11Palisades

NOT Business as Usual--A Statewide Transportation

Development Corporation for Maine

NOT Business as Usual--A Statewide Transportation

Development Corporation for Maine

ByEva Lerner-Lam, F.ITE, M.ASCE

PresidentPalisades Consulting Group, Inc.

Presented Thursday, March 6, 2008

Portland Marriott at Sable Oaks DriveSouth Portland, ME

ByEva Lerner-Lam, F.ITE, M.ASCE

PresidentPalisades Consulting Group, Inc.

Presented Thursday, March 6, 2008

Portland Marriott at Sable Oaks DriveSouth Portland, ME

22Palisades

Today’s PresentationToday’s Presentation Current Situation in Maine

Urgent needs What’s been considered Typical PPP alternatives elsewhere in the

US Government-As-Shareholder Model

Definition How it differs from traditional “PPP” models Examples from China and the UK Concept for Maine

Open Discussion

Current Situation in Maine Urgent needs What’s been considered Typical PPP alternatives elsewhere in the

US Government-As-Shareholder Model

Definition How it differs from traditional “PPP” models Examples from China and the UK Concept for Maine

Open Discussion

33Palisades

Maine’s Urgent Transportation NeedsMaine’s Urgent Transportation Needs

Maintain existing infrastructure (deteriorating roads and bridges)

Build new capacity (major bypasses and interstate-like extensions)

Maintain existing infrastructure (deteriorating roads and bridges)

Build new capacity (major bypasses and interstate-like extensions)

44Palisades

Traditional FundingTraditional Funding

Fuel taxes Highway Tolls Agency Bonds

Fuel taxes Highway Tolls Agency Bonds

55Palisades

What’s Been Considered in Maine?

What’s Been Considered in Maine?

New tolls on existing highways Increased gas taxes Fully-privatized, new highways Long-term leases for operating

existing and/or new highways

New tolls on existing highways Increased gas taxes Fully-privatized, new highways Long-term leases for operating

existing and/or new highways

66Palisades

What’s Been Considered Elsewhere?What’s Been Considered Elsewhere? Regional Mobility Authorities (Texas) Private Tollroad Systems (California) Long-term Leases (Indiana, Illinois) Availability Payments (Florida) Public Benefit Corporations (New

Jersey) Public-Private Partnerships “True PPP”: Government-as-

Shareholder (China and UK)

Regional Mobility Authorities (Texas) Private Tollroad Systems (California) Long-term Leases (Indiana, Illinois) Availability Payments (Florida) Public Benefit Corporations (New

Jersey) Public-Private Partnerships “True PPP”: Government-as-

Shareholder (China and UK)

77Palisades

“True PPP” Model: “Government-as-Shareholder”

“True PPP” Model: “Government-as-Shareholder”DEFINITION:

A for-profit corporation whose Business Mission is to provide infrastructure on a financially-sustainable basis. It can be co-owned by federal, state, regional and/or local governments, port authorities, as well as private investors such as industrial corporations and private equity funds that contribute cash and in-kind services for an equity stake in the company.

DEFINITION:A for-profit corporation whose Business Mission is to provide infrastructure on a financially-sustainable basis. It can be co-owned by federal, state, regional and/or local governments, port authorities, as well as private investors such as industrial corporations and private equity funds that contribute cash and in-kind services for an equity stake in the company.

88Palisades

Government-As-Shareholder: How It’s Done in China

Government-As-Shareholder: How It’s Done in China

Government and private sector partner to build and operate transportation infrastructure Create a new, shareholding corporation

Flexible organizational structures, but governments own at least 51% controlling interest

Financed through investment by governments, banks and other investors

Clearly defined business Vision, Mission Objectives, Strategies and Tactical Plans

Transparency to meet shareholder requirements

Government and private sector partner to build and operate transportation infrastructure Create a new, shareholding corporation

Flexible organizational structures, but governments own at least 51% controlling interest

Financed through investment by governments, banks and other investors

Clearly defined business Vision, Mission Objectives, Strategies and Tactical Plans

