By Jay E. Ingle
Signed into law by Governor Bevin on April 8, 2016, HB 309 put a legal framework in place for state and local government to pursue public-private partnerships (P3s) in Kentucky. While the pre-existing procurement laws allowed for private delivery of state projects, HB 309 recognizes P3s as a distinct delivery method for capital projects, services, and major transportation infrastructure. These arrangements provide a new way for government to deliver on public projects — the skills and assets of the public and private sectors can be leveraged to finance, build, and operate public projects.
HB 309 was designed to provide flexibility and opportunity for the Commonwealth. Unlike some states’ P3 laws that are restricted to certain types of projects such as transportation, Kentucky’s law is written broadly to include a wide array of projects, including transportation, other infrastructure, or even services. In addition, a project can be initiated by the state, by a local government, or even by the private sector through an unsolicited proposal.
Broadly, HB 309 implements P3 in Kentucky in three ways. First, it amends the Kentucky Model Procurement Code to add P3 as a method for procurement on state projects. Under the new law, projects can be built or operated through a flexible mix of public and private financing, including revenue streams generated from the project itself. The law also lays out the guidelines for submitting RFPs and the criteria for selecting private partners. And although government functions may be delegated to a private partner, the government is still responsible for oversight. P3 projects totaling over $25 million must be approved and budgeted for by the General Assembly.
Second, HB 309 allows local governments (or groups of them) to take advantage of P3 projects. Under “best value” procurement standards, the local P3 must meet the business requirements and best interests of the local government. All local P3 contracts must be approved by the local government’s legislative body at a public meeting. The law also creates the Kentucky Local Government Public-Private Partnership Board, which must approve certain capital-intensive projects in which contract values exceed 30% of the local government’s revenue for the preceding year.
Third, HB 309 allows P3 contracts for large transportation projects. The Kentucky Public Transportation Authority is now authorized to use public-private partnerships to contract, finance, operate, and manage significant transportation projects both within the state and connecting to adjoining states.
The Implementing Regulations
Under HB 309, the Finance and Administrative Cabinet was responsible for establishing criteria for agencies to consider before beginning a P3 project. After a notice and comment period last fall, the final version of the Cabinet’s regulations became effective on January 6, 2017. Those regulations can be found at http://www.lrc.ky.gov/kar/200/005/355.htm. The regulations outline the cost-benefit analysis a public agency must undertake before embarking on a P3 project. The Transportation Cabinet has issued a separate set of regulations that apply to transportation projects, which can be found at http://www.lrc.ky.gov/kar/603/002/020.htm.
While one round of “cleanup” legislation became law earlier this year, HB 309 remains largely unchanged. The 2017 revisions include changes to the number of days an unsolicited proposal must be posted, providing state and local agencies with more time to review an unsolicited proposal (90 days instead of 30 days); allow a fee to be collected for review of certain types of projects; and clarify that the Transportation Cabinet’s approval of a P3 project does not bind a future General Assembly to appropriate funds.
Because of the flexibility it allows in financing and building public projects, both government and industry alike expect it to be a significant tool in economic development. It gives the public sector one more tool in its toolkit when traditional financing or delivery methods may not be a feasible option.
Jay Ingle is a member at Jackson Kelly PLLC’s law office in Lexington, KY. His practice areas include business law and civil litigation, with a focus on commercial litigation, employment law, equine law, health law and medical malpractice. He also regularly advises clients on various governmental, legislative and regulatory matters.