P K Smith's published case study on Public-Private Partnerships, focusing on principles of Financial Leadership

PAUL K. SMITH
is managing partner of
Paul Kimball & Associ-
ates, a firm that creates
equity joint ventures
between U.S.- and
Hong Kong-based
companies, and direc-
tor of Worlds Fair.com,
which negotiates
strategic promotional
alliances between
businesses and host
governments.
Financing the Airport Light Rail
Line in Portland, Oregon: A Case
Study of Public-Private Partnership
PAUL K. SMITH
P
erhaps the best financings originate
over dinner, between friends. Business
legend tells us that the acquisitions,
consolidation, and recapitalization of
railroad, iron ore, and steel producers that
became forged into U.S. Steel were imagina-
tivelysketched oue asa daring idea one night on
a dinner napkin by Charles Schwab for J.P.
Morgan. Similarly, in Oregon, the unique
financing of light rail transit to Portland's airport
is said to have been sketched out one night, at
a dinner among three friends. Who were they?
What needs were they serving?What would the
risks be? With no federal funds, how would
the project ever be built?
In response to the desire of 10,000 air-
port workers, commuting daily and yearning
for the convenience of light rail, even as the
Port of Portland was expanding its air service,
one night the Port's executive director explored
a new idea with two friends dining with him.
The three were the Port's Mike Thorne (cur-
rently running for governor), attorney Neil
Goldschmidt (an active, larger-than-Iife char-
acter on the Portland political stage), and John
Carter, senior vice president of Bechtel, the
infrastructure engineering firm. (Carter is from
Pendleton, Oregon, where Thorne farms
wheat.) Thorne acknowledged there was no
forthcoming source of federal or state funds to
pay Bechtel to build a light rail line. John
Carter was suggesting a swap of undeveloped
Port property for Bechtel's design and con-
struction services. Now Thorne and Gold-
54 FINANCING THE AIRPORT LIGHT RAIL LINE IN PORTLAND, OREGON
schmidt wondered whether the transaction
could be structured to utilize: 1) the Port's
land, 2) Bechtel's financing and engineering
skills, 3) the existing transportation corridor
along the interstate right up to Port property,
and 4) urban renewal, tax-increment dollars
that might be forthcoming, contingent on
creating increased property value along the
interstate and within the urban renewal district.
To create U.S. Steel, Schwab and Morgan
would build upon their University Club dinner
by enlistingtwo more key players,Robert Bacon
(Morgan's own financial partner) and steel wire
manufacturer John Warne ("Bet-a-Million")
Gates. To create a financial structure for the
light rail project, known as Airport MAX, the
Port's Mike Thorne and Bechtel's John Carter
would enlist more leaders from the nucleus of
local power. They would expand the discussions
to include Metro (a regional oversight agency
envisioned as a conduit for government funds
into this project) and the Oregon Department
of Transportation (ODOT). In time. first
ODOT and then Metro would withdraw, leav-
ing at this conceptual cluster of authority a
group that became known as the "Gang of
Five" (G5). Representing the five organiza-
tional partners who would see the project to
completion; they included the general manager
ofTri-Met (the mass transit agency) the exec-
utive director of the Port of Portland, the exec-
utive director of the Portland Development
Commission (pDq, the Bechtel project man-
ager, and, for the city, both the transportation
SUMMER 2001

I
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commissioner and the mayor. Four public agencies and
one private partner were now taking active roles.
The heads of the four public agencies had worked
closely together before. Instinct now guided them in
gauging each other's commitment to the project at hand.
To move from the concept level to the project level, each
executive would choose one key project manager, like a
staff general preparing to fight his campaign. One virtual
organization gave birth to another virtual organization: the
project managers.
The project managers, acting on behalf of the
Gang of Five leaders, in turn created a third level, the
"Little Gang of Five" (LGS). LGS field-level managers
translated GS's agreement in principle into a fast-track
work plan, particularly as the public agencies shrank
their approval process times to match that of Bechtel,
their private partner. Bechtel, retaining Goldschmidt as
its agent, persuaded the Port of Portland to recommend
that this undertaking be recognized as "a unique busi-
ness relationship and one-of-a-kind transaction" to be
undertaken without the usual procedure of soliciting bids
from other contractors.
This case study tracks the growth of that idea into
reality. It explores the unique way,shepherded by the Port
of Portland's leadership, in which the transaction was
structured: swapping money for development rights so as
to finance the extension of light rail from downtown
Portland, Oregon, to its international airport.
PROJECT STRUCTURE
On September 11, 2001, five years after Bechtel
Enterprises first considered a public-private initiative to
construct a light rail line, service is scheduled to begin.
The agreements making this possible are a swapping,
stitching, and quilting-together of arrangements reflect-
ing the Port of Portland's negotiating style in parceling out
and trading development rights for construction financ-
ing in the three underlying locations, which together run
5.5 miles. To raise financing, the Gang of Five divided the
Airport MAX line on paper into three segments:
1) The Terminal Segment, on developed airport prop-
erty, extends 1.2 miles from the terminal to the
western edge of the Portland International Center.
For this portion, budgeted to cost $28.3 million, the
Port of Portland would seek Federal Aviation
Administration (FAA) approval to use passenger
facility charges (PFC). Winning FAA approval, a key
SUMMER 2001
hurdle, was championed by U.S. senator Ron
Wyden. The Port's actual share of project costs was
$24.6 million, to be paid with $4.7 million from
PFC pay-as-you-go revenue and $13.7 million in
financing from revenue bonds. (The total bond
issue, "Portland International Airport Passenger
Facility Charge Revenue Bonds, Series 1999,"
maturing 2004-2018, at rates from 5% to 5~%,
raised $132,110,000 for various aviation projects.)
Without FAApermission to use PFC dollars, there
would have been no financing and no project to
complete. Nonetheless, in the uncertain months
before this victory was achieved, the Gang of Five's
public partners risked over $4 million in unrecover-
able development expenses. These were leaders with
the intuition to read each other, to sense the politi-
cal moment, and act without delay on their gut
instincts.
2) The Portland International Center (PIC) Segment,
running 1.4 miles from the western edge to the
eastern edge of the PIC on undeveloped Port prop-
erty, was budgeted to cost $23 million. The plan
called for Cascade (the Bechtel-Trammel Crow joint
venture) to fund this segment through the PDC, in
exchange for long-term rights to lease 120 acres in
PIC along Airport Way,the arterial highway into the
airport. Bechtel Enterprises would receive an 85-year
ground lease of 120 acres to develop with its
partner, Trammel Crow.
Bechtel designed the rail line and built roads and
a viaduct over the interstate highway. The City of
Portland issued tax-increment, Ambac-insured,
urban renewal bonds, earning a Moody's "Aaa" rat-
ing, and raised $51 million in tax-exempt munici-
pal bonds maturing 2000-2020 with rates ranging
from 5% to 5XOIo.
3) The Gateway Segment, outside airport property,
runs from the Portland International Center (which
Cascade is to develop), 2.9 miles within an exist-
ing, empty transit corridor of the interstate high-
way to the "Gateway" light rail station, hub of the
existing light rail line. The budgeted cost was $73.7
million ,with funding to come from Tri-Mer,
Metro, and a PDC conduit financing for Cascade
Station Development.
Bechtel designed and built the line. Tri-Met
issued $36,660,000 in limited tax-pledge revenue
bonds financed by payroll taxes and collected by the
state from metropolitan payrolls at $6.70 per $1,000
THE JOURNAL OF PROJECT FINANCE 55

