, unforeseen conditions that change when 13 bid awards get delayed. The price of fuel is 14 affecting contractors' prices. 15 And we need to be looking at ways to make 16 sure that we're responsive to those. And we will. 17 SENATOR MARCELLINO: Thank you. 18 Thank you, Mr. Chairman. 19 CHAIRMAN FUSCHILLO: Thank you, 20 Senator Marcellino. 21 We're also joined by Senator Kennedy and 22 Senator Young. 23 Thank you very much for being here. 24 Senator Golden? 25 SENATOR GOLDEN: Thank you, Mr. Chairman. 1 And I want thank you for putting this 2 forward, this meeting today, in investigating 3 alternative fundings for projects across the state, 4 whether they be public or private. We need to get 5 people back to work, and we need to get this state 6 rebuilt. 7 I know you're funded through, I guess, the 8 end of next year, on your capital program. 9 And, how many P3s are you presently working 10 on -- 11 MS. McDONALD: Oh, we are not -- We're not 12 working on any, because we don't have the legal 13 authority to do so. 14 SENATOR GOLDEN: And the authority would have 15 to be granted by legislation? 16 MS. McDONALD: That's correct. 17 SENATOR GOLDEN: Okay. 18 And, going forward, into a new capital 19 program, which would be in a year and a half, the -- 20 have you any ideas, as how we're going to fund that? 21 And, what role P3s can play in that, what 22 percentage? 23 CHAIRMAN FUSCHILLO: Take your time, because 24 we're really curious about how you're going to 25 answer this question. 1 [Laughter.] 2 MS. McDONALD: As I said in my testimony, and 3 as I think, both, our New York congressional 4 delegation, and the congressional -- the totality of 5 Congress, is understanding that the needs for 6 infrastructure investment are greater than the 7 traditional funding sources, that have been 8 outlined, will pay for. 9 So, part of that negotiation, which is a 10 negotiation on the federal level between the 11 President and the Congress, and on the state level 12 between the Governor and the legislature, is: 13 What are the various revenue sources that go 14 into a dedicated fund, here in New York State? 15 And, on the federal level, is it just the gas 16 tax, or is it expanded? 17 And, then, what are the other 18 project-delivery methods to help meet those program 19 needs? 20 It's -- we're never, I don't believe, going 21 to have sufficient revenues to, on a year-to-year 22 basis, meet all the needs that we have. And we're 23 going to have to make tough choices. 24 SENATOR GOLDEN: Commissioner, you're good, 25 Commissioner. 1 You're very good, Commissioner. 2 [Laughter.] 3 MS. McDONALD: Thank you. 4 SENATOR GOLDEN: The Bayonne Bridge, what 5 role are you playing in that? And, what's the time 6 frame on that? 7 MS. McDONALD: The Bayonne Bridge is owned by 8 the Port Authority of New York and New Jersey. 9 I actually had a preliminary conversation 10 with Chris Ward, when I saw him last week. And 11 we're going to sit down and look at what role 12 New York State DOT plays in that. 13 SENATOR GOLDEN: And the Outerbridge? 14 MS. McDONALD: Outerbridge, I have not been 15 as familiar with it. I know that's also owned by 16 the Port Authority. 17 SENATOR GOLDEN: And, P3s; how could P3 play 18 a role in the Kosciusko Bridge? And it can't be a 19 steady stream, they've got a toll lab. 20 How do you work out a P3 on a bridge in such 21 deterioration, as that bridge, that needs immediate 22 rebuilding? 23 MS. McDONALD: Well, that's -- that's, I 24 think, what we would explore as part of a 25 conversation, with the legislature, with the 1 financial community, to see what the different 2 revenue streams would be to pay for -- to help pay 3 for it. 4 It would, you know -- and it's a little bit 5 of a "chicken and egg" discussion, because it's, 6 "Okay..."; and the discussions with financial 7 community, it's, "Okay, what infusion of dollars can 8 be put in at the front end?" 9 And, then: What's the -- and what's the cost 10 of those dollars? Who can issue debt more cheaply? 11 And, then: What is the revenue stream to pay 12 for it? Whether it be availability payments, 13 whether it be different revenue streams. 14 Those are things that we're looking at right. 15 SENATOR GOLDEN: Last question 16 Mr. Chairman. 17 The -- I know you're looking for a more 18 steady stream of funding going into your projects. 19 P3, obviously, is not the best choice for 20 you, but do work. 21 Again, if you could, what role do you think 22 P3s will play into your new budget? 23 MS. McDONALD: You know, I think, as I said, 24 traditionally, while the interstate was being 25 built -- 50, 60, 70s, into the last -- right now, 1 into this century -- traditionally, the federal gas 2 tax, and states, the funding stream has been 3 sufficient. 4 But, now, that revenue stream is no longer 5 sufficient, so we need to have every available tool 6 in our toolbox to pay for projects. And that 7 includes, design-build, guaranteed maximum price. 8 It includes the ability to structure P3s, however 9 they're structured. 10 And there are different models throughout the 11 country, that have been used, so we can get, as many 12 of you said, people back to work, and as we can make 13 those investments in our infrastructure. 14 We believe alternate project-delivery methods 15 will account for, somewhere between, 10 to 16 20 percent of our total project needs. 17 SENATOR GOLDEN: Because you would be -- just 18 to back up. 19 Because you would have access, obviously, to 20 funding, even, probably at a lower interest rate, if 21 the money were direct. But P3s, obviously, are 22 going to play a significant -- 23 MS. McDONALD: Exactly. Exactly. 24 SENATOR GOLDEN: -- because you don't have 25 the availability for that. 1 Thank you very much. 2 MS. McDONALD: Thanks. 3 CHAIRMAN FUSCHILLO: Thank you very much, 4 Senator Golden. 5 Senator Diaz? 6 SENATOR DIAZ: Thank you, Mr. President. 7 And, good morning. 8 MS. McDONALD: Good morning. 9 SENATOR DIAZ: I just have one question. 10 It's regarding a project in the Bronx. 11 For many years, we've have had a story, after 12 story, after story, a group here, and a group there. 13 Can you tell me what the status of the 14 project on the Sheridan Expressway in the Bronx? 15 MS. McDONALD: Yes. 16 There, the Sheridan-Bruckner Expressway has a 17 very interesting history, and will have some -- has 18 some issues, going forward. 19 You know, it's a major feeder. And to the 20 Hunts Point's -- Hunts Point market, it is a 21 very-much-used route within our interstate system. 22 It needs significant repairs. 23 I believe that it is an interstate system 24 that is required to continue, that traffic, and to 25 make the city of New York viable. 1 Right now, the city of New York is 2 undertaking a study, to look at what the land use 3 around the Bruckner-Sheridan should be. And we are 4 participating in that study. 5 It's not an easy answer, because it's a 6 highly residential area, the Hunts Point area. 7 There are significant infrastructure facilities 8 there, in addition to the Bruckner-Sheridan, and 9 they all have to be looked at cohesively. 10 But, right now, we are continuing to make the 11 investments, to make sure the infrastructure is 12 safe. 13 SENATOR DIAZ: I believe that so many studies 14 have been made; have -- has been done. 15 And now they have $7 million from the federal 16 government, and I go: Why is it that, after so many 17 studies? 18 And I know that you're having the city of 19 New York get the $7 million to do another study, 20 when so many studies have been done. 21 And I think more than seven studies already 22 have been done on this issue. 23 So, we're spending another 7 million to do 24 another study, to do, what, exactly? 25 MS. McDONALD: The city of New York wants to 1 very closely look at, whether the land-use patterns 2 should be changed, and what those land-use patterns 3 would do to both the residential community, the 4 business community, and the highway infrastructure 5 that we have there. 6 We, as you know, have undertaken 7 environmental reviews. It is, very much, a 8 hot-button issue because of the demanding -- the 9 competing demands for parkland, for a community that 10 does not have significant parklands. But, also, the 11 Bruckner-Sheridan is a significant artery and feeder 12 to the interstate system. 13 SENATOR DIAZ: So, you are not washing your 14 hands out of the project? 15 MS. McDONALD: No, not at all. 16 SENATOR DIAZ: You're still a full partner on 17 this? You're still fully involved? 18 MS. McDONALD: Oh, absolutely. I'm still 19 fully involved. 20 SENATOR DIAZ: Is the community groups and 21 elected officials being consulted? 22 MS. McDONALD: I do not believe -- I'm not 23 exactly sure where the city is, in kicking off its 24 study. But I will -- 25 SENATOR DIAZ: I thought you just said that 1 you are fully involved on it? 2 MS. McDONALD: Well, our department is fully 3 involved. 4 SENATOR DIAZ: But I'm asking you, as the 5 commissioner -- 6 MS. McDONALD: I have -- 7 SENATOR DIAZ: -- have the community groups 8 and the elected officials have been consulted -- 9 MS. McDONALD: -- not by me --not by me 10 personally. But I will double-check with Phil Lang, 11 my Region 11 director. 12 And I'm happy to meet with the community 13 groups. 14 SENATOR DIAZ: Thank you. 15 CHAIRMAN FUSCHILLO: Senator Dilan? 16 SENATOR DILAN: Yes, good morning, 17 Commissioner. 18 MS. McDONALD: Good morning, Senator. 19 SENATOR DILAN: I believe Senator Golden may 20 have asked this question, in reference to the 21 Kosciusko Bridge, but I feel I would be remiss if I 22 don't follow up. 23 I know I have been here in the senate for 24 nine years, and we've been talking about some form 25 of reconstruction of this bridge for at least -- 1 prior to those nine years. 2 I just want to know, you know: 3 What incentives would there be for a private 4 entity to get involved with the Kosciusko Bridge, 5 without the state giving away the asset, and a final 6 result of not increasing any costs to the consumers 7 that go over that bridge daily? 8 And, in terms of the legislation, how do we 9 prime-start this, and just move forward? 10 So, if you could be a little more specific, 11 with reference to this project. 12 MS. McDONALD: You know, one of the things 13 that has to be looked at, and which is why I 14 mentioned that, when you make a decision -- when 15 government -- executive branch, legislative 16 branch -- make a decision to undertake a 17 public-private partnership, it must be done on a 18 case-by-case basis. 19 You know, right now, we have a very 20 preliminary estimate of what the Kosciusko Bridge 21 would take to rehabilitate and replace it. And 22 given the fiscal constraints of our capital program, 23 we would have to break that project up into, 24 somewhere between, four and seven projects to get it 25 completed. 1 Now, when you break a big-dollar project into 2 smaller projects, they take more time. And time is 3 money. 4 So, one of the things that we would have to 5 do, a cost comparison, is: Okay, if you do that, 6 what would be the additional cost of doing that? -- 7 number one. 8 Number two: If you did it, and you couldn't 9 do it just as a public-private partnership, you 10 would have to do it as a design-build, or at a 11 guaranteed maximum price. 12 One of the incentives for the private sector 13 is, if it's structured in a way that it is an 14 availability payment, they get a steady stream of 15 revenue over, whether it's a 99-year concession 16 agreement; whatever the term of the agreement is. 17 So, there are various incentives and 18 disincentives that would have to be looked at, from 19 a public-policy standpoint, to make a decision if 20 this is the right way to go. 21 SENATOR DILAN: So, at this point, it really 22 behooves us to move at a quicker pace to get some of 23 these projects undergoing because, as time goes by, 24 you have increased costs of material and labor. 25 So, how do we get this going? 1 MS. McDONALD: Well, I think that's what 2 we're doing here today. 3 And in the construction -- in the 4 construction business, particularly, the 5 heavy civil/public works, speed is always of the 6 essence, which is why, in addition to the financing 7 methods that I spoke about today, that the project 8 delivery and design-build is critically important, 9 because that moves some of the risk from the public 10 sector to the contractors. But, contractors, by 11 their nature, take on risk, and they would get the 12 projects done more quickly, particularly with the 13 right incentives/disincentives. 14 SENATOR DILAN: Thank you. 15 CHAIRMAN FUSCHILLO: Thank you very much, 16 Senator Dilan. 17 Senator Young? 18 SENATOR YOUNG: Thank you, Mr. Chairman. 19 Good morning, Commissioner. 20 MS. McDONALD: Good morning, Senator. 21 SENATOR YOUNG: Thank you for coming today. 22 First of all, I want to commend you for your 23 openness to exploring public-private partnerships. 24 I think we do need solutions to the current 25 situation. And as you said, we'll never have enough 1 money unless we start to do things differently. 2 I just want to draw to your attention again, 3 I sent you a letter recently, about the condition of 4 Interstate 86 in Cattaraugus County. And we're very 5 glad that there is a portion of the road that's 6 being reconstructed this year. 7 But, I have to tell you, that I get calls 8 every single day from people who travel on that 9 stretch of highway, that is along the reservation. 10 And people are getting damage to their cars. 11 There's chunks of concrete flying up. People are 12 getting flat tires. And, it's really very 13 dangerous. 14 So, I was hoping, at some point, you could 15 come out and visit us, and maybe take a drive and, 16 you know, to see, firsthand, what we're dealing 17 with, because people are very, very concerned in my 18 district. 19 And, actually, people are concerned as they 20 travel across the Southern Tier for tourism 21 opportunities and other travel experiences this 22 year. 23 MS. McDONALD: Yes, I am happy to do that. 24 I haven't been out to Buffalo yet, and the 25 Southern Tier, but I will put that on my list, and 1 be out there quickly. 2 SENATOR YOUNG: That would be great. Thank 3 you so much. 4 MS. McDONALD: Thank you. 5 SENATOR YOUNG: The other thing that I wanted 6 to mention, briefly -- and I'll give you a call on 7 it too -- but, you may know that, a lot of our small 8 rural towns have parades every single year, on state 9 roads, because the state roads goes through the 10 towns. And there seems to be a new requirement put 11 in place by DOT, that requires them to purchase $5 12 million insurance policies; umbrella policies. And 13 I think a lot of the smaller towns are unable to do 14 it. 15 So, I have, for example, one coming up, 16 Memorial Day Parade, where they want to honor our 17 veterans. And I would love to discuss it with you 18 more, because it seems like a little bit of an 19 excessive requirement by DOT. And it's, really, I 20 think, could cause some issues this year. 21 So, I'm hoping that we can discuss it, and 22 come up with some kind of resolution on it. 23 MS. McDONALD: Yes, we will absolutely take a 24 look at that, because, you know, I think, as you're 25 well aware, you know, Governor Cuomo has made 1 mandate relief, along with all of you in the 2 legislature, a top priority. So, we don't want to 3 add a burdensome mandate at the same time as we're 4 working on eliminating others. 5 So, we're happy to take a look at that. 6 SENATOR YOUNG: Thank you, Commissioner. I 7 really appreciate it. 8 CHAIRMAN FUSCHILLO: Commissioner, thank you. 9 Thank you, Senator Young. 10 Senator Smith? 11 SENATOR SMITH: Thank you very much, 12 Mr. Chairman. 13 Good morning to my colleagues. 14 Good morning to those of you in the audience 15 who are going through a very important hearing on 16 the future of financing our infrastructure. 17 Commissioner, it's good to see you. 18 Commissioner Gee, also good to see you. 19 Commissioner, when you were in Connecticut, 20 were there any P3 projects that you were involved 21 with or had any experience in? 22 MS. McDONALD: Not on the direct 23 transportation level. I was not the commissioner of 24 transportation. I was the commissioner of economic 25 and community development. 1 But, one of the things that we did -- 2 housing, was also in my portfolio -- was work with 3 the cities and towns, and did a public-private 4 partnership in sustainable communities. 5 And one that quickly comes to mind was in the 6 city of New Haven, where the state invested funding 7 in brownfields remediation and streetscape 8 improvements. 9 A public entity -- a private entity/a 10 business that wanted to expand, made an investment, 11 and the city of New Haven and Yale University made 12 an investment, to add 130 jobs to a base of 13 100 jobs, and provide low- and mixed-income housing. 14 So, you know, public-private partnerships can 15 be done in a number of different ways. I think they 16 are particularly relevant, when you look at 17 development around train stations, when you can use 18 a TIFIA-model tax-increment finance. 19 That, was done. 20 We did another one, again, in New Haven, 21 360 State Street, which was a LEED-certified 22 building. And it was an -- and the major investor 23 was the -- was Ontario, Canada, their teacher's 24 pension fund. And pension funds are now getting 25 into the business of making infrastructure 1 investments, and participating in that. 2 So, there are many different models, 3 depending on the individual project. 4 SENATOR SMITH: All right. 5 In the project that you -- that you were 6 involved with, what would you consider the 7 number one challenge, from the perspective of the 8 legislative branch being involved with the process? 9 MS. McDONALD: The ones that I was involved 10 in, because it was a combination of private 11 business, was getting -- was getting public 12 acceptance from legislators, that those types of 13 investments should be made to the private sector. 14 But, when they result in job creation, when 15 they result in mixed-use housing, when they result 16 in investments in the infrastructure, I firmly 17 believe that that's the way to go. 18 And it just takes people a little bit of 19 getting a comfort level. 20 SENATOR SMITH: Uh-huh. Uh-huh. 21 And, in your opinion, was the legislative 22 branch an inhibitor to the acceleration of the 23 process? Did it add an unnecessary level of 24 bureaucracy to -- 25 MS. McDONALD: Oh, no, not at all. They were 1 very much in support of it. 2 SENATOR SMITH: Uh-huh. 3 So, the financing of the project, was this 4 done through a P3, or through an infrastructure 5 bank? 6 MS. McDONALD: It was done through -- it 7 wasn't done through an infrastructure bank. It was 8 done through a P3, that entailed, what we called in 9 Connecticut, you know, "an assistance agreement," 10 which was an agreement between the department of 11 economic and community development, the private 12 parties, the city of New Haven. 13 So, it was an assistance agreement that went 14 through the process. 15 SENATOR SMITH: Okay. 16 Okay, just to shift a little bit: The 17 current reauthorization that's being negotiated now 18 in Washington, are we involved in any way with that 19 reauthorization? Have we provided them with some 20 recommendations, as we look forward to becoming part 21 of this initiative? 22 MS. McDONALD: Yes, we have. 23 In March, I testified in Cortland, New York, 24 when Congressman Mica had his -- March, or early 25 April, when Congressman Mica had his Listening Tour, 1 to gain input from localities around the country as 2 to what was important. 3 I personally have been down in D.C., three or 4 four times. My staff has been down there; DOT 5 staff. We have met with our congressional 6 delegation, Congressman Mica's staff, 7 Senator Boxer's staff, to share information on 8 streamlining the process. 9 SENATOR SMITH: And what is -- I mean, 10 obviously, you can't summarize all of your 11 testimony, but what is the two leading areas of your 12 testimony towards how they can better streamline the 13 reauthorization? 14 MS. McDONALD: The way we can better 15 streamline the reauthorization, is consolidating all 16 of the environmental reviews under one review. 17 Right now, within USDOT, the federal highway 18 has its process for environmental review, Federal 19 Transit Administration has its process for review, 20 and Federal Railway Administration and FAA have 21 their individual processes. 22 So, one process for environmental review is 23 significant. 24 And some of the other areas that we're 25 looking at are, combining the various discretionary 1 programs that USDOT administers into -- there are 2 55, down into 6 or 7, so that we can then generate 3 more funding. 4 SENATOR SMITH: The difference between P3 and 5 infrastructure bank, could you help me understand 6 which would be better for transportation? Or, one 7 better for commercial economic development? 8 MS. McDONALD: You know, I think -- I think 9 they are both necessary. 10 SENATOR SMITH: Uh-huh. 11 MS. McDONALD: And I think we would be happy 12 to have both of them. 13 SENATOR SMITH: Uh-huh. 14 Just a few couple others, Mr. Chairman. 15 In your testimony, just to summarize, page 2, 16 you talked about traditional highway projects. 17 MS. McDONALD: Uh-huh. 18 SENATOR SMITH: And that these are operated 19 by the DOT. 20 Plus, "Already uses a form of public-private 21 partnership to deliver projects, but retains most of 22 the responsibility and risks associated with the 23 project delivery and operation." 24 So, by that statement, are you saying that, 25 assuming DOT is authorized to do P3s, one of the 1 better benefits of it would be, that you wouldn't 2 have to maintain the risk of the project thereafter, 3 and worry about operation delivery, being that the 4 private sector might do it better? 5 MS. McDONALD: No. It's really a sharing of 6 the risk. 7 SENATOR SMITH: Uh-huh. 8 MS. McDONALD: Right now, in the traditional 9 design-bid-build, basically, what happens is, a 10 project gets to 100 percent design, and then we go 11 out to bid with that project. We award it to the 12 low bidder. 13 As Senator Marcellino pointed out, things 14 happen, where projects don't get awarded, and then 15 unforeseen conditions come up, the price of fuel 16 changes. 17 And we don't have the latitude to do things 18 any differently. 19 And by having P3, by having design-build, we 20 would shift some of that risk that falls directly on 21 our shoulders, to the contractors. 22 Only in those specific projects, where we 23 enter into an agreement with a private-sector 24 entity, to do design, build, operate, and maintain, 25 would the responsibility for operating and 1 maintaining go from State DOT to another entity. 2 We would still maintain all of our 3 responsibility for operating and maintaining the 4 infrastructure in this state. 5 SENATOR SMITH: And, obviously, you are 6 expecting the question about high-speed rail from 7 me. 8 MS. McDONALD: Of course. 9 SENATOR SMITH: So, I will -- I don't want to 10 disappoint you. 11 Could you, just briefly, if you have already 12 thought about it: 13 When will the high-speed rail, the financing 14 thereof, understanding the costs -- understanding 15 the potential cost of it, whether or not it would be 16 better financed through a P3 or an infrastructure 17 bank? 18 And, then, is it better operated with a 19 separate entity? 20 And, obviously, that's with the understanding 21 of the Sage Commission and government efficiency and 22 consolidation; but, a separate entity, or a 23 sub-entity to the DOT? 24 MS. McDONALD: Well, as you know, because you 25 were there last week, last Monday, New York was the 1 beneficiary of over 350 million in federal dollars 2 from the reallocated Florida money. And we were 3 the -- the state, we got the highest amount of 4 funding in that $2 billion that was reallocated. 5 You know, I think in the area of rail, 6 whether it's inner city or commuter, different 7 models have to be looked at. 8 I mean, Amtrak was traditionally set up to 9 not have any subsidies involved. And that has not 10 been the case. 11 So, I think we're looking at different models 12 to see what would work. 13 I don't think that there is a model yet in 14 this country, where there is an operation of rail -- 15 commuter, high-speed, inner city -- that hasn't come 16 without a subsidy of some sort. But I think the 17 goal is to minimize the subsidy, to the extent 18 possible, on the operation. 19 SENATOR SMITH: All right, thank you, 20 Mr. Chairman. 21 Thank you very much, Commissioner. 22 Thank you. 23 CHAIRMAN FUSCHILLO: Thank you, Senator. 24 And let me just follow up on a comment that 25 you had made, and Senator Dilan, about the process. 1 One of the things I believe that's critically 2 important, as we move forward, is to make New York 3 State attractive; if we're going to do P3s, 4 design-build, or infrastructure bank. 5 And that's what I took out of a panel that I 6 recently sat on, with the New York City Building 7 Congress, that Dick Anderson heads up. And 8 Sam Baron was there, and Mary Peters, as well as 9 others. 10 And the individuals in the audience, their 11 comments, and even during the roundtable, and after, 12 stated, "It has to be attractive." 