Devon lawyer advocates for public private partnerships
A Main Line lawyer has jumped into a new way of doing business with the state and federal governments: P3s, shorthand for public-private partnerships.
While this way of doing business has been around for years overseas, it’s in its infancy in the U.S., said Frank Rapoport, 64, of Devon.
President Obama highlighted P3s on a visit to the closed I-495 span in Wilmington, Del. on Thursday. The president announced the creation of the Build America Investment Initiative, a government-wide initiative to increase infrastructure investment and economic growth. As part of that initiative, the administration is launching the Build America Transportation Investment Center at the Department of Transportation to serve as a one-stop shop for cities and states seeking to use innovative financing and partnerships with the private sector to support transportation infrastructure. The president also urged Congress to fund the federal Highway Trust Fund.
Since Gov. Tom Corbett signed the law permitting P3s in 2012, companies are vying to obtain contracts to rebuild more than 500 Pennsylvania bridges in a first round of bridges to be part of a rapid repair program. One team will be chosen by the end of the year and work will begin early next year, said Erin Waters-Trasatt, a spokeswoman for PennDOT. It must be completed within five years.
According to a report from the American Society of Civil Engineers, Pennsylvania has more bridges deemed deficient under federal standards than any other state, although officials said that does not mean those bridges are in imminent danger of collapse.
At the end of June 2014, the state owned nearly 4,200 structurally deficient bridges that are eight feet or longer, said Waters-Trassatt. Some 2,200 locally-owned bridges up to 20 feet or longer are also structurally deficient, she said.
“We’ve made great strides in reducing that structurally deficient number in the last few years,” she said.
“That doesn’t mean that each one is going to fall into the water tomorrow,” said Rapoport. “It could be that a couple of them do, similar to that bridge in Minneapolis a few years ago. So the good news is the state is finally getting its act together both financially and politically, and there is a procurement out where one team, there are four teams bidding, under the public private partnership awarded later this year.”
Rapoport, with the law firm Peckar & Abramson, was involved in writing the enabling law and is also representing one of the teams bidding for the contract to replace the first group of Pennsylvania’s bridges.
“It took me three years to get the bill through [the Legislature] here, said Rapoport.
Under the old system governments awarded contracts to the lowest bidder who had little incentive to go above minimum standards so shoddy work that didn’t last was often the result, Rapoport explained. There would be delays and cost overruns, as well.
Under P3s, the companies managing the work have an incentive because they are responsible to maintain for the long term, from 25 to 30 years. Typically, they don’t get paid until projects are completed and continue to be paid for the maintenance period.
“This is the way the rest of the world has already built all their infrastructure,” said Rapoport. “It’s all privately financed: roads, bridges, hospitals, schools.”
In the U.S. states and municipalities have typically financed these projects with borrowing by floating bonds.
“It’s very cheap money but it’s still debt on the taxpayers,” said Rapoport. “The biggest opponents of this P3 are the lawyers who specialize in municipal bonds.”
However, “the smart ones” are learning about P3s and jumping into it, he said.
“The lawyer of the future is one that helps his clients build assets and not just sends them bills for legal services,” said Rapoport. “So I do a lot of proactive pursuit work for my clients. I’ll help a governor or a mayor or a township understand what’s possible under this new public private partnership.”
Rapoport added, “Sometimes I work for the government. Normally I work for the contractors because they’re my firm’s clients.”
Other opposition has come from government unions members who fear the loss of jobs. However, other unions, such for construction workers, are on board.
Virginia is already on the P3 bandwagon, having built highways, bridges and a tunnel using public private partnerships, he said.
“Smaller construction companies will not be put out of work,” he added. “The big guys come in to finance it, all they do is manage it. They hire local contractors. The work gets done locally. It’s just financed and managed by these international conglomerates that are very big companies. They have the money and if they don’t they use either private equity money. This is the reason most of the unions are on board.
“In Canada where they’ve done hundreds of these public private partnerships they get the money from the union pension funds,” said Rapoport. “They’re finding the returns on these P3s are better than that the 3 percent they’re getting in the stock market, maybe 6 to 12 percent returns [on capital]. So all of a sudden the unions say you’re creating jobs that wouldn’t get done because there’s no government money and you’re investing my pension fund in something that pays.”
Virginia is already on the P3 bandwagon, having built highways, bridges and a tunnel using public private partnerships, he said. The Port Authority of New York and New Jersey is starting to do P3s, including to rebuild the LaGuardia Airport. “
When Vice President “Joe Biden said he flew into it and thought he was in the Third World,” said Rapoport, comparing it “to Beijing and the airport is brand new. So the port authority wants to rebuild the entire central terminal, about a $3 billion project and the procurement is now underway and they’re going to make an award. “The winning corporation will step in an rebuild the passenger terminal and “get a piece of the action from the shops for 50 years.”
