Denver’s 34-year deal at DIA might be the city’s first big public-private partnership, but don’t expect it to be the last
Denver International Airport’s proposed $1.8 billion terminal deal is poised to launch the city into a different kind of contracting that hands over some control of a publicly owned space to private interests for decades.
Get ready: That complex, 34-year contract could be a harbinger of things to come. Mayor Michael Hancock and other city leaders see promise in public-private partnerships, which infuse both private money and management into public projects, as they prepare to build out the National Western Center with large new event venues, expand the convention center and plot big changes to the Denver Performing Arts Complex.
But as the City Council prepares for a vote Monday night on DIA’s proposed arrangement with a consortium led by a large Spanish company, some members express misgivings about more such deals. Their skepticism already has paused a consulting contract that’s seen as crucial to setting up a city office dedicated to shepherding such projects in the future.
A big concern in that camp is that early plans call for end the elected council’s default role as final arbiter over those public-private partnership contracts, also called P3s.
Instead, a draft framework calls for formal council involvement in setting parameters before negotiations start. That would give its members more of a say up front — while also providing more certainty for the private partners that the deal would go through with administrative approval.
“So we’ve traditionally had three forms of government: the executive, the judiciary and the legislative. And the P3 is kind of forming this hybrid fourth arm of government,” Councilman Paul Kashmann told Hancock earlier this month during a wide-ranging discussion in the weekly mayor-council meeting. “And I just think it does make sense for us to look at — as it takes a greater role in how we run our city — how that might need to play out.”
Hancock held firm in his support of partnerships and the theoretical promise they offer — minimized risk for the government side in a project, the use of private capital instead of or in addition to public debt, and a set price for the work.
“There isn’t a mayoral conference I attend that we’re not talking P3s and what it means,” Hancock replied to Kashmann, “so that we can accomplish the mission of government and the people — without really surrendering the values of representative government that we care so deeply about. (But) I think we should have that conversation.”
More U.S. officials are looking at partnerships
Pioneered overseas, public-private partnerships have become more common in the United States over the last decade for transportation projects, especially for new and existing toll roads.
Often, they’re accompanied by controversy over a relative lack of transparency compared to traditional government contracting, such as when private partners shield road-usage projections as proprietary information.
Only recently have airports used P3s to finance expansion projects, including a $4 billion partnership approved last year for renovation and expansion of a terminal at LaGuardia Airport in New York City.
Such partnerships may be new for Denver city government, but they’ve been more common at the regional and state levels in Colorado. Examples include Plenary Roads Denver’s 50-year contract to partly expand U.S. 36 between Denver and Boulder, and then to manage and collect tolls along the highway.
Another is Denver Transit Partners’ construction and operation of three commuter rail lines, including the trouble-plagued University of Colorado A Line to DIA, in a 34-year contract with the Regional Transportation District.
DIA’s proposed deal is with Great Hall Partners, a consortium led by Ferrovial Airports and local partner Saunders Construction.
Private interests led by the Spanish multinational company would chip in some of the cost of a wide-scale, $650 million renovation of the Jeppesen Terminal — including the relocation of security screening areas to the upper level and consolidation of ticketing — and manage new main-floor terminal concessions for three decades. Ferrovial would receive 20 percent of the income produced by those shops and food stands, a take that in the end is forecast by the airport to produce a nearly 11 percent return on the partners’ up-front investment.
In most P3 contracts, the private partner may finance debt at a higher interest rate, but public officials typically point to cost savings that have the potential to offset that drawback. Chiefly, firm pricing for the project passes along to the private partner the risk for most potential overruns, due to factors such as unforeseen increases in costs for materials and labor.
No P3 is exactly alike. But advocates argue that the public benefits from private-sector innovation that occurs when project financing is coupled with design, construction, operation and maintenance, as happens in the most complete deals.