of city workers' salaries.There is no threat to the rev-
enue stream paying back the Tri-Mer revenue bonds
because it flows 6:0111 urban payroll and self-employ-
ment taxes. Unlike other transportation bonds, paid
ridership could total zero without affecting the cash
flow to service the bond debt. Tri-Mer, is, however,
promoting ridership with the slogan, "Take the
Train to the Plane," in building demand to 7,500
trips a day, or 2.7 million rides a year, by 2015.
Afier the port swapped the use of raw land to Bech-
tel Enterprises, Bechtel partnered with Trarrunel Crow;
in turn, they shifted their mutual real estate risk to leas-
ing agent MBK Northwest, which pays anticipated retail
leasing revenues upfront. Bechtel Infrastructure would
subsequently be paid to build the light rail.
The value of the project to the Bechtel Group is the
$125 million light rail engineering and construction con-
tract. Th~ lease revenues alone are seen as little more
than a recoupment of its $42.8 million outlay, not justi-
fying the investment.
Bechtel was the only engineering
firm willing to take on the
real estate risk and to bring
financing along with
engineering skills to the table.
Bechtel Group, owner of Bechtel Enterprises and
Bechtel Infrastructure, was the only private-sector engi-
neering firm willing both to take on the real estate risk
and to bring financing along with engineering skillsto the
table. There is no technology risk and no political risk.
Bechtel's risk on the ground lease is market risk-whether
or not it will be able to sublease the 20 underlying parcels
at anticipated rents.
While area residents doubt the draw of an airport
shopping center, Bechtel values the airport location, is
encouraged by hotel occupancy rates averaging 74% in the
Portland area, and cites demand for office space near air-
ports in other cities. The land falls within the Interstate
I 5 corridor, where local urban planners and commercial
developers forecast continued growth. Bechtel projects the
value of the development to grow from $21 million to
$400 million on buildout in 14-15 years.
DEVELOPING THE REAL ESTATE
COMPONENT
The vacant land the Port offered to Bechtel was the
largest undeveloped commercial parcel left within Port-
land's urban growth boundary and, perhaps, the choicest.
Bechtel sought Trammel Crow for its core strength of
developing commercial properties, which dates back to
1953 in Dallas, helping expand the airport with the atti-
tude, "The air is our ocean."
Jointly developed on airport property by Bechtel and
Tranunel Crow, Cascade Station will include a 350,000-
square-foot shopping mall as the first phase of a business
community leasing one million square feet of office space.
Trammel Crows vice president of development, Jeffrey
Sackett, points to a plan to tap the retailing potential of
the daily traffic count of 180,000 vehicles and to serve a
growing neighborhood of 300,000 consumers. The first
phase of the lifestyle community will offer parks, shop-
pingand restaurants. Retail includes housewares, outdoor
gear, and discount department stores as anchors.
Cascade Station's master plan calls for 1.3 million
square feet of class-A office space; 1,200 hotel/motel
rooms, including an extended-stay motel for business
travelers; and 400,000 square feet of retail space, of which
380,000 square feet is to be leased by MBK Northwest
to bring in the retailers, the restaurants, and a 24-screen
cinema. Retail is expected to be the spark that drives the
development, igniting office demand. Part of the ratio-
nale is that residents offast-growing Clark County, Wash-
ington, will be drawn to shop at stores just across the
Columbia River, in Oregon, which collects no sales tax.
PROJECT CAPITAL REQUIREMENTS
The project required $125 million in capital. Its
funding, on paper, derives from four sources, as outlined
in a "deal structure" document:
$ 28.3 million from Port of Portland
28.2 million from Cascade Station Development (Bechtel-
Trammel Crow joint venture)
23.0 million from City of Portland, PDC Urban Renewal Dis-
trict funds
45.5 nlillion from Tri-Mer (the regional mass transit system)
$125.0 million
The figures above show the shares from the Port and
from Bechtel Enterprises (95%owner of Cascade)asroughly
equal, and Tri-Mer's share as about double that of the city.
SUMMl!1t 2001