13 And we're not going to invest if there's 14 any -- and to follow up with what you had said, any 15 impediments for us to invest and do business here. 16 And one of the things, that I think is 17 critical, Senator Smith, as we move forward, is 18 that, we don't provide any impediment to do business 19 here, as far as the legislature, and make sure the 20 process goes as smoothly as possible. 21 And Senator Dilan had talked about an 22 expedited process. 23 I'm hopeful the senate will pass legislation 24 before we conclude the session this year, and give 25 you what's necessary, whether it's, P3s, 1 design-build, and however you phrase design-build, 2 and the infrastructure bank, just to give you 3 options. 4 MS. McDONALD: Uh-huh. 5 CHAIRMAN FUSCHILLO: Because, as we laid out, 6 and you laid out in your testimony, the challenges 7 are enormous. And these economic conditions are 8 dictating that you have these options through P3s, 9 and other available sources, to make sure that our 10 infrastructure is maintained in a safe and reliable 11 manner. 12 So, I want to thank you. 13 And I also want to introduce, and thank, 14 Stan Gee for being here, to your right. 15 I appreciate, Stan, your hard work as well. 16 Commissioner, thank you very much. 17 MS. McDONALD: Thank you so much, Senator. 18 TESTIMONY OF PETER GRANNIS 19 FIRST DEPUTY COMPTROLLER 20 OFFICE OF THE NEW YORK STATE COMPTROLLER 21 CHAIRMAN FUSCHILLO: Our next speaker is our 22 former colleague, Assemblyman Pete Grannis, who is 23 the first deputy comptroller of the comptroller's 24 office. 25 Good morning, Pete. And, thank you very much 1 for being here. 2 MR. GRANNIS: Thanks, Senator. 3 CHAIRMAN FUSCHILLO: Michael? 4 Thank you. 5 [Pause in proceeding.] 6 CHAIRMAN FUSCHILLO: Pete, this is not your 7 testimony, is it, this book? 8 MR. GRANNIS: No, it is not. 9 It's a report -- 10 [Laughter.] 11 CHAIRMAN FUSCHILLO: Okay. Remember, you 12 used to sit up here. 13 MR. GRANNIS: I do remember, Senator. 14 And I'm very mindful of the time pressures, 15 and boring recitations from people that say they're 16 going to be contemporaneous in their speech, and 17 then make it longer than they -- 18 CHAIRMAN FUSCHILLO: Well, that took up 19 another minute of your ten minutes. 20 [Laughter.] 21 CHAIRMAN FUSCHILLO: I want to thank you for 22 being here on behalf of our state comptroller, 23 Tom DiNapoli. Your input is critically important to 24 this hearing. 25 So, thank you very much. 1 MR. GRANNIS: Thank you very much, Senator. 2 And I'm pleased to be here, obviously, on behalf of 3 the comptroller. 4 And, obviously, you are well aware, we have 5 extraordinarily difficult financial problems in the 6 state, a massive backlog of unmet infrastructure and 7 capital needs, and limited funds to pay for them. 8 I just want to make sure you know, I'm joined 9 by Tom Letito, who's the deputy comptroller; and, 10 Steve Elliot, who actually was the principal author 11 of the report that you have before you. 12 In large measure, New York's growing gulf 13 between available funding and infrastructure and 14 capital needs is the result of the state's heavy use 15 of debt for non-capital purposes, as well as to 16 finance its capital program. 17 As of March 31, 2011, New York is projected 18 to have more than $9 billion in outstanding debt -- 19 state-funded debt -- that was issued for non-capital 20 purposes. The cost of that to the taxpayers, in 21 this year's budget, is over a billion dollars in 22 interest payments. 23 Even though the Debt Reform Act of 2000 24 restricted the use of state-supported debt for 25 capital purposes, over $7 1/2 million -- billion has 1 been issued for non-capital needs since the law's 2 enactment. 3 As the state's debt has grown, so too have 4 New York's capital needs. You're well aware of 5 those. 6 We projected, over the next 20 years, for 7 just three areas of transportation, which you're 8 focusing on today, waste water -- municipal waste 9 water, and clean water, the capital needs are, 10 roughly, $250 billion. A daunting figure in any 11 circumstance. 12 Given the state's limited capacity for 13 meeting its capital needs, it's not surprising that 14 the Governor and you are considering public-private 15 partnerships, where government allows the private 16 sector to weigh in with their resources and business 17 acumen, to address our many, many capital needs. 18 The concern we have is, in the haste to move 19 forward, there may be a tendency for government 20 decision-makers to view P3s as a magic bullet. And 21 they're certainly not that. 22 There is experience across the country, and 23 around the world, with P3s, where there have been 24 problems. And, obviously, the focus on those 25 problems is the subject of the report that we 1 presented to you. 2 While P3 agreements have the potential to be 3 attractive alternative means of constructing and 4 maintaining facilities, and providing services, 5 there are many important questions that need to be 6 answered, and risks associated with public-private 7 financing structures, that must be taken into 8 consideration before New York turns to P3 9 arrangements to fill the gap in its infrastructure 10 needs. 11 While the private-sector entities may 12 shoulder a share of the costs and risks associated 13 with the project of service, the introduction of 14 private profit motive into the public's cost 15 equation requires the state to proceed with caution, 16 and foresight, when considering P3s. 17 In January, the comptroller issued a report 18 on this issue -- which I provided you a copy of -- 19 which examined, both, the opportunities presented 20 with public-private partnerships, and the 21 underlining financial risks associated with forming 22 those partnerships. 23 The report focused on the importance of 24 creating an effective framework and structure to 25 review P3s -- potential 3 -- P3 projects, to help 1 policymakers avoid some of the mistakes that we have 2 identified, here in this country, and elsewhere in 3 the world. 4 There are four primary financial risks 5 associated with the P3 model. 6 First, there's been the failure to identify 7 the full value of public property. P3 agreements 8 may underestimate the value of public assets. 9 It's a very complicated issue, the value of 10 public assets, and making a determination whether a 11 P3 arrangement is the appropriate way to go forward, 12 and what the financial arrangements are to be 13 associated with that. 14 They have been -- particularly, since many of 15 the functions that the P3 will be undertaking, are, 16 historically, done by not-for-profit basis, or 17 government which there hasn't been a profit motive. 18 Obviously, the value of the public asset has 19 to be a key component of any decision-making 20 process. 21 Unfavorable pricing mechanisms are another 22 risk, a very serious risk, that -- where there are 23 contractually guaranteed commitments, an increase on 24 user fees. 25 And one of the examples we have in the report 1 is, the Illinois Tollway, which locks in fee 2 increases, toll increases. 3 Had those increases been locked in to the 4 Thruway Authority, when we built the thruway, our 5 fee increases would have been many multiples of 6 what's available to the drivers of -- what's going 7 to be facing the drivers of Illinois. 8 So, obviously, building in, and having a full 9 realization of what the pricing mechanisms are, and 10 what that means for the consumers, that they're 11 going to be using the resources, as projects are put 12 under the auspices of the P3 arrangements. 13 There are, also, unrealistic expectations, 14 and poorly drafted agreements, that have led to 15 problems in the past. 16 Obviously, there is a very critical need to 17 outline the private-partner's obligations, very 18 clearly, and adequately, with full appreciation of 19 what they mean to the taxpayers of New York. 20 And, finally, there's a concern about budget 21 gimmicks. 22 Obviously, in some instances in the past, P3 23 arrangements have been used to generate past cash -- 24 up-front cash, which has been used to close budget 25 gaps, on the short-term basis, rather than a full 1 appreciation of the lifetime -- or, many, many 2 decade commitments some of these projects may 3 entail. 4 So, the important -- the comptroller's report 5 recommended four essential principles that New York 6 must adopt before entering into P3 partnerships, to 7 mitigate the inherent financial risks. 8 It has to be: 9 An identification and use of best practices 10 for the valuation of the public assets, to ensure 11 that the public receives the full fair value of the 12 use of its property. 13 Reasonable pricing. We have to keep the 14 private-sector profits within reason. 15 I know there's a built-in incentive, because 16 you're going to get the private sector involved. 17 They're going to need to make a profit. 18 But, those profits have to be clearly 19 understood, and locked in, because, by contractual 20 arrangements, at least in some instances, these 21 increases are automatic. They're beyond the reach 22 of the legislature or the Governor. And, obviously, 23 you can have very, very major impacts on the 24 consumers that rely on these projects, as they go 25 forward. 1 They have to be realistic agreements, and 2 publicly vetted agreements, as they are developed. 3 And that's almost a given today. 4 And there has to be responsible budgeting; 5 because, obviously, when you get done with this 6 exercise, there has to be a comprehensive reform of 7 the state's debt-and-capital financing practices, 8 which the comptroller has called for in the report 9 that he issued last year. And it's the subject of a 10 bill that we submitted as a comptroller's program 11 bill to you for this year's session. 12 So, again, before authorizing P3s, the 13 Governor and the legislature, at the comptroller's 14 suggestion, must strongly recommend the adoption of 15 policies, and a framework, for P3s; rather than a 16 review of projects on an ad hoc basis. 17 There has to be a plan, going forward, on how 18 these are going to be factored into the state's 19 budget. 20 And, the decision-making process is, 21 obviously, very, very essential. 22 So, we actually call on you to adopt a 23 comprehensive plan for the integration of 24 public-private partnerships into New York's budget, 25 capital financing, infrastructure-planning 1 procedures. 2 Obviously, that will go a long way towards 3 solving some of the problems we've identified in the 4 report that we submitted. 5 Again, P3s are attractive alternatives. 6 They provide resources that are not available today 7 for meeting the state's needs. 8 There's nothing magic about P3s. They're 9 not a silver bullet. They won't necessarily solve 10 all problems. 11 And to, clearly, well-thought-out -- a 12 well-thought-out, comprehensive approach to looking 13 at P3s, generically, before you move ahead into 14 the individual project design, build; however they 15 choose to go ahead, it will be critical, for making 16 sure they work to the public's advantage in 17 New York. 18 With that, Senator, thank you very much. 19 CHAIRMAN FUSCHILLO: Okay, thank you very 20 much. 21 And your testimony is very important. 22 And I agree with you; I think it's our job to 23 set the framework for P3s, rather than be 24 project-specific. 25 So, I appreciate your comments on the risks 1 that are involved with this. 2 But, that's our goal; to set an overall 3 framework, rather than drive specific projects. 4 And, hopefully, we'll attain that goal as we move in 5 the legislative process. 6 Senator Marcellino, you have some questions? 7 SENATOR MARCELLINO: Yes. Thank you, 8 Senator. 9 Pete, welcome. Good to see you in a slightly 10 different role; but, good to see you again. 11 MR. GRANNIS: Thank you. 12 SENATOR MARCELLINO: On the basis of the 13 testimony, and what I've quickly gleaned from 14 reading the -- you know, just the blurb, I'm ready 15 to rename the comptroller's office, Cassandra's 16 office. 17 What are the good parts? What does the 18 comptroller see as the potential? 19 I mean, you've listed -- and that's good; I'm 20 glad you did -- pointing out what the risks are, and 21 what you recommend that the legislature should look 22 at. 23 But, what do you foresee; what does the 24 comptroller's office foresee, as the positives to 25 public-private partnerships? 1 MR. GRANNIS: Well, I think some of those 2 were described by the transportation commissioner. 3 Some of them have been -- 4 SENATOR MARCELLINO: Well, I want to know 5 what you see. 6 MR. GRANNIS: -- referenced by the Governor. 7 Obviously, there's a benefit toward tapping 8 the availability of resources, that we don't have in 9 New York State, for doing things that are critically 10 important for the state's future. 11 And, so, if the public -- if the private 12 entities are interested, and willing to participate 13 with government on a partnership basis, clearly, 14 there's a positive aspect of that, that provides, 15 again, an opportunity to do things that we, in our 16 best days, are not going of be able to do in the -- 17 at least for decades ahead. 18 So, bringing in public -- the private-sector 19 business, entrepreneurship, using the profit motive, 20 using their incentives and their business acumen, to 21 do projects that are important to us, under guidance 22 that we provide, I think is a very positive step. 23 And the comptroller, you know, understands that. 24 And, really, in the testimony today, Senator, 25 and the report, it wasn't meant to play the role of 1 Cassandra. It was really to set out the concerns 2 that have been identified in public-private 3 partnerships. And even with some of the 4 investment/infrastructure bank issues that have been 5 talked about in the past. 6 But, in no way, is meant to throw cold water 7 on the availability of public-private partnerships, 8 should that be the direction that you and the 9 Governor choose to go in. 10 SENATOR MARCELLINO: If you had your 11 druthers, and could point your finger at a 12 particular piece of advice, or role, or piece of 13 legislation, that might move the process forward in 14 a more direct, or better way, what would it be? 15 MR. GRANNIS: Again, it's -- I would -- I 16 guess, from the comptroller's perspective, would be, 17 not to focus on a project-by-project approach; which 18 is, I know there are great big projects that are 19 moving ahead quickly, and that are on the drawing 20 board today. But, to try to use the next few weeks, 21 to fashion a framework for how that process is 22 actually going to work, and the risks associated 23 with hasty decisions. 24 And I would just point you to the 25 infrastructure bank-financed project of the 1 Fast Ferry in Rochester, which turned out to be less 2 than valuable to the taxpayers. In fact, we ended 3 up owning the Fast Ferry, by default, after pumping 4 a lot of money into the project. That was an 5 infrastructure bank-type project, with federal 6 money. 7 Again, I think, in hindsight -- hindsight is 8 always very helpful here -- it was not a 9 well-conceived and well-thought-out project. 10 So, the framework of how you decide to move 11 ahead, I think, is going to be more important, at 12 least from the comptroller's perspective, than the 13 actual process on a project-by-project review. 14 SENATOR MARCELLINO: So, if I could, and my 15 last point would be: If you were -- I don't want to 16 put words in the comptroller's mouth, but, Tom would 17 never let me do it anyway. 18 But, your recommendation to this committee, 19 and to the legislature, would be: Take your time, 20 and do it right? Make sure that you have got -- you 21 have covered all of your bases? 22 MR. GRANNIS: I think, whatever time it 23 takes, Senator. I know you have the capacity to 24 move quickly. It's, just, to make sure that it's 25 right. 1 SENATOR MARCELLINO: Got you. Thank you. 2 CHAIRMAN FUSCHILLO: Thank you. 3 Senator Zeldin? 4 SENATOR ZELDIN: Thank you, Mr. Chairman. 5 I actually had some questions, that I'll get 6 to in a second. 7 But, Senator Marcellino's question, just, I 8 guess I have to follow up on. 9 I mean, he's asking if the comptroller's 10 office has any ideas with regards to how to utilize 11 public-private partnerships, to save the state 12 money, and close these deficit needs, as we go 13 forward. 14 I'm not sure if -- if it was the way 15 Senator Marcellino asked; but, are -- does the 16 comptroller's office have any specific ideas on how 17 to use public-private partnerships to save money? 18 Because, it sounded like the answer might 19 have been no. 20 MR. GRANNIS: Again, Senator, I guess it's -- 21 it wasn't meant to be a -- sort of a hard no. But, 22 our role, historically, has been to -- to provide 23 guidance, and not necessarily to lead on these types 24 of issues. 25 Obviously, we understand, and are engaged, as 1 we showed with the report, that we understand these 2 issues, that we have studied them carefully. 3 Steve actually spent a great deal of time 4 putting together this report. But, I'm not sure 5 that we have recommendations on, specifically, how 6 to go forward. 7 We have, obviously, have laid out the 8 framework for the areas that need to be addressed, 9 and are prepared to work with the legislature, to 10 see whether or not, what you're working on, and what 11 we are worried about, coincide. 12 SENATOR ZELDIN: And I certainly appreciate 13 the concern, and thought, that's been put into this, 14 and in the presentation that you provided us, 15 actually, dated back to January. 16 I think that the state, in many ways, needs 17 that leadership. And if there are any good ideas -- 18 I mean, you reference, that, you know, for example, 19 Commissioner McDonald has some good ideas with 20 regards to the -- with regards to DOT, during her 21 presentation. 22 You are privy to so much information on 23 specific projects, all throughout New York State. 24 And if you do see good opportunities, I think it is 25 important to get behind them. I think the state 1 needs that leadership. 2 MR. GRANNIS: I will just comment, Senator, 3 very briefly: From my prior role, one of active 4 areas of, what comes close to a public-private 5 partnership, is the work of private entities, to pay 6 for waste-water and public drinking-water facilities 7 in communities. Those are fairly small. 8 Obviously, they're not of the magnitude of 9 anything that I think Commissioner McDonald talked 10 about, but those smaller partnerships have been in 11 existence for, in some cases, decades. They do have 12 their problems, when the partners -- when the entity 13 decides to raise the water rates or the 14 sewage-treatment rates in a community where there is 15 no public input on what those rates are. 16 So, that's where the sensitivity is, on how 17 these are put together. 18 SENATOR ZELDIN: Okay. So, that was -- 19 Senator Marcellino's questions kind of distracted 20 me, in a good way, to ask you about that. 21 Now, I actually sent a letter to the 22 comptroller's office this morning, as you were 23 coming here, and I was coming downstairs. 24 And it primarily relates to the MTA. 25 And we had a hearing, Senator Marcellino, 1 through the Investigations and Government Operations 2 Committee at SUNY Old Westbury. And what -- 3 Mr. Bleiwas from your office, came and did a great 4 presentation. 5 And I, in many ways, commend the 6 comptroller's office on the audits that have taken 7 place over at the MTA. And you've been able to 8 identify a number of efficiencies, to save money, to 9 cut costs. 10 The purpose of the letter was to, I guess, 11 generally ask, with regards to doing a -- to broaden 12 the scope of the audit. 13 You've done several audits to -- to do, you 14 know, just a, thorough, top-down forensic audit. I 15 know it comes with costs, and it uses -- utilizes 16 resources of the comptroller's office. 17 But, that's the main objective of the letter, 18 and to talk about different ways that, maybe, the 19 MTA can save money. 20 But, I'm just -- I'm curious: Have any of 21 the audits that you have conducted, have any of them 22 addressed public-private partnership opportunities? 23 MR. GRANNIS: I'm -- I'm not aware of any, 24 Senator. 25 I -- you know, the -- our audits, as you 1 described, and as Ken testified last week, are -- 2 have been fairly targeted. 3 We are doing an agency-wide forensic audit. 4 It's a huge undertaking. And, actually, we've 5 gotten chided, in some cases, by the chair of the 6 transit authority, for having auditors on site as 7 often as they are. 8 We understand there's an interference with 9 normal work responsibilities, but we believe that 10 that engagement is important. 11 So -- but, we are -- I'm not aware of any 12 public-private partnership. 13 But -- because, I will just point out, it's 14 interesting, when you look at the history of the MTA 15 and the Long Island Railroad, the Long Island 16 Railroad used to be privately owned, until that 17 private entity was no longer able to function in a 18 way that served the public, and became part of the 19 MTA system. 20 SENATOR ZELDIN: And, now, there are some 21 that are rating it as the least-efficient railroad 22 in the country. 23 MR. GRANNIS: Which is coming out of 24 bankruptcy. 25 SENATOR ZELDIN: The -- now, I guess, it kind 1 of goes back to my earlier question, piggybacking on 2 what Senator Marcellino asked; but, has the 3 comptroller's office been able to identify any 4 specific opportunities for public-private 5 partnerships within the MTA? 6 My first question was more generally, but -- 7 MR. GRANNIS: I'm not aware of any, Senator. 8 SENATOR ZELDIN: Okay. 9 Now, I do know that one of the audits that 10 the -- that you have conducted of the MTA, related 11 to the real estate portfolio. And I know that we 12 have a couple of representatives from the MTA that 13 will follow up on that. 14 And, that was a good audit. 15 And, like I said, you have done some good 16 work with regards to these audits. 17 I'm just curious; you know, with the 18 consolidated balance sheets of the MTA, they're 19 valuing their capital assets at over $50 billion 20 right now. 21 Do you know how that $50 billion is valuated? 22 Because, one of the things that -- I believe 23 it might have been in your testimony, with regards 24 to the how to evaluate assets, I think it was one of 25 the four concerns -- actually, maybe your first 1 concern, with regards to the P3s. 2 Can you relate that first concern to the way 3 the assets of the MTA are being evaluated? 4 MR. GRANNIS: The best I can do, Senator, is, 5 obviously, the MTA has its own, very extensive real 6 estate department that makes valuations, based on 7 fair market value of what they view the asset to be 8 worth. 9 There are, also, outside auditors that come 10 in and audit. Not us. But, you know, independent 11 auditors, that certify their accounting practices. 12 Again, it's -- I'm not -- you know, other 13 than standard real-estate-valuation practices, I'm 14 not aware of anything that is unique about their 15 determination of the size of their capital assets. 16 SENATOR ZELDIN: Okay. And I guess what I'll 17 do is, I'll ask the MTA's representatives when they 18 come. 19 But, I just ask, if you wouldn't mind taking 20 a look at the letter that our office sent to the 21 comptroller this morning? 22 MR. GRANNIS: Right, Senator. 23 SENATOR ZELDIN: It's, I think, really 24 important for us. 25 The senate, actually, on March 15th, when we 1 did our one-house budget resolution, called for a, 2 thorough, top-down forensic audit within 60 days of 3 the budget being adopted. 4 Unfortunately, it didn't make its way into 5 the final budget agreement. 6 And I do understand that it would take 7 additional resources of the comptroller's office. 8 And I would look forward to the opportunity to 9 advocate, on behalf of the comptroller's office, 10 within the legislature, to make sure that did you 11 have those resources to do it; because, when you -- 12 when the comptroller's office, Comptroller DiNapoli, 13 has been doing audits, he has been able to save 14 money, I'm sure, way beyond the costs of doing the 15 audits. 16 So, I think it's just very important for, not 17 only those who live in the 12-county MTA region, but 18 all across New York State, for you to be able to 19 broaden that scope. And I would be happy to 20 advocate on your behalf. 21 MR. GRANNIS: Thank you, Senator. 22 We'll get back you to on your letter as 23 quickly as we can. 24 CHAIRMAN FUSCHILLO: Thank you very much, 25 Pete. Appreciate it. 1 Do you have some questions? 2 Senator Smith. I'm sorry. 3 SENATOR SMITH: I don't have that much. 4 Thank you, Mr. Chairman. 5 Commissioner, good to see you. 6 MR. GRANNIS: Hi, Senator. 7 SENATOR SMITH: Your colleagues as well. 8 Do you take the position, that an overall 9 plan for P3 projects are better than specifically 10 examining each one? 11 MR. GRANNIS: It's the comptroller's position 12 that a plan ought to be in place, that looks at this 13 comprehensively, and generically, about how we 14 proceed in determining P3 projects, and those that 15 make the sense to have a private partner involved, 16 and the protections that might be necessary when -- 17 in those kinds of arrangements. 