Are Public-Private Partnerships the Solution to Our Infrastructure Crisis?

Are Public-Private Partnerships the Solution to Our Infrastructure Crisis?

In 2008, Easton, Massachusetts faced the destruction of the historic manufacturing complex that created their town. From the late 1700s to the early 1900s, Easton was the home of the Ames Shovel Factory, an Industrial Revolution hallmark of progress and innovation. During the era of the gold rush and the building of the transcontinental railroad, Ames shovels built America. That period included the growth of North Easton Village around the factory and, eventually, the Town of Easton.

With such a strong history, it is not surprising that the Town invested the time and energy to form a complex public-private partnership to save the factory buildings and rejuvenate North Easton Village. The success of the proposed development project hinged on the construction of a wastewater treatment facility to serve the factory site and the Village. Due to the size of the facility and the low number of users, the costs per user were particularly high. To offset these costs, the town secured a $1.5-million grant from the State. The grant was predicated on what are often considered separate and distinct areas of focus—public health and safety, economic development, historical preservation, and the creation of affordable housing—each of which was achieved through the successful completion of this project. The site’s developer supplied the land for the treatment plant as well as the discharge area. In all, the public-private partnership between the Town, the developer, and the State was the key element in restoring the Ames Shovel works complex.

The Fundamentals of Successful Public-Private Partnerships

A Public-Private Partnership (PPP or P3) is a working relationship between a public entity and the private sector where the private organization is involved in the delivery and/or financing of infrastructure projects. In general, public-private partnerships can bring projects online more quickly with less cost, less development risk, and with overall improved outcomes. Furthermore, the private sector has quicker access to financial capital, as well as technical expertise and state-of-the-art technical assets. The private sector also has the flexibility to provide various delivery options (e.g. design/build, design/build/operate).The shared resources of both the public and private entities create opportunities for success by identifying process improvements and efficiencies.

However, there can be challenges. There are some situations where private development and government have conflicting needs. A private enterprise may be looking to maximize returns, while government will want to provide the highest quality service at the lowest possible cost to taxpayers. To ensure this conflict does not take occur, there should be procedures in place ahead of time that clarify objectives. It may be challenging for government to perform the proper due diligence to ensure the right kind of partnership takes shape. On the other hand, private companies may be challenged by changes in policy or changes in administration.

Federal Initiatives Could Support Public-Private Partnerships

The Obama administration intends to accelerate public-private partnerships through its Build America Investment Initiative. One focus of this initiative is to have successful states share their knowledge of what works. For example:

“Some states and communities have established successful PPPs and have developed strong institutional knowledge of how these projects are best structured and managed.  Expanding that know-how to other states has the potential to increase the flow of capital by tens of billions of dollars over the next few years. Today, for example, the top five states in PPPs have nearly twice the per-capita value of projects as the next 20 best states – and if those states caught up, it could mean up to $30 billion worth of infrastructure projects.”

To support the Build America Investment Initiative, the administration created the EPA’s Water Infrastructure and Resiliency Finance Center (WIRFC) to serve as a resource for communities to improve their wastewater, drinking water, and stormwater systems. According to WaterWorld, “WIRFC will work closely with municipal and state governments, utilities and private sector partners to use federal grants to attract more private capital into projects and promote models of public-private collaboration that can address the real needs of cities and towns to provide safe water, rebuild sewer systems and keep streams and rivers clean.”

The federal government also passed the Water Resources Reform & Development Act (WRRDA) in June 2014, to accelerate and fund water projects and amend the Clean Water State Revolving Fund program, among other things. Furthermore, part of the WRRDA was the Water Infrastructure Finance & Innovation Act (WIFIA), which created a five-year, $175 million pilot loan program for private water projects. WIFIA is modeled after the successful Transportation Infrastructure Finance and Innovation Act (commonly called TIFIA), which provides loans, guarantees, or lines of credit for eligible projects.

Given the lack of local government funding for infrastructure solutions, public-private partnerships are likely to become more prevalent. Smaller towns, like Easton, do not have the tax base to fund large-scale capital improvements. Conversely, larger cities may turn to public-private partnerships because the size of the project is too overwhelming. The State of California has a more than $700 billion infrastructure deficit and some have suggested that a public-private partnership is the best solution.

With the right funding, project roadmap, and oversight, public-private partnerships can get projects moving forward and provide innovation, expertise, and additional value to the public.

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