Our infrastructure is aging, our national deficit growing and our tax revenue just isn’t up to the task – not without politically unpopular and potentially devastating increases. So public-private partnerships, or P3s, are a way to stretch those tax dollars to make necessary repairs or upgrades, addressing infrastructure needs.
P3s are designed so the cost of the project is paid over the lifetime of the asset and costs are known up front. Private corporations earn a return on their investment through payments from ratepayers, such as in a water district, or they receive a portion of the higher taxes generated by improved infrastructure.
P3s aren’t perfect – there have been some missteps, but when well-planned and executed, P3s bring in new technology, ideas and expertise that local government might not otherwise be able to access. In many cases, private corporations take on the greater part of the risk and management responsibility, and their profit can be tied to their performance, while local governments retain ownership of the assets.
To ensure a P3 is successful, it must be designed with the goals of that project and strengths of that partnership in mind. There’s no one cookie-cutter model for a P3. Make a list of the risks and obstacles the project may face and plan how to address them before embarking on your P3 journey.
When entering into a partnership, remember you are allies working together for a common goal – not adversaries. Although it’s important to ensure the public receives a good return on its investment, the best way to accomplish that is to have a healthy, mutually beneficial partnership. This can only be achieved through regular, open and honest communication. When an obstacle arises, skip the blame game and focus on bringing the project back on track.
When considering bids for infrastructure needs, municipalities must look at the tradeoffs between cost and quality, but P3s focus on long-term operation and maintenance costs, so they consider how to keep costs low while avoiding deferred maintenance. In addition, because local government establishes performance and maintenance standards in the contract, projects are designed to meet the quality standards the community expects.
Private corporations may have more flexibility and can offer accelerated decision-making and best practices honed in the business world to a project. Studies have shown that P3s increase the likelihood that projects come in on-budget and on-schedule over those completed solely by public entities.
P3s are rising in popularity, with more than $36 billion worth of partnership projects coming to fruition in the last decade, saving taxpayers 20 percent for most projects. More than 30 states have begun the P3 process since 2015, with more than 200 projects under consideration. In 2014, Chicago used a P3 to revitalize the Riverwalk, a downtown area that was once unused and neglected and now is an engine for economic development.
Pennsylvania used a P3 to repair more than 550 small bridges across the state in one project, completing the repair more than a decade earlier than doing them one-by-one. In addition, the Pennsylvania Department of Transportation saved 30 percent on the cost and the private partner will maintain the bridges for 25 years.
Maryland lawmakers are considering expanding the Capital Beltway again with the help of a P3 to add express toll lanes there and on Interstate route 270. In rural Maryland, private contractor Ting has helped bring fiber optic internet service to a rural community – the city laid the cable, and for every customer Ting signs up, the municipality receives royalties.
The NLC Service Line Warranty Program also offers royalties to qualifying cities – a non-tax revenue stream in a time when budgets are tight. The warranty program partners with cities to educate residents about their responsibilities for water and sewer service lines and offer optional emergency home repair plans to protect them from unexpected repair costs. For more information, contact us.
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