Public-Private Partnerships Are a Bi-Paristan Issue?
I just finished up a presentation to the Construction User's Roundtable (i.e. users of construction services) regarding public private partnerships (P3s). P3s are defined by the National Council of Public Private Partnerships as:
"a contractual agreement between a public agency (federal, state or local) and a private sector entity. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public. In addition to the sharing of resources, each party shares in the risks and rewards potential in the delivery of the service and/or facility."
In the course of preparing for my speech, I learned two very important secrets about public private partnerships that I want to share with you.
Secret No. 1. P3s have bipartisan support.
One of the first areas I researched for my presentation was the effect the recently-completed election would have on P3s. You may have noticed that the House of Representatives will now be controlled by Republicans, many of which ran on a platform of fiscal austerity. As a result, the new Congress is likely to be less supportive of expensive public works projects. At the same time, our infrastructure - including old buildings - needs significant upgrades. For example, take a look at the abysmal grades given to the U.S. infrastructure in 2009 by the American Society of Civil Engineers (ASCE).
My research uncovered secret number one: support for public private partnerships is bi-partisan. Many politicians on both sides of the aisle have indicated their support for P3s as a means to fix our infrastructure problem. Here are some quotes I used during my presentation:
“That means maintaining strong support for public-private partnerships like NREL. . . . ”
- Rep. John Boehner, presumptive House Majority Leader
“Innovative public-private partnerships are appearing around the country, bringing much-needed capital to the table. It is important to ensure that the public interest is well-served in public-private partnerships, since they are here to stay and likely grow in importance.”
- Rep. Nancy Pelosi, Speaker of the House
And probably most important, Rep. John Mica, the presumptive Chairman of the House Transportation & Infrastructure Committee recently indicated he supports P3s, at least in one instance. In response to questions about the future of an American Recovery and Reinvestment Act high-speed rail project in Florida, Rep. Mica suggested that a public-private partnership should be used to get the project done:
"I want private dollars involved in this," Mica said. "If someone in the private sector puts up $500 million and that's $100 million short – I'm in an excellent position to assist. But I don't want the private sector to see this as a gravy train.”
Along with the Congress, President Barack Obama is strongly supportive of P3s and is pushing a National Infrastructure Bank to support P3 development.
While bi-partisan issues are few and far between these days, public private partnerships appear to have support of both Republicans and Democrats. With growing infrastructure needs and bi-partisan support, P3s may gain in popularity over the next few years.
I will reveal secret number two on Monday.
Photo credit: Photo Phiend
Dear Chris, thanks for your posts. They are always insightful and up-to-date. On the issue of public-private partnerships, we cannot underestimate the risks we, the public, take on with adopting these entities. They have already gained "popularity." There are now more public / private partnership entities (often called public authorities) in the US, than all of the cities and states combined. They also hold more debt and issue more debt per year than all the cities and states combined. More importantly, corruption, mismanagement and graft are common in public/private entities. Newspapers across the country are constantly detailing the problems with these entities and the legal structures that protect them (MTA, Mass Turnpike, NJ Turnpike, just to name a few in just the transportation. A list on economic development and housing public / private entities would be extensively long). Often these entities allow a project, which would have been subjected to state constitutional debt limits and statutory limits, including environmental and procurement laws, to avoid the restrictions. In fact, they were born out of a desire to avoid state constitutional debt limits. These entities also avoid many of the public oversight issues and are often used in complex leaseback transactions that leave the public with massive debt obligations (and little oversight, see the sale of Attica state prison, which continues to cost NY taxpayers). I’ll cut this short by describing a quick conversation I had with an attorney in the NY Attorney General’s Office. In 2006, I wrote an article on this topic, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1445950, while doing the research the AG’s attorney told me that her office compiled and published a list of all the public/private entities in the state. After the list was reported, several existing entities – accepting public funds – called her up to inform her that they existed. THE AGs OFFICE DIDN’T EVEN KNOW IT! This is why, Professor Bollens years ago called them “Shadow Governments.”
Best, Jonathan
Chris:
Enjoyed this post. P3s have always been an intriguing entity to me as they do seem to stadle the line between government leadership and free market approaches to getting things done. Look forward to your next P3 post. Jonathan's comment above was helpful as well. Definitely let me know I have much to learn about P3s in practice. His comment highlights a lot of troubled situations, but I wonder how often they are successful?! Perhaps something for your next post, if that data is available!
Ryan