TM TM February 18, 2010 Dr. John B. Miller, ULI Nashville 1
“Creative” Solutions to a 222 Year Old Problem : Financing America’s Evolving Infrastructure Needs Infrastructure Needs TM TM TM TM February 18, 2010 Dr. John B. Miller, ULI Nashville 2
How Are Project Costs Paid? j Government pays for projects with public resources – “directly”. Direct This includes monies obtained: (i) through taxes user fees or other funds This includes monies obtained: (i) through taxes, user fees, or other funds received by government; (ii) funds borrowed from capital markets (typically bonds or bond anticipation notes); and (iii) grants of money from other governments. Funds are borrowed (ii) based on the credit-worthiness of the government. Grants (iii) received are available through taxes or charges by other governments. Government attracts the Private Sector to pay for projects with private sector Government attracts the Private Sector to pay for projects with private sector resources – “indirectly.” This is typically done by ceding specific, limited, control over a public infrastructure asset to create a revenue stream which the private sector will use to earn a return on capital invested and a profit. “Indirect” includes monies obtained: (i) through user fees, or other funds received by the private sector that are “at risk” to the private sector; (ii) funds borrowed by the private sector from capital markets (typically bonds or other Indirect debt); and (iii) equity invested. Funds are typically borrowed for design and co s uc o b sed o construction based on the credit-worthiness of the project to produce sufficient e c ed wo ess o e p ojec o p oduce su c e revenue to repay the borrowed funds (with interest), to pay for long term O&M, and a profit. TM TM February 18, 2010 Dr. John B. Miller, ULI Nashville 3
How Are Project Elements Delivered? How Are Project Elements Delivered? The three (3) key elements of infrastructure The three (3) key elements of infrastructure projects projects are are delivered delivered – “Piecemeal” Piecemeal – projects are delivered together projects are delivered together – integrated integrated separated from each other – “Segmented.” with each other – “Combined.” Distinctions remain between capital budgets Distinctions are eliminated between capital for the Initial Delivery of projects and the budgets and operating budgets for these operating budgets for long term repair, projects. operations, and maintenance. All “Public Private Partnerships” Combining Design with Construction (Design-Build) included here with O&M (Design-Build) included here, with O&M. Design-Build-Operate-Maintain Design (including all combinations of public and Operations & p C Construction t ti private sector funding) i t t f di ) Maintenance Design-Build Combined C bi d Segmented TM TM February 18, 2010 Dr. John B. Miller, ULI Nashville 4
The Quadrant Framework Di Direct t IV I nce f Project Finan Project Delivery Method Segmented Combined Source of III II Indirect From Principles Text, Miller 2000, Kluwer. TM TM February 18, 2010 Dr. John B. Miller, ULI Nashville 5
Six Key Delivery Methods Six Key Delivery Methods Direct I IV “PU UBLIC P D Design-Build i B ild Design-Build-Operate-Maintain D i B ild O t M i t i (Alt 1 - all public funding) Operate & Maintain PRIVATE D Design-Build-Operate-Maintain i B ild O M i i Design-Bid-Build (Alt 2 - mixed public & private funding) (And Construction Mgmt. At Risk) Project Delivery Method Project Delivery Method Segmented S t d Combined C bi d E PARTN ject Finance Design-Build-Finance- Operate Maintain Operate-Maintain NERSHI Source of Proj ( NO public funding) S IPS” Indirect III II TM TM February 18, 2010 Dr. John B. Miller, ULI Nashville 6
The Quadrant Framework GOVERNMENT’S MONEY GOVERNMENT’S MONEY I IV Direct Design Combined With Operations Design Combined Construction And With O&M Constr ction And With O&M With Construction & Maint. ALL Public Money Alone But Separate from Ops Design Combined With Design Separated Construction And With O&M C t ti A d With O&M F From Construction C i MIX of Public and Private Money And from Ops Segmented Combined Project Delivery Method ce Project Financ Design Combined With Construction And With O&M ALL P i ALL Private Money (and at risk) t M ( d t i k) Source of III III II II Indirect Indirect From Principles Text, Miller 2000, Kluwer. OTHER PEOPLE’S MONEY (at risk) TM TM February 18, 2010 Dr. John B. Miller, ULI Nashville 7