“The whole public-private partnership assumes you’re going to do something really good,” said Rapoport.
Waters-Trasatt said the state’s P3 will “streamline the process to achieve savings.”
For example, there will not be one bid for design and another for construction, both will be bid together. The new bridges will all be of similar design, which will cut down on the costs.
“PennDOT will retain ownership and our staff will still do basic maintenance such as cleaning, debris removal and winter maintenance,” she said. “Other savings [are from] the team [that gets the contract] will be responsible for major maintenance for at least 25 years. It causes them to look at the long term quality of how they build the bridges. “
While final details are still in the works, she said, that team will need to “secure upfront financing.”
“They will receive payments based on performance,” Waters-Trassatt said. “The exact milestones are not finalized.”
Money for the bridges and other state transportation improvements will come from an increase in the oil company franchise tax, which is paid at the wholesale level by distributors, and artificially capped at $1.25. The state’s 12-cent flat gas tax was eliminated by rolling it into that tax. Under a new law, the first third of the cap was removed on Jan. 1. The cap is removed in thirds over five years.
Waters-Trassant could not give a specific estimate for the total cost of the bridge replacements. Instead, PennDOT is waiting for proposals from the four teams that will submit bids: Plenary Walsh Keystone Partners: Plenary Group, The Walsh Group, Granite Construction Company, HDR Engineering, HNTB Corporation and Infrastructure Corporation of America; Keystone Bridge Partners: InfraRed Capital Partners, Kiewit, Parsons, The Allan A. Myers family of companies, DBi and American Infrastructure; Commonwealth Bridge Partners: John Laing Investments, Fluor, American Bridge Company, Traylor Bros. Inc., Joseph B. Fay Co., STV Incorporated and Infrastructure and Industrial Constructors; and Pennsylvania Crossings: Meridiam, Lane Construction, AECOM, Trumbull, Wagman Companies and Cofiroute.
“This is going to be a boon for companies across the state who they can subcontract with,” said Waters-Trasatt. “Everyone who is interested has a way to try to get involved.”
Rapoport believes the public private partnership projects will go forward whether or not Gov. Corbett is re-elected, pointing out that former Gov. Ed Rendell also backed the legislation. There is also likely to be moves to impose tolls on new highways that are built, he said.
“Any new road, not the old roads, can’t be financed from taxpayers’ dollars,” he said. “It should be based on who uses it.”
“We haven’t seen tolling because we never really thought about redoing our infrastructure because it was OK,” said Rapoport. “Now it’s terrible. A toll is a very legitimate way of getting money back. You don’t have to go on the toll road. You can go on the slow road. “
Meanwhile, bills introduced by state Rep. Eli Evankovich, R-54, would allow municipalities to get in on the public private partnership act. Those bills are pending, said a spokesman for Evankovich.
“My wish is, I would like more local government people to understand what’s possible in upgrading their water, wastewater, schools, public buildings, libraries, and municipal buildings,” said Rapoport. “It does not have to be done the old way where the taxpayers pay the whole thing and it gets done over-budget, late, with shoddy construction.”
Rapoport was happily working as a legal advocate for pharmaceutical companies in 1999 when his friend, former Congressman Curt Weldon, asked him to help with public private partnerships to build new housing at military bases since the old housing dated to World War II. That background served him well to engage in legal work facilitating P3s.
“Only in the last few years we’re seeing deals flow around the country,” said Rapoport. “We had to get a bunch of states to pass enabling legislation. So now, 36 states have authority to do this. A few have so much money they don’t need it like oil rich North Dakota so [those states] can pay for stuff.”
Rapoport grew up in the Germantown section of Philadelphia, went to the University of Pennsylvania and Temple University Beasley School of Law.
He began his career working in the Justice Department under the Carter Administration and stayed for three years into the Reagan Administration.
He moved to Wayne in 1982, joining Saul Ewing. With his ex-wife, Rapoport raised four children, three sons ages 32, 25 and 19 and a 30-year-old daughter.
Rapoport sees P3s as the wave of the future, a way to get America’s aging infrastructure rebuilt.
He believes the public private partnership projects will go forward whether or not Corbett is re-elected, pointing out that former Gov. Ed Rendell also backed the legislation.
There are also likely to be moves to impose tolls on new highways, he said.
“It’s not a political issues, Democrats, Republicans,” said Rapoport. “We’re talking about economic development, job creation that’s fueled by private money at the beginning. That’s all this is. It’s creating jobs, building new infrastructure, doing deals. At the end the government still pays the companies something. It’s not any more or less than the old way. But they get the projects done in half the time and everybody’s happy.”