BY SAMARA BAREND
FOUNDER AND LEADER, PERFORMANCE BASED BUILDING COALITION
SENIOR VICE PRESIDENT, PPP DEVELOPMENT DIRECTOR, AECOM
Since 2010, more than $36 billion in U.S. transportation public-private partnership (PPP) projects have advanced. Over that same period, however, only one public building PPP was constructed. There is one key reason for the lack of PPP activity in public buildings – the U.S. Tax Code.
Unlike transportation assets – which can leverage Private Activity Bonds – our nation’s schools, courthouses, civic centers, and other public buildings cannot leverage any such tax exempt financing to deliver a PPP. Every U.S. transportation P3 project that has moved forward in the past 10 years has accessed federal financing, 75 percent of which have accessed Private Activity Bonds.
Since state and local agencies can use tax-exempt bonds, the result is a non-level financial playing field. This disparity between taxable and tax-exempt revenue bonds for infrastructure does not exist in other developed countries. To the extent that a PPP project cannot obtain tax-exempt bond financing, its financing costs will be higher, and opponents will cite this faulty reason as an excuse not to use the PPP approach.
Vertical contractors have good reason for hope. Last month the Public Building Renewal Act of 2017 was reintroduced in the House and the Senate by Congressman Mike Kelly (R-PA) and U.S. Senator Dean Kelly (R-NV) with significant bipartisan support from the key committees of jurisdiction (Ways and Means and Senate Finance). This bill creates $5 billion in Private Activity Bonds (PABs) for schools and other government-owned facilities with minimal direct cost to the federal government. More importantly, the bill would enable public owners – school districts, corrections agencies, general services departments, universities, hospitals, etc. – to enjoy lower financing costs while employing the ingenuity of the private sector and transferring considerable financial risk away from taxpayers.
AGC of America has played a significant role in leading the charge for this legislation. Three years ago the AGC helped create the Performance Based Building Coalition (PBBC), an industry group focused solely on advancing public building PPP projects. Today the PBBC has more than 90 firms, governors, and associations committed to advancing the Public Building Renewal Act and to educating cities and states of the benefits of PPPs for their dilapidated public building infrastructure.
The New York State AGC has also played a pivotal role in this legislative effort by persuading Congressman Lee Zeldin (R-NY) to introduce this bill as an amendment to the Highway Bill in 2015. Prior to Zeldin, few Republicans would consider introducing the bill since it had no score from the Joint Committee on Taxation. By introducing this bill as an amendment to a major legislative package, Zeldin enabled the legislation to finally receive an incredibly low score of $48M over 10 years.
This legislation matters to contractors since our public buildings are literally crumbling. Over $45 billion is needed in additional annual funding just to upgrade and maintain our schools to ensure for health and safety. According to the U.S. Green Building Council, many states have amassed billions in school construction backlogs – Texas has over $13 billion in needs, Florida has $8 billion, Clark County Nevada alone has $4 billion, Arizona totals $7 billion, and the list could go on. In addition, numerous states have specific PPP projects in the pipeline that could move forward sooner if such federal financing were made available, projects such as the Los Angeles Civic Center ($300 million), Maryland Circuit Court ($400 million), Miami Dade Detention Facility ($700 million), Lake County, Indiana Convention Center ($300 million), and the Denver National Western Center ($450 million).
The Public Building Renewal Act of 2017 would allow private investment to do for public buildings what it has done for transportation – motivate the use of PPPs to accelerate the delivery of major projects. The moment of opportunity has arrived as a major tax reform package appears to be moving through Congress while the president continues to push for private investment in infrastructure. I urge all AGC state affiliates to step up and participate in this national effort. Help us articulate how critical this legislation is to rebuilding our public building infrastructure. Send letters to your congressional delegation, make calls, and join the Performance Based Building Coalition (www.p3buildings.org). Continued AGC leadership will enable us to open the doors to private investment in our public building projects.
Samara Barend is founder and leader of Performance Based Building Coalition and senior vice president, PPP Development Director, AECOM.