[Federal Register Volume 71, Number 55 (Wednesday, March 22, 2006)]
[Notices]
[Pages 14568-14571]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-2744]


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DEPARTMENT OF TRANSPORTATION

Federal Transit Administration

[Docket No. FTA-2006-23697]


Public-Private Partnership Pilot Program

AGENCY: Federal Transit Administration (FTA), DOT.

ACTION: Notice; solicitation of comments and preliminary expressions of 
interest.

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SUMMARY: Section 3011(c) of SAFETEA-LU authorizes the Secretary of 
Transportation to establish and implement a pilot program to 
demonstrate the advantages and disadvantages of public-private 
partnerships for certain new fixed guideway capital projects. This 
notice solicits comments and preliminary expressions of interest with 
respect to the Secretary of Transportation's establishment and 
implementation of the pilot program.

DATES: Comments and/or preliminary expressions of interest must be 
received by June 1, 2006. Late-filed comments or preliminary 
expressions of interest will be considered to the extent practicable.

ADDRESSES: To ensure your comments and/or preliminary expressions of

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interest are not entered more than once into the DOT Jacket, please 
identify your submissions by the following docket number: FTA-2006-
23697. Please make your submissions by only one of the following means:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the online instructions for making submissions.
     Web Site: http://dms.dot.gov. Follow the instructions for 
making submission on the DOT electronic docket site:
     Fax: 1-202-493-2478.
     U.S. Post or Express Mail: Docket Management System, U.S. 
Department of Transportation, 400 Seventh Street, SW., Nassif Building, 
Room PL-401, Washington, DC 20590-001.
     Hand Delivery: To the Docket Management System; Room PL-
401 on the plaza level of the Nassif Building, 400 Seventh Street, SW., 
Washington, DC between 9 a.m. and 5 p.m., Monday through Friday, except 
Federal Holidays.
    Instructions: All submissions must make reference to the ``Federal 
Transit Administration'' and include the docket number for this notice 
set forth above. Due to security procedures in effect since October 
2001 regarding mail deliveries, mail received through the U.S. Postal 
Service may be subject to delays. Parties making submissions responsive 
to this notice should consider using an express mail firm to ensure the 
prompt filing of any submissions not filed electronically or by hand. 
Note that all submissions received, including any personal information 
therein, will be posed without charge or alternative to http://
http://dms.dot.gov">dms.dot.gov.
    Docket: For access to the DOT docket to read materials to this 
notice, please go to hhtp://dms.dot.gov at any time or to the Docket 
Management System.

FOR FURTHER INFORMATION CONTACT: David B. Horner, Esq., Chief Counsel, 
Federal Transit Administration, U.S. Department of Transporation, 400 
Seventh Street, SW., Washington, DC 20590-0001. E-mail: 
[email protected]. Telephone: (202) 366-4040. Office hours are 
from 8:30 a.m. to 6 p.m., Monday through Friday, except Federal 
holidays.

SUPPLEMENTARY INFORMATION:

A. Statutory Background

    Section 3011(c) of SAFETEA-LU authorizes the Secretary of 
Transportation (the ``Secretary'') to establish and implement a pilot 
program (the ``Pilot Program'') to demonstrate the advantages and 
disadvantages of public-private partnerships (``PPPs'') for certain new 
``fixed guideway capital projects,'' as defined by 49 U.S.C. 5302(a)(1) 
and (4) (each, a ``Project''). Section 3011(c) sets forth generally the 
terms and conditions of the Pilot Program.
     Section 3011(c)(2) authorizes the Secretary to select up 
to three Projects participate in the Pilot Program.
     Section 3011(c)(3) provides that no Project is eligible to 
participate in the Pilot Program unless the sponsor of a Project 
submits an application that contains, at a minimum: (i) An 
identification of a Project that has not entered into a full funding 
grant agreement or project construction grant agreement with FTA; (ii) 
a schedule and finance plan for the construction and operation of the 
Project; and (iii) an analysis of the costs, benefits and efficiencies 
of the proposed public-private partnership agreement.
     Section 3011(c)(4) provides that the Secretary may approve 
the application of a Project to participate in the Pilot Program if the 
Secretary determines that: (i) Applicable State and local laws permit 
public-private agreements for all phases of development, construction 
and operation of the project; (ii) the recipient is unable to advance 
the Project due to fiscal constraints; and (iii) the plan implementing 
the public-private partnership is justified.
     Section 3011(c)(5) limits the term of the Pilot Program 
from fiscal year 2006 through fiscal year 2009.
    Beyond the terms set forth above, section 3011(c) states no 
operative criteria for implementation of the Pilot Program and is 
notably silent on what benefits, if any, participation in the Pilot 
Program would confer on a Project. However, section 3011(c) affords the 
Secretary broad discretion to devise or approve arrangements between 
government and private enterprise setting forth incentives and 
obligations within the framework of section 3011(c) that would 
demonstrate the advantages or disadvantages of PPPs as applied to 
eligible Projects.
    Accordingly, FTA invites interested parties to comment on the 
following questions: (i) What, if any, operative criteria beyond those 
set forth in the statute should the Secretary adopt to implement the 
Pilot Program, and (ii) what, if any, benefits should the Secretary 
confer on Projects that participate in the Pilot Program? In answering 
these questions, interested parties should explain how such criteria 
and/or benefits would realize savings for Federal, State and/or local 
governments and otherwise improve the delivery and operation of transit 
infrastructure or a particular Project. Interested parties should also 
comment on whether it is significant that section 3011(c) provides no 
special funding for the Pilot Program. In addition, FTA invites comment 
generally on what, if any, changes in law or new financial incentives 
are appropriate or necessary to promote the participation of private 
enterprise in the delivery and operation of transit systems.
    FTA also invites interested parties to respond to other questions 
set forth in this notice, including questions with respect to: (i) 
Appropriations for eligible Projects, (ii) the National Environmental 
Policy Act (``NEPA''), (iii) the Common Grant Rule, (iv) the seniority 
of the ``Federal Interest'' and (v) tax-exempt financing.
    Finally, FTA solicits preliminary expressions of interest from 
project sponsors and others concerning participation in the Pilot 
Program.

