Selling the Capitol: Facilities Commission first to implement new P3 law
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State set to accept proposals for public-private partnerships for an array of government facilities
By Laylan Copelin
AMERICAN-STATESMAN STAFF
Updated: 5:09 a.m. Monday, Oct. 3, 2011
The State of Texas has hung a "Partners Wanted" sign on its vast amount of public property.
It is a message to developers and contractors that the state — land-rich but cash-strapped — will accept unsolicited proposals for public-private partnerships to construct and operate a wide array of facilities from offices to power generation sites to medical buildings.
The new guidelines, which went into effect Sept. 1, could help the state reduce its reliance on leased facilities, particularly office space, and make it easier to develop the Capitol complex by involving the private sector.
Texas government is spending about $150 million a year on leases for 10.6 million square feet of space, including about $48 million for 3 million square feet in Travis County. Almost three-fourths of those leases will come up for renegotiation over the next six years, but the state must act quickly if it wants to move more of its operations into new facilities on state lands.
"Time is the killer of any real estate deal," said Aundre Dukes, a portfolio manager at the Texas Facilities Commission. "This will go a long way to getting shovels into dirt."
The guidelines were written in response to Senate Bill 1048, which passed during this year's legislative session and covers local governments and higher education institutions, as well as state government.
Public-private partnership has its detractors and defenders, but it might be more widely used as governments try to stretch their budgets without increasing taxes.
The facilities commission already had the authority to accept unsolicited proposals, but the state seldom did, Dukes said. Instead, the public sector typically advertised for proposals after it had identified a project.
Local examples of public-private partnerships include the Triangle, a complex of apartments, retail shops and restaurants, and the original Central Market shopping center, both on state lands in Central Austin.
Though state law allowed such projects before Senate Bill 1048, it didn't provide a clear, predictable path.
"The private sector didn't want to reinvent the wheel every time," said Chris Lloyd, a Virginia-based lobbyist who supported the Texas legislation that was patterned on a Virginia law.
Senate Bill 1048 creates a single format to encourage the private sector to approach the public sector with its proposals.
"In essence, they are submitting a business plan," Dukes said.
When it comes to structuring the deal, the guidelines are open-ended. Companies, for example, could build, own and operate a facility with a long-term ground lease from the state. Or they could build it, transfer it to the state and then operate it. There are at least a dozen variations in the guidelines that try to anticipate any construction project or service the state might need.
There is a $5,000 fee to cover the cost of the initial review by the state staff.
If the Texas Facilities Commission accepts the proposal at one of its public meetings, the details are published. The company's financial data and other proprietary information are protected from disclosure, but the rest of the proposal becomes public information.
The Legislature added an 11-member oversight group made up of four senators, four House members and three officials from the executive branch. It has 45 days to review each proposal.
At that time, competitors are allowed to offer their own versions of the initial proposal.
Once the facilities commission chooses a proposal, the winning company must pay for advisers, lawyers or consultants who are hired to do the final evaluation before the state approves the proposal.
Dukes said allowing competition ensures the public gets a good deal.
During debate over Senate Bill 1048, however, critics questioned the public-private partnership approach.
"There isn't really a public-private partnership that is a good deal for taxpayers," said Terri Hall, executive director of Texans Uniting for Reform and Freedom, a group formed in 2005 to oppose toll roads, including instances in which foreign companies designed, built and operated the roads for the state.
"It's all about cronyism," Hall said of public-private partnerships.
She said 99-year ground leases give the private sector virtual ownership of state land.
Even with competing proposals, Hall said the devil is in the details of the final contract. She said the private sector "out-lawyers and out-negotiates" the public sector. And she said she is worried that in some instances taxpayers could end up guaranteeing the debt.
"We are basically subsidizing private profits," she said.
The Legislature disagreed. It overwhelmingly passed Senate Bill 1048, though 28 conservative House members voted against it.
The Texas Facilities Commission could provide the biggest test run of the new law.
Two years ago, the commission began steering away from leasing office space to a vision of public-private partnerships helping fully develop the Capitol complex.
The concept is anchored in three ideas:
• It's cheaper to build on land the state already owns.
• Money now being spent on leased space could be redirected toward construction.
• Developers might be drawn upon to put up the cash for a role in the projects.
A former director of construction at the University of Texas, James Broaddus has seen public-private partnerships from both sides since he founded his project management firm, Broaddus and Associates, 11 years ago.
He supports the concept and said he believes it could provide cash-strapped governments and public institutions with the money to build facilities needed for Texas' exploding population.
"There's a lot of private capital sitting on the sidelines looking for a sound investment," he said.
However, Broaddus warned: "This is not a playing field for amateurs. The government owners need to really evaluate what they are getting."
The seven-member facilities commission has approved the concept for the Capitol complex, but it still must solicit bids for a master plan. Dukes said the guidelines could speed up implementation once that plan is created.
In the meantime, the guidelines can be applied to public-private partnerships anywhere in the state.
"Our task is not just downtown Austin," Dukes said. "It's much bigger than the Capitol complex."
The development community has been inquiring for months, since the commission released its inventory of state properties and first floated the idea of public-private partnerships.
Dukes said he has heard from developers coast-to-coast.
"There hasn't been a parcel in our master plan," he said, "that I haven't gotten a phone call on."