Pennsylvania Society of Professional Engineers
Summary of Legislation
August 2008
Headlines:
Transportation Committee Examines Public Private Partnerships
On August 18th, the House Transportation committee held a hearing on two bills that would allow the Commonwealth and regional transportation authorities to enter into agreements with the private sector to design, construct, manage or maintain new or expanded transportation infrastructures and facilities through public-private partnerships. As written, both House Bill 555 and Senate Bill 1158, would exempt any of these partnership projects from the requirements of the Separations Act.
At the hearing, representatives from SEPTA and the Port Authority of Allegheny County both endorsed the idea of eliminating the applicability of Separations Act for their projects. Both entities have a history of opposing the separate primes requirements. On the other side, mechanical, electrical and plumbing contractors are opposed to the Separations Act exemption. The State Building Trades are opposed to the partnerships in general and have asked that both bills be opposed. Representative Joe Markosek, Chairman of the committee, is not expected to move either bill in the little time remaining this legislative session. However, the proponents of the Turnpike Lease are reportedly looking for another bill to amend. If that occurs, there may yet be a vote on Public Private Partnerships before the session ends on November 30th. The following is a detailed report on the public hearing.
The House Transportation committee held a public hearing on legislation allowing the Commonwealth and regional transportation authorities to enter into agreements with the private sector to design, construct, manage or maintain new or expanded transportation infrastructures and facilities through public-private partnerships, referred to as “P-3s”.
HB 555, sponsored by Rep. Rick Geist, amends Title 74 (Transportation) establishing public-private transportation partnerships; conferring powers and duties on the Pennsylvania Public Utility Commission, the State Transportation Commission and the Department of Transportation; and establishing the Public-Private Transportation Partnership Fund. SB 1158 by Sen. Roger Madigan, amends Title 74 (Transportation) providing for transportation infrastructure partnership and development. The bill provides for transportation development agreements, terms and conditions of transportation development agreements, and the review and selection of proposals. The bill outlines financing for qualifying transportation projects and the power of eminent domain. The legislation creates the Pennsylvania Transportation Development Trust Fund and provides for its permitted uses. A regional mobility authority would be eligible to receive transportation development revenues directly from the fund or from a regional mobility fund. The bill requires PennDOT to adopt interim guidelines within six months and final regulations within two years for implementing the provisions of the legislation; and sets a 60-day window for the solicitation of competing bids for an unsolicited proposal by the State Transportation Commission or another proprietary public entity. Lastly, the bill states that the Pennsylvania Turnpike may not be subject to a transfer of oversight responsibilities through a lease, sale or other agreement unless specific authority is granted through an act of law passed by a majority of members of the General Assembly.
Robert Ardolino, President and CEO of Urban Innovations, Inc., testified in support of the legislation but outlined to the committee members some "action items" that needed to be addressed prior to passing such legislation. These "action items" included:
- Ability of local jurisdictions to approve P-3 projects.
- Early engagement of the Federal Transit Administration and Federal HighwayAdministration.
- Identification of potential projects that meet the criteria of P-3 guidelines.
- Establishment of necessary public and private funding mechanisms that are "good fits" for P-3s.
- Involvement of Metropolitan/Regional Planning Organizations in the planning process.
- Placement of P-3 projects on the Transportation Improvement Plan/State Transportation Improvement Plan.
Ardolino said there are significant benefits for all participants through P-3 projects including: time savings; cost savings and new revenue streams; risk reduction; and more innovative and better quality projects. According to Ardolino, "In addition to cutting costs and raising new revenue, P-3s can significantly reduce the time it takes to complete a capital project; can help the public sector allocate risks to the private sector that the private sector is better able to manage; and can improve the quality of the public's infrastructure." He concluded, "The Commonwealth of Pennsylvania stands to benefit from the advantages that P-3s can bring to their communities and represents an important means to sustain quality of life and foster economic growth."
Rep. Jeffrey Pyle (R-Armstrong) asked Ardolino to further comment on allowing localities to establish independent P-3s. Ardolino said it has been their experience, most recently in Long Beach, California, is that you need the local jurisdiction's buy-in including the mayor, the council, their infrastructure committee, etc. He added you must start at that ground level and you need their buy-in first to take it up the ladder. Ardolino said transit authorities do not have the staff to run a P-3.
Rep. Mark Longietti (D-Mercer) wanted a clarification of whether Ardolino is suggesting the General Assembly consider his six proposals before enacting the legislation. Ardolino responded that they should be incorporated.