B. Objective of Pilot Program

    As a matter of public policy, PPPs are justified by the view that 
private enterprise, when appropriately compensated for performance and 
the assumption of risk, can deliver goods and services for less and on 
better terms than the public sector. The Pilot Program will evaluate 
this view as applied to the procurement and operation of eligible 
Projects.
    1. Procurement. FTA invites comment on whether, and on what terms, 
the Pilot Program should stream-line FTA's discretionary grant-making 
process to promote PPPs that would realize significant savings in the 
procurement of eligible Projects. In particular, FTA seeks comment on 
how its New Starts application process--notably its due diligence and 
NEPA components--may be altered to accelerate project delivery (and 
thus reduce costs) without impairing FTA's duties as a steward of 
Federal funds and the environment.
    Due Diligence. Throughout the New Starts application process, FTA 
performs detailed due diligence on all aspects of a proposed capital 
project, including reviewing ridership projections, cost estimates, 
forecasts of cash flows and financing capacity as well as evaluating 
State and lcoal political commitments to provide the ``local share'' of 
funding for the project. Because in many cases FTA (and by implication, 
the Nation's taxpayers) bear substantial economic risk with respect to 
the New Starts share that the project will experience cost overruns or 
delays or fail to realize projected travel travel-time savings 
(``Taxpayer Risk''), FTA's exhaustive due diligence attempts to 
minimize Taxpayer Risk at the planning and development stages of the 
project. Other than FTA's own due diligence,

