A fall 2014 report from Moody’s Investors Service says the U.S. has strong potential to become the world’s largest market for P3 projects.
The firm’s Global P3 Landscape report notes the sheer size of the country’s infrastructure and growing urban population – in conjunction with an increased willingness of state governments to use the P3 model – are creating strong momentum for the procurement model.
There are now 37 states that have passed enabling legislation for P3s. Colorado, Florida, Texas and Indiana have the most robust P3 programs, with multiple projects in each state. California, Pennsylvania, Kentucky, Maryland, Michigan, Nevada, Arizona, and Oregon all have P3 Projects at varying stages of procurement.
While New York and New Jersey do not have P3 legislation, the Port Authority of New York & New Jersey does have special dispensation to use the model, and is using it for the Goethals Bridge and LaGuardia Airport Central Terminal Building Replacement Projects.
The report explains that there are two inter-related trends at work that could cause P3 activity to expand even more rapidly. The first is the need to upgrade, replace or build out essential infrastructure assets; the second is the inability of governments to finance these current and future infrastructure investments entirely on their balance sheets.
“The strengthening recovery in the U.S. is driving strong growth in both residential and non-residential building sectors, with 12 of the 20 fastest growing types of companies tied to the construction industry.”
Janine Fisher, Business Development Manager
The use of the P3 model has been steadily increasing in the U.S. over the last five years, with a strong history of using the toll, or demand-risk model. In this P3 type, the private developer is paid back through user fees it has been granted to collect. This fee-for-service model transfers performance risk to the private developer.
More states are authorizing the use of P3s for transportation projects, which are typically the first type of P3 project in a new market. Over the past 12 months, traction in the social infrastructure project space has also started to take hold, with projects such as the Long Beach Civic Centre, the Indianapolis Justice Complex and Houston Justice Facility hitting the street.
But the market for availability-payment P3s in the US is also expanding, according to The Moody’s report. In this type of P3, payment to the private developer is made as long as the asset is available and meets specific performance criteria. The payments cover operating and maintenance costs, as well as debt service on borrowings to pay for construction costs. More P3 availability payment projects are reaching financial close or are in procurement than ever before.