The World’s Delivery Methods Fit In y Direct I IV O&M Alliancing g EPC Eng- g Operate-Maintain Proc-Construct PP Concession with Govt Finance CM Agency TKY Parallel “Super”-TKY Turnkey with Finance Prime Constr.Mangmt. Turnkey DBB Design- DBB D DB DB DBO D DBO Design-Build-Operate i i B ild O t Bid-Build Design Build DBOM Design-Build-Operate-Maintain CM At Risk FT Fast Constr.Mangmt. Track Segmented Segmented Combined Combined BOT Build-Operate-Transfer BOO Build-Own-Operate DBOT Design-Build-Operate Transfer BOOT Build Own Operate Transfer DBFOM Design-Build-Finance-Operate-Maintain Concession with Private Finance (at risk) Concession with Private Finance (at risk) Indirect III II TM TM February 18, 2010 Dr. John B. Miller, ULI Nashville 8
The Quadrant Framework Q Direct IV I Quadrants I and II Are oject Finance Confusingly Lumped Project Delivery Method Segmented Combined Together as as Source of Pro PPP’s III II Indirect From Principles Text, Miller 2000, Kluwer. TM TM February 18, 2010 Dr. John B. Miller, ULI Nashville 9
Is The Use of DBOM and DBFOM as an Engine for Inno ation “New”? an Engine for Innovation “New”? NO!!!! American History Confirms this Answer [A Very Similar History in the U K [A Very Similar History in the U.K. Many of Britain’s innovations were quickly “borrowed” by the “Cousins” in America.] TM TM TM TM February 18, 2010 Dr. John B. Miller, ULI Nashville 10
Wire Cable Technology From DBFO From DBFO - Brooklyn Bridge Bridge Prompt Transfer to Design- Bid- Build TM TM TM TM February 18, 2010 Dr. John B. Miller, ULI Nashville 11
Innovation in Steel Technology From DBFO The Eads Bridge St Louis DBFO The Eads Bridge St. Louis Prompt Transfer to Industry: From DBFO to All Delivery Methods P t T f t I d t F DBFO t All D li M th d TM TM February 18, 2010 Dr. John B. Miller, ULI Nashville 12
Innovation in Hydraulics From DBFO E d ’ S Eads’ South Pass Jetty System th P J tt S t TM TM February 18, 2010 Dr. John B. Miller, ULI Nashville 13
More Examples Direct IV I MBTA CR Indianapolis WW Water Golden US IHS Gate Big Northumberland Northumberland B Bay Dig EPA Bridge Bridge CGP Erie Canal NatRd Segmented Combined ZANE BrBr 1850 NYSub Eads Br Dulles KEOK 1900 Greenway SltSM SltSM 1950 407 ETR SR 91 III III II II 2000 Indirect TM TM February 18, 2010 Dr. John B. Miller, ULI Nashville 14
Histogram of US Project Delivery Direct 800 Projects Authorized IV IV I I By Congress Prior to 1933 Segmented Combined 1850 1850 1900 III III II II 1950 Indirect From Principles Text, Miller 2000, Figure 3-5, Kluwer. TM TM February 18, 2010 Dr. John B. Miller, ULI Nashville 15
Heavy Early Emphasis on Life C Cycle Project Delivery Methods l P j t D li M th d Direct 800 Projects 800 Projects Quadrant IV Quadrant IV Quadrant I Quadrant I PRIOR TO Authorized 1933 By Congress Prior to 1933 P i t 1933 6.6% 93.4% Segmented Combined Quadrant III Quadrant II Indirect From Principles Text, Miller 2000, Figure 3-3, Kluwer. TM TM February 18, 2010 Dr. John B. Miller, ULI Nashville 16
Congress as “R.E. Developer” g p Direct Quadrant IV Quadrant I GOVERNMENT’S MONEY GOVERNMENT S MONEY PRIOR TO 6.5% 31% 1933 Segmented Combined 62% Negligible g g OTHER PEOPLE’S MONEY (at risk) Quadrant III Quadrant II Indirect Indirect From Principles Text, Miller 2000, Figure 3-4, Kluwer. TM TM February 18, 2010 Dr. John B. Miller, ULI Nashville 17
The Dual Track Strategy Pre-1933 Pre-1933 Appropriations Contracts (Franchises) Direct Indirect Finance Finance Harbor Improvements Harbor Improvements Most Canals Most Canals Navigable Rivers Projects Commercial Docks, Piers Navigation Aids Post Roads OTHER GOVT’S Territorial Roads and Trails Railroads PEOPLE S PEOPLE’S Military Roads Military Roads Telegraph, Telephone Telegraph Telephone MONEY MONEY Public Buildings Power MONEY (at risk) TRACK 1 TRACK 1 TRACK 2 TRACK 2 From Principles Text, Miller 2000, Figure 3-1, Kluwer. TM TM February 18, 2010 Dr. John B. Miller, ULI Nashville 18
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