The sources of actual financing are shown in the
offering statements for the revenue bonds and are asfollows:
$ 28.3 million from Port of Portland
51.2 million from City of Portland and the PDC
45.5 million from Tri-Met
s 125.0 million
The "enlarged" city and PDC share reflects financ-
ing on behalf of Bechtel's Cascade Station Development
Company ("CSDC"). In connection with this, Tri-Mer
issued $28.2 million of PDC funding bonds. Tri-Met's
Official Statement describes the arrangement: "PDC will
assign to CSDC the development rights obtained by PDC
from the Port of Portland. In return for the assignment of
development rights, CSDC will obligate itselfto pay assign-
ment fees to PDC over a 30-year period. The obligation
of CSDC will then be assigned by PDC to Tri-Met, and
CSDC's payments of assignment fees for development
rights will serve as the source of repayment for the PDC
• funding bonds."
SOURCES OF PAYBACK
Sources of payback for the partners are:
• The Port of Portland will use its stream of airport
passenger facility charge (PFC) revenues.
• The city anticipates additional levies based onthe
incremental assessedvalues of properties in the city's
Airport Way Urban Renewal District.
• Cascade Station Development Company will receive
upfront lease revenues from MBK Northwest, the
retail leasing agent.
• Tri-Met will draw funds for this capital expenditure
from urban payroll and self-employment taxes.
RISKS AND STAKEHOLDERS
As Port CFO Ed Galligan contemplates his future
strategic financings, such as the controversial deepening
of the Columbia River shipping channel to accommo-
date the next generation of container ships, he formu-
lates a strategy of bringing his bond buyers aboard as
supporters of the Port in any storms ahead. He wants to
choose a new underwriter for the next five years of
borrowing needs based not primarily on the lowest bid,
but on its ability to distribute bonds to stakeholders in
the region.
SUMMER 2001
Will this be realistic? PaineWebber and Goldman
Sachs served as investment bankers for both the Port and
for Tri-Mer in pricing and distributing the Airport MAX
bonds. Concerning distribution, PaineWebber's Tom
Yang (carefully shepherding his client's interests) observes
that institutions typically buy between 70% and 85% of
an issue, leaving the remaining 15% to 30% for retail
buyers. Mutual funds generally buy 60% to 70% and
property and casualty companies 10% to 15%. But Yang
notes that the Port of Portland specifies a preference for
as many retail investors as possible. This slightly reduces
the ability of institutions that buy large blocks to dictate
pricing and, Yang estimates, reduces the Port's borrow-
ing rate by up to five basis points. At the same time, the
Port gains committed stakeholders as lenders.
PaineWebber found minimal risk in underwriting
Tri-Met's share. A public transit agency, Tri-Mer came into
being in 1969 upon taking possessionof a failing, privately-
owned transit company. With its power to levy payroll
taxes, it made the operation a financial success. Today its
debt-service coverage on revenue bond issues is over 20
to 1. That earns Tri-Met a national reputation among
institutional bond buyers as one of the financially strongest
transit systems in the country. Serving an area of 600
miles and 1.9 million residents, Tri-Met solidified its rep-
utation during the financing of the western section of its
existing light rail lines, a 33-mile system before the 5.5-
mile extension to the airport.
Solid revenue streams earned the new light rail bonds
an "AA+" S&P rating and a "Aa3" Moody's rating. The
risk is not of a lack of funds to repay the debt, because those
funds come from payroll taxes. The primary risk is project
completion risk, the effect that failure to complete the rail
project could have on the transit agency's future borrow-
ing capacity. The debt structure, Tom Yang explains,
required nothing exotic+equal payments each year covered
by steady cash flow from payroll taxes.
By contrast, investment bankers characterize the Ore-
gon Department of Transportation (ODOT) aslacking the
ability to generate support in the state legislature for mean-
ingful transportation financing. This perception survives in
spite of vigorous developer-commissioners likeJohn Rus-
sell, and in spite of $600-$800 million spent yearly on
major projects. Since 1980, state law has mandated that
transportation dollars (raised from gasoline taxes and vehi-
cle registrations) be used only for roads and highways.
ODOT helped gain federal permission to use the interstate
corridor for the light rail, then withdrew from Port-spon-
sored discussions on financing Airport MAX.
THE JOURNAL OF PROJECT FINANCE, 57

FINANCING THE COSTS
The costs of building the light rail line and stations
were shared in the following way:
• Property tax increases reflecting increased Urban
Renewal District values would provide the City of
Portland the revenue stream for meeting its bond
payments.
• Payroll taxes, not farebox revenues, would pay Tri-
Met's share. Tri-Met, seeing no financial risk but
incurring construction risk, required all the parties
to deposit the $125 million needed for the project
in its accounts.
• Passenger facility charges (PFC) of$3 per enplaned
passenger, remitted by airlines to the Port of Port-
land, would pay the Port's share.
• Lease revenues to Cascade Station Development
Company would pay Bechtel's share (paying Bech-
tel through Tri-Mer for the engineering work).
Ed Hum, who heads Bechtel's Cascade Station real
estate development, describes the back-to-back transfer of
rights and funds: "Bechtel pays PDC an assignment fee of
$28.2 million in exchange for development rights, assigned
by the Port of Portland to PDC and in turn assigned by PDC
to Cascade Station Development Company."
By July 1998, Bechtel Enterprises, the Port of Port-
land, the City of Portland, and the Tri-Metropolitan County
District were venturing together to design, fund, and build
the light rail project in three separate geographic sections
and a separate partnership between Bechtel and TranuneI
Crow was developing leased airport properties to help
Bechtel Enterprises to recoup its out-of-pocket costs.
This is where Bechtel relies on its partner Trammel
Crew's orientation to the real estate market. Trammel
Crow as a company retains the leadership model within
the organization of Trammel Crow the person: a charis-
matic figure engendering loyalty and commitment, while
spawning hundreds of real estate partnerships.
TAX INCREMENT FINANCING
Although many are drawn to fields of endeavor by
hopes, ideals, and dreams, not all stay to see skeletons of their
ideals take on substance and life. Utilizing the new state laws
liberating the use of tax increment levies, Robert Alexan-
der, development manager, Portland Development Com-
mission (and member of the project manager group
overseeing the Airport MAX project), and Eric Johansen,
Debt Manager, City of Portland , designed a financing struc-
ture for the city's share utilizing tax increment financing (TIF)
for the Urban Renewal District. The ability to use TIF to
build Airport MAX, and in the process induce the growth
of value in the neighborhood through which it passes, Eric
Johansen sees as the dream of urban renewal made real.
The ability to use tax increment
financing for Airport MAX and
induce the growth of a
neighborhood's value in the
.process is an urban renewal
dream made real.
This encourages the developer, private or public, to see
the hidden value in an expanse of dirt the way a sculptor
would look at a chunk of uncarved rock. If the property is
developed, higher values and an increased tax base in the sur-
rounding area should produce revenues to payoff the pub-
lic bonds. This mirrors Mike Thorne, the wheat farmer,
speaking of tracts of time as if they are tracts of raw land to
be developed or fields to be plowed and planted: "The
future is not just a place we are going to, but one we are help-
ing to create-first through ideas, then through action."
PUBLIC/PRIVATE VENTURES
In Strncturing Real Estatejoint ventures (1992), Robert
Bell writes:
Municipalities that own property are going to the
private sector to find developers and capital to
develop or redevelop such property in the form of
ajoint venture rathefthan seiling, abandoning, or
developing such property. By leasing properties to
a developer at a nominal rate (or a base rent plus
a participation in project revenues during the term
of the lease), the municipality can generate sub-
stantial annual revenue in the form of payments
and, at the same time, accomplish desirable gov-
ernmental objectives.
Municipal partners have public objectives and pri-
vate partners have private objectives. To the extent that.

