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The Tappan Zee Bridge & public private partnerships

December 21, 2011

The reconstruction of the Tappan Zee Bridge, one of the largest public works projects in the nation, may establish a new model for public private partnerships (PPPs).  The collaboration between the public and private sector has been common in Europe for decades and has been used increasingly for roads, but never for a project of this magnitude. The combination of a PPP approach, a design-build contract and creative financing may ultimately have a broader application statewide. It has been estimated that of the more than 17,000 bridges in New York State, 6,650 may be structurally deficient. Once a suitable PPP model is established based upon a design-build concept (preparation of design and construction under a single contract), the model may be adapted to other circumstances. The open issue is the nature of the financing for the reconstruction. To assist the administration in examining financing options, two entities, Jeffrey Parker and Associates and Acacia Consulting, have tentatively been selected to determine how best to finance the reconstruction for the project.

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3 Comments leave one →
  1. December 21, 2011 12:35 pm

    “The open issue is the nature of the financing for the reconstruction.” Yes, and civil society groups should be watching for “creative financing” like a hawk! The key fact here is that funds can be borrowed via the issuance of public authority bonds backed by tolls at about 5%. The cost of private capital is around 10%. Full PPPs — Design Build, Operate, Maintain (DBOM) + Finance — achieve cost efficiencies through operations over decades. Their cost of capital is always higher. The lowest total cost to the public for the TZ is most likely via a DBOM financed via toll backed public bonds with incentive contracts for early completion. The private capital is pure profit, and is all about outsourcing the political will to raise tolls and Governor Cuomo’s desire not to raise the state borrowing limit. Another key thing to look at here is how TZ tolls subsidize the Thruway Authority. Rebuilding the TZ will require pulling TZ tolls out of the Thruway and raising Thruway tolls. Lastly, the most common form of PPP is Design-Build. It’s important to be as clear as possible about the type of P3 being considered. The term P3 covers such a broad spectrum that it is often confusing.

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