18 So, we do suggest, strongly, Senator, that a 19 comprehensive plan ought to be in place before, 20 ad hoc, one-by -- one-off projects are brought 21 before you for consideration. 22 SENATOR SMITH: And the reason that I -- I'm 23 a little intrigued by the consistent concern about 24 the valuation of a public asset. 25 Understanding the process of valuation of any 1 asset, whether it's a company being resold, or 2 whatever, what is your -- I mean, how do we better 3 do that? 4 I mean, in some instances, if you're talking 5 about an asset that's based on the value of its 6 revenues and tolls, how do you value that; versus, 7 you know, a project that doesn't have tolls, or 8 revenue of that nature, based on fees? 9 I'm just -- 10 MR. GRANNIS: Senator, it goes right to the 11 heart of what Senator Zeldin was asking about, which 12 is, there's a very -- there's a fundamental 13 difference in valuating a public -- a private asset, 14 versus a public asset. 15 SENATOR SMITH: Uh-huh? 16 MR. GRANNIS: So, you could take a building 17 that the MTA has, and they're in an office building, 18 and figure out what the value of that is; because, 19 that's -- how do you value, let's say, a park? 20 SENATOR SMITH: Uh-huh? 21 MR. GRANNIS: And how do you put a value on, 22 you know, something that has, traditionally, been 23 open and available to the public, for the public's 24 use, that might have a value that is dramatically 25 different than what might be viewed as a best use of 1 that particular property, if it were turned into a 2 train station, or some other -- or a, you know, a 3 branch or an exit for a thruway? 4 So, its an -- it's a very difficult process. 5 It's a process that I think can be done. It has 6 been done in the past. But, it's not as easy as 7 valuating the assets, for instance, of the MTA. 8 SENATOR SMITH: Uh-huh. 9 Okay. And, just finally: Do we do this, or 10 not? 11 MR. GRANNIS: I think it is almost inevitable 12 that we have to do it, Senator. 13 SENATOR SMITH: Okay. 14 MR. GRANNIS: I think that this has to get 15 done. And it's, just, our caution is, that -- and 16 hope is, that it's done right for, not just our 17 tenures -- you know, yours as a senator, and mine at 18 the comptroller's office, but for the generations 19 that these projects often will be in place, after 20 they're built, and they're being run by private 21 entities in partnership with government. 22 SENATOR SMITH: Thank you, Commissioner. 23 Thank you, Mr. Chairman. 24 CHAIRMAN FUSCHILLO: Thank you, Senator. 25 Any further questions? 1 Mr. Grannis, thank you very much. 2 It's nice to see you, Pete. 3 MR. GRANNIS: Thank you. 4 CHAIRMAN FUSCHILLO: Thank you. 5 Hilary Ring and Jeff Rosen? 6 METROPOLITAN TRANSPORTATION AUTHORITY 7 TESTIMONY OF 8 HILARY RING 9 DIRECTOR OF GOVERNMENT AFFAIRS 10 JEFF ROSEN 11 DIRECTOR OF REAL ESTATE 12 CHAIRMAN FUSCHILLO: State your names and 13 titles and affiliation for the record, please. 14 MR. RING: Good morning, Senators. 15 My name is Hilary Ring, and I'm the director 16 of government affairs for the MTA. 17 I'm joined by Jeff Rosen, MTA's director of 18 real estate. 19 First, I'd like to thank you for holding this 20 hearing on public-private partnerships, or "PPPs." 21 As you know, the last three years, the MTA's 22 2010-14 capital program remained unfunded. And I 23 appreciate this opportunity to explore the role that 24 PPPs can play in meeting our infrastructure needs. 25 Innovative financing, and working with the 1 private sector, have been the hallmark of the MTA's 2 capital financing plans for the past 30 years. 3 We've found many ways to creatively harness the 4 expertise and resources of profit-making firms in 5 order to lower our costs, facilitate financing, and 6 approve our infrastructure. 7 To cite some important examples, as you 8 mentioned in your opening statement, 9 Senator Fuschillo: 10 We enlisted private firms to help us create a 11 world-class retail center over at Grand Central 12 Terminal, which enabled us to generate significant 13 new revenues, now in excess of $25 million a year. 14 Without these revenues, we would not have been able 15 to afford to redevelop the Terminal as the great 16 public space it is today. 17 As we speak, a private developer is building 18 a new rail yard for the Long Island Railroad, and 19 improving a subway station for the New York City 20 Transit, in partial payment for the development 21 rights associated with our Atlantic Yards property; 22 And, the No. 7 Line is being extended, with 23 financing made possible by the creation and 24 marketing of development rights associated with our 25 West Side Yards properties; 1 We generate some $120 million each year of 2 advertising revenue, through PPPs, with advertising 3 companies. Building on this base, we are 4 incentivizing these partners to introduce a variety 5 of digital advertising platforms that will allow us 6 to, both, increase that revenue, and to better 7 communicate with our customers. 8 PPP is our method of choice for enhancing 9 telecom service for our passengers. 10 We've already contracted with telecom 11 companies that are investing their own capital to 12 bring Wi-Fi and improved cellular service to 13 underground subway stations and the Grand Central 14 Terminal train shed. 15 And, we are currently negotiating with 16 others, to install and provide Wi-Fi service on our 17 commuter trains. 18 While not precisely a PPP, MTA has also 19 partnered with the private sector to more 20 efficiently deliver capital projects. 21 We employ design-build contracts in 22 appropriate cases, harnessing the collaborative 23 benefits of the contractor's design/builder team to 24 get projects finished faster and on budget. 25 These sorts of PPPs are successful because 1 they present relatively stand-alone, commercially 2 viable profit-making opportunities, while also 3 providing a benefit to the MTA and its customers. 4 These partnerships present clearly defined 5 obligations for the private sector, and require 6 private investors to absorb risks that they can 7 control, and are well understood by them because 8 they're part of their core business. 9 These projects traditionally generate their 10 own dedicated revenue streams, and can, and will be, 11 operated independently, rather than as integral 12 parts of the larger transit system. 13 However, the typical work of our capital 14 program is part and parcel of the existing system, 15 not the type of stand-alone projects amenable to 16 such public-private partnership models. 17 We are repairing old equipment, fixing up 18 100-year-old stations, or extending subway or rail 19 lines to add new capacity to a very crowded system, 20 all of which present untold, unknown risks. 21 And the risk inherent in such work is 22 magnified when one overlays the challenges of 23 operating year-round, 24/7, in the New York subway 24 and transit commuter-railroad environment. 25 In these situations, the risk is high for the 1 private sector, increasing the rate of return they 2 would want on their invested capital; and, 3 therefore, the overall costs to the public sector. 4 Moving forward, we've identified those 5 elements of our capital program that fit the PPP 6 model. 7 We envision employing public-private 8 partnerships to provide for the fitting out, 9 maintenance, and operation of the Fulton Street 10 Transit Center, we're building in Lower Manhattan at 11 the new East Side Access Concourse, we're building 12 near Grand Central Terminal, as those facilities 13 will lend themselves to stand-alone operations. 14 And, we will continue to pursue 15 opportunities, generate money for our capital plan, 16 through the development of our real estate, as by 17 enabling a private developer to erect a new tower on 18 land we intend to make available, by vacating our 19 office buildings at 341-347 Madison Avenue. 20 In sum: Innovation clearly has its place in 21 the MTA capital program, and we look forward to more 22 discussions of PPPs, and other innovative 23 partnership techniques. 24 But, we must recognize that, while we intend 25 include such arrows in our quiver as we seek to fund 1 the out-years of our approved capital program, they 2 will not present the full solution. 3 Public-private partnerships should be viewed 4 as measures to supplement, not substitute, the 5 funding of our capital program. 6 Thank you again for the opportunity to 7 testify. And Jeff and I are happy to answer any 8 questions that you may have. 9 CHAIRMAN FUSCHILLO: Hilary, I'm going to 10 take away that last statement you made, and just ask 11 you a -- first of all, thank you for being here. 12 And, Jeff, thanks for being here as well. 13 You know, the MTA is facing a $10 billion 14 gap, but -- as we know. 15 For the remainder of the capital program, do 16 you see P3s playing a part to fund part of that gap? 17 MR. RING: I think we see P3s as playing a 18 part in some isolated projects. 19 I think that the overall place where you need 20 the investment, in terms of, finishing the mega 21 projects, fixing up existing stations, fixing signal 22 systems, sort of the bread-and-butter of the capital 23 program, we don't think is that amenable to P3s 24 because of the inherent risks involved. 25 CHAIRMAN FUSCHILLO: Right. 1 I know Senator Zeldin has some questions. 2 Senator Zeldin? 3 SENATOR ZELDIN: The first is: Do you have 4 any specific opportunities that you've identified 5 for P3 opportunities, going forward? 6 MR. RING: Well, I mentioned a couple in our 7 testimony. 8 One would be, the Fulton Street Transit 9 Center. 10 Here, we're building a -- essentially, a new 11 massive station, downtown, that is going to connect 12 a lot of different subway stations, and provide 13 retail opportunity. 14 And, we are looking, to figure out how to 15 bring some private-sector expertise into that 16 situation, and actually manage it as a stand-alone 17 private-sector type of environment, to benefit the 18 customers and the region. 19 SENATOR ZELDIN: How much do you think the 20 MTA can save, as far as that $10 billion figure that 21 everyone is talking about with regards to the 22 capital deficit? How much can you anticipate 23 potentially saving, to cut that deficit, as far as 24 P3 opportunities? 25 MR. RING: I think that the amount of savings 1 from a P3 opportunity would be minimal. 2 I think that the places where we would look 3 to use P3s would allow us to do things better; to 4 do things, maybe, quicker. 5 But, I think that, in general, the $10 6 billion was for doing things which the PP3 [sic] 7 type of framework, I don't think would have a great 8 deal of savings. 9 SENATOR ZELDIN: The -- when we had the 10 hearing, as a reference with the last speaker from 11 the comptroller's office, we did the hearings, you 12 know, on the Westbury, a week or two ago. And 13 Chairman Walder was there, and he testified as to a 14 number of ideas that he had, that could reduce the 15 $10 billion deficit. 16 And, you know, now we're here, talking about 17 another topic: public-private partnerships. 18 And I'm glad that we are. 19 And, you know, I think, we, as a legislature, 20 have a responsibility to the taxpayers, to account 21 for all of the money that they are, forced, and 22 asked, to pay, to subsidize an entity, like the MTA. 23 So, at this point, after the last few months 24 since I've been in office, for me to go back to a 25 taxpayer, let's say, in the 3rd Senate District, 1 or Suffolk County on Long Island, and, at this 2 point, I guess: 3 Maybe reference all of the ideas that 4 Chairman Walder testified to during that hearing, to 5 think about the opportunities that may be available 6 with public-private partnerships; 7 Thinking back to a prior transportation 8 committee meeting, I think in February, where 9 Chairman Walder was present, talking with reference 10 to the $475 million in new MTA efficiencies that are 11 factored into the multi-year budget, and you're 12 trying to fast-track; 13 And, to look at, over $400 million in 14 overtime costs, over $50 billion in capital assets, 15 the outside litigation costs, the cash flow that you 16 sit on, including the unrestricted investments; 17 The fact that there are 66,000 employees, and 18 over 10,000 of those are managers and supervisors; 19 The contracts which are coming up in 2012, 20 that Chairman Walder referenced in the prior 21 hearing; 22 The forensic audits that have been conducted 23 by the comptroller's office, to identify additional 24 ways to save money, as well as the potential for 25 what would happen if there were additional -- an 1 additional broader-scope audit that it would take 2 place; 3 I think it's impossible, at this point, for 4 any senator or assemblyman to look at their 5 constituents, especially for those that live in the 6 3rd Senate District -- I mean, I'm sure, within the 7 12-county MTA region, and for myself, living in 8 3rd Senate District, that these numbers that we 9 hear of, $10 billion, is substantially higher than 10 what it really should be, if we do everything that 11 is in our power to save money. 12 And I think it's a shared responsibility, or 13 a responsibility of the MTA, to figure out how to 14 close that $10 billion deficit. And I'm pretty 15 confident that the MTA knows how to bring that 16 number much lower than 10 billion. 17 And I think it's the responsibility here, of 18 the legislature, to hold the MTA accountable, and to 19 ask these questions. 20 So, I just -- I ask to you take into thought 21 the -- all of the different topics that I just 22 brought up, and maybe figure out how to alter what 23 you're saying to the public, going forward. 24 And I don't buy the argument that, if, for 25 example, you lost the revenue stream of the MTA 1 payroll tax, that there would have to be drastic 2 cuts in services and increases in fares. 3 I think it's a knee-jerk reaction, quite 4 honestly, to scare our constituents into not wanting 5 the MTA tax to be repealed, especially those that 6 use the services. 7 Regarding the $50 billion in capital assets, 8 one of the questions I asked to the first deputy 9 comptroller was, how it's evaluated. 10 Because, one of the risks that he identified 11 in public-private partnerships, they say, "Full and 12 fair value, to identify and use the best practices 13 for the valuation of public assets, to ensure that 14 the public receives the full fair value for the use 15 of its property." 16 Can you -- maybe Mr. Rosen, can you explain 17 exactly how these assets are valuated? 18 MR. ROSEN: Well, I think they're -- 19 Can you hear me? 20 SENATOR ZELDIN: Yep. 21 MR. ROSEN: Okay, thanks. 22 I think they are two separate questions. 23 As the CFO explained, when we met on 24 Long Island a few weeks ago, the valuation that -- 25 provided in the financial statement, is a matter of 1 accounting convention, which is based on historical 2 costs and depreciation. 3 And it encompasses a wide range of assets, 4 not just the sorts of assets that we were discussing 5 the other day. The sorts of assets that are under 6 the control of my department, like office buildings. 7 But -- you know, bridges and tunnels, and railroad 8 stations. 9 SENATOR ZELDIN: Actually, I'll tell you what 10 I could do. Let me ask the question a little bit 11 better. 12 The "New York Times" story, for example, that 13 talked about selling the headquarters and two 14 buildings, it referenced that the MTA's looking at 15 26 other properties. 16 Can you, maybe, explain the valuation of 17 those 26 properties? 18 MR. ROSEN: Well, again, that was with 19 reference to our office portfolio. And that 20 portfolio consists of a few properties that we own. 21 Some that we have underground leases, but the 22 majority of which are under small-space leases. 23 And the way they get valued is, as anyone 24 does it in the marketplace, you go out and you 25 obtain property, or you try to dispose of it, under 1 competitive circumstances. 2 I think, you know, the thing that needs to be 3 noted about public-private partnerships, or any kind 4 of transaction between the public and private 5 sector, is that, it's incumbent upon us to create 6 conditions of competition that allow us to determine 7 what the value of these assets is in the 8 marketplace, and not just in our own imagination. 9 SENATOR ZELDIN: So, I guess, as it relates 10 to the office space, the valuation that is put on 11 these properties, is an estimate of what you'd get 12 for these properties if you sold it in the 13 marketplace? 14 MR. ROSEN: Well, again, in the financial 15 statements of the MTA, the properties of all kinds 16 are valued, based on historical cost; which really 17 doesn't go to the essence of what you're trying to 18 determine -- 19 SENATOR ZELDIN: So, it doesn't then? 20 MR. ROSEN: I'm sorry? 21 SENATOR ZELDIN: I'm sorry. 22 Then, it's the opposite of what I was just 23 asking then? 24 MR. ROSEN: Well, what I'm saying is, that 25 when we have an opportunity to go out into the 1 marketplace, and to try to do better, to make use of 2 our assets, to leverage them effectively, we needed 3 that time, to go out and test the market. 4 When it comes to selling a property, we do 5 what the legislature has wisely required us to do, 6 which is, to obtain contemporaneous appraisals, 7 which are based on market value, not historic costs. 8 And we do that in the normal course, as any 9 private owner would, by engaging independent 10 appraisers. 11 SENATOR ZELDIN: And the valuation is based 12 on historical costs? 13 MR. ROSEN: No. Based on -- in that 14 instance, based on market cost. 15 SENATOR ZELDIN: So, that "$50 billion" 16 number, for example, in capital assets, on the -- 17 MR. ROSEN: It has nothing to do with market 18 value. 19 It wouldn't be practicable for us to go out 20 and obtain, you know, valuations of all of our 21 property, all the time, updated six months. It 22 costs us thousand of dollars to obtain an appraisal 23 of any one property. 24 As Mr. Grannis noted, the vast majority of 25 our assets don't have a market value, for the 1 precise reason, that they're not the kinds of assets 2 that are commonly traded in the marketplace. 3 SENATOR ZELDIN: Yeah, I guess I would just 4 like to learn more about those assets. And I see 5 this staggering figure of, over $50 billion, for the 6 capital assets. 7 And I just want to know exactly what makes 8 that up; how it's valuated. And I think that 9 there's a lot more that we can learn about it. 10 I appreciate, Hilary, you brought to my 11 office, a list of what makes up those $50 billion in 12 capital assets. 13 I think that there's additional information 14 that I would like; you know, for some of the office 15 space, for example. 16 You know: What's the addresses of these 17 properties? What's the history? What were they 18 purchased at? 19 And I know that might be a little 20 uncomfortable, to start -- you know, to have someone 21 in the legislature starting to get into the weeds, 22 to that extent. But, I would appreciate it, if you 23 could, maybe, go into a little bit more detail on a 24 future printout. 25 Uhm, I was asked to -- 1 Mr. Chairman, if you don't mind me asking one 2 other question? 3 CHAIRMAN FUSCHILLO: No, that's fine. 4 SENATOR ZELDIN: -- the -- who pays for 5 the -- and this kind of completely changing the 6 subject; but, you know, I had some constituents that 7 wanted me to ask. 8 The -- now, in the city, I believe there was 9 issue couple years ago, where the students have -- 10 they have free rides on the subway system. 11 Who pays for that? Is that the MTA, or is 12 that the state? 13 MR. RING: It's a combination of MTA, state, 14 and city. 15 SENATOR ZELDIN: Okay. And it's a 16 combination, I guess you're saying, between the MTA 17 and state? 18 MR. RING: And the city. 19 MR. ROSEN: And the city. 20 SENATOR ZELDIN: And the city? Okay. 21 Has there ever been any discussion about 22 rides for those students that use the other 23 transportation assets of the MTA; like, for example, 24 the Long Island Railroad? 25 MR. RING: Not that I'm aware of. 1 I believe that New York City school children, 2 commuting on Long Island Railroad, get some small 3 discount that the city also pays for. But, I'm not 4 familiar with any other discussions. It hasn't come 5 up, really. 6 SENATOR ZELDIN: Okay. 7 And, with risk of asking a question I know 8 the answer to: What's the approximate contribution 9 between -- like, how much does the MTA contribute 10 towards those rides, versus the city and the state? 11 I just -- is there like a rough breakdown you 12 might be able to approximate? 13 MR. RING: I don't recall it off the top of 14 my head. It was an issue about a year ago, when I 15 would have known the answer. 16 But, I can get back to you with the breakdown 17 of that. 18 SENATOR ZELDIN: Okay. I just wanted to be 19 able to answer it for them, so... 20 MR. RING: Sure. 21 SENATOR ZELDIN: Thank you. 22 CHAIRMAN FUSCHILLO: Senator Perkins? 23 SENATOR PERKINS: Thank you, Mr. Chairman. 24 And I want to commend you for this timely 25 hearing, and very informative. I believe it would 1 be very useful for us, as we move forward. 2 Good to see you, Mr. Ring, and Mr. Rosen. 3 I have two, I guess, concerns. 4 Have you had the chance to hear from 5 Pete Grannis, in terms of some of the concerns that 6 the comptroller's office has raised with regard to 7 P3s? 8 MR. RING: Well, he just testified, Senator. 9 Yeah. 10 SENATOR PERKINS: Yes. 11 So, do you have any reaction to some of what 12 he shared? 13 And it was somewhat of a critical analysis. 14 Not a killer analysis; but, nevertheless, some 15 serious warning signs about going down this road, 16 and the potential problems that might occur. 17 And, what is your experience, in light of 18 some of what he had to say? 19 MR. RING: I didn't think that 20 Deputy Comptroller Grannis was being critical, as 21 much as realistic, in terms of, making sure that -- 22 SENATOR PERKINS: First, the words. 23 [Laughter.] 24 MR. RING: -- making sure that, when the 25 government makes arrangements like this, that are 1 long-term arrangements, that everyone has to keep 2 his eyes open. 3 That, the government -- the private sector, 4 essentially, is taking a risk, and is going to want 5 to be compensated for that risk. And, in doing so, 6 they're looking for surety. 7 And the government is, essentially, 8 guaranteeing that surety. And whether that surety 9 is in terms of, future revenue increases -- for 10 example, like Mr. Grannis pointed out, with poles 11 going up regularly -- you know, the government knew 12 that going in. 13 And, you know, people shouldn't be surprised 14 that, continuing, that's one of the effects. 15 But I think that, that in situations where 16 that the risks could be quantified, and the risks 17 could be understood and controlled for, and people 18 are comfortable with the operational aspects of it, 19 then I think that P3s makes sense. 20 I don't -- I think that it was just -- I 21 thought -- I didn't take it in a negative. 22 SENATOR PERKINS: Okay. 23 The government is taking risks as well. 24 MR. RING: Uh-huh. 25 SENATOR PERKINS: The public is taking the 1 greater risk, I would say, since it -- these are, 2 essentially, public assets that are being, more or 3 less, turned over. 4 I think he was sort of alerting us to that 5 aspect of it. 6 Have you had any experiences that, more or 7 less, support some of the concerns that he raised? 8 MR. ROSEN: You want me to give it a shot? 9 MR. RING: Yeah, go ahead. 10 MR. ROSEN: Look, I think, in structuring any 11 P3, the single most -- 12 SENATOR PERKINS: I can't hear you. 13 MR. ROSEN: I'm sorry. 14 Can you hear me now? 15 SENATOR PERKINS: Yes. 16 MR. ROSEN: I think, in structuring any PPP, 17 the single most important thing is, to try to align 18 the interests and motivations of the parties. 19 If, at the end of the day, the private 20 concessionaire is simply awaiting payment, and 21 doesn't have a stake in the quality of the service, 22 you haven't really achieved the full benefits of a 23 PPP, as it's, you know, often described. 24 We have instances, for example, where, you 25 know, escalators, and other elements of 1 transportation, have been provided on the edges of 2 our stations, through zoning incentives, and 3 otherwise. 4 And, at a time when the payoff to the 5 developer, if you will, is early on, and there isn't 6 as strong a motivation as you'd like for them to 7 maintain the elevator well, in the end, and then 8 we're the ones who, and our customers are the ones 9 who, suffer, when it becomes an enforcement action. 10 So, again, as I say, ideally, these things 11 are set up so that the concessionaire/the developer 12 is motivated throughout the process to do the right 13 thing. 14 SENATOR PERKINS: So, in that regard, what do 15 we -- what have we put in place, or what do we put 16 in place, to catch that as soon as possible, and 17 maybe, even avoid that from happening at all? 18 Based on the experiences that you have had, 19 where you have seen this kind of situation; what 20 lessons do we learn, to avoid that? 21 MR. ROSEN: Well, I think you -- as Hilary 22 was saying, you have to be careful that you do it in 23 the right cases; do it for the right projects. 