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February 8, 2016

Obama Pushes Public-Private Partnerships as One Infrastructure Funding Solution

In Delaware on Thursday, President Barack Obama will announce a new “one-stop shop” for state and local governments who need guidance on how to partner with private-sector investors raise money for infrastructure projects.

Obama will unveil the Build America Transportation Investment Center, to be housed at the Department of Transportation.

The center will offer advice to state and local officials on public-private partnerships, or P3s, and will encourage use of existing programs such as Transportation Infrastructure Finance and Innovation Act (TIFIA) loans, the White House said in its background briefing on the president’s announcement.

Obama’s Delaware event comes as a major P3 conference opens in Washington, sponsored by the American Road & Transportation Builders Association.

Public-private partnerships have had a mixed record of success.

Just last week, some of the risks were evident: the bond rating agency Moody’s said one P3 toll road project, an extension of state Highway 130 in Texas, had failed to make a payment that had been scheduled for June 30, and that event “constitutes a default under Moody’s definition.”

The toll road is operated by the SH 130 Concession Company, an independent company formed by Cintra and Zachry American Infrastructure.

The company says on its web site that efforts to extend the Texas highway had “languished for years due to lack of funds, before the decision was made to adopt toll financing. Tolls allow us to build the roads we need when we need them – which is right now.”

In a report last March, the Congressional Research Service said the $1.3 billion Texas project was financed by the SH 130 Concession Company “with $686 million in senior bank loans, $210 million in private equity, and a $430 million TIFIA loan.”

It said “since its opening in 2012, and despite a speed limit of at least 80 miles per hour, the 40-mile toll road extension has had much lower traffic volumes than forecast and, therefore, is generating much less revenue than the concessionaire needs in order to repay its loans.”

It added that if the company defaults, repayment of the TIFIA loan to the federal government “may be at risk. If a default occurs, the state may have to terminate the concession and take full responsibility for the road.”

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