E7-8227. Public-Private Partnership Pilot Program

AGENCY:

Federal Transit Administration (FTA), DOT.

ACTION:

Notice of agency response to comments.

SUMMARY:

Section 3011(c) of the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (“SAFETEA-LU”) authorizes the U.S. Secretary of Transportation (the “Secretary”) to establish and implement a pilot program to demonstrate the advantages and disadvantages of public-private partnerships (“PPPs”) for certain new fixed guideway capital projects (the “Pilot Program”). This notice summarizes and responds to comments solicited by FTA by notice published in the Federal Register on March 22, 2006 (71 FR 14568).

Availability of the Notice: Copies of this notice, and any documents indicated in the supplementary information as being available in the docket, are part of docket FTA-2006-23697. To read materials relating to this notice, please visit the DOT docket (http://dms.dot.gov) at any time or go to the Docket Management System facility, U.S. Department of Transportation, Room PL-401, on the plaza level of the Nassif Building; 400 Seventh Street, SW., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays.

FOR FURTHER INFORMATION CONTACT:

Shauna J. Coleman, Esq., Federal Transit Administration, Office of the Chief Counsel, U.S. Department of Transportation, 400 Seventh Street, SW., Washington, DC 20590-0001, [phone], [e-mail].

SUPPLEMENTARY INFORMATION:

Section 3011(c) of the SAFETEA-LU authorizes the Secretary to establish and implement the Pilot Program to demonstrate the advantages and disadvantages of public-private partnerships for certain new fixed guideway capital projects. On March 22, 2006, FTA issued a notice and solicitation for comments with respect to the Secretary's establishment and implementation of the Pilot Program (71 FR 14568). FTA received comments from 19 parties in response to the notice. FTA responds to these comments by topic and in the following order: (A) Statutory background; (B) objective of the Pilot Program; (C) operation of the Pilot Program; (D) common grant rule; (E) seniority of the Federal Interest; and (F) tax-exempt financing.

A. Statutory Background

FTA requested comments on the following questions: (i) What, if any, operative criteria beyond those set forth in the statute should the Secretary adopt to implement the Pilot Program; (ii) what, if any, benefits should the Secretary confer on selected projects; (iii) whether it is significant that section 3011(c) provides no special funding for the Pilot Program; and (iv) what, if any, changes in law or new financial incentives are appropriate or necessary to promote the participation of private enterprise in the delivery and operation of transit systems?

(i) What, if any, operative criteria beyond those set forth in the statute should the Secretary adopt to implement the Pilot Program?

Six commenters responded to this question. Some of these commenters thought that additional operating criteria should not limit the opportunities for creativity and that FTA should allow private, state, and local parties maximum latitude to determine the parameters and merits of potential projects. In addition, several of these commenters recommended that selected projects should incorporate innovative contracting mechanisms.

FTA response: FTA agrees that operating criteria should not limit the opportunities for creativity. FTA further agrees that innovative procurement contracting mechanisms and financing should be considerations used in the selection of an eligible project.

(ii) What, if any, benefits should the Secretary confer on selected projects?

Five commenters responded to this question. Two commenters submitted general comments on the benefits the Secretary should confer on selected projects. For instance, one commenter generally recommended that FTA tailor the benefits it confers to the particular requirements of a project. Another commenter generally recommended that FTA award PPPs the highest priority available from programs for which such projects apply and qualify. Two commenters recommended that FTA waive strict compliance with one or more New Starts and/or NEPA evaluation requirements. One commenter recommended that FTA support Congressional earmarks for selected projects.

FTA response: FTA agrees that it should identify alternative bases for compliance with one or more New Starts evaluation requirements applicable to projects that participate in the Pilot Program, insofar as consistent with law. The Pilot Program offers Pilot Projects that are candidates for funding under FTA's New Starts certain program incentives—in the form of improved ratings, accelerated review process, and other benefits—to enter into PPPs for project delivery. FTA's role is not to advocate for Congressional earmarking on behalf of projects, but FTA does recommend projects for funding in the annual New Starts Report and in the President's budget request.

(iii) Whether it is significant that section 3011(c) provides no special funding for the Pilot Program.