“That’s what it’s really all about: For every dollar you pay an architect, the contractor gets about 10 bucks, and the maintenance and operation costs about $100 over the next 40 years,” said Frank M. Rapoport, a P3 negotiations attorney with the New York law firm Peckar & Abramson. He also is the chief strategy adviser for the Association for the Improvement of American Infrastructure. “(Private partners) know they’re stuck maintaining this building for 30 or 40 years.
“You know, often they overbuild it,” he said, to reduce upkeep costs later on.
Track record of P3s includes some misfires
But in any P3 deal, experts say, the devil is in the details — and usually there are reams. (DIA’s proposed contract fills nearly 15,000 pages.)
Of more than 40 arrangements cited by Rapoport that are underway in the United States, a handful have run into problems.
The most notorious is Chicago’s 2008 decision to hand over control of its parking meter system to private partners for 75 years, using the $1.16 billion up-front lease payment to plug budget holes. An inspector general’s report found the city was shortchanged at least $974 million in the poorly negotiated deal.
P3 skeptics point out that partners sometimes have overestimated savings or made mistakes in financial projections that aren’t shared with the public. In a few cases, toll road partnerships have gone bankrupt because road-usage projections were overwhelmed by dips in traffic during the 2008 recession, as happened with deals in Texas and Indiana that included Ferrovial’s subsidiary Cintra. (New investors took over those partnerships.)
Councilwoman Robin Kniech voiced another concern at a committee meeting last month.
“When you’re dealing with operations and maintenance, the No. 1 way you get savings is through lower wages and benefits” for workers, Kniech said. “Everyone pays the same for Windex. Everyone pays the same for mops and street-sweepers. The one thing that changes from the public sector to the private sector tends to be the wages and benefits.”
Because the contracts usually last decades, they’re also prone to changing social, urban or transportation trends that can thwart their assumptions.
“Contracts are very rigid documents,” said Donald Cohen, executive director of a group called In the Public Interest, an Oakland-based organization that has been critical of public-private partnerships. “This is why there is so much contracting litigation in America. … You’ve got to anticipate what both sides want and everything that could go wrong.”
‘Share the burden with private partners,’ mayor says
Hancock and other city officials have expressed confidence in DIA’s negotiations with Ferrovial and the city’s ability to strike fair deals in the future to help with big projects.
“We have a couple choices: You either raise taxes, you raise costs or you enter into the P3s that enable us to level off the costs and to share the burden with private partners,” he told council members earlier this month.
He and his Cabinet most solidly have envisioned public-private partnerships potentially playing a role on the National Western Center campus. The city and its institutional partners are working out $1.1 billion in work for early phases of a 10-year master plan. But P3s could be considered for the still-unfunded later phases, which call for a new arena and exposition center as well as redevelopment of the Denver Coliseum site, and for some other aspects.
City officials also have said they might pursue partnership deals for parts of an expansion of the Colorado Convention Center and to help finance big potential changes to the Denver Performing Arts Complex, where an early vision plan last year called for three or four privately developed residential high-rises as part of the improvements.
But city officials are on the lookout for other ideas — which they say are more likely to be useful for large projects than small ones, given the complexity involved.
A statement provided by Hancock’s office said the new P3 office would “ensure that only the projects that leverage the most value for the city are considered for a P3 model.” The city also would maintain ownership of public assets in any deal, the statement says.
But the complexity of the DIA deal, which has split the council, has spurred some of its members to scrutinize closely the still-evolving plans for more deals.
A council committee on July 11 heard a presentation on city officials’ request to add $480,000 to an existing contract with the New York City office of Arup Advisory Inc., which already has earned $475,000. That firm is assisting with the development of P3 policies and prep work to launch the city’s program and P3 office.
Facing probing questions, City Attorney Kristin Bronson tried to provide some assurance.
“All the concerns that the council has expressed about P3s generally is one of the reasons we want a P3 office,” Bronson said. “We’re not going to stop looking at these kinds of opportunities, so let’s make sure that we have set up a thorough screening process.”
But council members held out, saying they had plenty more questions. Another finance committee hearing on Arup’s contract addition is planned for Aug. 22.
Read the main document in the DIA-Great Hall Partners contract: