Beginning the Dialogue - Report on SGR - Federal Transit ...

Approaches to Financing
Condition (state of good repair)
n Infracos must maintain, renew and manage <strong>the</strong>
assets so as to ensure reasonable life
expectancy (defined as assets in condition A-C)
no later than <strong>the</strong> third review period;
n Infracos must also achieve specified condition or
residual life benchmarks by <strong>the</strong> end of <strong>the</strong>
contract; and
n During <strong>the</strong> first review period (7.5 years), all grey
assets (condition unknown) must be assessed.
Fault <strong>Report</strong>ing (repairs)
n Infraco must rectify all asset related faults
reported by LU staff.
n Service points are allocated to certain failures if
Infracos do not meet contractual obligations.
Major Projects (line upgrades)
n Major projects involving replacement of trains
and signals which increase <strong>the</strong> capability to
deliver improvements in trip times.
Station Refurbishment and Modernization
n Infracos must implement a program of station
modernization and refurbishment as specified in
<strong>the</strong> contract.
n Any project not delivered by <strong>the</strong> latest completion
date will incur abatements. Abatement is levied
until <strong>the</strong> project is completed and varies
according to <strong>the</strong> scale of <strong>the</strong> project.
After five years of operating with <strong>the</strong> PPP, <strong>the</strong>
London Transport Assembly, in its January 2007
Review, stated: “There have been some very
worthwhile gains from <strong>the</strong> PPP. When we have seen
<strong>the</strong> private sector at its best, <strong>the</strong> results have been
impressive. They have had much better relationships
with <strong>the</strong>ir workforce, and have been inventive and
resourceful in using innovative engineering solutions
to overcome challenges on <strong>the</strong> Tube network that
should have been tackled decades ago.”
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However, on July 18, 2007, <strong>the</strong> Metronet Infracos
collapsed after a $4-billion cost overrun on <strong>the</strong>ir PPP
contracts. The Transport Committee's report on <strong>the</strong>
failure laid much of <strong>the</strong> blame for <strong>the</strong> problems
surrounding <strong>the</strong> consortium of private sector
companies with <strong>the</strong> UK Department for Transport,
which it said should have been seen that <strong>the</strong>
proposed management structure of <strong>the</strong> contracts
would be incapable of efficient delivery. Thus, this
PPP cannot be considered an unmitigated success.
If we are willing to learn from <strong>the</strong>ir successes and
mistakes <strong>the</strong>n <strong>the</strong>re is much positive knowledge we
can take from this example.
The London Underground experience is intriguing in
that it provides experience on how private sector
investors can, or cannot, make a profit operating a
public enterprise while protecting <strong>the</strong> public interest.
It shows how a guaranteed public funding stream can
be leveraged to provide very substantial up-front
investment in infrastructure renewal and also realize
<strong>the</strong> benefits of private sector management. This can
be done at a cost comparable to <strong>the</strong> cost of issuing
public bonds. Private sector management has <strong>the</strong>
advantage of not being tied to <strong>the</strong> annual budgeting
constraints that make strategic asset management
difficult for public agencies.
r CAPITAL LEASING
Capital leasing is a routine way of financing capital
equipment in <strong>the</strong> U.S. In 1987 <strong>the</strong> Surface
Transportation and Uniform Relocation Assistance
Act (STURAA) started Federal support for capital
leasing. This was codified into law by TEA-21 and
remained unchanged in SAFETEA-LU.
Grantees may use Federal funds for capital
assistance for up to 80 percent of <strong>the</strong> cost of
acquiring transit assets by lease. A capital lease can
be used to purchase capital equipment such as
vehicles, or it can be used to purchase a combination
of capital and maintenance services such as chassis
rebuilding and engine/drive train replacement.