Rep. Jake Wheatley (D-Allegheny) asked for clarification if a regional planning organization has already approved a project then why the approval of the local municipality would be needed. Ardolino explained that the municipal planning organization is a conduit for transportation funding. He said if you take a particular project in a particular area, for example the AlleghenyValley Railroad, which would need a buy-in by WestmorelandCounty, AlleghenyCounty and the city of Pittsburgh. He further explained you would need approval by all three before applying to the Federal Transit Administration for approval of a P-3. Ardolino said a metropolitan planning organization would assist in the facilitation of a P-3.
Committee Chairman Joseph Markosek (D-Allegheny) wanted to know if P-3 legislation is needed for the AlleghenyValley rail corridor project. According to Ardolino, his company just executed a contract on the project to assist them in putting together the structure. He explained this under a current FTA program but the project can start under one program then move into a P-3. Chairman Markosek asked if this any different than the project in Snowmass Village, Colorado. Ardolino explained his company partnered with the developer and the town. He said it could have been a P-3 but Colorado did not have a law in place at the time but now they do.
Michael Setzer, Regional Vice President of Veolia Transportation, told the committee members that the private sector can bring flexibility and innovation along with "wide experience in many different settings brought to bear locally." He also said the private sector brings "one stop accountability" and cost savings through leaner overhead and management. Setzer added it provides a new framework for capital investment and also provides a separation of policy and operational execution. He provided an overview of Veolia Transportation's experience with P-3s in Europe and in the United States.
Rep. Pyle noted that prior to World War II most transportation systems were privatized but in the past 60 or so years it has been provided by public agencies. He said it seems they come for more money each year. Rep Pyle wanted to know what would make privatization possible now. Setzer responded that the public part of the partnership is essential. He explained it is not a way for the private sector to replace the public sector. He added P-3s are not a solution that works in all situations. Setzer predicted an operating subsidy will continue to be necessary for the next 30 to 40 years whether a private party is engaged or not. He said it works where the efficiencies in financing and in private development are great enough that the public side of the partnership decides it worth having. Rep. Pyle then asked how the light rail project in France is structured. Setzer responded that he would have to get the information for the committee.
Minority Chairman Geist asked about financing of projects and how the private sector can expedite projects. Setzer explained that for small projects, which he considered those of $100 million or less, Veolia would probably finance it on their own. He said on larger projects they partner with companies such as Goldman Sachs depending on the project. Setzer further explained that public transit projects are driven by the federal process. He said that under P-3s, the private sector can commence certain steps prior to federal approval.
Rep. Tina Pickett (R-Bradford) asked if Veolia is currently looking at any projects in Pennsylvania. Setzer responded that he does not know about Pennsylvania. He said, in general, P-3s are an alternative to be considered. He added transit agencies are being tasked to do more with less and that large, complex projects require a large staff for management and coordination which most transit agencies do not have.
Rep. Longietti asked if Setzer agreed with the need for local approval of a P-3 project. Setzer responded that the public partner must be fully engaged at the very beginning because it will be a long term relationship. Rep. Longietti then asked about the how the money flows between the public sector and the private sector. Setzer said there is any number of versions on how the financing works. He added in most cases it is usually a 30 year partnership. Rep. Longietti wanted to know about the sharing of fare revenue and how much Veolia receives. Setzer said in most cases it is 100% depending on the company's role in the operation or project.
Rep. Wheatley wanted to know if Ohio has a P-3 statute for public transit. Setzer said they have no prohibition against it but there is no statute. He added most states do not have a prohibition. Setzer said Colorado enacted a P-3 law in order to borrow at cheaper financing costs.
Mark Keller (R-Perry) asked if the building of railroad stations is part of a P-3 rail project. Setzer responded that it can be dependent on the project.
Toby Fauver, PennDOT's Deputy Secretary for Local & Area Transportation, explained to the committee members the department's responsibilities regarding public transit under Act 44. He said a local transportation organization receiving funding in an amount greater than $5 million annually under Act 44 shall undertake a study to evaluate the feasibility of utilizing partnerships with private service providers and private financial partners as a method to operate and finance new or existing services. According to Fauver, this applies to eight transit agencies including SEPTA, the Port Authority of AlleghenyCounty, CAT, Reading, Cambria/Johnstown, LackawannaCounty, Erie and the LehighValley. He noted the department does not participate in the studies but they encourage the agencies to file their reports in a timely fashion. Fauver described Act 44 as landmark legislation regarding transit agencies. He said funding is now distributed by a set formula. Fauver went on to explain that there are two types of systems in Pennsylvania: fixed routes and shared ride. He then provided an overview of the reports issued by the five agencies that are not testifying at the hearing.