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there are no devices currently contemplated by the New Starts process 
that may be substituted for FTA's due diligence to reduce Taxpayer Risk 
in a way that would shorten the application process and realize savings 
for project sponsors. FTA believes, however, that such benefits may be 
achieved through arrangements typical of PPPs, notably the agreement of 
private enterprise to assume certain project risks in exchange for the 
opportunity to earn financial returns commensurate with the risks 
assumed. In practice, these arrangements include ``design-build'' 
agreements, equity investments by private contractors and other risk-
shifting or risk-reducing devices customary in private sector project 
development transactions. FTA invites comment on whether and to what 
extent the Pilot Program should take into account, for purposes of 
determining the level of FTA's due diligence, the quality of 
construction and service warranties, the amount and risk of equity 
investments, the availability of legal and other professional opinions 
and the use and terms of indemnities, escrows and other devices that 
might reduce or shift Taxpayer Risk.
    NEPA. It is axiomatic that a Federal agency and project sponsor 
must conduct an objective evaluation of the alternatives under study in 
a NEPA document, including the ``no-action'' alternative. To reduce 
Taxpayer Risk of third-party challenge to projects under NEPA (and to 
comply with regulations of the Council on Environmental Quality set 
forth at 40 CFR 1506.1), FTA generally prohibits project sponsors from 
taking any action that would advance any particular ``build'' 
alternative under study prior to the issuance of a Record of Decision 
(``ROD''). In design-build contracting, however, there may be good 
reasons to allow a sponsor to engage a single firm to conduct 
preliminary engineering and final design prior to the issuance of a 
ROD, including time savings, economies-of-scale, continuity of 
expertise and avoidance of multiple contracting. FTA invites comment on 
whether, and the extent to which, the Pilot Program should permit 
acquisition of engineering and design services prior to the issuance of 
a ROD. FTA invites comment, in particular, on whether the Pilot Program 
should adopt procedures with the same or similar effects as those 
described in 23 U.S.C. 112(b)(3)(D), as amended by section 1503 of 
SAFETEA-LU, concerning design-build contracts. If so, pursuant to what 
statutory authority would the Pilot Program adopt such procedures?
    Likewise, to reduce their costs as far possible, project sponsors 
located in inflationary real estate markets may seek to acquire rights-
of-way and parcels of land prior to the issuance of a ROD for reasons 
of ``hardship'' or ``protective purposes,'' as permitted by the 
Categorical Exclusion set forth at 23 CFR 771.117(d)(12). FTA invites 
comment on how the Pilot Program should construe the Categorical 
Exclusion to realize savings for project sponsors in connection with 
the acquisition of rights-of-way and parcels of land. In responding to 
the question, interested parties who propose an expansive construction 
of the Categorical Exclusion should explain why, if adopted by FTA, it 
would not materially increase Taxpayer Risk of legal challenge to an 
eligible Project.
    Occasionally, a change in project scope after the issuance of a ROD 
may trigger the requirement for supplemental NEPA study, which could 
delay or even thwart a project under a public-private partnership. FTA 
invites comment on whether and how the Pilot Program should address 
NEPA to anticipate changes in project scope.
    2. Operation. FTA invites comment on whether, and on what terms, 
the Pilot Program should provide grants for eligible Projects 
contemplated by long-term operation or concession agreements with 
private enterprise.
    In the United States, the operation of transit facilities currently 
depends on significant State and local subsidies. FTA invites comment 
on how the Pilot Program might encourage transit systems to enter into 
PPPs that would reduce the amount of subsidy needed to operate a 
transit system. In particular, where a concession to operate a transit 
system requires by its terms a capital improvement, should the Pilot 
Program make available a grant to support such capital improvement in 
the event that improvement qualifies as an eligible Project?

C. Common Grant Rule

    FTA interprets 49 CFR 18.25 (the ``Common Grant Rule'') to require 
that income to a Federal grantee generated by a federally-funded asset 
(``Program Income'') must be used by the grantee to reduce program 
costs, unless an alternative use of Program Income contemplated by the 
Common Grant Rule is authorized by regulation or agreement with the 
grantee. FTA invites comment on the extent to which the Pilot Program 
should authorize the use of Program Income to support a PPP that 
sponsors an eligible Project.

D. Seniority of the Federal Interest

    FTA generally requires that any Federal funds used by a recipient 
to acquire an asset--the so-called ``Federal Interest''--be repaid in 
priority to all other claims with respect to that asset upon 
disposition. However, FTA has permitted the subordination of the 
Federal Interest and waived the requirement of repayment upon 
disposition, so long as such subordination or disposition was for an 
eligible transit purpose and the asset remained under the recipient's 
``effective continuing control.'' FTA invites comment on the degree to 
which this flexibility would be useful in structuring a PPP.
    In addition, 49 CFR part 640 refers expressly to the Transportation 
Infrastructure Financing and Innovation Act (``TIFIA''), which permits 
the subordination of the Federal Interest under certain conditions. FTA 
seeks comment on the extent to which loans, loan guarantees and other 
credit enhancing devices available under TIFIA might be used to 
facilitate the financing of an eligible Project.

E. Tax-Exempt Financing

    Under section 142 of the Internal Revenue Code, certain public 
transportation projects are eligible for tax-exempt financing using 
private activity bonds (``PABs''). Additionally, under section 11143 of 
SAFETEA-LU, public transportation projects may be eligible to use 
private activity bonds not subject to State population-based bond 
issuance limits (``new PABs''). FTA seeks comment on the extent to 
which PABs or new PABs might assist in financing an eligible Project.

F. Preliminary Expressions of Interest

    FTA is interested in receiving preliminary expressions of interest 
from project sponsors and others concerning participation in the Pilot 
Program. Preliminary expressions of interest should address the 
criteria set forth in sections 3011(c)(3) and (4) of SAFETEA-LU, and 
should be submitted to FTA on or before June 1, 2006. FTA intends to 
respond by July 15, 2006 to submissions that are timely filed. 
Depending on the response to the issues raised above and the number and 
nature of project proposals received, FTA may ask for additional detail 
from those submitting preliminary expressions of interest. Following 
FTA's establishment of the Pilot Program, FTA expects to issue a 
separate notice requesting formal proposals for participation in the 
Pilot Program.


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    Issued on March 16, 2006.
Sandra K. Bushue,
Deputy Administrator.
[FR Doc. 06-2744 Filed 3-21-06; 8:45 am]
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