Transparency to meet shareholder requirements

99Palisades

Government-As-Shareholder

Government-As-Shareholder

“Two guys in a garage” analogy One has the “gee-whiz” technology The other has the angel investors and the

business smarts

They team up and prototype their product

When they get market share and traction, they can either remain “closely held” or “go public” with an IPO

“Two guys in a garage” analogy One has the “gee-whiz” technology The other has the angel investors and the

business smarts

They team up and prototype their product

When they get market share and traction, they can either remain “closely held” or “go public” with an IPO

1010Palisades

Government-As-Shareholder Concept for

Maine:

Government-As-Shareholder Concept for

Maine: Government(s) forms corporation(s) to

build, operate and maintain transportation infrastructure (highways, ferries, bikeways, busways, etc.)

Revenues are generated from tolls, fares, fiber optic leases, advertising, real estate proceeds, etc.

Each corporation invests in a segment of the adopted statewide transportation plan

Government(s) forms corporation(s) to build, operate and maintain transportation infrastructure (highways, ferries, bikeways, busways, etc.)

Revenues are generated from tolls, fares, fiber optic leases, advertising, real estate proceeds, etc.

Each corporation invests in a segment of the adopted statewide transportation plan

1111Palisades

Government-As-Shareholder Concept,

con’d.

Government-As-Shareholder Concept,

con’d. Net income--yes, “profits”--are

reinvested or paid in dividends to shareholders, who can do whatever their boards are authorized to do with income

If the venture fails, declare bankruptcy, close the company

If the venture succeeds, consider taking it public with an Initial Public Offering (IPO)

Net income--yes, “profits”--are reinvested or paid in dividends to shareholders, who can do whatever their boards are authorized to do with income

If the venture fails, declare bankruptcy, close the company

If the venture succeeds, consider taking it public with an Initial Public Offering (IPO)

1212Palisades

宝琳 Po Lam

坑口 Hang Hau

调景岭 Tiu Keng Leng

将军澳 Tseung Kwan O

香港铁路周边综合开发的案例 - 将军澳Case Study of Integrated Development along Rail alignment in Hong Kong - Tseung Kwan O

香港铁路周边综合开发的案例 - 将军澳Case Study of Integrated Development along Rail alignment in Hong Kong - Tseung Kwan O

Palisades

1313Palisades

低密度开发区

无车高密度综合开发区

高密度核心住宅区

地铁干道

400米步行区

地区道路地区辅路和接驳公交

地铁站

轨道交通主导综合社区发展模型 The Conceptual Model of Integrated

Development

轨道交通主导综合社区发展模型 The Conceptual Model of Integrated

Development

Palisades

1414Palisades

QuickTime™ and a decompressor

are needed to see this picture.

1515Palisades

QuickTime™ and a decompressor

are needed to see this picture.

1616Palisades

China’s New HighwaysChina’s New Highways

1717Palisades

China’s New HighwaysChina’s New Highways Currently 53,600 km of expressways--the

second longest in the world behind the United States, which has 89,000 km

Will build at least 5,000 km of expressways in 2008, bringing the total length of expressways in the nation to almost 60,000 km by the year-end

Last year, 8,300 km of new expressways were built and opened for use across the country--more than the total length of freeways in Japan (7,000 km)

Currently 53,600 km of expressways--the second longest in the world behind the United States, which has 89,000 km

Will build at least 5,000 km of expressways in 2008, bringing the total length of expressways in the nation to almost 60,000 km by the year-end

Last year, 8,300 km of new expressways were built and opened for use across the country--more than the total length of freeways in Japan (7,000 km)

1818Palisades

China’s New HighwaysChina’s New Highways In the past five years, China has built

28,000 km of freeways, almost equal to the combined total in Canada and Germany, which rank fourth and fifth in the world

China plans to have 85,000 km of expressways by 2020.

A 35,000-km national highway system that is comprised of five north-south highway trunk roads and seven east-west trunk roads took shape at the end of 2007, 13 years ahead of what was originally planned.