Minority Chairman Geist wanted to know what percentage of systems costs SEPTA is now paying and what percentage the state is paying. Fauver responded that in terms of operating costs, SEPTA is recovering 40 or more percent under the fare box and the remainder would be state, local and federal subsidies. Minority Chairman Geist said he has been a long time proponent of building a train station at the HarrisburgInternationalAirport. He wanted to know the status of that project. Fauver explained that in terms of funding, the original cost was estimated at $10 million with $7 million coming from TIP. He said the airport authority decided to move their terminal and to take over the train station. According to Fauver, due to inflation and the authority's redesign the cost is now around $32 million. He said they are looking at a feasibility study about another way to proceed with the project. Minority Chairman Geist noted $70 million was used to upgrade the railroad line east of Harrisburg and the 30th Street Station in Philadelphia but there is no moneys for building a station. He also noted the need for more than one train going west from Harrisburg. Minority Chairman Geist added, "We take care of everything to the east but not west." Fauver said many things are going on at the national level. He said 80% federal money has been used for the Keystone corridor. He added the federal government has been underfunding AMTRAK which is also part of the problem.
Rep. Ron Marsico (R-Dauphin) wanted to know if the department is committed to the train station project at the Harrisburg airport. Fauver responded they are committed to it at an affordable cost. Rep. Marsico asked if the department is willing to provide more than $6 million. Fauver said the funding decision is not up to him.
Rep. Pyle wanted to know how much money has been provided to the transit agencies under Act 44. Fauver said $300 million was provided this last fiscal year. Rep. Pyle noted SEPTA is spending $1 million on advertising and he wanted to know if the department is overseeing this type of expenditure. Fauver said Act 44 allows the department to do performance audits but it is not "looking over the agencies' shoulders" on a daily basis. Rep. Pyle asked if the department has any plans to expand passenger rail service in other parts of the Commonwealth. Fauver responded the department looks at each project as they come into the department.
Rep. Wheatley said he believes public transit will never be self-sufficient. He said Act 44 has put more accountability into the system. He wanted to know of the department is adverse to P-3s and if there are any other things the General Assembly should be doing to reduce costs. Fauver said on the capital side, the four part bidding process is an impediment. He also said the federal "Buy American" requirements, while a good policy, also can increase costs.
Steven Bland, Chief Executive Officer of the Port Authority of Allegheny County, explained to committee members it is more common in public transportation to sub-contract portions of work including the operation of service to private, for profits operators. According to Bland, 15% of the Port Authority's annual operating budget and 42% of its capital budget is already "privatized" in this manner including the ACCESS Paratransit Program. He also provided an overview of some of their projects. Bland told committee two impediments for public transit agencies are the Commonwealth's Separation Act and section 13 (c) of the Urban Mass Transportation Act.
Joseph Casey, General Manager of the Southeastern Pennsylvania Transportation Authority (SEPTA), testified that $91.1 million was spent in the fiscal year 2007 operating budget for private sector contracts for purchased transportation; maintenance and other transportation services; and professional services. He said an additional $237 million was spent in the capital budget for private sector projects for design and construction contracts for stations, elevated guideways, bridges, electrical power substations and other infrastructure. Casey also pointed to the Separations Act as a "real impediment that adds significant costs" for the transit agencies.
James Hoffer, Executive Director of Capital Area Transit (CAT), told the committee, "The feasibility of partnering with private sector firms for the provision of service, maintenance of equipment and facilities and for the administration function of public transportation service has been a long standing consideration and practice of Capital Area Transit when it is cost effective to do so and is good business sense for the operations, maintenance and administration of the Authority." He went on to say, "Opportunities for greater involvement of the private sector should be viewed as supplementing the provisions of basic public services rather than a substitute for public services." Hoffer provided an overview of the range of activities and opportunities in which private sector involvement occurs with CAT. He concluded by expressing appreciation for the enactment of Act 44. According to Hoffer, "Without the support of Act 44, public transportation in the Harrisburg Urbanized Area would have been placed in an extremely difficult situation."
Rep. Keller noted SEPTA spends nearly $30 million on professional service contracts and he wanted to know what types of services were being provided. Casey said the contracts included services for workers' compensation administration; consulting and engineering services; legal services; laboratory, employee counseling and physician services; investigation and surveillance services; audit services; software maintenance and support; and data processing. Rep. Keller asked if these are on-going contracts. Casey said they are all different. He pointed out to committee members that SEPTA has an annual budget of $1.2 billion.
