Kentucky's senate recently passed House Bill 309, more commonly referred to as the PPP bill. It should provide a framework for the use of PPPs as a financing tool for developing new infrastructure across the state.

The bill, which won senate approval with a clear 29-9 vote on 24 March 2016, now awaits governor Matt Bevin's signature before it is passed into law. The expectation is that Bevin will sign the bill as he is a known supporter of PPPs. If passed into law, Kentucky will become the 34th US state to have enacted statutes to enable the use of various PPP methods to develop infrastructure.

But nervousness will prevail until the bill is finally signed into law, since this is not the first time Kentucky has attempted to pass the bill. The state passed PPP legislation once before in 2014 in its general assembly, but was vetoed by the then-governor Steve Beshear on grounds of certain tolling and other non-transportation related PPP provisions contained in the bill. 

As with most bills, the lengthy legal document bears both good news but also a few challenges. It remains to be seen how the state irons those details out and brings deals to the market once the bill is signed into law.

Feats and challenges 

House Bill 309 would allow the Kentucky government and private entities to enter into PPPs to fund the Commonwealth’s infrastructure needs. Senator Max Wise said of the bill: “The primary benefit will be to position Kentucky as ‘open for business,’ especially as it relates to big-ticket infrastructure projects that state and local governments cannot afford without some private money during tight budget years.”

In particular, the bill sets up oversight for existing and new infrastructure projects including a provision that state PPP projects valued at more than $25 million will require approval by the general assembly. The bill also establishes a central Kentucky Local Government Public-Private Partnership Board to review and/or provide approval for all PPP deals. 

One of the common challenges a multilevel approval process poses is the potential of delay or eventual cancellation of projects at an advanced stage, said an infrastructure and PPP projects' focused partner at a law firm based in California. "As the bill proposes, every approval has to go back to the cabinet then to the local government agency and that kind of approval chain creates risk."

The state of Indiana suffered one such setback in 2015, when the City of Indianapolis was unsuccessful at closing the $408 million Marion County consolidated justice complex PPP. The deal, which was only days away from financial close, was cancelled as it failed to receive council approval after being embroiled in local city and county politics. "From the private sector's perspective, they may look at the bill's provisions and get concerned whether things will go through once at an advanced stage. Every stage of project approval at times takes more than six months," added the partner. 

The creation of the Kentucky Local Government Public-Private Partnership Board though is being seen as a positive, as it will act as the central go-to body for projects for other local city and state agencies. The bill also imposes a 31 December 2016 deadline to create the agency. States like Pennsylvania (Office of Policy & Public Private Partnerships) and Virginia (P3 Virginia) have similar centralized departments which have proven useful in both the conceptualization and development of PPP projects and as well as in forging innovations in their financing. 

The other notable but controversial facet of the bill that has drawn attention is a provision that prohibits the authorization of tolls for any project involving the interstate highway system connecting Kentucky to the state of Ohio. The provision is particularly relevant for the Brent Spence Bridge project. While the bill authorises the use of the PPP model for highways, it has a specific restriction on tolling. The bi-state project comprises construction of a new 7.8-mile (12.6km) bridge and adjoining roadways replacing the old Brent Spence Bridge connecting Ohio and Kentucky.

If not financed via tolls, the project will need to go down the availability payment based route, which is an established model in the US, but will invite debate and discussion before both states involved in the project can come to an agreement. In the past the Ohio Department of Transportation (ODOT) has been in support of a state legislative proposal to add tolls on the proposed Brent Spence Bridge project. 

Pipeline

Kentucky does not have a lengthy list of projects on the horizon, but the PPP bill is expected to spur positive activity. "Certainly with the development of this legislation, state agencies would begin thinking of how to put it to use. We expect to start seeing projects come out of the wood works," the partner said. Overall the bill reflects that there is a strong support to having such alternatives available for development of new infrastructure. 

As states across US continue to get more comfortable with the PPP model and learn from each other, more and more of them are considering enacting PPP enabling legislature to encourage various local authorities to engage the private sector in infrastructure development.

The state of Tennessee's senate also recently approved legislation that would allow state and local governments to enter into contracts with private sector parties for mass transit transportation projects. If passed this would be the state's first attempt at privatising transit.