In the past five years, China has built 28,000 km of freeways, almost equal to the combined total in Canada and Germany, which rank fourth and fifth in the world

China plans to have 85,000 km of expressways by 2020.

A 35,000-km national highway system that is comprised of five north-south highway trunk roads and seven east-west trunk roads took shape at the end of 2007, 13 years ahead of what was originally planned.

1919Palisades

QuickTime™ and a decompressor

are needed to see this picture.

China’s New BridgesChina’s New Bridges

2020Palisades

China’s New TunnelsChina’s New Tunnels

•China has 8,600 tunnels with the length exceeding 4,370 km, ranking the first in the world.

•Railway tunnels make up 3,670 km, and highway tunnels total 835 km.

2121Palisades

China’s New RailwaysChina’s New Railways

QuickTime™ and a decompressor

are needed to see this picture.

2222Palisades

Examples of China’s Transportation Investments

Examples of China’s Transportation Investments

The world’s longest sea-crossing bridge (a 36km six-lane highway across Hangzhou Bay) is due to open in June 2008

Work began in January 2007 on a 1,300km line between Beijing and Shanghai that will be completed in five years’ time.

August 2008, the 115km journey from Beijing to Tianjin, its nearest port, will be reduced to half an hour with the inauguration of a bullet-train link

The world’s longest sea-crossing bridge (a 36km six-lane highway across Hangzhou Bay) is due to open in June 2008

Work began in January 2007 on a 1,300km line between Beijing and Shanghai that will be completed in five years’ time.

August 2008, the 115km journey from Beijing to Tianjin, its nearest port, will be reduced to half an hour with the inauguration of a bullet-train link

2323Palisades

Examples of China’s Transportation Investments

Examples of China’s Transportation Investments

The world’s highest railway from Golmud to the Tibetan capital of Lhasa, (1140 km), was completed in less than three years.

Since the 1990s China has built an expressway network criss-crossing the country that is second only to America’s interstate highway system in length. By the end of 2007, some 53,600km of toll expressways had been built. The aim is to have 83,000km of expressways by 2020.

The world’s highest railway from Golmud to the Tibetan capital of Lhasa, (1140 km), was completed in less than three years.

Since the 1990s China has built an expressway network criss-crossing the country that is second only to America’s interstate highway system in length. By the end of 2007, some 53,600km of toll expressways had been built. The aim is to have 83,000km of expressways by 2020.

2424Palisades

Examples of China’s Transportation Investments

Examples of China’s Transportation Investments

The World Bank says that China’s railways carry 25% of the world’s railway traffic on just 6% of its track length. In the past couple of years investment has grown considerably. This year’s target is $42 billion, compared with a total of $72 billion in the preceding five years

Air passenger traffic has increased: from 7 million passengers in 1985 to over 185 million in 2007

Source: The Economist, February 20,2008

The World Bank says that China’s railways carry 25% of the world’s railway traffic on just 6% of its track length. In the past couple of years investment has grown considerably. This year’s target is $42 billion, compared with a total of $72 billion in the preceding five years

Air passenger traffic has increased: from 7 million passengers in 1985 to over 185 million in 2007

Source: The Economist, February 20,2008

2525Palisades

Example: China Railway Group, Ltd.

Example: China Railway Group, Ltd.

A SharePublic Shareholders

InfrastructureConstruction

Survey, Designand Consulting

Services

Engineering Equipmentand

Component Manufacturing

PropertyDevelopment

OtherBusinesses

China Railway Group, Ltd.

China RailwayEngineering Corporation

H SharePublic Shareholders

22% 60% 18%

•Third largest civil construction enterprise in the world

•Ranked 342 in the 500 world's largest enterprises in 2007 by Fortune Magazine

2626Palisades

United Kingdom’s “Shareholder Executive”

United Kingdom’s “Shareholder Executive”

Created in September 2003 to improve the government's performance as a shareholder in businesses.