Rep. Marsico wanted to know if each of the transit agencies is financially stable this year. All responded, "Yes". Rep. Marsico then noted the Rendell Administration had flexed federal highway and bridge dollars to mass transit agencies. He wanted to know how that money was used. Casey said the moneys were used to sustain operations. Bland also said the moneys were used to sustain operations. He further explained that transit funding sources had been very unpredictable. Bland said Act 44 has brought more predictability to the funding. Hoffer said CAT did not receive any "flex" dollars but they were also facing financial challenges. He added that the Administration was able to forward some moneys from a discretionary fund.
According to Rep. Katharine Watson (R-Bucks) there is a lot of skepticism in the General Assembly about SEPTA and the other public transit agencies and she said they need to talk more about accountability. She noted earlier some questions were raised about the $1 million SEPTA spends on advertising. Casey responded that their costs per hour are "very efficient". He said with a $1.2 billion dollar budget the $1 million is not a major expense. Casey explained the advertising pays for itself with a slight increase in ridership caused by the advertising. He added SEPTA is rolling out increased service including later night and weekend service. Bland said the Port Authority has seen a 20% reduction in management positions. He also pointed out they eliminated 29 routes and are now looking more closely at the remaining routes to see if some stops can be eliminated to reduce costs. Bland said they have redone their board governance rules and they are working closely with regional transportation authorities. Hoffer said CAT is doing some of the same things on a smaller scale.
Rep. Longietti asked if studies have been done on increased fares and the impact on ridership. Casey said studies have been done. Rep. Longietti wondered with the increased ridership due to increased gasoline prices and parking fees, whether or not there is room for increased fares. Casey responded that SEPTA had a 13% increase in fares last July but they have seen an uptick in ridership which is why they need to increase capacity. Bland said when the 29 routes were eliminated last June there was a 4% decline in ridership. In addition, he said fares were increased by 4% this past January but ridership was up 8% in July. He added their board plans to increase fares every two years unless staff comes back with a reason why there should not be an increase. Hoffer said the industry has standards regarding fare increases and their impact. He told the committee those standards could be "tossed out the window". He said CAT had a 6% fare increase in June, 2007, but they have had a 7% increase in ridership.
House Transportation Committee Looks at Cost of Road Construction and Maintenance
On August 19th, the House Transportation held another hearing, this time the committee heard testimony from a panel regarding the increasing cost of road building materials and its impact on highway construction and reconstruction projects. The following is a report on that hearing.
Robert Latham, executive vice president of the Associated Pennsylvania Constructors, provided the committee members with a chart from the American Road & Transportation Builders Association outlining the cost of highway and street construction materials. He pointed out the cost was up 18.9% in June 2008 compared to the same month last year while during the same period, inflation, as measured by the consumer price index, was 5%. Latham said over the last five years, the price of highway and street construction materials has risen 70%.
James Van Buren, representing New Enterprise Stone & Lime Company, told the committee members his company employs 3,100 people in 50 counties throughout Pennsylvania. He said the company does heavy highway construction. Van Buren said he is always being asked how the current economy is affecting his business. He provided an overview. According to Van Buren, there was a wet spring throughout the Commonwealth this year which impacted construction projects. In addition, the price of diesel fuel and asphalt has risen. He said this impacts the department's ability to let work and because of the increasing prices, less work is being done but at the same costs. Van Buren went on to explain that the department does not have as much money to spend and contracts are being pulled or reduced in scope. He said there will be no work for this fall or next spring. According to Van Buren, his company will have to lay off hundreds of employees in the next four to six weeks. He further explained these employees normally would be on unemployment for three to four months but this year it looks like they could be on unemployment for six to seven months.
Randy Good, representing Pennsy Supply, said he has been in business since the early 1970s and this has been "the most challenging year". He told the committee his employees have 22% less work hours this year compared to last year. Good also said he has had to close several asphalt plants and he now has 100 less employees. He emphasized that a major concern is losing good employees to other industries because of the instability in the industry. Good explained layoffs are starting earlier and a lot more will be laid off this winter. He added he is expecting a slow spring next year. Good opined that the department and others have been caught in a "perfect storm" with revenue going down as costs have gone up considerably. He said there are a lot of highway projects that need to be done now before costs rise any further and there is a need to find a funding solution now.
