[Federal Register Volume 72, Number 83 (Tuesday, May 1, 2007)]
[Notices]
[Pages 23886-23889]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-8227]


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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 of agency response to comments.

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[[Page 23887]]

SUMMARY: Section 3011(c) of the Safe, Accountable, Flexible, Efficient 
Transportation Equity Act: A Legacy for Users (``SAFETEA-LU'') 
authorizes the U.S. Secretary of Transportation (the ``Secretary'') to 
establish and implement a pilot program to demonstrate the advantages 
and disadvantages of public-private partnerships (``PPPs'') for certain 
new fixed guideway capital projects (the ``Pilot Program''). This 
notice summarizes and responds to comments solicited by FTA by notice 
published in the Federal Register on March 22, 2006 (71 FR 14568).
    Availability of the Notice: Copies of this notice, and any 
documents indicated in the supplementary information as being available 
in the docket, are part of docket FTA-2006-23697. To read materials 
relating to this notice, please visit the DOT docket (http://dms.dot.gov) at any time or go to the Docket Management System 
facility, U.S. Department of Transportation, 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.

FOR FURTHER INFORMATION CONTACT: Shauna J. Coleman, Esq., Federal 
Transit Administration, Office of the Chief Counsel, U.S. Department of 
Transportation, 400 Seventh Street, SW., Washington, DC 20590-0001, 
(202) 366-4011, [email protected].

SUPPLEMENTARY INFORMATION: Section 3011(c) of the SAFETEA-LU authorizes 
the Secretary to establish and implement the Pilot Program to 
demonstrate the advantages and disadvantages of public-private 
partnerships for certain new fixed guideway capital projects. On March 
22, 2006, FTA issued a notice and solicitation for comments with 
respect to the Secretary's establishment and implementation of the 
Pilot Program (71 FR 14568). FTA received comments from 19 parties in 
response to the notice. FTA responds to these comments by topic and in 
the following order: (A) Statutory background; (B) objective of the 
Pilot Program; (C) operation of the Pilot Program; (D) common grant 
rule; (E) seniority of the Federal Interest; and (F) tax-exempt 
financing.

A. Statutory Background

    FTA requested comments 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; (ii) what, if any, 
benefits should the Secretary confer on selected projects; (iii) 
whether it is significant that section 3011(c) provides no special 
funding for the Pilot Program; and (iv) 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?
    (i) What, if any, operative criteria beyond those set forth in the 
statute should the Secretary adopt to implement the Pilot Program?
    Six commenters responded to this question. Some of these commenters 
thought that additional operating criteria should not limit the 
opportunities for creativity and that FTA should allow private, state, 
and local parties maximum latitude to determine the parameters and 
merits of potential projects. In addition, several of these commenters 
recommended that selected projects should incorporate innovative 
contracting mechanisms.
    FTA response: FTA agrees that operating criteria should not limit 
the opportunities for creativity. FTA further agrees that innovative 
procurement contracting mechanisms and financing should be 
considerations used in the selection of an eligible project.
    (ii) What, if any, benefits should the Secretary confer on selected 
projects?
    Five commenters responded to this question. Two commenters 
submitted general comments on the benefits the Secretary should confer 
on selected projects. For instance, one commenter generally recommended 
that FTA tailor the benefits it confers to the particular requirements 
of a project. Another commenter generally recommended that FTA award 
PPPs the highest priority available from programs for which such 
projects apply and qualify. Two commenters recommended that FTA waive 
strict compliance with one or more New Starts and/or NEPA evaluation 
requirements. One commenter recommended that FTA support Congressional 
earmarks for selected projects.
    FTA response: FTA agrees that it should identify alternative bases 
for compliance with one or more New Starts evaluation requirements 
applicable to projects that participate in the Pilot Program, insofar 
as consistent with law. The Pilot Program offers Pilot Projects that 
are candidates for funding under FTA's New Starts certain program 
incentives--in the form of improved ratings, accelerated review 
process, and other benefits--to enter into PPPs for project delivery. 
FTA's role is not to advocate for Congressional earmarking on behalf of 
projects, but FTA does recommend projects for funding in the annual New 
Starts Report and in the President's budget request.
    (iii) Whether it is significant that section 3011(c) provides no 
special funding for the Pilot Program.
    FTA received the following three comments on this question: one 
commenter thought that it was unremarkable that Congress authorized no 
special funding for this program; one commenter noted that by not 
designating any specific source of funding, Congress provided FTA with 
the flexibility to identify funds and develop program requirements; and 
one commenter thought Congress intended to limit the use of private 
investment in PPPs for selected fixed guideway projects.
    FTA response: Based on FTA's review of section 3011(c) and 
pertinent sections of the Conference Report that accompanied SAFETEA-
LU, FTA is not limited to funding the Pilot Program from the New Starts 
program. FTA reminds commenters that while the statute states that the 
Secretary may establish the Pilot Program to demonstrate the advantages 
of PPPs for ``certain new fixed guideway projects,'' it does not 
expressly limit financial support of such projects to New Starts 
funding. FTA notes that new fixed guideway capital projects may be 
funded not only through the New Starts program but with certain formula 
funds, as well.
    (iv) 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?
    Three commenters responded to this question. One commenter 
suggested that FTA reclassify the retirement of a capital debt from an 
operating expense to a capital expense. Two commenters suggested that 
providing Federal grant or loan money for developmental or pre-
construction work could induce private investment.
    FTA response: FTA agrees that reclassifying the retirement of a 
capital debt from an operating expense to a capital expense and 
providing Federal grant or loan money for developmental or pre-
construction work would promote the participation of private enterprise 
in the delivery and operation of transit systems. Within the context of 
the Pilot Program, FTA would be prepared to evaluate proposals to do so 
on a case-by-case basis, if permitted by law and supported by sound 
policy that is consistent with the Pilot Program's objectives.

