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VISION PATH FINANCIAL Public Private Partnerships: A Global Tool for Infrastructure

AGENDA Current Economic Outlook and Key Factors PPP: An overview Examples of PPP’s PPP Process Risks and Cost Open discussion

International Markets: Slower growth Weaker national economies Limited migration due to soft housing markets Shifting and cautious capital infrastructure investors Some bright spots - Growth in China and Canada Improving economic indicators

Fiscal Situation: Difficult Times Limited growth in tax revenues Commercial and residential real estate correction Tax reforms (property, other) Less federal, state and local revenues Federal/National funding at risk Stimulus package drop-off after 2010 (U.S.) Healthcare reforms and costs (Global)

Global Urbanization The world’s urban population is projected to grow at twice the annual pace of the total population. Source: United Nations, 2006

Growth in Govt Funded PPP Programs Energy PPP’s: Loan Guarantee Programs – US

Anticipated Growth in Infrastructure Source: Strategy + Business magazine (Spring 2007) by Booz Allen Hamilton, Inc. During the next 25 years, modernizing and expanding urban infrastructure will require approximately $41 Trillion. Projected cumulative infrastructure investment needed during the next 25 years to modernize obsolescent systems and meet expanding demand, broken down by region and sector.

US Infrastructure Report Card Overall Grade = D ASCE Grading scale: A=Exceptional; B=Good; C=Mediocre; D=Poor; F=Failing Source: 2005 American Society of Civil Engineers (ASCE) Report who gave U.S. infrastructure a “poor” rating based on the condition Aviation D+ Bridges C Dams D- Drinking Water D- Energy D Hazardous Waste D Ports/Waterways D- Parks and Recreation C- Rail C- Roads D Schools D Solid Waste C+ Transit D+ Wastewater D-

Education: Drivers behind construction Class size reduction Population growth & migration Changing Educational Needs Technology, computer labs, science labs, bio-science facilities, athletic facilities Modernization / replacement of aging facilities Environmental LEED initiative to reduce carbon footprint utility consumption; electricity, water, gas.

Public-Private Partnerships: An Overview

What is PPP? A Public-Private Partnership is a contractual agreement between a public agency (federal, state or local) and a private sector entity , or not for profit. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public. In addition to the sharing of resources, each party shares in the risks and rewards in the delivery of the service and/or facility.

PPP is not privatization PPP Privatization Asset ownership Usually no irrevocable transfer of assets Transfer of ownership of assets Public responsibility Set policy and service levels Regulation Level of services Mechanism for shared services Authorities withdraw from service Risk/Reward Shared Transferred Mode Partnership Self-interest

What makes a partnership work?

Benefits of PPP Earlier delivery of projects Ability to deliver multiple facilities as needed by demand Risk shifted (shared) from Public to Private sector Cost Savings - Construction - Efficiencies/Innovation Potential life-cycle costs as private sector invests more up front to save operating costs Lower initial costs (e.g., pre-development; construction)

Benefits of PPP Positive impact on bond/debt capacity and ratings if private debt used Economic development catalyst/increased tax revenues (e.g., create jobs, impact property values) Possible operating expense (vs. capital) treatment Increased flexibility for public agency Public sector can focus on its’ core competencies Innovative funding solutions Revenue possibilities and longer-term cash flow

Public-Private Partnerships Confusion (also referred to as PPP, P3, 3P and PFI)

Types of PPP Degree of Private Sector Involvement Degree of Private Sector Risk

Design/Build/Maintain (BOM) Private sector: Designs and builds facility Signs maintenance contracts Public sector: Finances Operates Design/Build – CM@Risk Design/Build/Maintain (BOM)

Build/Operate/Transfer (BOT) Private sector: Designs and builds facility Assign operation contracts for non governmental functions Provides some or all of financing Asset ownership Transfer to public agency varies Can be at end of construction Can be at end of operation/finance contract Can be at the option of public agency Design/Build – CM@Risk Design/Build/Maintain (BOM) Build/Operate/Transfer (BOT)

Lease/Develop/Operate Private sector: Leases or buys existing facility Renovates, modernizes, expands facility Public sector Public agency may provide operation Design/Build – CM@Risk Design/Build/Maintain (BOM) Build/Operate/Transfer (BOT) Lease/Develop/Operate

Tax-Exempt Lease/Bond Private sector: Finances capital assets or involves private investments Bond/Lease payment Interest payments are tax exempt under State/Federal laws Asset ownership Transferred to public agency at beginning or end of lease/bond term May be owned for non for profit Special Purpose Entity Design/Build – CM@Risk Design/Build/Maintain (BOM) Build/Operate/Transfer (BOT) Lease/Develop/Operate Lease Purchase Sale/Leaseback Tax-Exempt Lease/Bond

Private Finance Initiative Model developed in UK (used by Canada, Australia, others) Risk is mostly transferred to the private sector Private sector: Designs and builds facility Provides all of financing Provides maintenance under contract Provides operations of non-education functions under contract Public sector Accrues equity as lease payments are made Own asset at end of lease term Design/Build – CM@Risk Design/Build/Maintain (BOM) Build/Operate/Transfer (BOT) Lease/Develop/Operate Lease Purchase Sale/Leaseback Tax-Exempt Lease/Bond Turnkey Private Finance Initiative