FTA received the following three comments on this question: one commenter thought that it was unremarkable that Congress authorized no special funding for this program; one commenter noted that by not designating any specific source of funding, Congress provided FTA with the flexibility to identify funds and develop program requirements; and one commenter thought Congress intended to limit the use of private investment in PPPs for selected fixed guideway projects.

FTA response: Based on FTA's review of section 3011(c) and pertinent sections of the Conference Report that accompanied SAFETEA-LU, FTA is not limited to funding the Pilot Program from the New Starts program. FTA reminds commenters that while the statute states that the Secretary may establish the Pilot Program to demonstrate the advantages of PPPs for “certain new fixed guideway projects,” it does not expressly limit financial support of such projects to New Starts funding. FTA notes that new fixed guideway capital projects may be funded not only through the New Starts program but with certain formula funds, as well.

(iv) What, if any, changes in law or new financial incentives are appropriate or necessary to promote the participation of private enterprise in the delivery and operation of transit systems?

Three commenters responded to this question. One commenter suggested that FTA reclassify the retirement of a capital debt from an operating expense to a capital expense. Two commenters suggested that providing Federal grant or loan money for developmental or pre-construction work could induce private investment.

FTA response: FTA agrees that reclassifying the retirement of a capital debt from an operating expense to a capital expense and providing Federal grant or loan money for developmental or pre-construction work would promote the participation of private enterprise in the delivery and operation of transit systems. Within the context of the Pilot Program, FTA would be prepared to evaluate proposals to do so on a case-by-case basis, if permitted by law and supported by sound policy that is consistent with the Pilot Program's objectives.

B. Objective of the Pilot Program

FTA requested comments on whether, and on what terms, the Pilot Program should streamline the New Starts application process, specifically with regard to its due diligence and NEPA components, to promote PPPs that would realize significant savings in the procurement of eligible projects.

(i) Due Diligence

FTA requested comments regarding how its New Starts application process may be altered to accelerate project delivery without impairing FTA's duties as a steward of Federal funds. Six commenters responded to this question. Two commenters supported the use of contract terms to allocate risk and ensure due diligence. Three commenters recommended that FTA utilize concurrent rather than linear procedures in its New Starts process, and provided specific recommendations on how FTA could alter its New Starts application process. One commenter requested that FTA clarify how the requirement for public accountability and due diligence can be met under the PPP approach.

FTA response: FTA agrees that it should streamline certain New Starts due diligence requirements and directs interested parties to section 3(i) of FTA Federal Register notice issued on January 19, 2007 (72 FR 2587) for a detailed discussion on how FTA might alter certain due diligence requirements for selected Pilot Projects. In response to the commenter requesting clarity, FTA directs this commenter to section 3(c) of FTA Federal Register notice issued on January 19, 2007 (72 FR 2587), which details how commercial arrangements negotiated between the project sponsor and private partner may adequately safeguard the Federal Interest.

(ii) National Environmental Policy Act (“NEPA”)

FTA requested comments on whether, and on what terms, the Pilot Program should streamline its NEPA components to accelerate project delivery without impairing FTA's duties as a steward of the environment.

(a) Whether the Pilot Program should permit acquisition of engineering and design services prior to the issuance of a Record of Decision (“ROD”).

Several commenters responded to this question. All but one of these commenters supported the acquisition of engineering and design services prior to the issuance of a ROD.

FTA response: FTA agrees that it should permit acquisition of engineering and design services prior to the issuance of a ROD, as provided in section 3(l) of FTA's Federal Register notice published at 72 FR 2587 (January 19, 2007). FTA notes that on several prior occasions it has allowed project sponsors to negotiate and award design-build contracts when (1) the contract did not commit the project sponsor or FTA to final design or construction prior to the completion of compliance with NEPA, and (2) the entities performing the NEPA studies had no financial interest in the outcome of the project under the study. FTA directs interested parties to section 3(l) of FTA's Federal Register notice published at 72 FR 2587 (January 19, 2007) for a full discussion on the extent to which FTA may permit acquisition of engineering and design services prior to the completion of compliance with NEPA.

(b) Whether the Pilot Program should adopt procedures with the same or similar effects as those described in 23 U.S.C. 112(b)(3), as amended by section 1503 of SAFETEA-LU, concerning design-build contracts.

Three commenters responded to this question and all of these commenters supported FTA's adoption of procedures similar to those in section 1503 of SAFETEA-LU, concerning design-build contracts.