24 You know, in instances where, for example, 25 there is ongoing revenue for the private 1 concessionaire, which is only in some kinds of 2 PPPs, the motivation is, that the -- is that the 3 concessionaire and its lender knows they're not 4 going to get the money if they don't provide a good 5 service. 6 In other cases, that -- the sorts of things 7 that we've done, you know, if you're creating a 8 development with retail-revenue potential, it's in 9 the interest of the private developer to remain a 10 strong revenue-producing environment. 11 And, again, what you're trying to do is, 12 harness their expertise and their self-interests, to 13 get you where you're trying to go. 14 SENATOR PERKINS: Two other quick questions. 15 The one, I guess I'm also concerned about, 16 like, I guess, the P3s, in terms of MWBEs, and 17 their ability, or willingness, to comply with that 18 value, that policy, that we have so much regard for. 19 And I guess, related to that, is the second 20 question, in terms of, just, transparency and 21 accountability; assuring the public that their 22 assets, which you are managing, and which they are 23 developing on our behalf -- on the public's behalf, 24 are actually -- you know, it's actually taking 25 place. 1 And how do we -- how does the public get 2 informed about, not just when there's a successful 3 ribbon-cutting, but maybe when there are these 4 concerns that -- where they fall short, so that they 5 don't always feel, sometimes, that they're in the 6 dark? 7 MR. ROSEN: Uh-huh. 8 Well, first, with respect to MWBE, I think 9 the answer is, that the method of delivery ought to 10 be neutral. 11 In other words: Contractually, should be 12 able to provide for those requirements to be met, 13 regardless of whether it's a PPP or more 14 conventional delivery method. 15 But, obviously, you know, that needs to be 16 provided for in the contracts, and in the 17 legislation. 18 With respect to transparency, you know, I 19 think, as things stand now, we examine the quality 20 of the designs we received from private designers, 21 we examine the quality of the service we get -- of 22 the work that we get from contractors. 23 There's no reason, inherently, why you can't, 24 you know, provide the same sorts of safeguards, the 25 same sort of reporting, for the long-run. 1 SENATOR PERKINS: All right, thank you. 2 CHAIRMAN FUSCHILLO: Thank you, Senator. 3 Senator Golden? 4 SENATOR GOLDEN: Thank you, Mr. Chairman. 5 The -- I guess, the discussion here for the 6 P3s is very simple. 7 P3s, it's about putting projects back 8 online, and completing those projects, getting 9 through your capital program the next two years. 10 Putting people back to work is probably the 11 biggest issue that we need here in the state of 12 New York. About 750,000 people still in the 13 unemployment lines. That's besides the people that 14 gave up looking. 15 I think it's important that we look to the 16 private-public partnerships, not just here in the 17 MTA, but on our roads. 18 And, have we invested, and have the ability 19 to invest, in places like, Atlantic Yards, the World 20 Trade Center, Moynihan Station, Jacob Javitz Center, 21 Second Avenue Line, we would have the ability to put 22 a tremendous amount of people back to work, and get 23 this economy working here in the state of New York, 24 and be the state that leads this recovery instead of 25 the state that will tail this recovery. 1 P3s, I find to be intriguing. And there 2 are, obviously, concerns, but, I do believe they 3 work, and I believe it is a good mix, working with 4 the right partners. 5 P3s, you know, going forward; what part of 6 the P3s do you think will play in the -- and we're 7 presuming it's the $10 billion. We're presuming 8 that the other 4 billion is going to be made up by 9 the federal government. 10 Let's say, it's 3 billion now -- it's 11 $10 billion now, as we have to do it. 12 What percentage do you think the P3s will 13 play in that? Or could play in that? 14 MR. RING: I think that, when you look at the 15 types of projects that are in that 10 billion, I 16 think that the ability for PPP to be a large part of 17 that $10 billion, I think is difficult, when you are 18 thinking of a private operator coming in and 19 designing, building, and operating a portion of the 20 system. And I think that's, generally, the 21 construct. 22 I don't think that -- you know, I think that, 23 we use -- we're using P -- you know, a P3, like a 24 design-build, for a huge new bus depot that we're 25 building. 1 You know, we're doing things like that, to 2 reduce the costs. And those will have a major 3 benefit. 4 We've already reduced the costs of the 5 capital program by $2 billion, by doing things like 6 that. 7 Better design and better approval process, so 8 that things don't get started before they are 9 thoroughly thought out and costed. 10 But, I don't think that, aside from the types 11 of things that we talked about, like the Fulton 12 Street Transit Center, or the East Side access 13 terminal, which are very large projects, but they're 14 not -- you know, they're not billions and billions 15 of dollars' worth of the capital-program gap, but 16 they would have a potential to, potentially, save us 17 some money. 18 And, more importantly, I think, is to provide 19 customer benefit, which is currently lacking. 20 And I think that's one of the places where 21 P3s can really help. I mean, Grand Central 22 Terminal looks like Grand Central Terminal because 23 it's being managed by, you know, a private company. 24 And it's held to a different type of standard, in 25 the way that that property is maintained, and 1 different types of, you know, tenants are attracted 2 to it. 3 And all that generates revenue for us. 4 So, I think that's the way we're looking at 5 it. 6 SENATOR GOLDEN: So, the P3 is being a 7 quiver -- one arrow in that quiver. 8 What revenue streams, if any, do you see for 9 the P3s, or for the balance that would be due on 10 the capital program, going forward? Do you see any? 11 MR. RING: What revenue streams. would we see 12 supporting -- excuse me? 13 SENATOR GOLDEN: Setting -- correct. 14 MR. RING: Uhm, I think, lease revenues. 15 I think, that, general operating revenues. 16 I think, that, you know, some asset sales. 17 Like we mentioned, the redevelopment of 18 Madison Avenue Property. 19 You know, we're looking to see whether there 20 have been instances, where property that's owned by 21 New York City and -- where the underlying leases, 22 owned by New York City, and the uses of the MTAs, 23 where we've been able to develop those kind of 24 properties to benefit both the city and the MTA. 25 Time Warner Center, for example, and the 1 Upper West Side, there, in Central Park, was built 2 on property that was jointly owned by the MTA and 3 New York City. And both the MTA and New York City 4 got benefit from it. 5 And we are currently involved in the process 6 of looking at the rest of our properties of a 7 similar nature, and see whether there's benefits, 8 like, you know, properties throughout the city. 9 SENATOR GOLDEN: Do you see a possible vision 10 of a -- the State Municipal Bond Bank Agency as an 11 additional backing of private-public partnership 12 projects? And -- actually, do you foresee existing 13 operations? 14 MR. RING: I think a bond bank, or an 15 infrastructure bank, clearly, could be a source, 16 that, you know, allows us to, you know, recycle the 17 money, and to, you know, have assets to use. 18 But, the end of the day, one will still need 19 to come up with revenue to capitalize it. 20 SENATOR GOLDEN: And another area of concern, 21 that could probably work, is the banking 22 institution, along the model of Immigrant Bank, 23 which, seated with the MTA and other 24 transportation-worker resources, could invest in 25 these projects and public-private partnerships of 1 MTA-related projects. 2 Is that a vision that could also happen here 3 as well? 4 MR. RING: We'd be very interested in 5 learning about that. 6 SENATOR GOLDEN: And expanded, of course, 7 design-build opportunities, to attract more private 8 interests, obviously, is another area of major 9 concern; correct? 10 MR. RING: Yeah, we've had a lot of success 11 with design-build. 12 I know DOT is looking to get that authority. 13 But, we already have that, and we've have been using 14 it. 15 And, again, it's -- it works really well, 16 where, you hire a contractor who is experienced, and 17 this is what he does and this is his core business. 18 And, he can bring his private-sector expertise, and 19 leverage that, for lower costs and faster projects. 20 We just did that with the Atlantic Viaduct, 21 which is elevated structure where the 7 Line runs 22 on -- or, the Long Island Railroad runs on, in 23 Queens. 24 And this was a design-build. The contractor, 25 this was his core business. He was able to do it 1 relatively cheaply and very quickly for us. 2 So, it's -- we've had a lot of success using 3 design-build. 4 SENATOR GOLDEN: Thank you, Hilary. 5 I have to excuse myself. I have to greet the 6 deputy mayor. 7 The R train was late this morning. 8 Can you do anything about that? 9 MR. RING: Uhm, I'm sorry, Senator, no. 10 SENATOR GOLDEN: Thank you. Have a good day. 11 CHAIRMAN FUSCHILLO: Thank you. 12 And we're also joined by Senator Ranzenhofer. 13 And, also, another ranking member of the assembly, 14 Assemblyman Dave McDonough. 15 Mr. Ring, Mr. Rosen, thank you very much for 16 your testimony. 17 TESTIMONY OF NORMAN MacMILLAN 18 DELEGATE MINISTER 19 MINISTÉRE DES TRANSPORTS DU QUÉBEC 20 CHAIRMAN FUSCHILLO: Norman MacMillan, 21 delegate minister of Québec Ministry of 22 Transportation. 23 I'd say good morning; but now I'll say, good 24 afternoon. 25 And thank you for taking the time to be here. 1 MR. MacMILLAN: It's my pleasure. 2 Mr. Chairman, members of the Senate 3 Transportation Committee, my name is Norm MacMillan. 4 I'm kind of a junior minister of transport, a 5 colleague of Sam Hamad, that sends his greetings to 6 you, Senator. 7 It's my pleasure to represent the Québec 8 government before this committee, and I thank the 9 chairman for his invitation. 10 My presence is a continuity with the mission 11 carried out, here in Albany, on March 15th by my 12 colleague, the minister of transport, Sam Hamad, to 13 discuss issues of common interests of 14 transportation. 15 Accompanying with me today is: 16 My chief of staff, Danny Abah (ph.). 17 Madam Sandra Sultana, director of 18 public-private partnership office; Martin Breaux 19 (ph.), head of the rail transportation division; 20 both, representative of my department. 21 And, Jean-Phillippe Arseneau is 22 representative of the Québec General Delegation, 23 New York, since they're present here in the States 24 since 1940. 25 It is, thus, as a long-standing partner, 1 neighbor, and friend that I have come here, on 2 behalf of the Québec government, to present our 3 experience of the Ministére des Transport du Québec 4 with public-private partnership, known at "P3s." 5 The MTQ has been involved in P3s for a 6 little over ten years now. 7 We adopted the act respecting transport 8 infrastructure partnership, in December 2000, which 9 gave us the legal power to resort to this project 10 performance mode. 11 Why this interest in P3s? 12 In the conventional build mode, the minister 13 awards and managed many contracts to carry out 14 projects, contracts, and design, for design, 15 construction, and maintenance, winter maintenance, 16 drainage maintenance, lightening, as well as 17 operating, and rehabilitation, contracts over 18 projects' entire life cycle. 19 The minister defines the precise means he 20 wants to be implemented, plans, and specification, 21 to carry out the projects, and specify these means 22 of each stage. 23 In P3s, all these activities -- design, 24 construction, operation, maintenance, 25 rehabilitation, and even financing -- are combined 1 in the same contract, which is awarded to just one 2 supplier, the private partner, for a longer term to 3 then-conventional contracts: 20, 30, or 40 years, or 4 more. 5 The partnership's agreement specifies the 6 results the government wants to achieve. The means 7 for achieving these results are the 8 private-partner's responsibility. 9 The objective of building a project in P3s 10 is to obtain the best social and economic benefits 11 in exchange for the cost incurred by the project; 12 particularly, thanks to vigorous competition among a 13 combination of companies made of builders, 14 operators, financiers, engineers, and various 15 national and international suppliers. 16 The opportunity to proceed as a P3, or in the 17 conventional mode, to build the major projects is 18 determined by the means of business case, which 19 compares the costs between building, in P3s, and 20 the conventional mode. 21 The P3s' approach is not an absolute. It 22 is not our government's intent to apply its system. 23 It's, semantically, wall-to-wall. 24 It also applies where there are benefits for 25 the taxpayer. Otherwise, another build mode is 1 used. 2 Performance of projects in P3 remains an 3 interesting approach in relation with the advantages 4 that can be derived from it. 5 One of the most important advantages, is that 6 this mode allows transfer of a considerable portion 7 of the risk to private partner. The risks it is 8 most able to manage efficiently, such as, those 9 related to design, construction, maintenance, and 10 operation of a road infrastructure, are assigned to 11 the private partner. 12 The MTQ can, thus, focus on its essential 13 mission; namely, to ensure transportation safety, 14 mobility of passengers and freight, and the 15 development and the update of the designs, 16 construction, and maintenance standards. 17 The MTQ thus seeks to obtain the best 18 value-for-money for the project, and reduce the 19 government's financial contribution. 20 The other advantage of P3s are, actuation or 21 expediting project construction, introduction of a 22 life-cycle concept, and promotion of innovation. 23 I was telling you that the MTQ committed to 24 PPPs about ten years ago. Based on a pre-visibility 25 study, the MTQ identified three projects that seemed 1 to be suitable: 2 Two carry-out P3s; 3 Two new infrastructures: Autoroutes 25 and 30 4 in Montreal metropolitan region; 5 And, the construction of new, modern service 6 areas. 7 The MTQ produced the business cases for these 8 projects, to evaluate the expectancy of building 9 them as P3s. 10 The objective of business case is to perform 11 a detailed financial analysis of the projects, by 12 comparing the costs according to, performance in 13 traditional mode, and performance in 3Ps -- P3s' 14 mode. 15 The financial analysis takes into account our 16 costs, including the risks, and the maintenance of 17 operating costs. Based on this analysis, the most 18 appropriate mode is chosen. 19 Based on the business case, Autoroute 25, and 20 30, and the service areas' project, were selected to 21 be built as P3s. The projects were defined, and the 22 procurement process was implemented. 23 A three-stage project -- process -- request 24 for the expression of interests, a request for 25 qualification, and request for proposal -- was 1 adopted for these projects. 2 35-years' partnership agreements were signed; 3 in September 2007 for Autoroute 25, and September 4 2008 for Autoroute 30. 5 A 30-year agreement was signed in 6 September 2008 for service areas. 7 Autoroute 25 is the first project implemented 8 as a P3. This is an electronic-toll autoroute, 7.2 9 kilometers long, including a 1.2 bridge -- kilometer 10 bridge. 11 The cost of the project is 220 million, at 12 the 2007 net present value. 13 The infrastructure will be open to traffic at 14 the end of this week, on May the 20th. The 15 autoroute is being delivered four months in advance 16 in relation to an initial schedule, and within 17 budget. 18 Autoroute 30 is also a toll autoroute 19 project. 42Ks of new autoroute lanes are being 20 built and maintained by the private partner. 21 An additional 35K is built in traditional 22 mode. It will also be maintained by the private 23 partner. 24 The cost of the project is 1.5 billion, at 25 2008 net present value. 1 It is projected that the autoroute will be 2 commissioned in December of 2012. 3 In this case, as well, the project conforms 4 to the initial schedule and budget. 5 For the service area, the cost of the project 6 was 44.5 million, in 2008 net present value, for the 7 seventh site stipulated in the agreement. 8 Five sites are currently in service, and two 9 will be in service this fall. 10 The private partner complied with its 11 deadlines for this project as well. 12 The MTQ is currently analyzing the 13 feasibility of Phase 2 of the service areas' 14 projects, with 11 new sites under consideration. 15 Apart from the projects in the transportation 16 field, the Québec government also implemented 17 projects performed in P3s, in hospitals, museum, 18 concert hall, justice, detention centers, and the 19 education fields. 20 We've learned some lessons from the P3s 21 projects. 22 Each project must be analyzed on its own, on 23 a case-by-case basis. It is not possible to 24 generalize about the build mode for it to be 25 implemented. It is appropriate to produce business 1 case that considers all the factors that must be 2 analyzed. 3 It's also important to apply a rigorous 4 approach regarding the procurement process. This 5 ensures fairness, transparency, integrated in the 6 process. 7 Excuse my English. I'm losing it a little 8 bit right there. 9 A process auditor hired by the government, 10 assured the government authorities, and to invite 11 candidates, that the selection process was rigorous. 12 State support is extremely important. And so 13 is management leadership in the organization, both 14 in the public-partner and in the private-partner's 15 team. 16 Optimizing risk allocation makes it possible 17 to maximize efficiency. 18 Finally, p3s propose a new business 19 relationship that involves two partners: a public 20 partner and a private partner. 21 This business model is very different from 22 traditional projects, in which the MTQ manages the 23 project and its construction and maintenance. 24 In P3s: The private partner manages the 25 project. The public partner manages the partnership 1 agreement, and ensures that the requirements of the 2 agreement are met. 3 An independent engineer is also hired, to 4 ensure compliance of design and construction with 5 the partnership-agreement requirements. 6 In conclusion: We are very satisfied with 7 the results of our first experiments with P3s. 8 I would like to conclude, by wishing you a 9 productive discussion on this subject. 10 We are, of course, available to answer your 11 questions, provide with you some additional 12 information, if you consider it. 13 I have two experts with me here this morning. 14 Thank you very much for your attention. 15 CHAIRMAN FUSCHILLO: No, I appreciate you 16 taking the time to be here. 17 When I met with the minister earlier this 18 year, I was extremely impressed with some of the 19 projects, that you just mentioned. 20 And I'm glad to see that, later this week, 21 that one of those projects will be completed, and 22 the public will take fuller advantage of it. 23 I just wanted to ask you -- and please send 24 him my best. 25 I just want to ask you a question about the 1 procedure, and how it's -- your government has laid 2 out. 3 Is there a board that approves the P3s? 4 MS. SULTANA: There is a framework that is 5 set up for government, to authorize projects; so, we 6 honor, on a case-by-case. So, there's a framework 7 that looks at all of the business cases. 8 We evaluate each project on a business-case 9 basis. 10 Government does take government on, with the 11 board. Infrastructure of Québec, which is our P3 12 body, that takes -- that looks into infrastructure, 13 into all modes of infrastructure implementation. 14 Their board needs to authorize a project. 15 And then it's taken to the council of ministers, to 16 authorize the project, on individual basis. 17 CHAIRMAN FUSCHILLO: Who comprises that 18 board? 19 MS. SULTANA: Both public and -- public 20 representatives from government and private sector 21 representatives. 22 The council of ministers is, of course, only 23 public. 24 So, it's a government decision. 25 CHAIRMAN FUSCHILLO: Right. 1 Have you estimated, during this decade-long 2 period of time, how much your government has saved 3 by engaging in P3s? 4 MS. SULTANA: For both of the projects, 5 Autoroute 25 and Autoroute 30, we did do base -- 6 value from many reports -- 7 CHAIRMAN FUSCHILLO: Right. 8 MS. SULTANA: -- which does a comparison 9 between, if the project were done in the 10 conventional mode, if it was done as a P3 approach. 11 On Autoroute 25, we evaluated a $200 million, 12 uhm -- 13 CHAIRMAN FUSCHILLO: Savings? 14 MS. SULTANA: -- savings. 15 On Autoroute 30, which is $1.5 billion 16 project, we evaluated it to be a 700 million 17 savings. 18 CHAIRMAN FUSCHILLO: Will the other project, 19 as well as the success you've had with this one, 20 opened this week, will it come under budget and/or 21 ahead of time? 22 MS. SULTANA: Yes, it will. 23 CHAIRMAN FUSCHILLO: Yes, it will. 24 MS. SULTANA: Four months early. 25 CHAIRMAN FUSCHILLO: Incentives; are there 1 incentives built into an agreement like that? 2 MS. SULTANA: Obviously, the route sharing is 3 part of the incentive. 4 There are incentives, yes. 5 And there's incentives that are built in 6 between the partners, in the private partner. 7 There's the, builders, the designers. And, they, 8 within themselves -- 9 CHAIRMAN FUSCHILLO: Create incentives? 10 MS. SULTANA: -- create those incentives. 11 So, yes, there is an incentive to the builder 12 to deliver early. 13 CHAIRMAN FUSCHILLO: And based on my 14 conversations with the minister, and your testimony 15 today, it appears, you're not giving up any of the 16 assets? 17 MR. ARSENEAU: No. 18 CHAIRMAN FUSCHILLO: Right? 19 MR. ARSENEAU: It's just government owned -- 20 CHAIRMAN FUSCHILLO: Government owned. 21 MR. ARSENEAU: -- up to a certain -- 22 30 years, or -- 23 CHAIRMAN FUSCHILLO: For 30-year agreements, 24 or lower. 25 MS. SULTANA: Actually, the property is 1 always the government's. So, it's managing the 2 infrastructure that is delegated to the private 3 sector. 4 CHAIRMAN FUSCHILLO: Right. 5 Thank you. 6 I really appreciate you taking the time to be 7 here. 8 Senator Smith? 9 SENATOR SMITH: Good morning. 10 MR. MacMILLAN: Good morning, Senator. 11 SENATOR SMITH: My regards to the minister. 12 Good to see each and every one of you, again. 13 I just want to ask one question. 14 How do you propose -- what is the best means 15 by which to finance high-speed rail coming through 16 here, to Québec, and then, back down to New York? 17 CHAIRMAN FUSCHILLO: Just press it once. 18 Try it now. 19 MR. MacMILLAN: Sorry. 20 Does that work? 21 SENATOR SMITH: Yeah. 22 MR. MacMILLAN: Okay. 23 Thank you, Senator, for your question. 24 I might probably speak about, as you are 25 aware, the Quebec-Windsor pre-feasibility study. 1 That study has been -- the report has been 2 tabled to both Québec government and the Ontario 3 government, as well as the federal government. 4 In that study, obviously, it's been under 5 consideration by all governments so I will not be 6 able to get into the specifics. 7 But one of the things that has been looked 8 at, is whether or not there would be a role for the 9 private sector if governments were to decide to move 10 ahead with that type of project. 11 So, that is part of the pre-feasibility, just 12 laying out some options that wouldn't need to be 13 looked at further down the line on that project. 14 With regard to high-speed rails with the 15 U.S., I mean, obviously, we're not there yet. 16 As you know, right now, I think it was on 17 May 9th, that the -- Secretary LaHood announced 18 some -- for the funding, for, I think it was close 19 to $1 billion in the northeast for different 20 projects. 21 I mean, our attention right now is focusing 22 on the issue of improving the Adirondack, that runs 23 from New York to Montreal. And especially with a 24 focus on the issue of preclearance; U.S. 25 preclearance and prescreening, as well as 1 Canadian Customs customs screening. 2 So, that is really what we're focusing right 3 now. 4 It takes about an hour thirty minutes, right 5 now, to cross the border. And we believe that, if 6 we were able, collectively working with NYSDOT, with 7 Amtraks, and other partners, we were to improve that 8 time by doing preclearance in Montreal, that would 9 significantly improve the time. 10 So, that's, essentially, where we are at this 11 point. 12 SENATOR SMITH: Thank you. 13 Thank you, Mr. Chairman. 14 CHAIRMAN FUSCHILLO: I wanted to just follow 15 up a question with you. 16 Thank you. 17 Have you estimated, over this decade period 18 of time, what the savings has been with respect to 19 debt, if you were to bonded out these projects? 20 MS. SULTANA: When we're looking at -- 21 CHAIRMAN FUSCHILLO: Of debt would you have 22 incurred. 23 MS. SULTANA: Yeah. 24 Obviously, financing a public-private 25 partnership, the finance cost is greater for the 1 private sector than for the public sector. 2 CHAIRMAN FUSCHILLO: Right. 