Ronald Cominsky, executive director of the Pennsylvania Asphalt Pavement Association, provided data on the liquid cost impact on the hot-mix asphalt industry. He noted the cost per ton for liquid asphalt, in August 2007, was $349 in eastern Pennsylvania and $323 in western Pennsylvania. Cominsky said the cost is now $834 in eastern Pennsylvania and $735 in western Pennsylvania. He told the committee members he has been in the hot-mix asphalt business for 39 years and this is "financially the worst situation ever." Cominsky explained that asphalt is made from "heavy crude" oil imported from Venezuela and Canada. He said problems in both countries have led to a tremendous shortage. He also said refiners now want to make a profit from refining the "heavy crude". According to Cominsky, the costs are leading to project deferrals and cancellations by the department which is drastically affecting the industry. He pointed out his members represent 138 plants of which 15% are temporarily or permanently closed. Cominsky also noted they have met with refiners who told them the prices are not coming down for "heavy crude."
Minority Chairman Rick Geist (R-Blair) asked if it has been projected how much money Pennsylvania will lose in federal liquid fuel taxes. Latham said it his understanding it is approximately $200 to $300 million this fiscal year. Minority Chairman Geist said in meetings with the Federal HighwayAdministration, they have expressed concern that northeastern states will be taking a big hit. He added this is putting Pennsylvania in "a terrible bind".
Rep. John Sabatina (D-Phila) wanted to know the significance of a "wet spring". Van Buren explained that it prevents blacktop paving and grading. He further explained in the summer, with the hot weather, when it rains it dries up faster. Van Buren said a wet spring usually occurs in only one or two areas of the state but this year it was statewide. Rep. Sabatina wanted to know if the industry is seeing any relief from the falling cost for "light crude". Cominsky said "No". Rep. Sabatina asked if Venezuela is keeping the price artificially high. Cominsky said yes and they have cut off some supplies. Good responded that they have seen the price of diesel fuel and gasoline coming down. He said the refining industry is changing plants and producing less liquid asphalt.
Rep. Mark Longietti (D-Lawrence) said he believes the cost of commodities is being driven by speculators and he said there is a need for reform at the federal level.
Rep. Joe Petrarca (D-Westmoreland) noted with the rising cost of asphalt that the Commonwealth may be at the point of looking at concrete as an alternative. Van Buren responded, "We need people working and we will do what the department asks." He added, "We are talking about concrete, asphalt, and stone." Van Buren said, "We have people not working this fall." Cominsky said that from the department's point of view, they are rapidly approaching the use of concrete.
Rep. Mark Keller (R-Perry) wanted to know if offshore drilling would have any effect. Latham said it would be a positive to the extent it leads to a larger supply of diesel fuel.
Rep. Ron Miller (R-York) noted the Turnpike Commission is continuing to pave. He commented that there is a need to look at a better economic analysis. Van Buren said the problem is the department does not have the money to spend and they are not holding back because of the expense.
Rep. John Siptroth (D-Monroe) said the department is perplexed by the overruns caused by the dramatic increase in costs for asphalt and other materials. He wanted to know if there are any alternatives to liquid asphalt. Cominsky responded that the industry has been working with the department regarding the use of recycled asphalt payment.
Rep. Ron Marsico (R-Dauphin) asked if the department has been slow to react to the use of recycled asphalt. Cominsky explained they have been in discussions with the department for the past two years. He said the department is concerned with the "skid level" of the recycled asphalt and the potential liability to the Commonwealth. Rep. Marsico asked if any other state uses recycled asphalt. Cominsky said yes and he would supply a list to the committee.
Second Hearing on Contractor/Trade Licensing Held
In July, the House Labor Relations and the House Professional Licensure committees held a hearing in eastern Pennsylvania on the topic of licensing construction contractors and tradesmen. On August 4th, the committees held a public hearing on the same topic in Pittsburg. Individuals representing operating engineers (re: crane operator licensing), electricians (electrical contractor licensing), plumbers (plumbing contractor licensing) and the Better Business Bureau all testified in favor of licensing by the State. Both the union and non-union testifiers endorsed the proposal on plumbing contractor licensing.
Legislative Activity
No bills of interest to the construction industry were acted on by the General Assembly in the past month.
The House and Senate are in recess until fall.
2008 SENATE FALL SESSION SCHEDULE
The Senate has announced the following remaining session days for the 2007-08 session.
September 16, 17, 18, 22, 23, 24
October 6, 7
November 20 and 21 will be non-voting session days, at this point
2008 HOUSE FALL SESSION SCHEDULE
September 15, 16, 17, 22, 23, 24
October 6, 7, 8
November 12, 13, 17, 18, 19, 24, 25
Copies of all bills of interest are available from the PSPE office, or they can be accessed via the Internet at http://www.legis.state.pa.us/WU01/LI/BI/billroom.htm
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