Exploring the Promise and Pitfalls of Public-Private Partnerships

As public-private partnerships in the U.S. continue to evolve, it’s important for state and local government officials to get more acquainted with the mechanics, benefits and risks that can be involved in the deals, according to George Burgess.

Burgess co-chairs the public-private partnerships practice team at Becker & Poliakoff, one of South Florida’s largest law firms. He also served as county manager for Miami-Dade County from 2003 to 2011. “There’s a series of things that need to happen in this country to see this approach take off on non-highway projects,” he said, referring to public-private partnerships. “It’s happening, but it’s happening slowly.”

When it comes to the partnerships, a piece of advice Burgess has for state and local government officials is this: “You need to really get yourself acclimated and educated.”

Providing a forum for this sort of acclimation and education is one aim of a gathering Burgess and others will attend this week in Dallas. The P3C Public-Private Partnership Conference and Expo is expected to draw over 1,000 attendees and will run from Monday to Wednesday.

Burgess and two of his colleagues at Becker & Poliakoff, Jennifer Bales Drake and Lee Weintraub, discussed by phone last week some of the trends and issues with public-private partnerships—commonly referred to as “P3s”—which are likely to come up at the conference.

An Imperfect Track Record

There’s no single definition for a public-private partnership, but the term tends to refer to deals where government and private investors team-up to finance or manage infrastructure or services used by the general public.

In return for the investment the private entity makes, they are afforded a contract that gives them a way to make money off of the project or service—often for decades into the future.

Proponents point to public-private partnerships as a way for governments to lessen the revenue they need for services and infrastructure, while also sharing risk with the private sector.

But some deals have encountered trouble. For example, the private operator of the 157-mile Indiana Toll Road filed for bankruptcy protection in 2014, with about 67 years remaining on its lease for the highway. Another firm agreed to purchase the company the following year. Just last week, SH 130 Concession Co., a toll road operator in Texas, filed for bankruptcy protection.

And, in 2008, former Chicago Mayor Richard M. Daley spearheaded a deal, which involved the lease of municipal parking meters to a private company for 75 years in exchange for about $1.1 billion. That arrangement later came under fire for reimbursement costs it resulted in for the city, as well as higher parking fees and malfunctioning meters.

‘All About the Preparation and the Stability’

In Weintraub’s view, there aren’t projects that are by default good or bad candidates for public-private partnerships. “It’s really all about the preparation and the stability you can create at the front end,” he said. “Then, if the circumstances are right, almost any project can succeed.”

That said, there are aspects of public-private partnerships that Burgess believes government officials and staff need to get more comfortable with.

These involve questions along the lines of: Is the public sector losing too much control over the project that is being developed through the partnership? Is the project going to be perceived as privatizing public assets? Is the partnership going to create debt and costs for the government that are greater than what would be incurred through a more traditional financing arrangement?

“They seem like pretty elementary questions, but if you’re a political being, they’re hugely complicated,” Burgess said. And while the technical details of a public-private partnership, like the contract terms, and the financing are important, politics, Burgess stressed, is also key.

“You’ve got to make sure that the politics are right,” he said. “You can protect yourself from all the potential traps, but if the politics change, if you don’t have a gauge on where the support is or isn’t, you really can string a great project out and have it fall apart at the end.”

Emerging Areas

Public-private partnerships extend into areas beyond toll roads and parking meter systems.

As public universities and colleges in various U.S. states continue to face budget pressures, the deals are becoming more attractive for financing on-campus projects, according to Drake.

“A lot of universities are very interested in looking at the P3 model,” she said. Emerging options she noted for public-private partnerships at universities and colleges were retail shops and eateries mixed with student housing, as well as different types of stadium-related projects.

Other areas with increasing public-private partnership appeal, according to Burgess, include airports, seaports, transit systems, water facilities, broadband networks, jails and courts. Two notable projects he mentioned are Denver’s rail transit system and the LaGuardia Airport Central Terminal building replacement in New York City.

Weintraub said most major investors are reluctant to get involved in public-private partnerships valued at less than about $50 million. But for smaller local governments, a practice known as “bundling” can provide a pathway to secure private investment for more modest undertakings.

Recently, Weintraub said he was speaking with officials from a rural Florida county. “They don’t have a lot of $50 million projects,” he said. With a bundling approach, the county would identify two or three different projects that they have and package them all together.

Weintraub also acknowledged that the market is changing, with some private firms now seeking out projects down to the $20 million range.

There is one essential trait a successful public-private partnership must have, he pointed out.

“There needs to be some model in place to pay back the private sector for their investment,” Weintraub said. In addition to cash revenue, he noted that there are other options, like land swaps. “It’s not just free money,” he added, referring to the funding provided by private investors. “They’re not going to come and build it and leave.”