the focus of project finance is limited to the financing of
projects, it is limited to the means and not the ends.
From the public standpoint, the end objectives of a new
power plant or a new light rail line are not just to build
infrastructure that provides affordable power or smoother
transport, but also to yield a higher standard ofliving and
build a better community.
In Portland, Oregon, a responsive marketplace to
public-private financings has achieved targeted results like
Airport MAX and PGE Park. PGE Park had been a
dilapidated downtown stadium. Its massive renovation
was partially financed by selling PGE the signage rights
for $500,000. Such targeted results contribute to the pub-
lic goals of lower air pollution, lower congestion, more
and better employment, a safer and better place to live,
more recreation, reduced flight to the suburbs, and an
increased tax base. For the private partners, meanwhile,
these projects yield revenues relevant to their core busi-
nesses, as measured by private objectives such as positive
• net present value, enhanced brand awareness, greater mar-
ket share, and asset growth. It would be naive not to
expect project developers to be part of the planning pro-
cess;it also would be just as naive (in this market) to expect
capital-intense projects to move forward to completion
without the financial involvement of private developers.
THE PORT OF PORTLAND
Private partners are welcomed as strategic business
allies by the Port in meeting its mission to provide cotn-
petitive cargo and passenger access to regional, national,
and international markets, while enhancing the region's
quality of life as a political subdivision of the state, The
Port envisions trade as a tool-a means to that end.
In launching his campaign to be elected governor,
Port of Portland executive director Mike Thorne cites this
achievement: "Airport MAX light rail is not just another
public-private partnership. I see it as a reflection of our
community values and a blueprint for how we accomplish
future projects."
To finance and build light rail transit to the airport,
which had been advocated by the Port of Portland's Board
of Commissioners for about 15 years, Thorne promoted
the public-private financing structure with the swap of
development rights for construction (a refinement of an
idea originally proposed by Bechtel senior vice president
John Carter), formulated the Port's business strategy,
arranged its strategic alliances, and created its business-
driven organizational architecture, which was streamlined
SUMMER 2001
for cross-functional teams to implement the strategy he
formulated. In private enterprise, he would be called a
turnaround manager.
Airport MAX is not just another
public-private partnership.
It is a reflection of our community
values and a blueprint for how
we accomplish future projects.
In the 1970s, Thorne recalls, "I remember, as a
young state senator representing a rural, agricultural, con-
servative corner of the state, my first meeting with the fast-
talking, liberal mayor of Portland. He closed my office door,
leaned over my desk, and said he that he needed tools-
bonding authority at the local level-to attract business and
createjobs. He said that accomplishing his goals and objec-
tives for Portland required a strong economic base. I lis-
tened to his ideas. And when I thought it was safe to get
a word in edgewise, I told him, 'I not only understand what
you're saying, I think we're going to agree from now on.'
And Neil Goldschmidt and I have been friends ever since."
"CLUB MET"
The creation of Airport MAX was bringing together
veterans of common wars. There had been an overlapping
period when Vera Katz (as mayor of Portland, one of the
Gang of Five)was Speaker of the Oregon State House, Mike
Thorne chaired the Ways and. Means Committee of the
Oregon Senate, and Neil Goldschmidt wasgovernor. Gold-
schmidt, according to the business press, recommended
that Mike Thorne be appointed to head the Port of Port-
land when John Kitzhaber became governor. Kitzhaber
had been president of the Senate at a time Vera Katz was
Speaker of the House. (Kitzhaber servesasgovernor tillJan-
uary 2002. Now Thorne isrunning for governor, and Katz
is mayor of Portland, as well as running the city's Bureau
of Finance). Continuing this "Club Met" of relationships,
during most of their common period of public service, their
mutual friend Tom Walsh headed up Tri-Met.
In public life, Neil Goldschmidt had advanced from
Portland city conunissioner to mayor of Portland, then to
U.S. Secretary of Transportation, and then to governor.
As mayor, he put a stop to the demolition of Portland her-
THE JOURNAL OF PROJECT FINANCE S9

itage buildings, replaced downtown docks with a river-
front park, and created an l l-block transit mall that made
downtown convenient and accessible.With lively instincts,
intelligence, and eloquence, he describes the latest urban
development proposals as "palettes for a new generation
ofPortlanders to paint their vision" onto the renaissance
he had masterminded for the central city core. His
administration, drawing on the energy of the early 1970s,
is credited with bringing an urban excitement and restor-
ing an ambience of vitality, safety, and convenience to
downtown, bringing people back to their city.
THORNE AT THE PORT
Portland's economy is tied to the economic health
of its port. Thorne notes, "We compete with Washing-
ton, California, and the nations of the Pacific Rim. Trans-
portation is about more than roads, rivers, rails, and
runways; it's about competitiveness in a global economy."
Thorne takes personal credit for expanding the Port's
overseas presence in Japan and China. His thoughts take
the form of actions more often than words.
In action, the Port of Portland's leader adapts effort-
lesslyto the decision-making style of his key directors and
commissioners. With a more assertive, pragmatic person-
ality, he is decisive and logical. With a less assertive, con-
ciliatory director, he listens, considers, and suggests, "Let's
take the time we need to gather information and make an
informed, careful decision with which we can live." With
the analytical, he gathers pertinent facts, reasons logically,
and artfully moves the agenda to a decision. Even when dis-
agreeing, he might tactfully add, "But your position is
right and on target." He has run the Port with financial
savvy, along business lines, while using a politician's sure
instincts in picking allies and opportunities.
For a port to remain competitive,
regional investments in
transportation and other
trade-related infrastructure
must keep pace with demand.
"To remain economically competitive, regional
investments in transportation and other trade-related
infrastructure must keep pace with demand. If invest-
ments are not made, service levels ,'IiI1 decline along with
opportunity. Missed opportunities have consequences.
"We need a vision that ties commercial needs to the
needs of the conununity and makes them one and the
same. Because in the end, it's not about light rail; it's about
establishing this region's competitive advantage."
THE PORT AS A BUSINESS
Portland's competitive advantage derives from the
Columbia-Snake River system, which cuts the only low-
level railroad grade through the western coastalranges. The
Columbia River Gorge is a gift of nature to Oregon
transportation, cutting a swath for barges, trucks, and
trains. The Burlington Northern Santa Fe runs along the
Washington side of the river and the Union Pacific hugs
the river on the Oregon side. For heavy, time-insensitive
commodities like cars and potash, barges offer freight
rates one-fifth to one-half that of truck and train. For the
rail lines, the low-level grade through the mountains is a
compelling advantage of this route.
Major north-south and east-west interstates meet
two rivers merging in their flow to the sea. Three slack-
water barge lines serve the Willamette, the Columbia,
and its tributary, the Snake River. The Columbia River
provides the only water route serving the agricultural
Inland Empire of Oregon, Washington, and northern
Idaho. The Willamette Valley, one of the nation's most
diversified farming regions, extending 1SO miles south,
ships its harvests and produce through the Port of
Portland.
With its four airports, five marine terminals, and
six industrial parks, the Port of Portland is run like a busi-
ness and empowered like a government. "It's all public
money," points out Michael Powell, a private business-
man who also serves as a Port conunissioner. The Port
enjoys the best of both worlds for its financing, enjoy-
ing S&P's top ratings for a port's municipal bonds while
not being required to distribute its retained earnings
(on the books as $420 million of property and cash). The
Port wields the power to levy property taxes, enact ordi-
nances, and to issue bonds.
The Port in its airport capacity (its future) moves air
cargo and passengers. Aviation, the cash cow of the Port,
makes the money, with the gap between revenues and
expenses widening, as aviation revenues climb and prof-
its soar. (Aviation revenues support aviation projects.) Yet
the Port advocates expanding container cargo facilities to
accommodate the next generation of 8,000 to 10,000
SUMMER 2001