3 MS. SULTANA: We evaluated a 2 percent, 4 about, difference between the two. 5 We haven't evaluated it specifically, 6 because, when we do do our -- I've forgotten the 7 term again -- value-for-money analysis, we do it on 8 a basis of all of the costs that are incurred. 9 So, we do look at risk. We do look at 10 risk-sharing -- sharing risks for revenue, for 11 example. 12 CHAIRMAN FUSCHILLO: Right. 13 MS. SULTANA: We do look at the finance 14 aspect. 15 But, we take it as a lump sum, and we look at 16 all of the efficiencies that can be brought on by a 17 public-private partnership. 18 CHAIRMAN FUSCHILLO: What led you, back in 19 2002, to start engaging in P3s? 20 MR. ARSENEAU: That's a good question. 21 It's -- we've been -- since 2003. And it was 22 in our plan, to look at the privatization, or P3s, 23 or partnership, with that. 24 It was a decision, in 2000, I don't, 25 really -- who started it, I don't remember at all. 1 Maybe Ms. Sandra can answer that. 2 MS. SULTANA: We looked at what was being 3 done internationally. 4 The U.K. is very -- 5 MR. ARSENEAU: The U.K., yeah. 6 CHAIRMAN FUSCHILLO: Very progressive. 7 MS. SULTANA: -- within P3s. 8 Our western province, British Columbia, was 9 also -- had started off implementing a few projects. 10 So, we're looking at what international and 11 national experiences was bringing forth. And 12 through that, we identified a few projects that 13 sounded like they may have a good potential. 14 We put those forward. We did the 15 business-case analysis. The opportunities did come 16 out, in terms of savings. And, we implemented the 17 project. 18 But, we went through the procurement process, 19 and signed on the projects in, 2007, 2008. 20 CHAIRMAN FUSCHILLO: Do you have the 21 availability of an infrastructure bank as well? 22 MS. SULTANA: Pardon me? 23 CHAIRMAN FUSCHILLO: Do you have availability 24 of an infrastructure bank? 25 MS. SULTANA: Availability of an 1 infrastructure...? 2 CHAIRMAN FUSCHILLO: ...infrastructure bank. 3 Does Québec have an infrastructure bank? 4 No? 5 MS. SULTANA: Oh, in our projects? 6 On the 25, it is Macquarie Capital 7 Investments. 8 In the A-30, it's 14 banks that are 9 investing. 10 CHAIRMAN FUSCHILLO: Okay. Okay. 11 Artie, any questions? 12 SENATOR DILAN: Yeah. 13 CHAIRMAN FUSCHILLO: Senator Dilan? 14 SENATOR DILAN: I'm concerned to know what 15 exactly were the incentives for the private partner, 16 since they're assuming risks here, over the course 17 of the ten years. 18 And, also, if you can give me what has been 19 the reaction of your community or the public to this 20 type of project, over the ten years. 21 MS. SULTANA: I'll go with the reaction; the 22 public reaction. And, there are two answers to 23 that, because they are -- their infrastructures that 24 are being built in a metropolitan area. 25 We all know that metropolitan areas have 1 become -- and this is a new infrastructure -- it's 2 becoming more and more difficult to implement new 3 infrastructure. 4 So, there was a lot of resistance from 5 environmental groups, and such. 6 There was resistance for -- in terms of -- 7 I'm blanking here, on -- urban sprawl. Urban-sprawl 8 considerations, and such. 9 So, there was resistance to the project 10 itself. 11 We went through all of the environmental 12 authorization process. And we did promote the 13 project, and defend the project, and justify the 14 project, on the needs, in terms. And, 15 environmentally also. 16 And the second one was on the P3 process. 17 SENATOR DILAN: With the public, that was the 18 initial reaction. 19 MS. SULTANA: That was the initial -- 20 SENATOR DILAN: What is the reaction, now 21 that you're coming to a conclusion on the project? 22 Is there -- 23 MS. SULTANA: Currently, there's very good 24 acceptance. Very, very good acceptance. 25 The private partner -- this is a tolled 1 infrastructure. The private partner started selling 2 their transponders three months ahead of time. And 3 there's been a very good response to that. 4 CHAIRMAN FUSCHILLO: Senator Smith, you have 5 a follow-up? 6 SENATOR SMITH: Yeah, I'm sorry, 7 Mr. Chairman. Just one other question. 8 Have you had any foreign companies involved 9 which are P3s? And, if so, what did you put in 10 place to assure their performance was what they 11 agreed to? And how that was dollar-exchange 12 transaction worked out? 13 MS. SULTANA: Yes, we do have foreign 14 companies, international companies, that are 15 being -- that are being -- that are implicated in 16 the project. 17 All our partnership agreements precisely 18 specify, what are the requirements that the private 19 partner must meet. 20 So, whether it's national or international 21 firms that are being represented, they all have a 22 specific -- all of the requirements are very well 23 detailed in the partnership agreement. 24 All of the requirements, all of the risks, 25 transfers, are specifically integrated in the 1 partnership agreement. 2 SENATOR SMITH: Is there any -- I'm sorry, 3 Mr. Chairman. Just one last question. 4 Is there a -- a difference, if you will, in 5 the formula for risk, or return, as it relates to a 6 foreign company versus a domestic one? 7 MS. SULTANA: No, there isn't. 8 SENATOR SMITH: Or the same? 9 Okay. 10 CHAIRMAN FUSCHILLO: Thank you very much. 11 One of the reasons why I asked to you come 12 testify, is my previous meeting with the minister 13 and your staff. And I thought it was critically 14 important that the members of the transportation 15 committee hear your successes. 16 And this is exactly, obviously, what we want 17 to achieve here in New York State as well, and give 18 the department of transportation, and other 19 transportation agencies, the options, in an economy 20 where there are very few, with dollars out there. 21 So, I appreciate you coming to New York. I 22 appreciate the time you've taken, and your testimony 23 as well. 24 So, thank you very much. 25 MR. MacMILLAN: Thank you very much. 1 MS. SULTANA: Thank you. 2 MR. ARSENEAU: Thank you. 3 CHAIRMAN FUSCHILLO: We have a long list of 4 speakers. And out of respect for your time, and the 5 legislative schedule that we have coming up shortly, 6 with conferences in session, I'm going to ask, if 7 you have lengthy testimony, to submit it to us, and 8 give us a brief of your comments. 9 TESTIMONY OF JONATHAN TURNBULL 10 MANAGING DIRECTOR 11 LAZARD FRERES & CO., LLC 12 CHAIRMAN FUSCHILLO: Our next speaker is 13 Jonathan Turnbull. 14 Good afternoon. 15 MR. TURNBULL: Good afternoon. 16 So, you want me to shorten it up? 17 CHAIRMAN FUSCHILLO: Well, if you can do it 18 within under ten minutes, we'd appreciate it, 19 Mr. Turnbull. Thank you. 20 MR. TURNBULL: I'll move it along quickly. 21 Thank you. Good afternoon. 22 My name is Jonathan Turnbull. I'm a managing 23 director at Lazard Freres, a 162-year-old global 24 financial independent advisory and asset management 25 company, based out of New York, and listed on the 1 New York Stock Exchange. 2 The firm has advised governments for many 3 decades, on topics, ranging from privatizations to 4 restructurings. 5 As a firm, we are an advisory firm only. We 6 are not investors in projects. We do not provide 7 financing for projects. We are purely 8 advice-givers. 9 I appreciate the opportunity to testify at 10 this hearing regarding the use of public-private 11 partnerships, or "P3s," in New York State. 12 My comments are based on years of advisory 13 experience from assignments all over the world. 14 I believe my comments will echo many 15 statements made by my peers; mainly, that P3s are 16 commonplace in most of the developed countries of 17 the world? And that New York State should learn 18 from these foreign and selected domestic 19 experiences, to develop a P3 program that can 20 accelerate its infrastructure investment, and help 21 drive economic growth for the benefit of New York 22 State and its residents. 23 I would also like to take a few minutes to 24 talk about a few other P3 initiatives, that may not 25 be front and center to this discussion, but we view 1 to be very important in executing a successful P3 2 program for the state. 3 Items such as, the development of a statewide 4 master plan for its P3 program, as well as the 5 development of a financing strategy to support 6 possible P3s. Within that, we would include a state 7 infrastructure bank. 8 We believe both of these initiatives will be 9 important for the state as it thinks through using 10 P3s effectively. 11 On the history of P3s, I'm sure many of you 12 are familiar now, with the statistics on P3 usage 13 around the world. 14 One of the biggest users of P3s, the United 15 Kingdom, had closed over 700 projects since 1992, 16 with a total value in excess of $120 billion. 17 To put that statistic in the context of 18 New York State, the GDP of the U.K. is approximately 19 twice that of New York State. 20 That would imply an equivalent P3 spending of 21 over $60 billion in New York State if it had been 22 executing in a similar manner over the last 23 20 years. 24 Such capital spending over the last 20 years, 25 grossed up to current dollars, would make a 1 substantial dent in a future 20-year infrastructure 2 funding gap of $80 billion outlined in the 2009 3 report from the office of the state comptroller. 4 P3 projects around the world have ranged 5 from, building and rebuilding highways, waste 6 management, recycling programs for municipalities, 7 new high-speed rail lines, electric transmission 8 lines for offshore wind, new hospitals, and new 9 schools. 10 The list of projects is endless. 11 P3s are now commonplace in most developed 12 countries around the world, including France, 13 Germany, Spain, Italy, Australia. And as we just 14 heard, Canada, which has been executing P3s since 15 the early 1990s. 16 The use of P3s is also spreading into merging 17 economies, such as India, Brazil, and China. 18 The United States is new to the P3 world, but 19 may have the greatest potential to attract capital 20 to help pursue P3s over the next 20 years. 21 Infrastructure investment in the U.S. is 22 underweighted relative to its global peers. And 23 focus and interest exists amongst the largest global 24 infrastructure investors to put more capital to work 25 in the United States. 1 Harnessing that pent-up demand, and getting 2 the most from it, is going to be an important 3 element to any P3 execution strategy for New York 4 State. 5 The terms and conditions of P3s have varied 6 and evolved over the past two decades. 7 P3s have matured. P3 programs around the 8 world have learned from prior mistakes, and have 9 also adopted -- adapted to various financial market 10 conditions. 11 There is no "one size fits all" mentality in 12 the global P3 market, as structures are now tailored 13 to the specific project that is being pursued. 14 P3 advisory specialists can figure out the 15 best structure available for different projects in 16 the state. 17 Such recommendation would be based off the 18 state's objectives, the underlying asset 19 characteristics, and perhaps, equally, if not more 20 importantly, current market conditions. 21 I believe New York State needs to increase 22 its utilization of P3s to advance its 23 infrastructure capital spending and maintenance 24 program. 25 It needs to consider P3s in two contexts: 1 One, to help the new projects get executed. 2 And, two, consider P3s on established and 3 older assets, to help raise funds, to then put to 4 work in new economic building projects. 5 The sooner many of these new projects can be 6 completed, the quicker the state can drive economic, 7 or top-line growth, and help reduce its heavy 8 deficits. 9 One of the key lessons learned over the years 10 with P3s, is that they provide more than just 11 capital to fund infrastructure projects. 12 Other benefits include, as we've heard from 13 the representatives from Québec, providing 14 attractive value-for-money, and alternatives to the 15 typical public procurement process. 16 Given the speed to market, and cost benefits 17 to the private sector, the cost to the state, on 18 certain projects, may be cheaper with a P3 than the 19 typical procurement process. 20 Many government-sponsored reports around the 21 world have confirmed this value advantage, just like 22 the P3s. 23 We just heard our friends from Québec 24 highlight two examples of over 200 and 700 million 25 dollars of value savings to this province, relative 1 to the typical process. 2 Leveraging credit-sector expertise to the 3 benefit of the state is another thing, be it use of 4 latest technology, or other cost-cutting methods. 5 Transferring significant execution and 6 operating lists go away from the state to the 7 private sector. Obviously, another important 8 element. 9 But one perfect example of that would be, the 10 "Big Dig" in Boston, and the costs associated, the 11 added costs, almost 100 percent above the original 12 budget estimates absorbed by the state, which they 13 continue to pay for today with over a billion 14 dollars, per annum, of financing costs. 15 Accelerating speed to market is also an 16 incredibly important element. 17 In Florida, with I-595, they were able to 18 bring that to the marketplace 15 years ahead of a 19 typical process, driving economic growth, and 20 lowering costs to the state. 21 But one of the most important elements, or 22 components, to a successful program, based off of 23 our experiences around the world, is the development 24 of a central plan, and a team to execute on your 25 program. 1 Many other countries or regional governments 2 have turned to advisors and internal groups to help 3 oversee and coordinate their entire P3 program. 4 The creation of a master plan and an 5 oversight group will help the state prioritize its 6 P3 projects, based off a project's economic growth 7 and development implications, the state's aggregate 8 goals and objectives, and a complete stakeholders' 9 analysis. 10 These groups will not only help prioritize 11 the various projects that need to be considered for 12 a P3, but they will also manage the entire P3 13 procurement process, and help orchestrate the 14 required P3 funding, to maximize the value 15 realization by the state. 16 An organized P3 program will help manage the 17 process, and will help generate greater interests 18 and support from the global investment community. 19 Such a process will bring appropriately 20 structured transactions to the marketplace; manage 21 the timing of projects, based off of market interest 22 and appetite; ensure that projects are financeable 23 in the current market environment; and build a 24 successful track record of negotiations and 25 execution certainty. 1 This will result in greater and best, or 2 belief, in any new project reaching financial close; 3 and, therefore, create a preference to work with 4 New York State over other less-organized states when 5 completion risks are -- might be higher. 6 A master plan needs to consider all possible 7 projects across a spectrum of categories. 8 I know we are here today talking about 9 transportation, but we need to consider, in the 10 context of transportation, energy, social 11 communications; all aspects of infrastructure for 12 the state. 13 One last thing that I would recommend the 14 state consider alongside its master P3 plan, is the 15 development of a targeted financing strategy that 16 includes the creation of a state infrastructure bank 17 to help drive P3 execution over the next 20 years. 18 Financing of P3s has become more important 19 to execution success for any individual P3 than the 20 underlying transaction's structure and terms. 21 The global capital market's correction in '08 22 has forced U.S. infrastructure projects to rely on 23 new capital sources and/or multiple government 24 agencies for the capital needed to ensure launch and 25 completion. 1 The state needs to develop a multi-prong 2 strategy to help deliver the needed capital for its 3 P3 projects. 4 Possible financing alternatives the state 5 should consider include traditional revenue bonds, 6 and the like. However, the state needs to also 7 consider new sources of capital, such as the IPO 8 market and/or the creation of a robust state 9 infrastructure bank. 10 A state infrastructure bank could be an 11 attractive alternative for New York State, to help 12 ensure execution success of planned P3s. 13 A state infra bank will allow the state to 14 control its own capital sources, and not rely upon 15 programs or grants from Washington, to get deals 16 done quickly and effectively. 17 Federal programs, such as TIFIA, have become 18 a key source of debt capital to new transportation 19 infrastructure projects. 20 New York State should not have to rely on 21 TIFIA to get P3 projects moving forward. A state 22 infrastructure bank can work with TIFIA, and similar 23 initiatives, but can also replace TIFIA debt on 24 projects if needed. 25 A properly structured state infrastructure 1 bank will help prioritize projects, garner focus and 2 attention from global investors, and generate a 3 return to the state beyond the economic growth of 4 the completed projects. 5 P3s are used successfully around the world, 6 and it's important that New York State embrace this 7 mature and developed technology to advance its own 8 infrastructure agenda. 9 Investment in its infrastructure is critical 10 to long-term economic growth. The key to maximizing 11 the success of any P3 program is not just hidden in 12 the details of each possible P3, but more 13 importantly, in the development and -- of an overall 14 plan of action that prioritizes transactions, and 15 helps source-needed financing. 16 Thank you. 17 CHAIRMAN FUSCHILLO: Mr. Turnbull, thank you 18 very much for being here. And, obviously, your 19 patience. 20 You know, one of the key factors -- and the 21 components you laid out are essential to a 22 successful program, if we're going to do it here in 23 New York State -- what I've also seen in other 24 states, and other areas around the world, less 25 involvement by the government makes it more 1 attractive. 2 Have you seen any -- I mean, what has been 3 your experience of other states, where the 4 legislature's been involved, or they haven't been 5 involved, in the decision-making process? 6 MR. TURNBULL: Well, I mean, essentially, the 7 government and legislative process has to actually 8 facilitate the initial steps to make something 9 happen. 10 CHAIRMAN FUSCHILLO: Right. 11 And, then, after that? 12 MR. TURNBULL: After that, the best success 13 stories you can point towards are P3 programs that 14 are managed by individual organizations. 15 Best examples would be: An infrastructure 16 Québec, or a Partnerships BC, or other types of 17 entities, whose sole mandate is to actually move 18 forward with different P3s. 19 CHAIRMAN FUSCHILLO: All right. Have you 20 seen, in many states, where, once a board is 21 created, the legislature's not involved with that 22 board in the decision-making process? 23 My concern, going forward, is the political 24 football games, and the parochialness, and the 25 nimbyism. And, then, you'll have nothing done. 1 MR. TURNBULL: Correct. I mean, it has to be 2 one of the biggest concerns you have, as it relates 3 to actually getting things done. But, also, 4 prioritizing within your capital spending. 5 At the end of the day, P3s are a form of 6 capital spending. 7 CHAIRMAN FUSCHILLO: Right. 8 MR. TURNBULL: It is a form of financing, but 9 it's capital that's being deployed by the state. 10 If it's overrun by different agendas, 11 separate agendas, and other items, you know, 12 fundamentally, there's going to be value leakage, 13 just as a theoretical point of view. 14 CHAIRMAN FUSCHILLO: Your testimony lays out 15 something that I believed, and I know my colleagues 16 do: We're not reinventing the wheel here? 17 MR. TURNBULL: No. 18 CHAIRMAN FUSCHILLO: I mean, the success rate 19 in so many parts of this world has been tremendous. 20 And it's just an option we need to make available, 21 to keep our infrastructure improving and rebuilding 22 here in New York State. 23 It's critically important. 24 So, I thank you. 25 I don't know if any of my colleagues have any 1 comments? 2 SENATOR SMITH: Yes. 3 CHAIRMAN FUSCHILLO: Senator Smith? 4 SENATOR SMITH: Yes, thank you very much, 5 Mr. Chairman. 6 Mr. Turnbull, thank you for your testimony. 7 You talked about executing a master plan for 8 P3. Then I believe, there was some part of your 9 testimony that talked about specific projects, in 10 terms of how you assess the value of using P3 on 11 them. 12 So, I'm just a little -- I'm trying to get 13 clear about the master plan, related to, versus the 14 individual assessment of each. 15 MR. TURNBULL: No, it's a great question. 16 Every single P3, or possible P3, needs to be 17 considered on an individual basis. 18 It needs to be assessed on an individual 19 basis because, based off of the characteristics of 20 the underlying assets; the market environment, what 21 buyers and sellers are willing to do at that point 22 in time; all those factors need to be considered, to 23 develop a singular strategy for an individual P3. 24 SENATOR SMITH: Uh-huh. 25 MR. TURNBULL: But the state itself needs 1 strategy up above that. 2 We've heard today, five or six different 3 potential transportation-related P3s, be it the 4 Tappan Zee Bridge, many other bridges within 5 New York State, other potential projects which may 6 come up, each of them needs to be assessed on an 7 individual basis. Develop a strategy on what makes 8 sense for it. 9 But, then, you can't say: I'm just going to 10 go out and do everything. 11 SENATOR SMITH: Right. 12 MR. TURNBULL: Because the reality is, the 13 human capital of the state can attach to get things 14 done, as well as the capital that can be attached to 15 get things done, is difficult to assess. 16 And, so, what you then need to do is, go 17 above all those individual projects. 18 Take each of them on an individual basis. 19 And, then, above that, develop a strategy that says: 20 I'm going to do this one first. 21 Why? Because it drives the greatest economic 22 benefit for the state of New York. 23 And, then: I'm going to do this one second. 24 Why? Because it drives tremendous economic 25 value for the state of New York. But, also, because 1 that's a structure that, today, is heavily desired 2 by the marketplace. 3 There is a tremendous amount of interest to 4 put capital to work in the United States, in 5 infrastructure. But, it has to be in the right 6 deal. 7 SENATOR SMITH: All right. 8 MR. TURNBULL: There are certain states who 9 have failed around different P3s. 10 Why? Because they brought a structure which 11 was not appropriate, at that point in time, for the 12 marketplace. 13 And, then, when they launched the deal, there 14 was nobody there to step up and say, I'll do it. 15 So, it has to be all those factors. 16 So, look at it on an individual basis; but, 17 then, bring it all up top, and try to think about 18 how to assess it on an aggregate basis. 19 SENATOR SMITH: All right. 20 The comptroller -- Deputy Comptroller Grannis 21 offered some, concerns, if you will. Some I think 22 are warranted, some are not. 23 But, the question of valuation of the asset, 24 private versus public; do have you any thoughts on 25 that? 1 MR. TURNBULL: Well, it is hard to 2 differentiate the value between an asset in a 3 public-market context versus a private-market 4 context; because, on the public-market context, a 5 road -- for example, an un-tolled road is worth a 6 lot because it drives economic value by moving goods 7 and services and people, and those types of things, 8 from here to there. 9 It's hard to assess that value on an 10 individual-road basis. 11 I do think, though, that when you frame a 12 concession, a certain-term concession -- 30-, 13 40-year concession -- where you layout, 14 specifically, the guidelines of what that individual 15 investor is going to keep, and what they have to pay 16 for. 17 That's a value that can be well defined. 18 And that's not selling an asset. 19 What we've always talked about is, that the 20 state would continue to loan the underlying assets, 21 the most often used, as the longer-term concession. 22 SENATOR SMITH: Uh-huh. 23 MR. TURNBULL: And those types of parameters, 24 you know, can be well defined, and well valued. 25 It's hard to go outside of that when you talk 1 about aggregate economic, and do a relative 2 comparison. 3 SENATOR SMITH: Uh-huh. 4 MR. TURNBULL: I think there are many 5 scenarios, where you can point to states that have 6 executed P3s, and crystalized value above and beyond 7 the value that people thought was in the underlying 8 concession. Not the asset, but the concession. 9 SENATOR SMITH: Uh-huh. 10 MR. TURNBULL: There are scenarios, where you 11 can point to deals that were done a few years ago in 12 the height of the market. 13 Indiana, for example, with a value received 14 by the state, has now funded, ten years, their 15 transportation budget. 16 The value of their -- to bring that asset to 17 market today, would be much less than what they 18 realized at that point in time. 19 But, again, it's not the asset that was sold. 20 It was a concession, and a contract. 21 SENATOR SMITH: All right, just one last 22 question. 