States are facing significant budget gaps. These budget gaps are going to negatively affect the green building industry. States looking to shore up budgets will cut new construction and maintenance of existing buildings in the coming years.
But there is a solution: public-private partnerships. Just prior to the economic downturn, the phrase "public-private partnerships" – or P3s – was on the tip of everyone’s tongue. Then the Great Recession hit, and billions of dollars were injected into the economy via the American Recovery and Reinvestment Act (ARRA). Suddenly, states were flush with cash to pay for infrastructure projects and seemed to forget about P3s. However, the ARRA funding is running out and states will be looking for innovative ways to finance new construction and major rehabilitations of existing buildings.
P3s are the answer. What is a P3? According to the National Association of Public-Private Partnerships:
"A Public-Private Partnership (PPP) is 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."
The classic example is a toll booth that is either constructed, maintained or operated by a private entity in exchange for some of the toll revenues.
But P3 practices are also being used for green building projects. For example, the General Services Administration recently entered into a P3 lease agreement for a new campus to house the National Nuclear Security Administration’s Kansas City manufacturing operations, which are seeking LEED Gold certification:
"The Heartland Region of the General Services Administration on Monday signed the final lease agreement with CenterPoint Zimmer LLC for a new campus to house the National Nuclear Security Administration’s Kansas City manufacturing operations. . . .
CenterPoint Zimmer, a subsidiary of CenterPoint Property Trust of Oak Brook, Ill., will receive annual rent of $61.5 million through the 20-year lease for a total contract amount of $1.23 billion. Stephen Stanberry, the GSA contracting officer who worked on the lease, said it is a “net of utilities” leasing, meaning the NNSA will pay its own utility costs.
In return for the NNSA lease payments, CenterPoint Zimmer will develop the new campus. . . ."
My friends at J.E. Dunn will be constructing the project.
If you have questions about P3s, please let me know and I will do my best to address them in future posts.