TEU (twenty-foot equivalent units) containerized cargo
ships. The Port in its seaport capacity (its past) moves
marine cargo; it has been losing money 11 of the past 13
years-in particular, hemorrhaging money on con-
tainerized cargo. Marine operations accounted for over
102 million tons of cargo in 1999, worth over $10 bil-
lion. Portland leads all American ports in handling cars
and exporting wheat.
The Port in its seaport capacity faces fierce compe-
tition from the major West Coast ports: Los Angeles,
Long Beach, Oakland, and Seattle. From the Pacific,
ocean-going vessels reach Portland, 110 miles inland on
the Columbia, in about eight hours. A navigable river sys-
tem reaches 350 miles further inland to Lewiston, Idaho.
As an inland river port, Portland has successfullypositioned
itself as a gateway and a seaport, but the transpacific ship-
ping lines are cutting back the numberof West Coast ports
on which they call. The Port as seaport during 2001 lost
Evergreen Lines, a major shipping account, and the Port
as an international airport lost Delta Airlines, its sole
overseas airline.
How do ports create value? Charles Gerstenberg,
defining transportation costs (in 1922), wrote,
The existence of the great network of railway and
steamship lines connecting the most distant parts
of the inhabited globe with one another and rep-
resenting an annual business of billions of dollars,
begins and ends with a very fundamental eco-
nomic principle: namely, the difference in place-
value of commodities. On this hangs all value, all
costs, all transport, everything.
Conducting its affairs so as to create value, the Port
of Portland has a basic negotiating style. This guides the
way it promotes its plans, whether to business allies or to
activists opposing its choices. It has been utilized for
about a decade (a time of concurrent tenure by three key
executives: Mike Thorne, Ed Galligan (CFO), and Robert
Hrdlicka (director of marine services). A perfect exam-
ple is the swapping of development rights to Bechtel
Enterprises in return for Bechtel Infrastructure's building
streets, roads, train stations, and a rail line at the airport.
This style is a politician's way of negotiating explicit,
practical results, and at times is spoken word-for-word in
measured delivery as: "What do you need to have so we
can have what we need?"
John Hachey, manager, Marketing Services, Port
Development, for the Port of Portland, points out: "In
SUMMER 2001
today's world, once you target your market, salesare made
in tandem with partners who go in and introduce the value
of the services in the solutions you offer. In today's mar-
ket, you partner."
For instance, Canpotex (a consortium of Canadian
potash shippers) was a scenario
that allowed a shipper an alternative gateway for
exporting their product, so that in the event oflabor
strife either at the B.C. terminal or with the mul-
titude of short line railroads, Canpotex could min-
imize the disruptions. Partnering with Union
Pacific allowed usjointly to sell the Portland con-
cept. Traditionally, ports approach railroads hat in
hand asking that they move an existing account
from one port to another. This was a deal where
we were able to bring a new piece of business to
Union Pacific. They not only became our mar-
keting partner, but in fact spent their dollars to
upgrade a previously lightly-used corridor.
The Port's ability to tie financing to marketing
(offering to issue bonds) can be a knockout blow to com-
petitors. By issuing $60 million of "Portland Bulk Ter-
minals, LLC" industrial development revenue bonds to
build a facility for Canpotex, the Port of Portland deci-
sively closed the sale and won this account.
Yet,by exporting raw commodities and importing fin-
ished goods, John Hachey observes, "We still have, in this
sense, a colonist mentality." In 1999, the port exported
135,641 containers of cargo and imported 42,126 con-
tainers, a ratio of three to one. Marine director Robert
Hrdlicka points out that a port requires high sunk costs in
the form of capital infrastructure investment, with years
before break-even, to serve the containerized cargo mar-
ket. Such a largeinvestment isdifficulttojustify with a finan-
cial rationale, given three business realities of the Port of
Portland's marine business: 1) Portland is a low-consump-
tion market; 2) the port's West Coast market share of the
containerized cargo market is 2% to 3%; and 3) container-
ized cargo loses money. But the other reality is that the
barges alone are moving 50,000 containers a year, with
containerized cargo having a multiplier effect on jobs and
on logistics costs in the regional economy.
FINANCING THE PORT
As part of a directive that each business area func-
tion as an operating unit, generating the funds to pay its

