P3s Help Governments Tread Water

Contractors and government agencies in Arizona and Nevada are testing the public-private partnerships with mixed results in delivering buildings and roadways.

Arizona has led the way in vertical P3 development. Alternative project delivery legislation that allows certain P3 projects goes back to 2000. The $455-million Arizona Cardinals stadium in Glendale was design-built by Phoenix-based Hunt Construction Group. It is owned by the Arizona Sports and Tourism Authority and was paid for in part by the Cardinals as tenant.

That joint venture is considered an early role model for P3.

“P3 is a practical extension of design-build,” says Gary Aller, director of the Arizona State University Alliance for Construction Excellence program. Aller points to other Arizona cooperative development success stories, including Taylor Place student housing, a pair of 13-story towers built at ASU’s downtown Phoenix campus in a partnership between the city of Phoenix, ASU and Birmingham, Ala.-based Capstone Development Corp.

The towers were delivered years before any one agency could have lined up the funding and approvals, Aller says.

Another project, the Arizona Game and Fish Dept. headquarters building in Phoenix, is considered a groundbreaking green P3. The department partnered with Phoenix-based Lincoln Property Co. to build the 83,000-sq-ft LEED platinum building. The building was designed by Will Architects of Phoenix and built by Tempe-based general contractor Sundt Construction Inc., which used innovative construction materials and practices.

The project included a third-party power purchase agreement for solar energy.

Due to their complexity, “P3s are not for the faint of heart,” Aller warns. “It is important that the deals are structured so the public is not at risk more than necessary and it pencils out for the developer.”

Still, Aller says the opportunity for using P3s to deliver critically needed projects has never been better because the public sector often does not have the up-front funds to get jobs done.

He cites an Arizona Investment Council study that showed that in the next 25 yeas, the state will need a $500-billion investment in transportation and infrastructure when actual spending has averaged $6 billion to $8 billion a year.

The Arizona Dept. of Transportation has indicated that P3s might be part of its solution for future building. A P3 program was authorized by the Legislature in 2009, paving the way for partnerships to develop highways, rail, aviation facilities, parking projects, maintenance and storage.

ADOT officials won’t speculate about timing of specific possible projects, but Gail Lewis, director of ADOT’s Office of P3 Initiatives and International Affairs, says, “We’re in prepare-to-launch mode.”

ADOT set up a website to identify potential P3 stakeholders and is considering P3 projects as part of a five-year construction program planning exercise. The agency has also hired two program management consultants, HDR of Phoenix and Jacobs Engineering of Pasadena, Calif.

P3s for road construction are complicated, Aller says. “Huge dollars are at risk and very few firms can handle that financial and time commitment,” he adds.

Nevada P3

One of Nevada’s first passes with public-private transportation, the Las Vegas Monorail, hit a wall and filed for bankruptcy in January. The private journey into public transportation construction and operation started in 2000 when Clark County granted the MGM Grand-Bally’s Monorail LLC a franchise to expand a 1-mi shuttle built between the two hotels in 1993 into a 4-mi system with seven stops and plans to expand to the airport.

The Nevada Dept. of Business and Industry issued $650 million in tax-exempt bonds on behalf of the nonprofit. The expanded line opened in 2004 but suffered from technical problems and low ridership.

Now legislators are considering approving language that would allow the Nevada Dept. of Transportation to pursue a demonstration project on the busy Interstate 15/U.S. 95 interchange. By 2014, a $1-billion, 19-mi expressway could start reducing traffic in Las Vegas. It would be funded by the private sector, which would then charge drivers using the roadway.

Tolls would be automatically charged using an electronic toll collection system on a sliding scale based on the amount of congestion. No toll booths or stopping would be required. The proposal is part of a P3 exploratory effort at Nevada Dept. of Transportation known as the Pioneer Program.

One type of P3 that is gaining popularity during times of tight municipal budgets is lease-back arrangements for public buildings. Two are under way in Southern Nevada.

The city of Las Vegas is working with Cleveland-based developer Forest City Enterprises Inc. to build a new $146-million, eight-story City Hall for the price of monthly lease payments. Meanwhile, the Las Vegas Metro Police Dept. is consolidating its administrative operations in a central 390,000-sq-ft campus being built to suit by Fine Properties LLC of Las Vegas.

The arrangement is ideal, says John Krueger, director of logistics for the Las Vegas Sheriff’s Dept. “We are a police agency, not a construction agency. We don’t have the staff to do development.”

The win-win scenario delivers a custom facility to a cash-strapped agency years before it could afford the capital investment, and the developer gets a guaranteed long-term tenant.

Useful Sources

Learn more about ADOT’s P3 initiative at www.azdot.gov/highways/Projects/Public_Private_Partnerships