23 On the infrastructure bank; California's 24 infrastructure bank, I guess, is primarily 25 capitalized through public money, and backed by the 1 full faith and credit of the California Treasury. 2 Do you have any thoughts on an infrastructure 3 bank that could be capitalized through public- or 4 private-pension money? And, have you heard of such 5 a formula? 6 MR. TURNBULL: We actually have, at Lazard, a 7 very detailed view -- opinion, as to how an 8 infrastructure bank could be set up for the state of 9 New York. 10 First, and foremost, it would not be with 11 full faith and credit of the state. That it can set 12 up as a separate entity altogether. 13 It has to be properly capitalized in the 14 investments that it makes. 15 In providing loans, it would need to be 16 properly structured against, new projects, and old 17 projects, that generate revenues. 18 But we do think that there are examples out 19 there, globally, as well as state infrastructure 20 banks in the United States, that do not have full 21 faith and credit of the underlying government 22 institution. 23 So, there are examples out there, outside of 24 the one that you provided, that I think would be 25 more appropriate, perhaps, from this state's 1 standpoint, as far as finding a new funding source 2 that doesn't come on to full faith and credit. 3 SENATOR SMITH: Thank you. 4 Thank you, Mr. Chairman. 5 CHAIRMAN FUSCHILLO: Thank you, Mr. Turnbull. 6 Appreciate your testimony. 7 Ed Lucas? 8 TESTIMONY OF EDWARD LUCAS 9 EXECUTIVE BOARD MEMBER 10 NEW YORK STATE PUBLIC EMPLOYEES FEDERATION 11 CHAIRMAN FUSCHILLO: Good afternoon. 12 MR. LUCAS: Good afternoon. 13 CHAIRMAN FUSCHILLO: Thank you very much for 14 taking the time, and your patience, to be here. 15 MR. LUCAS: Oh, that's okay. 16 I'm quite happy to be here. 17 Since I've been working for the department of 18 transportation since 1978 -- 19 CHAIRMAN FUSCHILLO: Thanks, Ed. 20 MR. LUCAS: -- I've spoken to several of you 21 individuals before. 22 Very nice to meet you, sir, Mr. Chairman, and 23 other Senators. 24 CHAIRMAN FUSCHILLO: We have your testimony. 25 If you can summarize it, we would be grateful, if 1 you can. 2 MR. LUCAS: It's a little difficult to 3 summarize. I will attempt to do the solvent points. 4 CHAIRMAN FUSCHILLO: Thank you. 5 MR. LUCAS: Basically, I must say, that I am 6 a representative for DOT statewide labor/management. 7 I do work for the New York State Public 8 Employees Federation, represented by. And we have 9 56,000 workers, with 4,500 of them in DOT. 10 It's tempting to believe that public-private 11 partnerships produce massive new funds for 12 infrastructure construction. But, this is a false 13 promise. 14 There is no such thing as free money. In the 15 end, someone has to pay. 16 And when there are private investors or 17 corporations, it also means the need for monetary 18 return on their investment. 19 You can use nice words to describe it, but 20 the fact remains: The source of revenue for 21 transportation projects will always be, either taxes 22 or tolls. 23 The buzz word being "partnership"; warm, 24 fuzzy feelings. It seems like it's a win-win. 25 The reality is very different. 1 History shows us, time after time, 2 public-private toll-road projects mean higher costs 3 to all the taxpaying public, especially those who 4 rely on the roads for their livelihood. 5 There's basically three important dangers. 6 "The potential to default." 7 Senator Smith was just referencing, what, 8 full and backing? 9 Well, in essence, we would be -- "we," 10 New York State, would be held in the bad when they 11 default. 12 "Noncompetitive clauses." 13 There are horrendous examples about, you 14 cannot improve any other infrastructure adjacent to 15 the one, because would you have to pay fees to them. 16 Basically, these investors want a monopoly. 17 And, in this, DOT, we always are referring, 18 currently, to our corridors, and moving of 19 economics. And I'm going completely off the script, 20 just from what I know. 21 And the reality is, non-competitive clauses 22 will not perform well for us at all. 23 The aspect of a non-competitive clause is 24 saying: Okay, you have one infrastructure that's 25 being done by a P3. You can't even maintain the 1 adjacent one without paying that financial entity, a 2 penalty. 3 There are common parts of P3s, and of great 4 concern, if you want to realize all risks. 5 There's a lot of information in my report in 6 regards to a global study of thousands of P3s 7 around the world. And we're talking about a value 8 of a half a trillion dollars, not billion. And, you 9 know, some of the failures that have gone on. 10 The author of the publication of "A Global 11 Auction of Public Assets" says: "There's now a 12 significant evidence base to show that most PPP 13 projects have little or no democratic control or 14 transparency, are costly, provide poor value, lack 15 innovation and flexibility, reduce employment" -- 16 Which, is something that hasn't been 17 discussed here today. 18 -- "and erode public-service values." 19 Like I say, there's references to failures. 20 But, basically, the main failure that's 21 highlighted, is that, 75 percent of them have been 22 based upon the original projections not being met. 23 And, subsequently, people ended up going into 24 default. 25 As an example: There was one down in 1 South Carolina that, basically, had half the traffic 2 that was projected. It went into default. 3 And, then, the entity that was created did 4 not have the revenue to reimburse South Carolina DOT 5 for the anticipated maintenance or repairs. 6 Accumulated deficits of the Connector were 7 163 million. And they're being added to, about 8 14 percent a year; according to Peter Samuel, who is 9 involved with "TOLLROADSnews." 10 He's a great proponent to tolls roads; but, 11 yet, he's telling you this. 12 California made reference to the 13 South Bay Expressway in San Diego. It went bankrupt 14 in 2010. Would not support the debt. 15 And I think California ended up picking a $73 16 million loss on the restructuring of the loans 17 alone. 18 Just the restructuring of the loans was $73 19 million; that, we would be held responsible. 20 Now, here's the point: In both of these 21 cases, it appears, the only parties that benefited 22 were the financial advisor and investment firms that 23 were paid at the front end of those deals. 24 Think about that. It makes a lot of sense, 25 doesn't it? 1 They set it all up. They propose it. They 2 make it look all very nice. They collect their 3 fees. 4 And, when they default, go bankrupt, fail to 5 maintain all these different aspects; or, increase 6 tolls exponentially. 7 And the reason being, that most of these 8 cases of failure was due to widely optimistic 9 predictions for the use of toll roads. 10 But, as far as the taxpayer is concerned -- 11 Which, you know, we all represent. I'm a 12 public servant; I represent taxpayers. 13 I consider getting my money's worth to myself 14 every day, because I am a taxpayer. 15 -- debt restruction isn't the answer to the 16 pain of a toll road. 17 The Dulles Greenway, a 14-mile, 350 million, 18 defaulted on its loan in '96. 19 2005, an Australian firm bought the Greenway, 20 and raised the average toll, from $2 to, roughly, 21 3.50. A 75 percent hike. 22 Well, who does that hurt? It hurts everyone. 23 It hurts the state's economic circles, 24 taxpayers, representatives. It hurts everyone. 25 There's a horrendous example about the 1 Chicago parking meters, where they sold, for 2 1.15 billion, the rights for parking in Chicago. 3 And it's projected that the investors will receive 4 11.6 billion, in parking fees, over the 75-year 5 life. 6 Who bought the parking franchise? By a 7 partnership made up of the investment bank 8 Morgan Stanley. 9 "Business Week" called it, "A Windfall for 10 Investors, and a Loss for Chicago." 11 I'd like you esteemed gentlemen to consider 12 whether or not you want to have a loss for New York. 13 Think about these level of risks that we're 14 speaking of. 15 "The deal illustrates how Wall Street banks, 16 recipients of more than $300 billion in bailouts" -- 17 "bailouts," excuse me -- "bailouts in the worse 18 financial meltdown since the Great Depression, are 19 profiting, by selling bonds, and leasing public and 20 private properties," according to "Business Week." 21 I really don't call that a free-market 22 solution. 23 There's more and more examples, as I say. 24 But "free market" says, you know, it's because of 25 the non-competitive clauses and the monopolies that 1 are generated by these things, it is no longer a 2 free market. 3 Summarize. Summarizing is difficult when you 4 have the whole thing memorized. 5 [Laughter.] 6 MR. LUCAS: One second. 7 Oh, and you know, more reference is made to 8 being able to work on your existing roads; roads 9 that are assets, that are in line next to them. 10 You know, being -- end up with a roadblock to 11 working on your own highway system because of an 12 agreement that you entered into for, maybe, up to a 13 century? That's not a realistic approach. 14 The private operator is there to make a 15 profit, usually by charging higher tolls. 16 The sole goal of a PPP is profit, not public 17 service, what I do, every day. 18 I suppose it's pretty clear, that the P3s 19 will result in the greater use of private 20 engineering consultants for design and construction. 21 Obviously, all of you that have been involved 22 in transportation issues over a long period of time, 23 realize that, numerous study, engineering; that DOT 24 engineering forces can do the work, from 50 percent 25 to 75 percent more cost-effectively than consultants 1 can. 2 We calculate, of course, that DOT would save 3 between 55 million and 83 million per year by 4 reducing its use on consultants. 5 And I just got to summarize: As I said 6 before, it's tempting to believe that public-private 7 partnership would produce massive new funds for 8 infrastructure construction -- infrastructure 9 construction. 10 But this is a false promise. There's no such 11 thing as free money. 12 Everybody in the room should hear that: 13 "There's no such thing as free money." 14 The underlying source of revenue is the same; 15 either tolls or taxes. 16 Public financing, public design, will produce 17 better results at a lower cost. 18 And I'd like to add a personal opinion to 19 this matter. 20 The generations that came before me -- my 21 grandfather, and the people before them -- they 22 invested in the interstate system, when times were 23 better. 24 And they said, "For the good of the state, 25 and the good of the nation," they made these 1 investments. 2 They made them, thinking that we were going 3 to be good stewards for them. Forever. 4 They didn't make them for us to sell them to 5 a private entity. 6 I thank you very much for your time. 7 I'd be perfectly willing to entertain any 8 questions you may have. 9 CHAIRMAN FUSCHILLO: I appreciate your 10 testimony. 11 And, you lay out a course of caution, and 12 potential risks. And I think the comptroller's 13 office stated that as well. 14 Senator Smith? 15 SENATOR SMITH: Just -- yes, thank you, 16 Mr. Chairman. 17 And, again, thank you for the testimony on 18 the public-benefit side, and being cautious. 19 I just want to go to something -- go back to 20 your testimony. You cited -- and this is a question 21 just about, P3s, and conditions of whether it 22 works or not. 23 You cited one example, on the 24 Southern Connector, which I guess, the asset didn't 25 perform. There was a bankruptcy. They couldn't 1 handle the debt. 2 MR. LUCAS: Right. 3 SENATOR SMITH: Then you talked about 4 Chicago, where Morgan Stanley made a sound 5 investment, and it looked like they were going to 6 raise $10 billion over 10 years. 7 So, I guess my question is: Is the absence 8 of, one working, and not working, just basic 9 economic market conditions, or is it because of P3? 10 MR. LUCAS: Well, they're not the same type 11 of example. 12 Now, I've been working in labor/management 13 process at DOT for many years. And we've been 14 involved in valuation, like the first type of 15 things, like design-build, which we are also 16 against. And -- because of costs, and 17 public-private partnerships. 18 The idea with the Chicago one is pretty 19 simple. 20 They sold the right for parking in an area 21 where people are always going to park, for 75 years. 22 And they got the money up-front. 23 So, it was kind of like what the comptroller 24 was saying: Be cautious of, getting some money now, 25 and paying for it forever. 1 And the people that are going to be paying in 2 Chicago, to the tune of ten times what they receive, 3 is the increases in the revenue for the parking. 4 So, every time a person goes into Chicago, 5 and parks, Morgan Stanley and their investors are 6 profiting exponentially, in my opinion. 7 Now, the other example is, where the -- that 8 I made reference to, was where they predicted, in 9 the optimistic viewpoint, that they were going to 10 get 16 -- or, 3,300 cars a day. And they're only 11 getting 1,600 cars a day, or whatever it is -- 12 1,000. Excuse me. 13 And, so, those people went bankrupt. 14 And the state of South Carolina, the DOT, 15 tried to go after them on their clauses, you know, 16 that were in the contract. And, basically, they 17 didn't have the money. 18 So, they -- there wasn't sufficient funds, so 19 all of the risks ended up being absorbed by the 20 state, you know. 21 So, the examples are many. And if you'll 22 read further into my testimony, you'll see a few 23 more different types of examples. 24 But, to sell an asset, when the sole reason 25 is to generate profit, there's very few instances 1 where the risk won't fall back on us. 2 Because, I heard a lot of you Senators, this 3 morning, asking questions about, whether we would 4 retain the asset. 5 You know, just like examples from the 6 Ministry of Québec, they turned around and they 7 said: Well, we've had this for ten years, but we've 8 only been using it for a few -- as far as I can 9 tell. 10 I'm not quite sure how it took them so long 11 to get started; but, they established a toll road. 12 So, I would assume that, probably, it wasn't 13 a toll before. But people are so -- there's so much 14 congestion. 15 But I would be a little bit more concerned, 16 to look into the bottom line of that thing; is 17 whether or not the local roads are able to be 18 improved, to create competition? Or you would -- do 19 you have to play clauses back in; non-competitive 20 clauses. 21 Very scary aspect. Risks involved. 22 So, it's not as simple as it seems. It will 23 always be, taxes or tolls. 24 SENATOR SMITH: Uh-huh. 25 MR. LUCAS: So, it's the aspect that we're 1 trying to drive: It's not free money. 2 If we're not -- if we're not planning for in 3 the capital budget of DOT, or the budget for MTA, 4 you're paying for it by increasing tolls. 5 You know, you're paying for it over a long 6 period of time, as opposed to, by (untelligible) -- 7 Does that answer your question? 8 SENATOR SMITH: Yes. Yes, it does. 9 Thank you. 10 MR. LUCAS: Anything else? 11 CHAIRMAN FUSCHILLO: Okay, thank you very 12 much. 13 MR. LUCAS: Okay. Thank you. 14 CHAIRMAN FUSCHILLO: Sam Barend? 15 TESTIMONY OF SAMARA BAREND 16 VICE PRESIDENT OF STRATEGIC DEVELOPMENT 17 DIRECTOR OF PUBLIC-PRIVATE PARTNERSHIPS 18 AECOM 19 CHAIRMAN FUSCHILLO: Good afternoon. 20 MS. BAREND: Hi. How are you doing? 21 Thank you very much for having me. 22 Chairman Fuschillo, Senator Dilan, 23 Senator Smith, thank you for staying. 24 It's a real pleasure to be here. And I very 25 much appreciate that you all are generating a 1 dialogue on public-private partnerships, here. 2 It is, you know, much overdue in the state. 3 I am Sam Barend, and I am the director of 4 public-private partnerships for AECOM, which is a 5 global construction, architectural, engineering, 6 company. 7 And we have done, you know, projects all over 8 the world for private-public partnerships. 19 of 9 the top 25 projects in North America for 10 transportation. 11 And, then, you know, we've also done 12 projects -- this is a transportation/public-private 13 partnership hearing, but we have also done schools, 14 we've done courthouses. We have done a wide range 15 of public-private partnerships. 16 Most significantly, the first social 17 infrastructure project ever, you know, created -- 18 finished in this country, that's reached financial 19 close, which is the Long Beach Courthouse. 20 And today, I come before you with a dual PPP 21 prospective, as having served as executive director 22 of the State Asset Maximization Commission; and, 23 also, you know, now being in the private sector. 24 And that commission, as you all know, you 25 know, is charged with trying to find a path forward 1 for how New York State could undertake 2 public-private partnerships. And, you know, given 3 all of the diverse stakeholder concerns that we 4 have, what would be the best approach, you know, 5 given labor issues, given everything. 6 And, so, what we recognized, is that, you 7 know, as folks have talked about here, that 8 30 states, along with numerous nations, are saving 9 billions of taxpayer dollars, but -- and are 10 undertaking more projects, in less time, with 11 greater accountability, by using public-private 12 partnerships to deliver critical infrastructure. 13 But, unfortunately, despite our best efforts, 14 you know, New York State just isn't one of them. 15 And what the problem is, has been that, you 16 know, time after time -- 17 And a few of you who are left here, may have 18 the balance to prove it. 19 Maybe Senator Smith does, because I know you 20 have been trying to push this issue for a while. 21 And, hopefully, Senator Fuschillo will not 22 have these battle wounds, in this go-around. 23 -- but, for nearly two decades, we've tried 24 to pass legislation; P3 legislation. There have 25 been a number of misconceptions that have been put 1 forward. And, each time, it's consistently failed. 2 In each instance, you know, broad legislation 3 was introduced, that, you know, labor said: It 4 didn't address their concerns. It offered, you 5 know, an unclear process for project oversight. 6 Provided little rationale for, when, and why, such 7 projects should or should not be advanced. 8 And labor unions generally viewed these 9 projects, as we've heard, as a means to bring the 10 state cost savings at their expense. 11 You know, to reduce the use of in-house 12 engineers, and to scale back their hard-and-fought 13 wage protections. 14 And, worse, legislators have viewed PPP 15 legislation as giving blanket authority to create -- 16 to DOT, to create windfalls for the private sector. 17 You know, some of these concerns have 18 legitimacy, and others are just simply unfounded. 19 And what we have seen through the years, as 20 P3 projects have matured in this country, that, you 21 know, there are best practices that have been 22 developed. And that, you know, for every concern 23 that is being putted forward, there is, you know, an 24 argument to back it up. 25 You know, every state has gone through 1 growing pains. And, I guess, the benefit that we 2 have here in New York, coming to the game late, is 3 that we can learn from all of the, you know, trials 4 and tribulations. 5 In 2008, you know, it was becoming very 6 clear, the state had to do more with less. 7 You know, the SAM Commission was created to 8 curtail these widespread misperceptions, and to 9 create a path forward on PPP, by approaching P3s in 10 this collaborative nature; bringing labor to the 11 table, bringing the private sector. 12 And what we found through that process was 13 that -- you know, that the real message that 14 resonated, was not talking about using 15 public-private partnerships to close a budget gap, 16 not talking about monetizing assets, but really 17 talking about performance-based infrastructure 18 delivery, using public-private partnerships to get 19 things done faster, to stretch our taxpayer dollars. 20 And what we found, is that we had, you know, 21 the support of 20 organizations. And labor, 22 actually, was very willing to listen, and to work 23 with us. 24 And, you know, our willingness to work with 25 them proved to be very beneficial. 1 And through this commission report, you know, 2 there were 27 specific projects, that I think will 3 form a roadmap for the future legislation that is 4 put forward, and that is passed. 5 And, you know, these projects represent 6 30 billion in investment. 7 But the main recommendation that the 8 commission put forward, that I think is significant, 9 to talk about here today, and that we should really 10 think about it, it was mentioned before by the -- 11 you know, the folks from Québec government, is the 12 creation of an entity through which to advance 13 public-private partnership projects. 14 And what we have seen in this country is a -- 15 really, a piecemeal approach to addressing 16 public-private partnerships. 17 And, you know, agencies, say, DOT will put 18 forward, one project here, and one project there. 19 And, you know, some of the concerns that path has 20 put forward are founded, but a lot of them are 21 founded because public-private partnerships were not 22 advanced in a systematic way, and in a vehicle that 23 had oversight, that could screen, prioritize, and 24 assess projects, for value, for money. 25 If you had those controls in place, what you 1 have seen in Canada, and the U.K., you can garner a 2 whole lot of benefit for your state, for your area. 3 And, you know, globally, the governments that 4 have proven most successfully, on an ongoing basis, 5 they've created these entities. 6 And, you know, a whole -- another reason 7 that -- for creating these entities, is that, you 8 know, it's true; these public-private partnership 9 projects are very complex. These are not easy 10 projects to undertake. And they shouldn't be 11 undertaken for -- you know, for most projects. 12 But, for -- as, you know, the commissioner of 13 transportation mentioned, for about 10 to 12 percent 14 of the projects, they do make sense, for -- you 15 know, for, tricky, sticky projects. For projects 16 that, you know, need to be accelerated. 17 And we have almost 6,000 deficient bridges. 18 And a public-private partner, we don't really have 19 another option but public-private partnerships. 20 So, it's imperative that, whatever authority 21 that we create to oversee, it have the adequate 22 resources. If we're going to do this, we have to do 23 it right. 24 So, whatever entity is created, must have the 25 resources to hire and retain legal advisors, 1 financial advisors, technical advisors. And, also, 2 some sort of nimble full-time staff. 3 Otherwise, we might as well just not do this. 4 You know, as I was mentioning, you know, the 5 public-private partnerships, there is a -- universal 6 projects that makes sense, and it has been discussed 7 today. 8 General rule of thumb, is that: Projects 9 over $200 million, in terms of construction costs, 10 do make suitable projects for P3s. 11 In Canada, they have a process, where, in 12 British Columbia, every project that is more than -- 13 that is 200 million or more, has to be looked at, 14 for whether or not it's suitable to go forward as a 15 public-private partnership. 16 And, you know, we have mentioned, Tappan Zee. 17 You know, I really think that Tappan Zee 18 could be a perfect project for a public-private 19 partnership. But, it would make sense to start with 20 some other smaller projects. 21 And, you know, you just heard from -- you 22 know, from Ed Lucas, and I'm sure you'll hear from 23 others, who are going to talk about some of the 24 concerns of public-private partnerships. 25 And there are concerns. And they will talk 1 about some of the myths out there, about, you know, 2 why it may not make sense to do public-private 3 partnerships. 4 But, I do want you to be aware, if you hear 5 that the cost of private capital does not justify 6 undertaking a public-private partnership, because 7 that notion is simply untrue. 8 To start, there are federal financing 9 programs to support public-private partnerships, 10 such as, TIFIA, and private activity bonds, which 11 have resulted in very comparable costs of debt, with 12 typical tax-exempt financing. 13 In addition, experience has proven that the 14 benefits of transferring project delivery and 15 long-term maintenance costs to the private sector 16 can result in significant cost savings. 17 In a traditional design-bid-build approach, 18 as you all know, the public sector maintains all of 19 risks. So, they take on the schedule risks, they 20 take on the delivery risks; they take on everything. 21 So, basically, there's no incentive in a 22 design-bid-build to deliver the project on time, let 23 alone, consider the long-term performance of the 24 asset. 25 And, for instance: Had the state employed a 1 public-private partnership on the I-287 project, it 2 would have saved at least 67 million in cost 3 overruns. And, the project would have been 4 delivered much sooner. 5 A public-private partnership also allows a 6 state to harness tremendous innovations in design. 7 And, the private sector is incentivized to look at 8 the project for the long term, over 35 years. 