operating costs, CFO Ed Galligan matches business units
to specific operating or capital funds in the Port of Port-
land's annual and long-range budgets. The reality is that
the cash flow to carry marine and shipping services and
to preserve jobs has come from selling assets like the dry
dock and real estate. The annual budget across all opera-
tions runs about two-thirds of a billion dollars.
Analysis of assets, cash flow, and leadership reveals
a pattern of identifying opportunities, planning a strategy
of action, marshaling forces (of money, time, and people)
for a campaign, seeking out allies outside the organiza-
tion, and bringing the project to a conclusion. Chal-
lenged by a lack of public enthusiasm for its programs, the
Port responds by ranking priorities to suggest increasing
levels of urgency: mandated, maintenance, strategically
important, and financially necessary.
FINANCING LIGHT RAIL TO THE
INTERNATIONAL AIRPORT.
In its analysis of Port of Portland bonds, S&P
describes good financial performance with overall debt-
service coverage at 2.0 times in 1999, 1.9 in 2000, and in
the 1.7 to 1.8 range through 2006. Debt levels per
enplaned passenger were "moderate" at $80.74 during
2000. The agency shows cost per passenger doubling
from $5.68 in 2000 to $11.06 in 2006, reflecting a loss of
two daily transpacific flights and seven associated feeder
flights, but continuing fixed costs related to the Port's sub-
stantial airport facilities.
Rather than highlighting the underlying revenue
streams paying back the bonds, both analysts at Standard
& Poor's who assignrisk ratings to the Port's revenue bonds
speak of assigning risk ratings based on the Port manage-
ment's reputation for actually completing the capital pro-
jects for which they issue bonds. They particularly praise
CFO Ed Galligan, who in turn praises Thomas Johnson,
Senior Manager, Corporate Finance, who has a quarter
century of public finance experience. Tom Johnson is a
focused man, and this guides his planning: "In prosper-
ity be prudent, in adversity be patient."
Inits credit profile of the Port's PFC bonds, Stan-
dard & Poor's remarks, "The airport has a high volume
(85%) of origination and destination traffic. It is ranked
as a medium hub and has experienced tremendous
growth in passengers and cargo, driven partly by eco-
nomic growth and the introduction of low-cost, high-
frequency air carriers. Since 1988, enplanements at the
airport have increased at an annual rate of 8.3% versus
62 FINANCING THE AIRPORT LIGHT RAil LINE IN PORTLAND. OREGON
a national average of3%. Enplaned passengers increased
from 3.3 million in 1992 to 6.4 million in 1998, an aver-
age growth rate of 10.1%. Despite this growth, the air-
port has managed to maintain excellent air-carrier
diversity with the top five carriers carrying 79% of the
passengers in 1998, including Alaska (21.8%), United
(17.6%), Delta (16.0%), Horizon (12.4%) and Southwest
(11.1%). The lack of concentration in traffic from a sin-
gle carrier is also a credit strength."
S&P's sensitivity analyses indicate that PFC rev-
enues could withstand a severe 30% decline (from 6.7 mil-
lion to 4.6 million passengers) before reducing maximum
annual debt service coverage to 1X. The average annual
growth rate in enplanements has contributed to the Port's
solid financial position.
The rating agency offsets these strengths by the fol-
lowing risks: 1)The narrow, passenger-driven,fixed-raterev-
enue stream, with a lack of rate-setting flexibility, limits
managements ability to counteract trafficdeclines. 2) Ade-
quate projected debt-service coverage depends on growth .
3) The FAA could eliminate collection of all PFC revenues
in five years if an aviation violation is committed.
Moody's, by contrast, in looking at the City of
Portland bond issue designated primarily for the light
rail project, writes: "Moody's believes that changes in
urban renewal law in Oregon have had a favorable impact
on the credit quality of tax-increment bonds issued in the
state. A key improvement is the introduction of the city-
wide special tax levy for project areas such asAirport Way.
This transforms revenue collection from a purely passive
undertaking to an active system that makes use of the city-
wide levy to control collections."
In putting debt dollars to their intended use and
bringing the financed project to a successfulcompletion, the
organizational style most likely to be successful for a gov-
ernment agency is a matrix. An organizational matrix
locates employees in a cell driven by two axes: the first is a
functional specialty,such asengineering; the second might
be a program assignment, such as channel dredging or light
rail. In this way, a particular skill set can be tapped for any
project. This is the same design that serves NASA so well,
allowing it to shift stafffrom functional areasinto high-pro-
file,high-priority program areas.(In itsspaceflightprograms,
NASA planning horizons are dictated. A project manager
for a space mission cannot reschedule when planets or satel-
lites will arrive in launch opportunity windows.) Derived
from necessity,NASA's form allowsevery skilled worker to
be mustered into service in the support of the highest-pri-
ority programs of a forceful and dynamic leader.
SUMMER 2001

THE DESIGNS OF GOVERNMENT
The mercantile bargaining environment in which
the city finds itself gives it a favorable market position,
enhanced by a strong, balanced economy and by leader-
ship's ability to draw on interagency support. The city's
strong political structure, strong economic conditions, and
its willingness to promote growth attract private employ-
ers while preserving a civilized and spectacularlylivable city.
The cultural and business setting reflects a century
of private-public joint ventures developing parks, entire
neighborhoods (private trolley-car companies partnering
with the city, reflecting their monopoly power in urban
transportation before 1920), buildings, tourist attractions,
and the riverfront. The structure of the City Council
means districts within the city are not directly compet-
ing for capital investment, although in practice the com-
missioners do play to their separate constituencies. "The
business culture of the city government's organization
allows us to collaborate with private developers and they
fully expect someone from the city to call with initiatives,"
observes Charlie Hales, city commissioner of transporta-
tion. Joint venture partners like Bechtel demonstrate con-
fidence that the city as their partner will meet its
contractual commitments. (Hales, with Mayor Katz, rep-
resented the city in the Gang of Five meetings to build
Airport MAX. Hales, citing that achievement, marshaled
his support from the Port commissioners' to succeed
Thorne as executive director.) ,
The cultural and business setting
reflects a century of public-private
partnerships developing parks,
entire neighborhoods, transit
systems, tourist attractions,
and the riverfront.
&; a member of Oregon's Transportation Commis-
sion, John Russell observes the uniqueness of the state's
various commissions, such as the one overseeing the Port
of Portland. He says,"Commissioners who are appointed
have achieved a level of prominence and success in their
careers and are not dependent on a paycheck or an elec-
tion. These people are not afraid to raise their hands
when they have new ideas."
SUMMER 2001
LEADERSHIP BY DESIGN
Charlie Hales credits the organizational design of city
government as a factor in the success of building Airport
MAX. Five elected officials govern Portland: the mayor
and four nonpartisan commissioners. The mayor assigns
a bureau of responsibility to each commissioner. Portland's
commissioners have functional, not district responsibility.
Hales says, "It allows each of us to operate in a narrow
band of issues."
City management may take the form of one com-
missioner simply walking across the hall to meet with
another commissioner whose bureau's help he may need
in moving a project from planning to completion. "So we
have a network of reciprocal obligations. This avoids the
intracouncil infighting one might see in a San Francisco
or a Chicago. This business-corporate culture is the foun-
dation for our city's form of organization." This 150-year-
old commission structure of government (abandoned
over the years by other American cities) has a built-in
"propensity to leadership."
Hales believes this focused leadership allows for a
tremendous impact. He says,"In this form of government,
people don't expect me to know everything about every-
thing. I have the luxury of being able to concentrate on
the things I have responsibility for-in my case, trans-
portation and development. A commissioner is account-
able to the voters in specific areas and has the authority
to get things done. He can say,'We're going to build a rail
line to the airport,' and be confident that the project will
be completed."
SOCIAL OBJECTIVES OF THE PROJECT TO
BUILD LIGHT RAIL
Consider the main objectives ofTri-Met, the city's
public partner in Airport MAX. Its stated purpose is nei-
ther farebox revenue growth nor capital equipment
growth. The transit system'sobjectives are "to provide mass
transit alternatives to automobile use, to reduce air pol-
lution, and to relieve traffic congestion in the Portland
metropolitan area," Airport MAX provides a mass tran-
sit alternative while reducing traffic congestion and pol-
lution as ridership grows (forecast at 7,500 daily). The
transportation risk, Bechtel explains. is that building a
major shopping mall at the airport could result in increased
traffic on Airport Way, the arterial route to the airport.
On the other hand, retailing success at the airport
could sparkcommercial officedevelopment, addingjob den-