FTA response: FTA agrees that the Pilot Program should adopt procedures with the same or similar effects as those set forth in 23 U.S.C. 112(b)(3), as amended. FTA directs commenters to section 3(l) of FTA's Federal Register notice published at 72 FR 2587 (January 19, 2007), which outlines the environmental procedures that FTA adopted with respect to the design-build elements of a Pilot Project's procurement.

(c) How should the Pilot Program construe the Categorical Exclusion (“CE”) to realize savings for project sponsors in connection with the acquisition of rights-of-way and parcels of land?

One commenter responded to this question. This commenter urged FTA to consider increasing real estate prices as one factor used to establish the imminence of increasing development pressures so that increasing prices in highly developed or rapidly developing areas would permit an agency to rely upon the CE.

FTA response: FTA notes that with a few limited exceptions, joint FTA/FHWA regulations implementing NEPA specifically prohibit real estate acquisition activities prior to the completion of the NEPA process. Those exceptions, specified at 23 CFR 771.117, allow for pre-ROD real estate acquisition in some limited circumstances, but not on the basis of rising property values. Moreover, when it authorized SAFETEA-LU, Congress amended 49 U.S.C. 5324(c) to allow for the pre-ROD acquisition of contiguous railroad right-of-way in certain cases.

(d) How should the Pilot Program address NEPA to anticipate changes in project scope?

Five commenters responded to this question and all of these commenters recommended that FTA should not reopen the NEPA process and/or existing ROD for review of a new impact that is not determined to be substantial.

FTA response: In general, FTA policy is to perform a supplemental Environmental Assessment (“EA”) for review of a new impact if that impact is potentially significant, and a supplemental Environmental Impact Statement (“EIS”) in cases where FTA is certain that the new impact is significant. In some cases, a reevaluation may be required to assist FTA in deciding whether supplemental NEPA work is needed.

C. Operation of the Pilot Program

FTA requested comments on whether, and on what terms, the Pilot Program should provide grants for eligible projects contemplated by long-term operation or concession agreements with private enterprise. Six commenters supported FTA providing grants for eligible projects contemplated by long-term operation or concession agreements with private enterprise. Three commenters offered suggestions as to how the Pilot Program might encourage transit systems to enter into PPPs. One commenter suggested that FTA allow the Pilot Program to privatize all or part of the capital asset. Another commenter suggested FTA provide financial capacity for pre-construction work. One commenter recommended that FTA tie the Pilot Program directly to New Starts funding.

FTA response: FTA agrees that projects involving long-term private operations or concession contracts should be eligible for funding under the Pilot Program.

D. Common Grant Rule

FTA requested comments on whether, and to what extent, the Pilot Program should authorize the use of program income to support a PPP that sponsors an eligible project. Five commenters supported the flexible use of program income.

FTA response: FTA agrees and supports flexible uses of program income, as permitted pursuant to 49 CFR 18.25(g).

E. Seniority of the Federal Interest

FTA requested comments on whether, and to what degree, FTA's subordination of priority of repayment of Federal loans would be useful in structuring a PPP. FTA also requested comments on the extent to which loans, loan guarantees, and other credit enhancing devices available under the Transportation Infrastructure Financing and Innovation Act (“TIFIA”) might be used to facilitate the financing of an eligible project. Four commenters supported subordination of the Federal Interest. Three commenters generally supported the use of the loan guarantees available under TIFIA for financing PPPs.

FTA response: FTA agrees that subordination of priority of repayment of Federal loans could be useful in structuring a PPP. FTA also agrees that project sponsors should utilize a wide range of financing tools to support PPPs, including loan guarantees and other mechanisms available under the TIFIA program to finance eligible PPPs.

F. Tax Exempt Financing

FTA requested comments on the extent to which private activity bonds (“PABs”) or PABs not subject to State population-based bond issuance limits (“new PABs”) might assist in financing an eligible project. Seven commenters generally supported the use of PABs to assist in financing eligible projects.

FTA response: FTA agrees that project sponsors should utilize a wide range of financing tools, including PABs and new PABs, to support PPPs, if the project is eligible to use such financing tools.

Issued in Washington, DC, this 25th day of April 2007.

James S. Simpson,

Administrator.