[[Page 23888]]

B. Objective of the Pilot Program

    FTA requested comments on whether, and on what terms, the Pilot 
Program should streamline the New Starts application process, 
specifically with regard to its due diligence and NEPA components, to 
promote PPPs that would realize significant savings in the procurement 
of eligible projects.

(i) Due Diligence

    FTA requested comments regarding how its New Starts application 
process may be altered to accelerate project delivery without impairing 
FTA's duties as a steward of Federal funds. Six commenters responded to 
this question. Two commenters supported the use of contract terms to 
allocate risk and ensure due diligence. Three commenters recommended 
that FTA utilize concurrent rather than linear procedures in its New 
Starts process, and provided specific recommendations on how FTA could 
alter its New Starts application process. One commenter requested that 
FTA clarify how the requirement for public accountability and due 
diligence can be met under the PPP approach.
    FTA response: FTA agrees that it should streamline certain New 
Starts due diligence requirements and directs interested parties to 
section 3(i) of FTA Federal Register notice issued on January 19, 2007 
(72 FR 2587) for a detailed discussion on how FTA might alter certain 
due diligence requirements for selected Pilot Projects. In response to 
the commenter requesting clarity, FTA directs this commenter to section 
3(c) of FTA Federal Register notice issued on January 19, 2007 (72 FR 
2587), which details how commercial arrangements negotiated between the 
project sponsor and private partner may adequately safeguard the 
Federal Interest.

(ii) National Environmental Policy Act (``NEPA'')

