In the FY 2018 Appropriations Conference Report (p. H2470), Congress expressed support for the Corps of Engineers to explore Public-Private Partnerships (P3) and other Alternative Financing (AF) mechanisms. Congress directed the Corps to issue a policy for a P3 program.
Last September, Assistant Secretary of the Army (Civil Works) R. D. James followed this direction with a policy letter directing the Corps to implement a P3 Demonstration Program with a goal of developing 10 pilot projects. Subsequently, on January 8, 2019, Director of Civil Works, James Dalton, published a Guidance Memorandum that provided program details, including types of acceptable projects, selection criteria, project evaluation criteria and a project submission template.
The pilot program was formally announced to the public in the Federal Register on February 1, 2019 in a Request for Information (RFI). requiring any proposed projects to be submitted by April 2, 2019.
There is major significance to these actions. For decades the Corps Civil Works program has not received sufficient funding to maintain its extensive infrastructure of navigation channels, locks and dams, flood control and environmental projects with a replacement value of over $270 billion. According to Civil Works program estimates last December, the backlog of new projects is approximately $100 billion and the backlog of maintenance and repair projects is about $140 billion.
Originally, Corps Civil Works projects were completely federally financed but in the 1970s, legislation required that Corps projects be cost-shared with their non-federal sponsors. This leveraged limited federal funds by limiting projects to those where local sponsors were also financially committed.
Public-private partnerships are the next iteration of this trend to further stretch limited federal and local government capital funds. Alternatively financed Corps projects would be similar to other public sector P3 projects such as toll roads and privately financed and operated water and wastewater treatment plants. If successful, the program would enable the Corps to begin to address these needed projects.
Assessment.
There are currently serious limitations to the Corps P3 program. Primarily the Corps lacks certain necessary authorities such as the ability to direct revenues generated by these projects to finance their recapitalization. The most significant limitations are addressed in the ASCE Coast, Oceans, Ports and Rivers Institute (COPRI) Report, Chapter 3, Impediments and Solutions to P3/P4 for Water Resources.
The Corps has enjoyed one successful, large civil works flood control P3 project in Fargo, North Dakota. In this instance the non-federal sponsor voluntarily increased its cost share, constructed a portion of the project itself and was able to finance a portion of its costs through local taxes. Splitting the work project accelerated the completion date and reduced the federal share by approximately $400 million.
The Corps P3 pilot program seeks to maximize the ‘Return on Federal Investment’ (ROFI), that is to leverage federal funds as much as possible. The P3 Pilot Program can be successful only if non-federal partners and private sector firms are able to provide both financing and the means to provide a reasonable level of return for any capital financing.
It may be possible to access non-traditional funding sources, such as state or local grant funds to create a successful P3 Project.
While it is not possible to predict or guarantee future funding of federal projects it is likely that any increased leveraging of federal funds would weigh positively when prioritizing for project budgeting, permitting and other federal responsibilities.
The P3 Pilot Program offers a new way to finance and execute traditional Corps of Engineers Civil Works projects. Sponsors with authorized projects that have not been funded in the past should consult with their Corps Districts or others familiar with Corps processes to explore whether any of these processes may be applicable to their projects.
Gary Loew Senior Advisor
A member of the Dawson team since 2014, Gary was Chief of Civil Works Programs Management. He has been active in planning and development of Alternate Financing Programs for the Corps of Engineers.
The views expressed here are those of the author and do not necessarily reflect the views of Dawson & Associates.