Highway Operations

Louis Berger started VMS Inc. in 1995 specifically to capitalize on the need for asset management and performance-based for highway maintenance in the U.S.

VMS was awarded the first performance-based highway O&M contract in the U.S. by Virginia DOT in 1997. A handful of other firms jumped in, and Florida, South Carolina and Texas awarded a few contracts. Transfixed Services bought VMS in 2007. All had high expectations, based on the need for their services.

Unfortunately, the market has not developed beyond those early movers and some one-offs in NC, Alaska, and DC.

In contrast: Canada started at about the same time. So far, 28 performance-based contracts have been signed in British Columbia; 23 in Ontario and 8 in Alberta. Taken together, these provinces are signing contracts at a rate of about $300 million a year. The total market is about $3 billion. The whole market will start up again in about seven years when contracts come up for renewal.

Now to transportation, which is the main subject of PWF.

The transportation P3 market in the U.S. is mostly about TIFIA.

(Transportation Infrastructure Finance And Innovation Act)

The USDOT's low-cost TIFIA loans have underpinned every major greenfield P3 project in the past 20 years.

TIFIA is the least expensive, most flexible, longest term and most "patient" subordinate debt available in the global financial markets to finance transportation capital expenditures. There is no other financing tool like it in the world.

Without TIFIA, the Goethals Bridge would be a redecking job, a temporary fix causing huge delays and a negative impact on the regional economy. And it would create few jobs.

With TIFIA, the project is the replacement of a dangerous 1920s bridge with an iconic, cable-stayed arch built as a DBFM project that will be privately maintained for 30 years.

So, the future of transportation P3s depends on TIFIA. And TIFIA is wrapped up in the Surface Transportation reauthorization struggle.

Here's where I think we are on that:

After a handful of short-term extensions, we still don't know when and whether we'll get a bill. If House chair John Mica can find new sources of revenue- and he is exploring oil and natural gas revenues-then I think his committee and Senator Boxer's will find a compromise on the size of the program. And something will happen.

If a multi-year reauthorization bill actually gets done next spring / summer, then TIFIA will likely be a much bigger player.

The consensus is that there will be more funding next year or in 2013-maybe $1 billion a year vs. $120 million now.

A billion-dollar program could leverage $30 in new transportation project starts.

At $120 million, the demand for TIFIA loans greatly outstrips the supply. There are maybe 50 transportation agencies with well-developed projects that have been waiting for TIFIA credit support, some of them for years.

Nobody I talk to thinks there is any chance that Obama's federal infrastructure bank will get anywhere. (I think there are nine different congressional committees that would have to surrender jurisdiction.) Even if the iBank is created, TIFIA would survive inside it.

So. Best case, it's $1 billion for TIFIA and maybe five times as many projects starting next year or 2013. Probable case is $124 million a year till after the election and an increase to $1 billion after than. Worst case: TIFIA is identified as a rogue government sponsored enterprise and dies. Another bridge to nowhere.