Mountain Connect 2017
Public-Private Partnerships:
Key Business and Legal Considerations
Jim Baller
Baller Stokes & Lide, PC
2014 P Street, NW
(202) 833-1144
[email protected]
www.Baller.com
Disclaimer
This presentation is for informational purposes only.
It is not intended to be legal advice and should not be
interpreted as such.
For advice on federal, state, or local law, please
consult qualified legal counsel.
Program Overview
I.
Background
II.
Why Fiber P3s?
III.
Key Business Considerations
IV.
Key Legal Considerations
V.
Q&A
I. Background
Public Broadband Initiatives 1994 - Present
• First wave – Glasgow, KY, and other municipal electric utilities
• Most provided “triple play” retail services themselves
• Some partnered with private entities for some purposes –
e.g., Tacoma, WA; Jackson, TN; Powell, WY.
• First non-utility Broadband P3 – Lynchburg, VA?
• First public fiber networks ~2000-2001 – e.g., Grant County,
WA; Bristol, VA; Kutztown, PA; Provo, UT
• Today, widespread interest in broadband P3, particularly for
FTTP projects (… continued on next slide)
II. Why Fiber P3s?
• Like electric power networks, fiber networks are general-purpose
drivers of, and platforms for, simultaneous progress in just about
everything that is important to communities
• Chattanooga, Google Fiber, AT&T, Comcast, and others have
spurred demand for “Gigabit” broadband
• Federal Broadband Stimulus and Google Fiber for Communities
initiative gave communities incentive to learn about themselves
and what a fiber network could do for them
• Cable providers no longer provide free or low cost I-Nets
• Localities without willing municipal electric utilities lack relevant
expertise, need P3
• Many new potential private partners have emerged
III. Key Business Considerations
• Goal: Achieve the Best Case-Specific Balance of Risks,
Benefits, and Control
• Analytical Framework:
• Base Case: Pure Public Investment and Risk
• Model 1: Predominantly Private Investment and Risk
• Model 2: Shared Investment and Risk
• Model 3: Predominantly Public Investment and Risk
Base Case
Pure Public Investment and Risk
• Public entity alone invests in, builds, operates, maintains, and
refreshes the network, takes all benefits, assumes all risks
• Examples: Chattanooga, Lafayette, Wilson + ~ 100 others
• Works best for communities with their own electric utilities
• Anchor tenants: Utility, local government, schools
• Existing relationships with electric customers of all kinds
• Experience with high tech, customer service, technical
support, billing, etc.
• Easy access to poles, ducts, conduits, towers, buildings, etc.
• If no municipal electric utility, community that wants to be sole
owner of network must contract out all functions
Model 1
Predominantly Private Investment and Risk
• Public entity makes it easy and fast for private entity to enter
• Examples: streamlining ROW processes, lowering ROW
fees, pre-approving technologies such as micro-trenching,
providing dedicated permit inspectors, offering parcels of
land, tax benefits, aggregating demand, purchasing services
from the private entity, etc.
• Examples: Google Fiber, C-Spire cities
• Locality bears little risk, has no control, achieves few direct
benefits, but obtains multiple benefits for the community
• Caution: Incumbents will probably seek similar benefits, without
necessarily offering similar community benefits; potential “level
playing field” litigation -- e.g., Cox v. City of Tempe, AZ
Model 2
Predominantly Public Investment and Risk
• Based on “Concessionaire Model” used for decades in
transportation and civil works projects, particularly in Europe
• Private entity finances, designs, builds, operates, maintains,
and refreshes the network and provides services over it
• Public entity pays monthly “availability payment” based on
“working assumptions” at time of execution of agreement
• “Availability payment” may be adjusted if assumptions change
because of many kinds of “supervening events”
• Parties negotiate who’s responsible for additional costs for
each kind of supervening event, ideally base on who is in
the best position to deal with the supervening event
Model 2 (continued)
• Example: KentuckyWired P3 for a 3,400-mile, $324 million
statewide fiber network, serving 1100 government sites and
other customers (Bond Buyers Deal of the Year for 2015)
• Public entity will pay for most of network by redirecting spend
by government entities for communications services
• Commonwealth will also have opportunity to share in
revenues from sales of services to non-public users
• Potential partners have emerged, including inSite Capital,
Macquarie Capital, SiFi Networks, Fujitsu, Symmetric Networks
• Caution: Model not yet proven for broadband. Public entities
may face significant political and long term financial risks. Need
to be extremely careful about “working assumptions,” particularly
about pole attachments and easements.
Model 3
Shared Investment and Risk
• Wide range of case-specific opportunities for innovation
• Examples: In addition to the kinds of benefits under Model 1,
the public entity provides access to existing or new fiber or
other facilities; shares revenues and risk of shortfalls.
• The greater the private entity’s downside risk, the greater its
incentive to succeed
• Examples: Westminster, MD; Huntsville, AL; UC2B, IL
• Locality shares risk but obtains 100 percent of desired benefits for the
community
• Caution: Beware of unrealistic revenue and cost projections. Be
sure to include protections for the public entity in case project fails,
private entity sells out, etc.
IV. Key Legal Considerations
• Analytical Framework:
• Authority Issues
• Pre-Negotiation Project Planning
• Negotiation of the P3
• Implementation
Authority Issues
• Federal law does not provide authority for broadband P3s; that
must come from state and local law
• State constitutions and statutes
• Constitutional restrictions on investing in, or lending credit to,
private entities -- “public purpose” exception, value obtained
• Explicit grants or restrictions on local authority to engage in
communications activities (approx. 22 states have barriers)
• More than 30 states now have P3 statutes
• Home Rule or Dillon’s Rule to fill gaps
• Potential local restrictions in ordinances, franchises, pole
attachment agreements, other agreements
• Caution: Essential to identify all applicable substantive and
procedural requirements. Early ID can lead to acceptable options.
Pre-Negotiation Planning
• Financing issues
• Grants, loans, and other funding available to public entities
• Equity, debt, equipment, in kind services, co-builds, swaps,
etc. available for private sector financing
• Multiple tax and other incentives for economic development
• Access to public rights of way and public facilities (poles, ducts,
conduits, fiber, buildings, towers, real estate, etc.)
• Allocation of regulatory burdens and benefits (e.g., Universal
Service Program, E-Rate, Connect America Fund, etc.)
• Organizational issues – including where public entity will be
housed and how it will address complex governance issues
• Caution: Need to strike the right balance. The more the locality
contributes, the greater its bargaining power will have.
Solicitation and Negotiation
• Identify potential private partners
• Typically through a Request for Information or a Request for
Qualifications, followed by a Request for Proposals
• Opportunity to “sell” the community, learn about additional
options, vet respondents
• Key negotiation issues –
• Allocation of responsibilities, costs, and benefits
• Contingencies and supervening events
• Protecting the community if project struggles or fails
Caution: Comply with all procurement requirements. Rank risks,
rewards, and responsibilities – which are negotiable, which are
not? Be prepared to negotiate on hundreds of issues and to make
creative tradeoffs.
Q&A