9 And a recent example of this approach, is 10 Port of Miami Tunnel, which was a, 35-year, 11 long-term contract, to design, build, finance, and 12 operate, maintain, three miles of tunnel. 13 The final bid of the winning consortium 14 proved to be $500 million less than the preliminary 15 cost estimate, prepared by the state's technical 16 advisor, for undertaking the project through the 17 traditional means. 18 Now, in closing, I just wanted to touch on a 19 few of the issues that were spoken about on -- the 20 previous speaker. He had mentioned a couple of 21 projects that had failed. 22 He mentioned the Southern Connector. And he 23 also mentioned -- I think he mentioned the 24 Dulles Tollway. 25 A couple of the projects that he had 1 mentioned, you know, are what's called "the 63/20 2 structures." 3 And, you know, there are a lot of different 4 definitions for "public-private partnerships." 5 And just I think it's really important, as 6 you're moving forward, and you're listening to 7 people and you're hearing concerns, you understand 8 the different definitions. 9 There are certain structures or projects that 10 people define as "a public-private partnership," 11 which really aren't; where there's really no skin in 12 the game for the private sector to stay in the 13 project all the way through. 14 In some public-private partnerships, people 15 will say, well, what -- you know: This project has 16 gone bad. It's terrible. You know, and, this toll 17 road, they -- you know, the traffic revenues weren't 18 projected right. 19 Well, the benefit, in a real public-private 20 partnership agreement, if it's structured well, is 21 that, it's all about the contract, and all of the 22 risks are really shifted; that the right risks are 23 shifted to the private sector, so they have skin in 24 the game for the long term. 25 So, if something goes wrong, it's really the 1 private sector that's on the hook. So, the public 2 sector gets the asset back. 3 So, I think a lot of those things have to be 4 taken into account. 5 With regard into the Chicago parking meter, 6 there is a lot of validity into what was said 7 previously. That was a very poorly structured deal, 8 in terms of, the public sector did not understand 9 what its priorities were up-front. 10 So, it's really critical, when we're looking 11 at legislation, and when we're creating, whether it 12 be a public-private partnership entity, or a 13 process, the public sector goals are understood 14 up-front. 15 And what -- all they knew, is that they 16 wanted to get the most money out of that asset. And 17 they didn't realize that they were actually 18 sacrificing their long-term, you know, values, and 19 their ability to develop in the city, because of the 20 way that it was structured. 21 So, just, with that said, with closing: I 22 really have a lot of confidence that, with 23 Senator Fuschillo's leadership, and with the rest of 24 the committee, that history won't repeat itself. 25 You all will get P3 legislation passed. 1 So, thank you very much. 2 CHAIRMAN FUSCHILLO: Thank you, Sam. 3 Senator Smith, that's a lot of pressure on 4 me, wouldn't you say? 5 SENATOR SMITH: That's a lot of pressure on 6 you, yes. 7 CHAIRMAN FUSCHILLO: Sam, and I appreciate 8 it. 9 And, you and I had the pleasure of meeting, 10 where we sat on the same panel with the New York 11 City Building Congress, recently. 12 And you have been a great source for my 13 office. 14 And, I think we do have an advantage; that we 15 will learn from other states with mistakes -- with 16 their mistakes, and not repeat the same. 17 You know, one of the things, and you've 18 mentioned it to me, and you stated in your 19 testimony, of caution, really, is to give blanket 20 authority to the DOT. 21 We're looking at setting up a framework, 22 rather than just give blanket authority. But, 23 nobody's testified to be project-specific. 24 That's something that you feel strongly about 25 as well, don't you? 1 MS. BAREND: I do. I mean, I think it would 2 be -- the best thing would be, if we could give 3 broad P3 legislation, that created a process, 4 through some sort of P3 entity. 5 CHAIRMAN FUSCHILLO: Right. 6 MS. BAREND: And if you don't have to specify 7 the projects, that's fine. But, given some of the 8 political realities of the past, I think it might be 9 more acceptable to the assembly, to -- 10 CHAIRMAN FUSCHILLO: And I understand that. 11 And you and I have discussed this. And I'm sure my 12 colleagues would feel the same way: The political 13 realities are my greatest concern, going forward, 14 too, because you really don't want to have a project 15 tied into politics or nimbyism. 16 And I stated that before. I don't know if 17 you were here. 18 You know, one of the things, when we sat on 19 the panel, that was very important, is to make 20 New York attractive for individuals to invest with 21 their dollars. Whether it's an infrastructure 22 bank -- and you and I have talked about that -- or a 23 P3, or a design-build, we want to make an incentive 24 to come here and invest. 25 And you -- and the commissioner even 1 testified too -- I don't know if you've heard her -- 2 something that you stated also; that it's, really, 3 for 10 or 15 percent of the overall scope of 4 projects, unless you bundle them. 5 And we talked about that with the short-span 6 bridges as well. 7 The key is, to make it attractive. 8 And, as we go forward, and how we achieve 9 that goal, is really going to be the negotiations, 10 and with the second floor, and also the assembly as 11 well. But, I feel confident that we'll get there. 12 And I think economic times are driving that as well. 13 MS. BAREND: One key thing, I just want to 14 mention, in terms of private-sector interests, is, 15 in California, they really made a mistake, in terms 16 of the structuring of their legislation. 17 There's some -- a number of points, in terms 18 of sign-off, when you have to get approval. 19 So, that, the point at which, whether it's 20 the DO -- the agency, or some sort of infrastructure 21 entity, signs off on the project, is really 22 important. 23 CHAIRMAN FUSCHILLO: Right. 24 Okay. 25 MS. BAREND: So... 1 CHAIRMAN FUSCHILLO: Thank you, Sam. 2 MS. BAREND: Thank you very much. 3 CHAIRMAN FUSCHILLO: I appreciate you taking 4 the time, and testifying. Thanks. 5 MS. BAREND: Thanks. 6 CHAIRMAN FUSCHILLO: Tom Osborne? 7 TESTIMONY OF TOM OSBORNE 8 MANAGING DIRECTOR 9 UNITED BANK OF SWITZERLAND 10 CHAIRMAN FUSCHILLO: Good afternoon, Tom. 11 MR. OSBORNE: Thanks, Senator. 12 CHAIRMAN FUSCHILLO: Thanks for being here. 13 And, this is no direct directive to you, but 14 we do have seven speakers left, and I think we have 15 until 2:00 to get everybody in. 16 MR. OSBORNE: Okay? 17 CHAIRMAN FUSCHILLO: So, I'll emphasize my 18 comments, by saying: First of all, thanks to 19 everybody for their patience. The hearing has 20 gotten a lot longer. It's a very important topic. 21 There's very few of us left here. I'm 22 sticking it out, with Senator Dilan, and we're not 23 leaving. 24 SENATOR DILAN: No, we're staying. 25 CHAIRMAN FUSCHILLO: Good. Thank you. 1 Just your name and affiliation for the 2 record. 3 MR. OSBORNE: Sure. 4 My name is Tom osborne. I'm a managing 5 director with UBS Investment Bank in New York. I 6 head our America's infrastructure advisory practice. 7 Grateful for the opportunity, Senators, to 8 testify today. 9 By way of background, I have 24 years of 10 experience as an infrastructure investment banker, 11 serving the utilities and infrastructure industries. 12 Five years ago, UBS established a 13 New York-based infrastructure advisory practice, 14 which I co-headed before becoming sole head of that 15 group in 2008. 16 Globally, I'm part of an infrastructure 17 advisory team that has advised on over 18 100 successful P3 transactions, to date. 19 There are two important messages that I would 20 like to convey today, quickly. 21 The first is, that there is a huge amount of 22 private-sector capital looking for a home in public 23 infrastructure; but, really, a derth of U.S. P3 24 opportunities, to put it to work. 25 The same could be said of private-sector 1 development, construction, and operating expertise. 2 Now, given the current fiscal strain at every 3 level of government in the state of New York; given 4 the legacy of underinvestment in transportation and 5 other infrastructure, and undercharging, relative to 6 the true cost of service; given the need for, 7 greater, and more efficient, infrastructure 8 investment; and given the fact that the federal 9 government can no longer be relied upon to bridge 10 the growing infrastructure funding gap; it's vital 11 that the New York State legislature pass, and the 12 Governor sign, legislation, enabling true 13 public-private partnerships as an alternative to 14 traditional public procurement. 15 CHAIRMAN FUSCHILLO: Tom, let me interrupt 16 you for a minute. And, you and I have met 17 previously. And, we do have your testimony here. 18 What makes one state more attractive than 19 another, in your -- I'm just -- I'm not asking you 20 for your broad, worldwide experience; but, let's 21 stay here in the United States. 22 What makes one state more attractive than 23 another? 24 MR. OSBORNE: I think there's -- if I had to 25 sum it up in one word, I would say "clarity." 1 Clarity around the opportunities. 2 I mean, one of my key messages is: It's 3 really important to craft legislation that creates a 4 viable P3 framework, and that will properly balance 5 the interests of the state and the private sector. 6 The legislature has to give consideration to 7 a number of issues around that. 8 So, rational, objective, detailed 9 cost-benefit analysis, that properly considers the 10 transfer of risks, from the state to the private 11 sector. 12 I would say, in terms of clarity, having a 13 straightforward and transparent approval process, so 14 that private-sector proponents will be encouraged to 15 spend considerable time and resources that are 16 needed to put forward thoughtful and well-crafted 17 proposals. 18 CHAIRMAN FUSCHILLO: Do you find most states, 19 when they engage in P3s, have a separate 20 infrastructure board to -- for the approval process? 21 MR. OSBORNE: There are some -- 22 CHAIRMAN FUSCHILLO: Whatever they call it. 23 But, you know, essentially -- 24 MR. OSBORNE: There are some that do. 25 And I would say, the most advanced -- it's 1 not a state; but, the most-advanced territory in the 2 U.S., in terms of putting forward an approval's 3 process, the type that you're alluding to, is 4 probably the commonwealth of Puerto Rico, where 5 there is in place, a PRP3 authority, that was 6 established through legislation. 7 There is, beneath that, partnership 8 committees, that are project-specific, and address 9 issues relating to assets that might be put forward 10 as public-private partnerships. 11 CHAIRMAN FUSCHILLO: Do you find the 12 financial resources, that you mentioned when you 13 first opened up -- did you use the word "abundance"? 14 MR. OSBORNE: Did I use...? 15 CHAIRMAN FUSCHILLO: ...the word "abundance"? 16 MR. OSBORNE: "Abundance"? 17 CHAIRMAN FUSCHILLO: "Abundance of dollars"? 18 MR. OSBORNE: I said, there is a lot. 19 CHAIRMAN FUSCHILLO: Go ahead. 20 Do you find most states go into, P3s? 21 design-builds? infrastructure banks? 22 Where is it most attractive for the 23 investment dollars? 24 MR. OSBORNE: So, the investment dollars are 25 looking for the kind of clarity that I alluded to 1 before. And there's over 150 billion of equity 2 capital in the private sector, that has been raised, 3 focused on infrastructure. 4 The concern that we have, is that, even as, 5 we'll call it, $75 billion of that, is still 6 uninvested, a lot of that is being attracted 7 offshore, because there just have not been the 8 opportunities here in the U.S. to put that P3 money 9 to work. 10 So, in addition to that private-sector equity 11 capital, there is a substantial amount of 12 private-sector capital that would be interested in 13 buying the bonds that would accompany any 14 public-private partnership transaction. So... 15 CHAIRMAN FUSCHILLO: Uh-huh. That's 16 interesting. 17 Thank you, Tom. 18 MR. OSBORNE: Uhm -- 19 CHAIRMAN FUSCHILLO: We have your testimony. 20 If you want to summarize, that's fine. 21 MR. OSBORNE: Sure. 22 The other things that I would say, is: It is 23 important, in addition to the clarity that I was 24 alluding to, to demonstrate flexibility, and 25 adjusting the level of private-sector control, 1 across each project. And that's going to be crucial 2 for structuring financeable deals. 3 And, lastly, I would say: It's crucial to 4 use the P3 proceeds carefully; preferably, to fund 5 capital requirements, and not to plug operating 6 deficits. 7 There were a number of comments that were 8 made. And Sam Barend, I think, did a good job of 9 addressing those. I would like to take a shot at it 10 as well. 11 You know, there were three points that were 12 made by Mr. Lucas, around the dangers, 13 quote/unquote, of P3s: The risk of default, 14 non-competitive clauses, and projections not being 15 met. 16 As for the risk of default, I would argue 17 that the risk is lower when operating standards are 18 codified, as they are in a public-private 19 partnership transaction, where you have super 20 monitoring, where you have lender step-in rights, 21 and all of that is incorporated into the contracts, 22 into the lease agreements, that are put in place. 23 As for non-compete clauses, sometimes they 24 need to be put in place, but not always. You can't 25 generalize. 1 If any concessionaire is ever given a 2 monopoly, then there needs be the appropriate 3 regulatory monitoring. And, potentially, even price 4 controls put in place to compensate for that. 5 All of these contracts are tradeoffs between 6 control, risk, and value. And you have to balance 7 those three. 8 As for the projections not being met, he 9 cited a couple of examples. 10 And I think, perhaps a better example for you 11 to consider, is the South Bay Expressway in 12 California. That, I think is a terrific example of 13 shifting risks away from the public sector, and into 14 the private sector. 15 That's a P3 project in Southern California. 16 It capitalized in 2003. Had a combination of 340 17 million of senior debt, in the form of project 18 loans, 10 banks, 140 million of sub-debt through the 19 government's TIFIA program, and 130 million of 20 private-sector equity. 21 In March 2010, because of the economic crisis 22 that resulted in lower-than-expected traffic and 23 revenues, that road was forced to file for 24 bankruptcy. 25 The private-sector equity was wiped out 1 entirely. 130 million, gone; thus, taking the first 2 loss on the project. 3 But, the taxpayer-funded TIFIA debt was 4 elevated to the same priority as the senior debt 5 because of the springing-lien feature built into 6 that. And as part of the restructuring, the overall 7 quantum of debt was reduced, from 530 million before 8 bankruptcy, to 288 million. 9 And the TIFIA creditors given a pro rata 10 equity stake on the board of directors, and a vote 11 on the board of directors. 12 Now, had that been financed through 13 traditional state and federal grants, and municipal 14 debt, the taxpayers and the municipal bondholders 15 would not have been cushioned from any of the losses 16 in the bankruptcy, as they were by virtue of having 17 130 million of private-sector equity in there. 18 So, with that, I thank you very much for the 19 opportunity. 20 I would be happy to answer any other 21 questions that you may have. 22 CHAIRMAN FUSCHILLO: Okay? We're good. 23 Tom, thank you very much. 24 MR. OSBORNE: Thank you. 25 CHAIRMAN FUSCHILLO: I appreciate your 1 testimony. 2 TESTIMONY OF D.J. GRIBBIN 3 MANAGING DIRECTOR 4 MACQUARIE CAPITAL ADVISORS 5 CHAIRMAN FUSCHILLO: D.J. Gribbin? 6 Hi, D.J. How you are? 7 MR. GRIBBIN: Mr. Chairman. 8 CHAIRMAN FUSCHILLO: Thank you very much for 9 being here. 10 MR. GRIBBIN: Thank you for having me. 11 CHAIRMAN FUSCHILLO: We do have your 12 testimony as well. 13 MR. GRIBBIN: My goal is to be your shortest 14 witness of the day. 15 CHAIRMAN FUSCHILLO: Let me ask you a 16 question. 17 In your testimony, you talked about -- 18 We're joined, again, with Senator Golden. 19 -- about the two basic types of P3s: The 20 user pays, and a fixed payment. 21 What is -- is there a norm? Or are those the 22 options that are available, that -- 23 MR. GRIBBIN: Those are the options. 24 CHAIRMAN FUSCHILLO: -- that attract an 25 investor? 1 MR. GRIBBIN: Yeah, I mean, you have a range, 2 obviously. If you can have the government make a -- 3 well, you could have user pays, which is the toll 4 road or the parking that was talked about. 5 CHAIRMAN FUSCHILLO: Right? 6 MR. GRIBBIN: You could have availability 7 payments, which are usually done for social 8 infrastructures. Schools, that type of thing, where 9 you're not charging kids. 10 CHAIRMAN FUSCHILLO: Do you see a scenario, 11 like in New York State, where you have many 12 short-span bridges that need to be repaired or 13 rebuilt, where they could be bundled? And would an 14 investor -- without tolls, that would have to be a 15 fixed pay -- would find something like that 16 attractive? 17 MR. GRIBBIN: Well, Missouri did that. 18 CHAIRMAN FUSCHILLO: Missouri did that? 19 MR. GRIBBIN: Yeah, absolutely. 20 And the way they structured it, it didn't 21 really have private sector. It wasn't a P3 per se. 22 They did it as more of a design-build approach. 23 But you could -- 24 CHAIRMAN FUSCHILLO: Right. 25 Was it a design, build, and maintain? 1 MR. GRIBBIN: Yes, it was a design, build, 2 and O&M; but there was no finance component to it. 3 But what you could do is, you could look at 4 your bridge program over the next 20 years. 5 So, you're going to spend X dollars a year on 6 that program. Figure out what it would cost; how 7 much scope you would get accomplished for that 8 annual payment. 9 And, then, go to the private sector and say: 10 Okay, now what can you guys do? 11 And this goes back to what the Canadians -- 12 CHAIRMAN FUSCHILLO: That would be their 13 value analysis that they would have to do? 14 MR. GRIBBIN: Correct. 15 CHAIRMAN FUSCHILLO: Right? 16 MR. GRIBBIN: Correct, public-sector compare. 17 But, I mean, in terms of making New York 18 attractive, I would recommend a number of things. 19 One: Reassure your colleagues, this is not 20 new. Americans have had P3s since 1989. 21 Bill Reinhardt, with "Public Works Finance," 22 which is kind of the magazine of record for the P3 23 community, has an article that's about to be 24 published, that points out, that, since 1989, there 25 have been 96 transportation P3s, for $54 billion 1 in this country. 2 So, I would say, yes, as Tom mentioned. 3 Puerto Rico is probably doing this the best. 4 We actually were hired to advise the 5 government of Puerto Rico, to set up their P3 6 program. 7 I'm a former chief counsel for the highways, 8 and general counsel at USDOT. Have been working at 9 P3s for about 14 years. 10 If you're going to do just transportation, I 11 would not recommend, that you don't need a whole 12 separate entity to prove those programs. 13 But, if you broaden out beyond 14 transportation, it's extremely helpful to have a 15 Partnerships BC/Infrastructure Québec type of 16 entity. 17 And I would say, take this whole debate. 18 What the opponents of this will say, is -- 19 they'll point to an asset, and say: It doesn't make 20 sense, in terms of that asset. 21 P3s are not asset-specific. It's a 22 procurement approach. 23 All it is, is: How can the government 24 procure infrastructure, faster, more 25 cost-effectively, and at significantly lower risk, 1 than it does traditionally? 2 So, if you have the opportunity, 3 legislatively -- and I have not been intimately 4 following the politics of New York -- I would embed 5 this concept in your procurement approach. 6 Do a rigorous public-sector analysis, or a 7 value-for-money analysis, which essentially says: 8 Here's why we think that this project makes sense to 9 do as a P3 in this global reform that we're doing in 10 government procurement. 11 And, then, if it makes sense, change that. 12 But, I would also -- it's not infrequent for 13 legislatures to just dump on the executive branch. 14 "You now have legal to authority to do this. 15 Go." 16 As a former member of the executive branch, 17 that's not particularly helpful. 18 So, it's helpful to set up a system. 19 So, give them, not only a legal authority, 20 but then give them the practical means they need to 21 execute on that legal authority. 22 And, again, you've seen this in 23 Partnerships BC, you've seen his in U.K. You see 24 this in Australia. And, most recently, you see it 25 in the United States, in Puerto Rico. 1 CHAIRMAN FUSCHILLO: What was the period of 2 time, where you stated, $54 billion in P3s? 3 MR. GRIBBIN: I'm sorry? 4 CHAIRMAN FUSCHILLO: What was the period of 5 time, where you stated there were $54 billion, of 96 6 projects? 7 MR. GRIBBIN: So, the first P3 in the U.S. 8 was 1989. 9 CHAIRMAN FUSCHILLO: Okay. 10 MR. GRIBBIN: And since 1989, to today, there 11 has been $54 billion worth of projects done in the 12 U.S., as P3s. 13 CHAIRMAN FUSCHILLO: But not in New York? 14 MR. GRIBBIN: Not in New York. You don't 15 have legal authority, unfortunately, in New York to 16 do that. 17 CHAIRMAN FUSCHILLO: Right. And, hopefully, 18 we'll get there. 19 Any questions, Senator Golden? 20 SENATOR GOLDEN: I have a quick question. 21 The states that did you the P3s, what were 22 the outcomes? 23 MR. GRIBBIN: The outcomes ranged pretty 24 widely. And it kind of depends on who's vantage 25 point you're looking from. Right? 1 So, the outcome for the drivers, usually they 2 get the facility they've been using before, in 3 better condition than it's been in the past. 4 The outcome for the state, is that, they get 5 infrastructure constructed at a cost significantly 6 lower than it would cost them to do it. And, that 7 they ultimately own it. 8 And, more importantly, as was mentioned 9 before, any potential cost overruns, future 10 maintenance obligations; all that gets passed away 11 from the state. 12 The private-sector investment outcome has 13 been a little more mixed. Has been talked about. 14 Some of these have been very, very 15 successful, from an investor's standpoint. Some 16 less so. 17 But, remember, in each one of those, that 18 financial loss that the private sector took, outside 19 of the P3 context, would have been borne by the 20 public, by the taxpayers. 21 SENATOR GOLDEN: And how many states are you 22 still currently working in? 23 MR. GRIBBIN: Right now, there are, about, 24 27, 28 states, that have P3 authority. There are 25 about eight of those that have really aggressively 1 utilized them. 2 And Macquarie has been active in all of 3 those. We've done every P3 in the U.S. in the last 4 four years, with the exception of one that's closed. 5 And that was Presidio Parkway in California. 6 SENATOR GOLDEN: And how many losses did you 7 have -- 8 MR. GRIBBIN: I'm sorry? 9 SENATOR GOLDEN: How many losses did you 10 have? 11 MR. GRIBBIN: I mean -- well, we were the 12 equity investor in South Bay Expressway, that Tom 13 talked about earlier. So, that project did not turn 14 out as well as the investors had hoped. 15 There was a global financial crisis. It was 16 based on real estate. There were a number of 17 factors that were built in there. 18 But, at the end of the day, California got an 19 $800 million facility, that drivers are using as we 20 speak. 21 SENATOR GOLDEN: Now, you're talking about 22 pursuing public partnerships here -- public-private 23 partnerships, with going into private entities. 24 You're talking about doing public properties 25 here. 1 Do you also get involved with doing, like, 2 Atlantic Yards, or -- which is private money, and 3 we're going in with public and private dollars to 4 get the loan organizations -- those for-profit 5 organizations' dollars that keep their projects 6 going? 7 MR. GRIBBIN: Yeah, I'm sorry, Senator. I'm 8 having a hard time hearing you. 9 What was the question? 10 SENATOR GOLDEN: The projects that are going 11 on right now -- we have some projects going on at 12 Atlantic Yards, we have some project going on at the 13 World Trade Center. We have some projects that have 14 not yet gotten underway, over at the Jacob Javitz 15 Center -- these are projects that just stalled out. 16 Would you go into a public partnership with 17 those entities? 18 MR. GRIBBIN: Most of what we do is, we 19 invest just in infrastructure, not commercial real 20 estate. 21 And, so, our investors are, pension funds, 22 including trade-union pension funds, and others. 23 They're looking for a long-dated stable return. 24 So, we're looking for, you know, roads, 25 trains, ports; things that are infrastructure-like 1 in their character. 2 The things like, commercial real estate, 3 stadium development, that type of thing, Macquarie 4 wouldn't typically invest in something like that. 5 SENATOR GOLDEN: They found those streams of 6 revenues to be able to pay, right, for the -- for 7 this private-public partnership? 8 MR. GRIBBIN: Yes. 9 SENATOR GOLDEN: Did the states, that you 10 were already in, have they re-upped, and done 11 another series of public-private partnerships as 12 well? 13 MR. GRIBBIN: Yes, with a bit of a mixed 14 record. 