sity and boosting pay rates-core objectives of the PDC and
the city. The city annexed the Airport Way industrial area
in the early 1980s and established the Airport Way Urban
Renewal Area east of the airport in 1986. Work in this
2,780-acre, linear area along the Columbia River is man-
aged by the PDC so as "to increase Portland's inventory of
developableland and to stimulate private investment andjob
creation by providing public infrastructure." The airport
extension of the light rail transit could help meet these
desires, which began to surface in seven regional trans-
portation plansstarting in the mid-1980s. At that time, how-
ever, there was no funding for such a project.
Consequently, a visionary developer with financing
could have a catalyzing impact on the municipal planning
process. One such developer isBechtel, for Airport MAX.
Another is Portland's John Russell. Shrewd observers of
Portland's "Club Met" ganglion of political connections
view John Russell as the mayor's ally on the Portland
Development Commission.
From his window on Rue Lepic, Renoir could see
Parisians shopping, dining, and drinking at outdoor cafes
He would see dancers, painters, flower sellers, the peo-
ple of his next canvas, the people of a vibrant, downtown
city. When John Wright Russell-office building devel-
oper and owner, state transportation commissioner, and
Portland development commissioner-strides to his.win-
dow on Market Street, he sees the very canvas on which
he paints: downtown Portland, Oregon. Already he sees
half a dozen buildings bearing his signature and his ideas.
With the Pacwest Tower, for instance, each floor swells
into six, not four, corner offices, with rounded corner
windows unobstructed by columns. The ground floor is
retail, both catering to the pedestrians of a vibrant down-
town and contributing retail space rents to the cash flow
and debt service of the office building.
FeaturesJohn Russell designsinto officebuildings give
his product competitive advantages, just as features that
"Club Met" designs into downtown give it characteristics
that make it not only a neighborhood, but a core oflife, a
magnet for retailing, and a hub that shoots out spokes of
neighborhood growth. Russell says, "Being a developer is
being a professional. You don't just hire an architect, a con-
tractor, and a leasing agent. Most architects design for aes-
thetics; you make sure they design for tenants as well." The
vibrant downtown he sees from his window was envi-
sioned and designed by then-mayor Neil Goldschmidt 30
years ago, making the downtown a hub for shopping,
working, and recreation by bundling transportation corri-
dors together like so many drinking straws in his fist.
64 FINANCING THE AIRPORT LIGHT RAIL LINE IN PORTLAND. OREGON
Could the public-private financing of the light railline
extension from downtown to the airport have been financed
and built any other way? Probably not. Oregon lacked the
political power to draw federalfunds and tax-increment dol-
lars would have been insufficient. To finance construction
of the rail line and its four train stations, a new idea would
be needed.
OBJECTIVES OF THE PRIVATE PARTNER
From the Bechtel perspective, the city had shown no
compelling need to extend its linear-path, electric-rail tran-
sit system in a new direction, north to the airport. Yet this
was the route of projected population growth, and the air-
port showed continual passenger growth. The opportunity
for major engineering and construction work appealed to
Bechtel project managers Ralph Stanley and Ed Hum.
Access to agency leaders
with authority allowed
Bechtel to move on parallel
rather than sequential
design-and-build time lines.
Ralph Stanley had arrived from Bechtel's San Fran-
cisco headquarters with a reputation as a whiz kid dat-
ing from the Reagan administration. Now he felt driven
to produce results in Portland. His "gung-ho attitude"
captured the imagination of agency leaders and encour-
aged them to conclude the Airport MAX project was
worth doing. Credited as "the glue that held the virtual
organization together," Stanley participated on both the
project manager and the LGS levels. To keep the pub-
lic agencies on track and to stay within the schedule and
budget, he rode herd on his public partners to meet an
April 11, 2001, deadline, when the first demonstration
pilot run was scheduled. It was his last crusade and he
brought it to a successful completion.
SHALL WE DANCE?
The customary Tri-Mer time horizon from first
planning sketch to final approvals would have been five
years. Bechtel contracted the process to less than 18
months by firmly and consistently insisting that all agree-
SUMMER. 2001

ments be reached by the closing date scheduled for June
1999, or the project would not get done. Bechtel created
a climate in which the public partners feared if they
moved at their normal pace rather than keeping to a fast
track, the opportunity to develop this section of the rail
would be lost for the foreseeable future.
On December 23, 1997, the Port, Tri-Met, and
Bechtel reached their first memorandum of under-
standing. This evolved into the Framework and Rail
Financing Agreement dated October 8, 1998. By March
15, 1999, the Portland Development Commission acted
for the city, and "Cascade Station" acted on behalf of
Bechtel and Tranunel Crow. So by April 30, 1999, the
three public project partners had advanced $12.3 million
to pay for Bechtel's design and advance construction
activities. Yet the point to emphasize is that this merely
formalized relationships already created. To achieve
results in the months ahead, the relationships would
count far more than the documents that were drawn up
for the partners' signatures.
In a virtual collaboration of
five government agencies,
representatives at three levels
of authority met regularly.
Rights of way, traditionally the biggest single cost
in building rail transit, were already in place. There was
even a corridor laid out ready to use in the interstate high-
way, roughly half the length of the new rail line. All that
was needed was federal approval. ODOT, where John
Russell was serving as commissioner, assisted with this.
COLLEGIAL MANAGEMENT STYLE
By being able to tap Joe Walsh (Airport MAX pro-
ject manager) at Tri-Met, Bob Alexander (project manager)
of POC, Charlie Hales (commissioner) at the city, or Jim
Laubenthal (project manager) at the Port, Bechtel's design-
build project managers helped maintain the pace of com-
pletion on time and on budget. For instance, Ed Hum
recalls,"A redesign of Cascade Station was needed after the
retail leasing agent came back and showed how function-
ally absurd part of the design was, with shoppers having to
go back and forth across the rail tracks." Access to agency
SUMMER 2001
leaders with authority allowed Bechtel to move on paral-
lel rather than sequential design-and-build time lines. Hurn
says, "We saved six months on one redesign task alone by
not having to stop everything until we received approval to
make the changes. It was helpful just to know we had the
attention of someone like Charlie Hales in the city."What
form did this virtual collaboration of agencies take? In
the case of the airport rail line, planned, developed,
and constructed between 1998 and 2001, the five orga-
nizations got together regularly at three separate levels
of authority. James M. Laubenthal, Airport MAX pro-
ject manager, found himself working in what he
describes as a virtual organization evolving from this syn-
ergy of common interests. The Gang of Five met quar-
terly. On the next lower tier of authority, the project
managers met monthly. At the next lower level, the
Little Gang of Five managers met weekly and monitored
progress against scheduled milestones.
PUBLIC-PRIVATE VENTURES
The way the Port turned an idea into action, the
energizing idea that Bechtel would build a light rail line
to the airport in return for development and leasing
rights for terms ranging from 85 to 99 years on 140 acres
of airport property, resembles in principle the build-oper-
ate-transfer equity joint ventures that Gordon Wu
worked out with the government of south China's
Guangdong Province between 1987 and 1994. Gordon
Wu, with a track record of engineering success.in China
since 1979, suggested that his firm, Hopewell, build a
superhighway to link Shenzhen with Guangzhou. In
return, his company and any partners would receive a
share of tolls collected and revenues from commercial
development alongside the highway corridor. Hopewell
retains 42.4% of the fees during the initial 10 years of
operation and 32.8% during the following 20 years,
after which the company turns the highway over to
Guangdong Province.
The financial incentive for Hopewell is to receive
40% of any profits generated by land development along
the length of the freeway, Guangzhou's gateway to China
from Hong-Kong. Similarly, the Port's Portland Interna-
tional Center, to be developed by Bechtel, is a valuable
wedge of real estate, ripe for development, at the junc-
tion of Airport Way and Interstate 205, the prime cor-
ner at the airport's entrance.
Both Hopewell's and the Port's public-private
ventures depended on individual initiative. Yet the
THE JOURNAL Of PROJECT FINANCE 65