27 government-owned businesses Advises Ministers and officials on a wide range of

shareholder issues including objectives, governance, strategy, performance monitoring, board appointments and remuneration.

Corporate finance resource within government. This is applied beyond the portfolio of government-owned businesses, for example to applications for support under regional and industrial assistance programmes.

http://www.shareholderexecutive.gov.uk/

Created in September 2003 to improve the government's performance as a shareholder in businesses.

27 government-owned businesses Advises Ministers and officials on a wide range of

shareholder issues including objectives, governance, strategy, performance monitoring, board appointments and remuneration.

Corporate finance resource within government. This is applied beyond the portfolio of government-owned businesses, for example to applications for support under regional and industrial assistance programmes.

http://www.shareholderexecutive.gov.uk/

Palisades

Sale ModelSale Model

QuickTime™ and a decompressor

are needed to see this picture.

Palisades

Palisades Palisades

Joint Venture ModelJoint Venture Model

QuickTime™ and a decompressor

are needed to see this picture.

Palisades

Palisades Palisades

Compare and Contrast: Asset “Equitization” in China vs. Asset “Monetization” the US

Compare and Contrast: Asset “Equitization” in China vs. Asset “Monetization” the US China built its transportation

infrastructure in 15 years using government subsidies, yes, but also some fairly pure forms of ENTREPRENEURSHIP and CAPITALISM

Today, much of China’s infrastructure is owned by Government Private Investors General Public as Investors

China built its transportation infrastructure in 15 years using government subsidies, yes, but also some fairly pure forms of ENTREPRENEURSHIP and CAPITALISM

Today, much of China’s infrastructure is owned by Government Private Investors General Public as Investors

Palisades Palisades

Compare and Contrast, con’d.Compare and Contrast, con’d. In contrast, the US built its infrastructure

using tax-funded government agencies As tax cuts are legislated, the

infrastructure deteriorates, and its very ownership goes “into play”

Future of infrastructure is uncertain, since financial objectives are not always consistent with public policy objectives

Warning: Investment groups “package” securitized assets and sell them to others in unregulated markets (déjà vu: subprime mortgage crisis)

In contrast, the US built its infrastructure using tax-funded government agencies

As tax cuts are legislated, the infrastructure deteriorates, and its very ownership goes “into play”

Future of infrastructure is uncertain, since financial objectives are not always consistent with public policy objectives

Warning: Investment groups “package” securitized assets and sell them to others in unregulated markets (déjà vu: subprime mortgage crisis)

3131Palisades

1. Capitalizationby Shareholders

2. CorporationEstablished

3. Operations

4. Net Profit / Loss

5. Success / Failure

State Transportation Corporation

1/3 1/3 1/3

Net Operating Revenue

Subsidiary A Subsidiary B Subsidiary C

Federal State Other

Profit <Loss>

Growth / Public Offering Bankruptcy

$

A Conceptual Model for Maine

Le

rne

r-L

am 2

00

8

3232Palisades

ObstaclesObstaclesSame as for other PPPs*: Understanding PPPs Philosophical Differences Resistance to Change Legislature Control Organized Labor Concerns Contractor Concerns

*Lynn Weiskopf, NYSDOT, July 2006

Same as for other PPPs*: Understanding PPPs Philosophical Differences Resistance to Change Legislature Control Organized Labor Concerns Contractor Concerns

*Lynn Weiskopf, NYSDOT, July 2006

3333Palisades

BenefitsBenefits Government retains majority ownership

of asset Government collaborates with private

sector for innovative solutions “Profit motive” drives efficiency and

productivity Share ownership and IPO potential

allows legitimate investment in the venture by outside investors, including equity and other direct investment funds

Government retains majority ownership of asset

Government collaborates with private sector for innovative solutions

“Profit motive” drives efficiency and productivity

Share ownership and IPO potential allows legitimate investment in the venture by outside investors, including equity and other direct investment funds

3434PalisadesPalisades

Questions and Open Discussion

Questions and Open Discussion

www.palisadesgroup.comwww.palisadesgroup.com