    FTA requested comments on whether, and on what terms, the Pilot 
Program should streamline its NEPA components to accelerate project 
delivery without impairing FTA's duties as a steward of the 
environment.
    (a) Whether the Pilot Program should permit acquisition of 
engineering and design services prior to the issuance of a Record of 
Decision (``ROD'').
    Several commenters responded to this question. All but one of these 
commenters supported the acquisition of engineering and design services 
prior to the issuance of a ROD.
    FTA response: FTA agrees that it should permit acquisition of 
engineering and design services prior to the issuance of a ROD, as 
provided in section 3(l) of FTA's Federal Register notice published at 
72 FR 2587 (January 19, 2007). FTA notes that on several prior 
occasions it has allowed project sponsors to negotiate and award 
design-build contracts when (1) the contract did not commit the project 
sponsor or FTA to final design or construction prior to the completion 
of compliance with NEPA, and (2) the entities performing the NEPA 
studies had no financial interest in the outcome of the project under 
the study. FTA directs interested parties to section 3(l) of FTA's 
Federal Register notice published at 72 FR 2587 (January 19, 2007) for 
a full discussion on the extent to which FTA may permit acquisition of 
engineering and design services prior to the completion of compliance 
with NEPA.
    (b) Whether the Pilot Program should adopt procedures with the same 
or similar effects as those described in 23 U.S.C. 112(b)(3), as 
amended by section 1503 of SAFETEA-LU, concerning design-build 
contracts.
    Three commenters responded to this question and all of these 
commenters supported FTA's adoption of procedures similar to those in 
section 1503 of SAFETEA-LU, concerning design-build contracts.
    FTA response: FTA agrees that the Pilot Program should adopt 
procedures with the same or similar effects as those set forth in 23 
U.S.C. 112(b)(3), as amended. FTA directs commenters to section 3(l) of 
FTA's Federal Register notice published at 72 FR 2587 (January 19, 
2007), which outlines the environmental procedures that FTA adopted 
with respect to the design-build elements of a Pilot Project's 
procurement.
    (c) How should the Pilot Program construe the Categorical Exclusion 
(``CE'') to realize savings for project sponsors in connection with the 
acquisition of rights-of-way and parcels of land?
    One commenter responded to this question. This commenter urged FTA 
to consider increasing real estate prices as one factor used to 
establish the imminence of increasing development pressures so that 
increasing prices in highly developed or rapidly developing areas would 
permit an agency to rely upon the CE.
    FTA response: FTA notes that with a few limited exceptions, joint 
FTA/FHWA regulations implementing NEPA specifically prohibit real 
estate acquisition activities prior to the completion of the NEPA 
process. Those exceptions, specified at 23 CFR 771.117, allow for pre-
ROD real estate acquisition in some limited circumstances, but not on 
the basis of rising property values. Moreover, when it authorized 
SAFETEA-LU, Congress amended 49 U.S.C. 5324(c) to allow for the pre-ROD 
acquisition of contiguous railroad right-of-way in certain cases.
    (d) How should the Pilot Program address NEPA to anticipate changes 
in project scope?
    Five commenters responded to this question and all of these 
commenters recommended that FTA should not reopen the NEPA process and/
or existing ROD for review of a new impact that is not determined to be 
substantial.
    FTA response: In general, FTA policy is to perform a supplemental 
Environmental Assessment (``EA'') for review of a new impact if that 
impact is potentially significant, and a supplemental Environmental 
Impact Statement (``EIS'') in cases where FTA is certain that the new 
impact is significant. In some cases, a reevaluation may be required to 
assist FTA in deciding whether supplemental NEPA work is needed.

C. Operation of the Pilot Program

    FTA requested comments 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. 
Six commenters supported FTA providing grants for eligible projects 
contemplated by long-term operation or concession agreements with 
private enterprise. Three commenters offered suggestions as to how the 
Pilot Program might encourage transit systems to enter into PPPs. One 
commenter suggested that FTA allow the Pilot Program to privatize all 
or part of the capital asset. Another commenter suggested FTA provide 
financial capacity for pre-construction work. One commenter recommended 
that FTA tie the Pilot Program directly to New Starts funding.
    FTA response: FTA agrees that projects involving long-term private 
operations or concession contracts should be eligible for funding under 
the Pilot Program.

D. Common Grant Rule

    FTA requested comments on whether, and to what extent, the Pilot 
Program should authorize the use of program income to support a PPP 
that sponsors an eligible project. Five commenters supported the 
flexible use of program income.
    FTA response: FTA agrees and supports flexible uses of program 
income, as permitted pursuant to 49 CFR 18.25(g).

[[Page 23889]]

E. Seniority of the Federal Interest

    FTA requested comments on whether, and to what degree, FTA's 
subordination of priority of repayment of Federal loans would be useful 
in structuring a PPP. FTA also requested comments on the extent to 
which loans, loan guarantees, and other credit enhancing devices 
available under the Transportation Infrastructure Financing and 
Innovation Act (``TIFIA'') might be used to facilitate the financing of 
an eligible project. Four commenters supported subordination of the 
Federal Interest. Three commenters generally supported the use of the 
loan guarantees available under TIFIA for financing PPPs.
    FTA response: FTA agrees that subordination of priority of 
repayment of Federal loans could be useful in structuring a PPP. FTA 
also agrees that project sponsors should utilize a wide range of 
financing tools to support PPPs, including loan guarantees and other 
mechanisms available under the TIFIA program to finance eligible PPPs.

F. Tax Exempt Financing

    FTA requested comments on the extent to which private activity 
bonds (``PABs'') or PABs not subject to State population-based bond 
issuance limits (``new PABs'') might assist in financing an eligible 
project. Seven commenters generally supported the use of PABs to assist 
in financing eligible projects.
    FTA response: FTA agrees that project sponsors should utilize a 
wide range of financing tools, including PABs and new PABs, to support 
PPPs, if the project is eligible to use such financing tools.

    Issued in Washington, DC, this 25th day of April 2007.
James S. Simpson,
Administrator.
[FR Doc. E7-8227 Filed 4-30-07; 8:45 am]
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