institution and its endurance is often valued over the
effectiveness of the individual. Constituents clearly
benefit from leaders driven by strong personal as well
as social goals. An effective and entrepreneurial CEO
of a public entity displays will, ambition, and drive.
Responsibility may be delegated, but an organization
without centralized information, decision-making,
direction, and control will not survive challenges, if not
outright attacks, in a competitive and evolutionary
marketplace.
ENTREPRENEURIAL GOVERNANCE AND THE
CREATION OF VALUE
This lesson was made clear to the author while
conducting management audits of Turner Broadcasting
in Atlanta and Hutchison Whampoa in Hong Kong.
The fortunes of such fast-moving, opportunity-driven
companies were tied to the charisma, goals, and direc-
tion of their leaders, Ted Turner and Li Ka-shing. Both
are hands-on, active owner-managers who have used
the dynamism and persuasiveness of inspirational lead-
ership, not stock shares, to govern their corporate bod-
ies. While keeping business activity focused on core
strengths, each has been the competitive edge of his
organization.
IMPLICATIONS FOR PROJECT FINANCE AND
CONCLUSIONS ABOUT PUBLIC-PRIVATE
PARTNERING
"Pick good partners and move fast,"Jim Laubenthal
concludes.
Know your partner. In evaluating an organization,
look at its leader. Teamwork requires partners with good
instincts. Crucial to the success of Airport MAX was the
gamble (more than $4 million of unrecoverable development
expenses) the four civic leaders took that the Federal Avi-
ation Administration would approve using passenger facil-
ity charges to pay for the segment of the rail line on airport
property. When it istime to act,judgment, not analysis,and
action, not paralysis, will count. The ability to trust one's
own judgment, to act, to take risks, and to anticipate the
moves of other players is of paramount importance.
For the civic leader:bond issues are not the only way
to finance capitalprojects. One implication isthatjoint ven-
tures leveragingthe strengths of private partners are an effec-
tive alternative or supplement to financing a capital project
through the issuance of general obligation bonds, which
66 FINANCING THE AIRPORT LIGHT RAIL LINE IN PORTLAND. OREGON
add to the city's debt, or to revenue bonds, which depend
mostly on payback through user fees.
For the investment banker: there are opportunities
to explore in leveraging private capital so as to make the
numbers work for a revenue bond to finance the pub-
lic entities' role in a private-public partnership. Also,Jor
the underwriter, an important implication of the Port-
land light rail project is to be proactive and to demon-
strate to a public borrower with an infrastructure dream
that private financing may be one of the tools that allow
a project to move forward.
For the developer: what are the ingredients or pre-
dictors of success?John Russell suggests:
(
t
f
It has to start with a goal-in this case, getting peo-
ple to the airport by light raiL Few cities even
have this ambition. The second ingredient is pure
brainstorming in which there is no such thing as a
bad idea. The third ingredient is a willingness,
even an eagerness, to partner. The fourth ingredi-
ent is a history of doing public works projects
well--on time, on budget, and high quality.
For the project manager: Joe Walsh (managing the
Airport MAX project for Tri-Met) finds that public and
private partners need to understand each other's corpo-
rate cultures, especially the different time horizons they
have been accustomed to, for planning. The transit agen-
cy's responsiveness mirrored the entrepreneurial spirit of
the entire enterprise. Tri-Mer managers quickly learned
to be sensitive to their private partner's sensitivity to the
time and opportunity costs of capital and human
resources.
For the rating agency financial analyst: going
beyond the hard numbers such as projected cash flow at
the core of credit analysis, the design of an organization--
how agency heads on a functional basis (the expertise)
and on a program basis (the project to be financed)
interact with managers and staff-has a bearing on the
success of a project.
Success also derives from the organizational design
of each partner, and th~ empowerment of its leaders to
harness the latent energies-of creation and of achieve-
ment-that might be generated within their organizations.
Facilitative design allows an effective leader to draft func-
tional specialists as needed and then pull them into pro-
gram tasks along the time line of a project.
The ability to get a project completed on time and
on budget is the strength of an organization whose
J
SUMMER 2001

t
i
f
t
I,
design helps rather than hinders its leadership in efforts
to conceptualize, initiate, finance, motivate, monitor, and
deliver results. Public partners have a twofold duty: as
fiduciaries to build what they have pledged to build
with public funds, and as leaders to deliver the social ben-
efits of the project, which is simply a means to that end.
The result is a high-performance organization that knows
its mission, staysfocused on results, empowers its employ-
ees, inspires partners to succeed, adjusts dynamically to
new challenges, communicates with its stakeholders,
and competes successfully.
This case study began by comparing the financing
of Portland's light rail serving the airport to the financ-
ing of U.S. Steel in 1901. Another telling comparison
would be to a private-public partnership in which Walt
Disney and Pepsi joined with the United Nations to
sponsor a two-year promotional event in 1964 and 1965.
Disney provided entertainment that drew traffic, Pepsi
provided financing, the UN provided a social cause mer-
iting public support. It yielded a popular new ride for
Disneyland ("It's a small world after ail"), a major new
brand for Pepsi (Mountain Dew), and launched a new
high-profile agency of the United Nations ("UNICEF").
Is the return on investment for the private partners
important? Of course. Is the ability of a project to meet
its payments on revenue bonds important? Of course. Just
as important as measuring the return on investment for
the private partners, and payment to the bondholders,
is measuring the success of each social partner in accom-
plishing the goals it sought to achieve. e
This is the final test of a successful public-private
project financing: that the project, after financing, and
after construction, does achieve, within a responsive mar-
ketplace, the underlying goals of its private and public
partners.
ENDNOTE
The author thanks Jim Laubenthal, Charlie Hales, and
John Russell for answering questions with new insights and
rewarding curiosity with wisdom.
SUMMER 2001 THE JOURNAL OF PROJECT FINANCE 67

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