The evolution of PPPs Operational Focus Strategic Focus Input-orientation Output-orientation Outcome-orientation Outsourcing Cost Value Design & build, O&M contracts PPP contracts Joint Ventures & Strategic Partnerships

Operations Only will provide non-governmental services Food services Energy and utilities Not a necessary component for PPP Performance guarantees Financial penalties

Maintenance Can provide complete services Building maintenance Grounds maintenance Performance guarantees Financial penalties Example: Financial penalties if light bulb is not replaced within 30 minutes of reporting Facility must be in proper shape when lease term is up

Primary School Example- Knowsley UK Introduction Balfour Beatty Capital was awarded a 25-year, $294 million contract to design and construct seven new learning centers. Private investment: $38 million in the project. Project overview Construction of seven state-of-the-art learning centers which will replace all of the existing schools over a 3-year period. Maintenance of the schools will be undertaken by a subsidiary of Balfour Beatty. Balfour Beatty will work with Knowsley Council in the further development of a clear educational vision examining progressive learning environments and teaching models. The vision for Knowsley Knowsley will create learning centers – schools - that will be open in the evenings, on weekends and during the school holidays, making them available for the entire community. The centers will also provide other services for the community, such as healthcare, on the same site. Education Councilman Larry Nolan said, “So much more is known today about the way children learn, and these new learning centers will be designed to meet their needs.”

K-12 Examples “ The pieces in our puzzle box have the following words on them; planning objectives, educational program goals, expertise, capability, capital funding, construction bonds, school improvement, tax incentives, housing, affordable housing, public programs and services, school choice, charter schools, private financing, flexibility, inflexibility, profit motive, bottom line, debt service, tax liability, public goals and objectives, early childhood development, responsibility, priorities, political considerations, repeat business, classroom space, community space, community learning, career education, etc. The bottom line is that we in the D.C. Public Schools see {public-private partnerships} as an opportunity and valuable tool in the arsenal of school facility improvements and accommodation of educational program needs.” Dr. Paul Vance, Superintendent, Washington, D.C. Public School Board

Higher Ed Example University of Central Florida was able to build a convocation center where state funding was not available for such projects. Example of PPP at University of Central Florida:

Hospital Example – Birmingham UK Introduction In June 2006, Balfour Beatty Capital was awarded a 40-year, $1.1 billion public-private partnership (PPP) project for Birmingham New Hospitals in the UK. Total committed investment is $46 million. Project overview Relocates most of south Birmingham’s key clinical and mental health facilities to a single site Construction is being undertaken over 62 months through a joint venture between Balfour Beatty Construction and Haden Young. FM Services : Balfour Beatty Capital is responsible for the facilities management services at the hospitals. This has been subcontracted to Haden Building Management, the Balfour Beatty Group facilities management company.

Loudoun County Govt Center – Leesburg VA 158,000 SF, five-story government center including administrative headquarters and 418-space parking garage. Scattered operations consolidated in two locations and capitalized using tax-exempt bonds, creating ~$1 million in annual savings (~$22 million cumulative savings over lease term). County outsourced financing, design, development, and construction risk, realizing savings of ~10% of project costs. Private Partner: Gilbane Development Company

Process Risks Risk Solution Reputation Loss of reputation because a partner reneges on agreement Thorough pre-screening of partner Expectation Unrealistic expectation - Include stakeholders in process - Clearly communicate status at every milestone Project Private partner unable to deliver due to financial resources or experience Select partner that can bring resources to accomplish goals Legal Project being derailed due to violations of procurement or delivery laws Research laws prior to RFP/RFQ process and ensure the document is compliant Political Process can derail due to political fighting Get political agreement prior to process

Balancing Risk with Costs The greater the transfer of risk, the higher the price Project costs could grow and become prohibitively expensive Transfer risk when it makes good economic sense Hurdle Risk Costs Optimal risk transfer

Cost Over Time Time Cost to Public Sector PPP approach Public funding Traditional funding of projects contains peaks and valleys in spending PPP creates a steady, predictable, and affordable financing source

PPP – A Combining of Strengths

Combining of Strengths Legal authority Protection of procurement polices Broad perspective to meet public needs Personnel is dedicated but constrained Capital resources and under utilized assets (Result of market competition) Management efficiency Workplace efficiencies Capital management Newer technologies Cash flow management Personnel expertise Public Sector Strengths Private Sector Strengths 100% Effectiveness

Additional Information National Council for Public-Private Partnerships - www.ncppp.org - Articles, papers and other resources on PPPs American Society of Civil Engineers - www.asce.org - Infrastructure report card US DOT – National Strategy to Reduce Congestion - www.fightgridlocknow.gov - Includes sample legislation authorizing PPPs US EPA – Sustainable Infrastructure for Water and Wastewater - www.epa.gov/waterinfrastructure/index.html - Advocates full cost pricing

Contact info: Steve Allen President and CFO Vision Path Financial, LLC 404-993-2500 [email_address] Vision Path Financial

Vision Path Financial Public Private Partnerships: A Global Tool for Infrastructure

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