The Golden Gate Bridge

On May 28, 1937, San Francisco’s iconic Golden Gate Bridge opened to traffic. Built in just over four years during the depths of the Great Depression, the bridge is a monument to engineering prowess and aesthetic achievement. It is also a dramatic demonstration of a way of developing infrastructure in the U.S. that has long been out of fashion, but has begun to reemerge: the use of public-private partnerships (P3s).

Since the 1950s, major public works projects, such as the Eisenhower Interstate Highway System, have been funded largely by the federal government through the traditional “design-bid-build” procurement and development system. Prior to that time, however, and in fact through the greater part of U.S. history, large-scale infrastructure development projects were funded via private investment. Funding for the Golden Gate Bridge, for example, drew on a $35 million commercial loan from a large national bank and four private investment firms. Even earlier, in the 19th century, the railroads were laid via private investments as well. A reliable tax base was simply not available in these earlier times for state and federal governments to draw upon to fund these kinds of projects on their own.

Today, the P3 market is returning to popularity in the U.S., in large part due to three factors: declining tax revenues, shrinking budgets, and a desperate need to repair and expand rapidly deteriorating infrastructure nationwide.

P3’s growing popularity is following a global trend of reliance on public-private partnerships that began in England, spread through Europe, Australia and Canada, and is only now arriving in the United States. If P3 follows a trajectory in the U.S. that is similar to how it has done in Canada, for example – then the potential levels for private investment are enormous.

U.S. Infrastructure’s Failing Grade Presents Huge Opportunity for P3 Projects

According to the American Society of Civil Engineers (ASCE), America’s infrastructure currently rates a D + in quality and safety – not very reassuring to anyone who uses bridges, tunnels, flies, or drinks water from the tap.1 For the U.S. to continue its recent efforts to improve the situation (in 2009, the ASCE gave the U.S. an infrastructure grade of D –), over the next five years we will need to spend $1.73 trillion on enhancements to surface transportation, $100 billion for rail, and $134 billion for aviation.2 In addition, the U.S. Environmental Protection Agency (EPA) estimates that the U.S. will need $335 billion to improve the nation’s water infrastructure3 and an additional $298 billion for wastewater infrastructure.4

Obviously, these needs are far too large for the private sector to fund on its own. But the potential for tremendous participation from private funding sources is clearly there.

Currently, 33 states have legislation that enables P3 projects, and it seems likely that more will come on board in the near future.

P3 projects historically have outperformed traditional public procurement projects along two critical parameters: staying on budget and delivery speed. According to a study conducted by Infrastructure Partnerships Australia, from 2000-2007 only 14% of P3 projects went over budget, compared to 45% of traditionally funded projects. And where there were cost overruns, P3 projects averaged 12% over budget, versus 35% for traditional projects. On time-to-completion, P3 projects missed deadlines 10% of the time, versus 18% for traditionally procured projects.5

A Growing P3 Market Brings with it Private Sector Opportunities – and Increased Risk

As the P3 market expands to meet society’s desperate need for improved infrastructure to service America’s burgeoning population and economy, there will be a concomitant shift of risk from the public to the private sector. As Thomas Grandmaison, executive vice president of Construction Casualty and executive sponsor for AIG’s Construction Industry Practice Group, has noted, “All private sector participants will be challenged to accept risk beyond their comfort zone…and a significant portion of that risk will not be transferrable to conventional insurance coverages.”6

While the U.S. has not been in the forefront of the recent global wave of P3 development, it is poised to become the world’s largest P3 market. The opportunities are there in terms of infrastructure needs, and it appears that the public and political will that is necessary to make it happen is rapidly moving into place. If it does, then there may be some new engineering miracles like the Golden Gate Bridge coming your way soon.

ABIA airport in Austin

First, the good news: nine more gates are now open at Austin-Bergstrom International Airport.

Now, the bad news: the rapidly growing airport is still handling more passengers than it was designed for, even after the Feb. 21 debut of the $350 million expansion.

The huge undertaking that just wrapped up involved 6,000 tons of steel and added 29,000 square feet of retail space. It includes an area where pets can potty and relied on roughly $42 million in federal grant funding, ABIA officials said. It increases the operational capacity of the airport by 30 percent and includes a public outdoor patio on the east end of the terminal where travelers can watch planes take off and land.

The first flight from the new gates took off at 5:40 a.m. Feb. 21, airport spokesman Derick Hackett said.

ABIA handled 15.8 million passengers last year, though the Barbara Jordan Terminal was only designed to serve roughly 11 million passengers annually. The new expansion brings capacity up to 15 million passengers — still not enough to meet current demand, let alone the continued growth expected in coming years. The airport has doubled its nonstop destinations over the past five years, with more nonstop destinations being announced regularly.

To meet the growing needs of Austin travelers, airport officials know further expansion will be needed. The airport's 2040 master plan — an ambitious vision to add up to 32 more gates — was authorized by Austin City Council to be sent to the Federal Aviation Administration in October. Hackett said the plan was sent to the FAA in late December or early January.

"We are already planning the next terminal expansion, as well as a processing center, a departures hall and something to help with the front end before security — the ticketing, baggage and that type of congestion," said Barbara Beeson, a project assistant with the Aviation Department's planning and engineering division.

Hackett provided some additional details about what passengers can expect with the future expansion. He said the first step in the master would would be to knock down the garage in front of the Barbara Jordan Terminal and replacing it with ticketing, baggage claim, Transportation Security Administration screenings and other functions.

Exactly how the city will pay for the 2040 master plan is not yet clear. Hackett said a public-private partnership is being considered.

"A public-private partnership is one of the ways that is available for us to pay for any future expansions. We also use airport revenue revenue and a bond process," he said. "It is one of the many ways we use to try to finance projects like that."

ABIA is already engaged in public-private partnerships around the airport, from the new ABIA Retail space — a convenience store in the cell phone parking lot — to the Hyatt Place Austin Airport hotel to the South Terminal, which is a partnership with Lonestar Airport Holdings LLC.

The South Terminal "offers a different style of transportation for passengers; that old-school way of departing and boarding a plane from the outside," Hackett said, referring to how passengers board planes from the tarmac.

"Also, the South Terminal was available for us as one of the many ways for us to deal with the increase in passenger growth," he added. "It provided us an option to operate three more gates."

Who exactly will lead ABIA into it's next chapter is still up in the air. Longtime Executive Director Jim Smith plans to retire soon and the city of Austin is searching for a replacement.

Vista Ridge Water Supply Project

This project, being designed and constructed for the Central Texas Regional Water Supply Corporation, includes the installation of 140 miles of transmission pipeline, including 54″ and 60″ diameter bar wrapped and steel pipe, three pump stations, one cooling tower, 18 wells, seven miles of well collection lines, three 4 MG concrete tanks, and one 10 MG concrete tank, all to deliver 50,000 acre feet of water per year. Water supply is expected to flow by 2020, complementing San Antonio Water System’s (SAWS) continued conservation efforts and development of water resources as San Antonio adds an additional one million residents by 2040. 

VALUE

$540 M
($927 M for total P3)

DELIVERY METHOD

• Design-Build

• P3

CLIENT TYPE

Municipal

PROJECT TYPE

• Pipeline

• Pump Station

• Tank

Largest P3 water project in North America

• Won numerous international awards, including North America Water Deal of the Year by IJGlobal and Project Finance International (PFI), and Water Deal of the Year by Global Water Intelligence

• Will expand San Antonio's water supply by 20%