15 Texas jumped out early, about four years ago, 16 with very aggressive P3 legislation. 17 The Governor championed it. Really, sort of 18 sped a number of projects through. Got a backlash. 19 And, then, that legislative authority was stripped 20 away. 21 But, if you think of, Virginia, has been 22 doing projects since before 1995. 23 Florida has done a number of them. 24 Texas has done a number of them. 25 California has done some -- a few. And, 1 then, public employees expressed concerns, so they 2 backed away a little bit. 3 And, then, Puerto Rico has just gotten 4 started. So... 5 SENATOR GOLDEN: Thank you very much. 6 MR. GRIBBIN: You're very welcome. 7 CHAIRMAN FUSCHILLO: Senator Dilan? 8 SENATOR DILAN: Yes. 9 In your testimony on the project execution, 10 you mentioned that, with the exception of Puerto 11 Rico and Virginia, that most states utilizing P3 12 have passed legislation. 13 How did Puerto Rico and Virginia do this 14 without legislation? 15 MR. GRIBBIN: Oh, they have legislation. 16 What Puerto Rico did, and Virginia did, that 17 was unique. 18 Virginia, just this year, set up an office 19 inside of VIDOT, that focused just on P3s. 20 So, in the past, they had staffers that were 21 spread across a dozen projects, also trying to do 22 this very complicated and sophisticated procurement. 23 They did them, but it took years and years 24 and years. 25 So, the suggestion is: Go ahead. And, 1 again, give the executive branch the legal 2 authority, and the tools, they need to execute these 3 projects. 4 SENATOR DILAN: Okay. Thank you. 5 CHAIRMAN FUSCHILLO: Mr. Gribbin, thank you 6 very much. And I appreciate your patience, as well 7 as the other expected speakers. 8 Dr. Joshua Schank? 9 TESTIMONY OF DR. JOSHUA SCHANK 10 PRESIDENT AND CEO 11 ENO TRANSPORTATION FUND 12 CHAIRMAN FUSCHILLO: How are you, Doctor? 13 DR. SCHANK: Hi. 14 CHAIRMAN FUSCHILLO: As you know, we have 15 copies of your testimony. 16 DR. SCHANK: Yeah, I'll summarize real quick. 17 CHAIRMAN FUSCHILLO: I appreciate your 18 patience, as well as the remaining speakers, as 19 well. 20 DR. SCHANK: Sure. 21 Well, thanks for having me here. 22 Just so you know, I'm the president and CEO 23 of the Eno Transportation Foundation. It's a 24 90-year-old transportation organization, founded by 25 a traffic pioneer, William P. Eno. 1 And, what we do is, we are a neutral voice on 2 key transportation policy issues. So, I have no 3 horse in this race. We're just a, pure, analytical 4 organization. And I think that you will hear kind 5 of a balanced perspective, or you've seen a kind of 6 a balanced perspective in the testimony. 7 There are, really, three basic points of the 8 testimony, one of which has already been said 9 several times, which is, that P3s are not a 10 substitute for funding. So, don't think of them 11 that way. 12 Number two is: That they can provide 13 substantial benefits to the public, if they are done 14 correctly. 15 And, three is: That the success or failure 16 really hinges on the contract. 17 CHAIRMAN FUSCHILLO: Let me ask you a 18 question. 19 DR. SCHANK: Go ahead. 20 CHAIRMAN FUSCHILLO: Sorry to interrupt you. 21 What makes New York attractive for P3s? 22 I mean, I understand the framework. And we 23 have heard testimony since 10 a.m. this morning, 24 about how we frame this. 25 But, what makes New York attractive? 1 DR. SCHANK: I would say that the question is 2 not so much, what makes New York attractive, as it 3 is, how can New York maximize the benefits from 4 being attractive? 5 So, you don't want to be attractive just 6 because you would like to attract private 7 investment. You want to attract private investment 8 because you think it's a better way of delivering 9 public benefits. Right? 10 CHAIRMAN FUSCHILLO: True. 11 DR. SCHANK: So, it's not so much, attracting 12 public -- private-investor and private-investment 13 sake. It's setting up a structure for P3s that 14 ensures a good return to the public out there, for 15 the taxpayer. 16 CHAIRMAN FUSCHILLO: Right. It's a good 17 return for the public. 18 And also on the private side, for investor as 19 well. 20 DR. SCHANK: Well, yeah, the private sector 21 is not going to invest unless they see a good 22 return. 23 But, what you don't want to do is, set up a 24 situation, where the private sector comes in and 25 takes advantage, because you have made it very 1 attractive for them, but you haven't necessarily put 2 in place the right regulations. 3 CHAIRMAN FUSCHILLO: And we agree with that. 4 DR. SCHANK: Yeah. 5 So -- and the bottom line is, is that, the 6 key factor in that, is getting employees, who are 7 going to be negotiating these contracts, the skills 8 to do it. 9 I mean, if you look at the number one reason 10 why the contracts are poorly negotiated, it's 11 because the private sector comes in with a lot of 12 advantages in negotiating those contracts. 13 The public sector has less experience, and 14 they're scared to walk away because they don't want 15 to not deliver the project. And, it puts them in a 16 very difficult situation. 17 If you want to do something, it's getting the 18 public sector to the skills necessary to negotiate 19 these agreements effectively. 20 CHAIRMAN FUSCHILLO: We agree. 21 No, I have no questions. 22 I have looked at your testimony. And I -- 23 you know, it's critically important; that, this has 24 been going on too long here in New York State, the 25 discussion of this, for many years, if not decades. 1 And we need to make sure that the framework 2 is workable, number one. 3 But, also, that there are options for 4 alternative funding because -- I'll take the 5 Tappan Zee Bridge, for an example. 6 It's been estimated, up to $16 million. We 7 just don't have the money for that, and that needs 8 to be done. 9 DR. SCHANK: Right. And the Tappan Zee is a 10 great example. There's a place where you already 11 have tolls in place. 12 CHAIRMAN FUSCHILLO: Right. 13 DR. SCHANK: So, it's not like you're 14 introducing tolls out of the blue. 15 And if you're able to get a private-sector 16 party that will take on the financial risk, as well 17 as the political risk, frankly, of raising those 18 tolls, then that could be an opportunity to make an 19 investment were you might not otherwise be able to 20 make one. 21 That's very different than taking an existing 22 asset, and leasing it out for a price. 23 CHAIRMAN FUSCHILLO: Right. 24 DR. SCHANK: Those are two different things. 25 CHAIRMAN FUSCHILLO: There is a fixed revenue 1 stream there as well. 2 DR. SCHANK: There's a fixed revenue stream. 3 And, it's in desperate need of renovation. So, 4 you're going to get something that you had to 5 deliver anyway, but you don't have the funds to do. 6 And that's the place where you would want to 7 make it attractive for the private sector. 8 CHAIRMAN FUSCHILLO: Thank you very much. 9 Senator? 10 SENATOR DILAN: No. 11 CHAIRMAN FUSCHILLO: No? 12 SENATOR DILAN: No. Thank you. 13 CHAIRMAN FUSCHILLO: Okay, thank you very 14 much. 15 I appreciate the testimony that you submitted 16 to us. 17 Marc Herbst? 18 TESTIMONY OF MARC HERBST 19 EXECUTIVE DIRECTOR 20 LONG ISLAND CONTRACTORS' ASSOCIATION 21 CHAIRMAN FUSCHILLO: Hi, Marc. 22 MR. HERBST: Good afternoon. 23 CHAIRMAN FUSCHILLO: Welcome. 24 As I've stated to the previous speakers, 25 thank you for your patience. 1 MR. HERBST: Thank you, Senator. 2 Senators, good afternoon. Thank you for 3 allowing us to testify. 4 My name is Marc Herbst. I'm the executive 5 director of the Long Island Contractors' 6 Association. 7 I know you have your testimony, and you want 8 to get through this quick. 9 D.J. Gribbin said he would be the shortest 10 speaker. I love a challenge. 11 So, I will simply say, thank you. 12 Senator, we have talked, at great length, 13 over the PPPs. And we are encouraging you to move 14 forward with this process. And, we thank you for 15 this hearing. 16 As you know, New York State is no longer 17 capable of building or sustaining the current 18 infrastructure. We used to lead this nation as the 19 economic engine. We're no longer there. 20 The money that's necessary to keep this state 21 going is not available. And you are faced with the 22 difficult choice of having to raise taxes, gas fees, 23 tolls, whatever, in order to sustain the 24 infrastructure that needs to take place. 25 That's a very difficult situation to be in, 1 politically, to make those decisions, because you 2 will be retired. So, the only opportunity is, to 3 look at all alternatives. 4 PPPs are something that we have advocated 5 for, as well as design-build, and the infrastructure 6 bank that the previous speaker spoke of. 7 The commissioner did an excellent job of 8 outlining the whole process that DOT could do. 9 And, Sam Barend has been someone we've worked 10 with throughout the years. 11 Her testimony, I will simply affirm, and 12 conclude, saying, that we support those views. 13 To build this economy, we have to put men and 14 women to work. 15 And, that's what we're willing to do to help 16 you. 17 CHAIRMAN FUSCHILLO: And I appreciate it. 18 You have been outspoken on this for a long time. 19 And I've had the pleasure of participating in your 20 roundtable discussion, with Jay Walder, and 21 Commissioner McDonald, when she was first approved 22 by the senate. 23 One of the key factors -- and you state here 24 in your testimony, and I'll be parochial in this 25 sense -- that, you remind us that, in Long Island 1 alone, the heavy-construction industry contributes 2 nearly $4 billion to the local economy. And that's 3 a significant part here. 4 And one of the consensus among all of my 5 colleagues that are here now, remaining, and those 6 that were here before, is that, this is getting 7 New York State, literally, back on the right track. 8 And the unemployment in the construction 9 industry is staggering. The numbers hit by the 10 trades as well. 11 And you and I have talked about that. 12 You know, Marc, one of my focuses has been, 13 and I have repeatedly said this, is that, we need to 14 provide all options for transportation needs here, 15 because the state, its economic condition, just 16 doesn't, simply, have the money. 17 And I appreciate the support that you have 18 given me on this because, if we don't do this, we're 19 going to go down the same path we are going to keep 20 going down. 21 And the previous speaker talked about, we 22 brought up the Tappan Zee Bridge. I think, this 23 year, it's going to cost $130 million alone, just to 24 maintain it. And it's about time we properly 25 maintain it, but build a new one as well. 1 MR. HERBST: Well, I hope that process with 2 the Tappan Zee moves forward. 3 I served as the executive project manager 4 many years ago. And I think that the need was 5 known, and recognized, at that time, but the 6 decision process has not moved forward. 7 And this will be an extra tool, if you have 8 the ability to fund it, because I think that's the 9 biggest deterrent in advancing what's desperately 10 needed. 11 CHAIRMAN FUSCHILLO: I think that's key. 12 And we've also heard from many speakers as 13 well, about proceeding with caution too, to not make 14 the same mistakes that other states have done as 15 well. 16 But, the strategic asset management plan that 17 Sam Barend had talked about, when she was the 18 executive director under the Paterson 19 Administration, really lays out the issues, the 20 problems, we face. Obviously, specific bridges. 21 But, as I have stated to you before, that 22 there are short-span bridges in need of repair as 23 well. And I would like to see them not put on the 24 back burner. In certain areas of the state, they 25 are critically important. 1 And we've seen projects on Long Island, 2 Moose Creek and other bridges, that have taken 3 forever to be completed. 4 Our infrastructure is sick, and it needs a 5 doctor soon. And I think P3s are, not necessarily 6 the end be-all of the answer, but it's going to 7 provide the options that we need here in New York 8 State. 9 MR. HERBST: Certainly. It's an extra tool 10 in the toolbox to do what has to be done for this 11 state. 12 And, you know, coupling all the bridges, the 13 short-span bridges, I think is an excellent concept, 14 because most of the bridges that are in deficient 15 conditions are the smaller ones. And they're 16 neglected. 17 They're looking at the big ones; the 18 Tappan Zee. 19 CHAIRMAN FUSCHILLO: Right. 20 MR. HERBST: But there's others. And there's 21 more serious issues in the local communities that 22 need to be addressed. 23 CHAIRMAN FUSCHILLO: Any questions? 24 SENATOR DILAN: No. 25 CHAIRMAN FUSCHILLO: Marc, thank you very 1 much. 2 MR. ROSEN: Thank you, Senators. 3 And I appreciate your time. 4 Jay Simpson. 5 TESTIMONY OF JAY SIMSON, CAE 6 PRESIDENT 7 ACEC NY 8 CHAIRMAN FUSCHILLO: Jay, thank you for your 9 patience. 10 MR. SIMSON: Thank you. 11 Mr. Chairman, Senators, thank you for the 12 opportunity to be here. 13 You've got my testimony. 14 I did want to highlight just a couple of 15 things. 16 You mentioned that our infrastructure system 17 is sick. And I equate it to the circulatory system, 18 or the skeletal system, of a 90-year-old, and we're 19 competing against 20-year-olds in the economic 20 world. 21 And, other states are investing, and other 22 countries are investing. And if we don't do that, 23 all of the jobs, and all of the opportunities, are 24 going to go somewhere else. 25 It goes beyond business. It also goes to our 1 quality of life. 2 P3s will allow us to reinvigorate our 3 system with less investment; the investments and the 4 opportunities that we don't have right now in the 5 state. 6 With company profits and cash flows on the 7 line, on projects, they come online more quickly, 8 which means, we can use these assets more sooner -- 9 or, sooner. 10 One of the things that was mentioned is, the 11 investment, and how things are done. 12 If somebody's got a 35-year project, and 13 they're going to be responsible for it, they're not 14 going to put a thin layer of pavement the first time 15 they build this project. 16 They've got an interest in making sure that 17 they don't have to send investment crews out every 18 three weeks; or, even every three years. They want 19 to make sure that this thing is built to the highest 20 standards so that they can maintain their asset at 21 the least cost. 22 So, people are going to get better 23 investments. 24 People in traffic will gladly pay a little 25 bit of extra money not to wait in traffic. 1 There's a -- one of the California roads cut 2 down the commute by 40 minutes, each way. 3 If you're driving to work every day on that 4 road, you now have the equivalent of 50 eight-hour 5 days left every year, to spend with your family, or 6 do things. And think of the productivity, that that 7 affects companies. 8 One of the main reasons that public-private 9 partnerships work so well is because you're using 10 the ingenuity and the creativity of the private 11 sector. 12 The private sector is more efficient. 13 And I point to, from when I took economics 14 years ago, but it still works today: 100 years ago, 15 it cost a penny to mail a letter in the U.S. It 16 cost over a dollar to make a phone call. 17 Today, the cost, 1/20th of the amount to make 18 a phone call, run by the private sector. It costs 19 44 times to mail it -- to mail; a stamp. 20 We are behind the curve. 21 Other states -- 22 CHAIRMAN FUSCHILLO: And they're still -- 23 and, Jay, they're still losing $2 billion a year. 24 MR. SIMSON: Even further making my point: 25 We're behind the curve. 1 You heard the number; 20-some-odd states that 2 are doing it. And there are a number of states 3 looking at being able to put on public-private 4 partnerships. 5 And, there are projects waiting for funds, 6 that we need to do. 7 And there are companies, as you heard the 8 experts from two key companies mention, that they 9 have got money on the sidelines right now, waiting 10 to come in. 11 We need to be able to bring those tools 12 online. 13 One last thing that was -- I wanted to 14 reference a comment made by Senator Young, when she 15 was here. It seems like yesterday, but -- 16 [Laughter.] 17 MR. SIMSON: -- the damage -- and the people 18 were having flat tires, and massive damage to cars. 19 The amount of money that people are spending 20 on the inadequate infrastructure that we've got is 21 staggering. 22 And it's money that comes out of our pockets 23 every day, and we need to look at that. 24 The other thing is, a lot of people have 25 spoken about transportation. But, I think we need 1 to look at, you know, the water and energy and waste 2 water as well, because those are other project 3 opportunities that are being done throughout the 4 world. 5 CHAIRMAN FUSCHILLO: I agree with you, Jay. 6 And you can see, on roads, wherever we travel 7 throughout the state, potholes, repairs, minor 8 repairs, surface repairs. 9 We need to rebuild. And that's the bottom 10 line. 11 I really appreciate your patience, and the 12 time that you took spend here. 13 It does seem like yesterday when 14 Senator Young had asked that question. 15 Any questions? 16 SENATOR DILAN: No. 17 Thank you very much. 18 CHAIRMAN FUSCHILLO: Thank you very much, 19 Marc. 20 We have your testimony, and I appreciate it. 21 MR. SIMSON: Yes. 22 CHAIRMAN FUSCHILLO: Tom Minnick. 23 24 25 1 TESTIMONY OF TOM MINNICK 2 DIRECTOR OF GOVERNMENT AFFAIRS 3 BUSINESS COUNCIL OF NEW YORK STATE 4 CHAIRMAN FUSCHILLO: Hi, Tom. 5 Good afternoon. 6 MR. MINNICK: Thank you very much, 7 Senator Fuschillo, Senator Dilan, and 8 Senator Golden, for the opportunity of testifying 9 today. 10 My name is Tom Minnick. I'm the director of 11 government affairs at the Business Council of 12 New York State. 13 I'm testifying on behalf of 14 Heather Briccetti, our acting president and CEO at 15 the Business Council. 16 Council represents over 2,500 businesses in 17 New York State, and our companies employ more than a 18 million employees; and, New Yorkers. 19 Our members are very interested in the 20 opportunities presented by public-private 21 partnerships, or "P3s." 22 The nation, and New York State, face daunting 23 infrastructure needs; from educational facilities, 24 to water and wastewater facilities, public safety 25 centers, information technology infrastructure, to 1 IT services and transportation needs. 2 P3s offer a means for New York State to 3 address these needs in a way that helps further 4 community economic objectives. 5 Infrastructure needs much more than just 6 roads and bridges, and P3s should be thought of in 7 the broadest sense of infrastructure. 8 CHAIRMAN FUSCHILLO: Tom, let me interrupt 9 you for a second. 10 Economically, the state not having this, has 11 the Council ever done any estimates on the impact 12 that we have, economically, to the state? 13 MR. MINNICK: Not specifically, no. 14 CHAIRMAN FUSCHILLO: Yeah, I would be 15 curious. 16 Do they -- your support is very important; 17 because, as you heard from Marc Herbst, from 18 Long Island Contractors' Association, the economic 19 impact, just to the Long Island region, is -- from 20 the contractors, is nearly $4 billion. 21 And us getting people back to work is 22 critically important here in the state. 23 And I'm sure, obviously, Business Council 24 supports that. 25 MR. MacMILLAN: Well, we do. 1 And I guess a number we normally use is, we 2 need to employ, or get back to work, half a million 3 people in New York State -- 4 CHAIRMAN FUSCHILLO: Right. 5 MR. MacMILLAN: -- to get back to pre- -- to 6 get back to the employment levels prior to 2007. 7 CHAIRMAN FUSCHILLO: Yeah, because just 8 there's too many people unemployed in this state. 9 The -- has the Business Council done an 10 economic analysis of what this would mean, as far as 11 reducing debt to New York State as well? 12 MR. MacMILLAN: No, we haven't. 13 CHAIRMAN FUSCHILLO: I would be curious to 14 see if they could provide that. That would help us 15 out tremendously with the debt payments, you know, 16 that we pay on an annual basis as well. 17 We have your testimony. And I apologize for 18 cutting you off, but we're only here for a few more 19 minutes, and we still have another speaker. 20 If you want to just summarize, that would be 21 great. 22 MR. MacMILLAN: Why, sure. 23 CHAIRMAN FUSCHILLO: Thank you. 24 MR. MacMILLAN: Of course, much P3 research 25 has already been done. 1 You know, we look back at the June 1, 2009, 2 report from the New York State Commission of the 3 State Asset Maximization. 4 That commission supported the advancing of 5 public-private partnerships. And I know you're, you 6 know, familiar with the results of that study. 7 As far as the Business Council is concerned, 8 you know, we can't continue to rely on Washington to 9 get our fair share of funding back to New York. And 10 P3s would help to supplement these important 11 infrastructure needs. 12 The growing use of P3s for transportation 13 and other projects in the United States, and across 14 the globe, demonstrates a sensible alternative to 15 traditional funding and procurement. 16 Carefully crafted P3s would help avoid 17 additional taxes, reduce the state's reliance on 18 borrowing, green the environment, adopt to a 19 changing global economy, and create jobs. 20 Thank you very much for this opportunity to 21 testify. 22 CHAIRMAN FUSCHILLO: Tom, thank you very 23 much, and I appreciate your testimony. 24 Thank you. 25 Jeff -- 1 Let me see if I can get this right, Jeff, 2 before you come down here. 3 -- Frediani? 4 MR. FREDIANI: Close enough. 5 CHAIRMAN FUSCHILLO: Really? 6 TESTIMONY OF JEFF FREDIANI 7 LEGISLATIVE ANALYST 8 AAA NEW YORK STATE 9 CHAIRMAN FUSCHILLO: Jeff, we've saved -- I 10 don't want to say that there's still speakers here. 11 I can't say, "We saved the best for last"; but, we 12 saved the one, critically important, for last as 13 well. 14 And, I appreciate your patience. 15 Can you pronounce your name for the record. 16 MR. FREDIANI: I'm Jeffrey Frediani. I'm the 17 legislative analyst with AAA New York State. 18 CHAIRMAN FUSCHILLO: "Frediani." 19 I didn't do such a good job on that. 20 MR. FREDIANI: That's all right. I'm used it 21 to by now. 22 CHAIRMAN FUSCHILLO: I'm going to ask you to 23 summarize your testimony. We would really 24 appreciate that. 25 MR. FREDIANI: Sure. 1 Just a quick couple of points. 2 I'm here to say, that: AAA believes that 3 public-private partnerships have a role to play when 4 addressing the transportation challenges that face 5 New York State. 6 Just a couple of things we want to make sure, 7 that we believe, are included in any potential deal, 8 is that: 9 We want to make sure that the public-private 10 partner really adds value; 11 That, they also provide a better customer 12 service, in return for potential higher tolls that 13 drivers will be required to pay; 14 And, that they balance the interests of all 15 stakeholders. 16 There are, pretty much, two basic principles 17 that will guide us when we lend support to 18 particular P3s. 19 One is: That, public-private partnerships 20 must be structured to ensure that fees paid by 21 motorists are not diverted to non-transportation 22 issues. 23 And, secondly: That, transportation revenues 24 collected from motorists, fairly represent the cost 25 of using the system. 1 And, then, like I said, real quick, let me 2 conclude, just by saying, that there are two 3 line-in-the-sand issues for us, with respect to 4 P3s. 5 One is: That, if the motivation for a P3 is 6 to generate up-front cash that can be used to solve 7 statewide budget problems, or finance other 8 expenditures not related to transportation, we would 9 oppose that deal. 10 And, two: P3s must be open to a forthright 11 and deliberate process that allows time for public 12 input and debate. 13 And, hopefully, we feel that we are, 14 hopefully, past the initial hype of the first 15 generation of P3s that cause, and that we can go 16 forward, and engage in an open and considerate 17 debate. 18 And, we look forward to being a productive 19 voice in those discussions. 20 CHAIRMAN FUSCHILLO: And I hope so as well, 21 with that last point that you made. 22 And I appreciate the advocacy of AAA. It's 23 been very important to this committee as well. 24 And, I thank you for your testimony. 25 We have it. We'll put it in the record. 1 And as I've stated to the previous speakers, 2 I thank you for your patience, and understanding. 3 The hearing did go a lot longer. 4 And I want to thank my colleagues, the 5 ranking member of the transportation committee, 6 Senator Marty Dilan, on my right; and on my left, 7 Senator Golden; and, to the capital board member, 8 for staying with us today. 9 This hearing is very important to us in the 10 future of transportation needs, here in New York 11 State. 12 And I want to thank all of those who have 13 testified. And, I wish everybody a good day. 14 Thank you very much. 15 That concludes the hearing. 16 * * * * * 17 (Whereupon, at 3:53 p.m., the Senate 18 Transportation Committee hearing was concluded.) 19 20 21 22 23 24 25

New York State Senate Public Hearing How New York State Can Utilize Public-Private Partnerships in Order to Expedite and Better Fund Infrastructure Projects Throughout the State

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