HJR 72: Joint Subcommittee Studying Public-Private Partnerships Related to Seaports in Virginia

August 12, 2009

The Joint Subcommittee Studying Public-Private Partnerships Related to Seaports in Virginia held its fifth meeting at Old Dominion University.

Presentations

Paul D. Fraim, Mayor, Norfolk City
Mayor Fraim spoke on behalf of the City of Norfolk and the mayors of Newport News and Portsmouth. Mayor Fraim first stated that if privatization occurs, host cities should be treated fairly and equitably for costs they have incurred. Moreover, Mayor Fraim expressed concerns about private port operators being granted tax-exempt status because the status would prevent host cities from collecting revenue from them.

The mayor argued that cities do not necessarily benefit economically from having seaports located within their jurisdictions. The mayor referenced data that host cities lose more revenue because of unreimbursed municipal services given to ports (e.g., extra police, road construction, etc.). Finally, the mayor argued that the Public-Private Transportation Act was never designed to address the privatization of the Commonwealth's seaports.

Ashley S. Colvin, Project Leader, Joint Legislative Audit and Review Commission (JLARC)
Mr. Colvin’s presentation centered on two issues: (i) the variation of legislative oversight of public-private partnerships and (ii) lessons learned from selected public-private partnerships. Mr. Colvin discussed the legislative history of the Public-Private Transportation Act and the Public-Private Education Facilities and Infrastructure Act. He then reviewed the Public-Private Partnership Advisory Commission's mission, membership, and relationship with the Joint Commission on Transportation Accountability. In addition, Mr. Colvin commented that public-private partnerships sometimes require a public role and support, including the need for public moneys to be expended on partnership and the need by a public entity to have experienced staff. Mr. Colvin listed several factors to consider in evaluating public-private partnership proposals:

• The proposal may identify a need, but the public entity may be able to provide services without a partnership.
• Problems with a proposal's feasibility may not come to light until completion of agreement.
• Budget flexibility may be lost if long-term financial commitment is made to the private partner.

Furthermore, Mr. Colvin noted that there is implicit tension between the executive branch and the legislative branch over partnership projects because the executive branch is authorized to solicit, negotiate, and implement proposals, but there is no traditional role for the legislature in the approval process. Mr. Colvin suggested that a role should exist for legislative financial auditing and performance evaluation, including a defined role in a public-private partnership agreement for legislative auditors (JLARC and APA) to evaluate and audit the project periodically.

Pierce R. Homer, Virginia Secretary of Transportation
The Secretary's presentation centered on the Commonwealth's port and Public-Private Transportation Act (PPTA) priorities, which present both an economic opportunity and a transportation challenge. The three main priorities include:

• The promotion and realization of benefits of continued economic growth.
• The provision of surface transportation to serve the community and port.
• The addressing of community impacts of the ports.

Next, Secretary Homer discussed Virginia's public-private partnership transportation program. Secretary Homer explained that the program has several components, including special taxing districts and tolling revenues. Also, the program's goals are shared goals with other components of the Commonwealth's transportation program and include less cost, timeliness, accountability, and private risk sharing. Second, Secretary Homer explained certain current requirements of the PPTA, including the requirement of private sector commitments and the rejection of unsolicited bids that do not include private risk. Third, Secretary Homer discussed and gave examples of PPTA concession payments. Some examples included supporting other transportation projects and increasing access or mobility within the scope of the project. Fourth, the Secretary gave an update on the status of several PPTA construction projects, including four construction projects that have been cancelled or withdrawn since 2002, and three projects that are currently under negotiation.

Finally, Secretary Homer explained how the proposals to privatize Virginia's seaports are and will be handled under the PPTA. He further emphasized that the independent review panel:

• Will be constituted and serve as advisory body.
• Will hold public meetings, receive formal public comments, discuss proposals, and make a recommendation to the Virginia Port Authority (VPA) and the Secretary of Transportation on whether to advance the PPTA process.
• May recommend to advance all or none of the PPTA proposals to the detailed proposal phase.

However, Secretary Homer stated that the Virginia Port Authority must take affirmative action to request a detailed proposal, and execution of a comprehensive agreement would require successful submission of a detailed proposal and subsequent negotiation of a comprehensive agreement between the VPA and a private entity.

Dr. James V. Koch, President Emeritus and Board of Visitors Professor of Economics, Old Dominion University
Dr. Koch began by stating that the privatization of port operation in Virginia is a discussable idea. He stated that 35 ports in the United States are privately operated with 56% of 20-foot equivalent units (TEU) internationally handled in ports with private operators.

Dr. Koch listed the following possible benefits of private operation:

• Reduction of costs.
• Increase in cargo throughput speed.
• Increase in business volume.
• Stimulation of Virginia businesses.
• Attraction of higher value cargoes.
• Additional investments in equipment and infrastructure.
• Additional tax payments.

Dr. Koch also spoke on whether a private operation/partnership can:

• Lower costs.
• Increase speed/efficiency.
• Increase volume of business.
• Stimulate Virginia business.

Attract higher value cargoes and investments in port equipment and infrastructure.
Dr. Koch then discussed evaluating systemic and nonsystemic risk. Systemic risk refers to economywide risk, as when the world economy suffers a decline or the value of the U.S. dollar declines. Nonsystemic risk refers to the risk associated with a specific firm or operator, e.g. if the firm or operator goes broke or doesn’t meet performance standards. Dr. Koch advised a rigorous assessment of the three proposals versus an unstated fourth option - keeping the ports.

Jo Anne Maxwell, Sr. Assistant Attorney General/Section Chief for Transportation
Ms. Maxwell answered questions posed by joint subcommittee members. First, Ms. Maxwell informed the joint subcommittee that a responsible public entity involved in a proposed PPTA project is responsible for paying for legal counsel/attorney fees incurred in negotiating the partnership agreement. Ms. Maxwell stated that while the Office of the Attorney General (OAG) takes into account input made by the responsible public entity, the OAG is responsible for appointing outside legal counsel to represent a responsible public entity involved in a proposed PPTA project. Ms. Maxwell also advised that, generally, the Virginia General Assembly has no role in a PPTA project; however, when there is an outright sale of an asset, the responsible public entity must notify the General Assembly.

Next Meeting

Chairman Purkey stated that the joint subcommittee will attempt to meet in September, October, and November. The next meeting dates will be posted on the joint subcommittee’s website and the General Assembly calendar as soon as information is available.

Chairman:
The Hon. Harry Purkey

For information, contact:
Kevin Stokes, Caroline Stalker , DLS Staff