SPI Insights

Public officials need the support of taxpayers and elected officials when change is imminent

Looking into the short-term future, it’s clear that public funding is not adequate to cover all the country’s critical infrastructure needs. That’s why it has become common for Congress to place new stipulations on grant funding that is available to state and local governments. These changes now incentivize, or in some cases mandate, private sector investment before federal funding is allocated to state and local officials. To incentivize that type of collaboration, Congress made it attractive for private sector investors to finance public projects.

Tax benefits are available to private sector investors, and various types of programs are in place to incentivize private sector investors in other ways. Congress has established resource centers for public-private sector engagements, and many states are in the process of doing the same.  Unfortunately, not all state leaders have yet provided assistance and support for these new types of procurement/delivery models.

Federal funding is abundant currently, but there is no doubt that funding for infrastructure projects in the future will be much less. Congress has provided every indication that private sector capital investments will be necessary as well.

When both public and private sector funding is consolidated to deliver a public asset, that type of engagement is usually called a public-private partnership, or P3. There are no set standards for structure, but most P3 engagements have similar components along with private sector revenue requirements.

There are many reasons to use a P3 delivery method, especially for large, complex projects. In these types of engagements, a private sector prime contractor invests capital, brings specific expertise, takes on much of the risk, and assumes responsibility for delivering the project on time and on budget. The new asset, when completed, is owned by the governmental entity. Projects are completed quicker, local funding is not required, and deferred maintenance (which is extremely costly to taxpayers) is not a concern for the new project because it is covered by the private sector partner.

There are various ways that private sector partners can be repaid for their investment in capital and expertise. This is done through a contract repayment structure that spans many years. Roads, bridges, water treatment plants, airport expansions, university facilities, law enforcement complexes and even large public facility upgrades (courthouses, etc.) are often delivered through a P3 engagement. It is important to remember that ‘infrastructure’ covers every aspect of what is required for a society to exist. Infrastructure, for instance, covers economic development initiatives that provide jobs and economic vitality.

Since delivery of a public project through a P3 engagement is becoming more common, it is incumbent on public officials, as well as taxpayers, to understand this type of delivery method. Although numerous teaching resources are available, it is somewhat alarming to realize how many taxpayers, public employees, economic development groups and elected officials don’t understand the basics of a P3 engagement. That must change.

Public officials who are responsible for launching large projects are spending time and resources learning about P3 delivery methods. They are committed to learning about how solicitations are structured, how to evaluate whether a P3 is the best delivery model or not, and how to incorporate best practices. They recognize the importance of understanding all the nuances because they will be responsible for successful project deliveries soon. It is frustrating to see, however, that many of them lack the comfort of having a local team of stakeholders and elected officials who also have a comprehensive grasp of P3 basics.

Individuals serving on public boards, leading economic development organizations and especially those holding elected positions should be encouraged to make time to learn more about P3s since this type of collaboration is almost certainly in our future.

Public officials who must ensure clean water, public safety, utilities, secure technology networks, affordable housing, healthcare facilities and transportation expansions need a team of educated stakeholders to help them with P3 engagements. When a P3 is the best option for delivering a much-needed infrastructure project, government officials should not have to start at ‘ground zero’ to educate all others about the delivery method.

Since all parties want public projects to be successful, here are a few ‘best practices’ for P3 projects.

• Determine whether a project meets the specifications of a P3. The best types of projects for public-private collaboration are large, complex and costly initiatives that will require specific types of expertise and experience.
• Once cost projections are available, public officials should determine how a repayment plan can be structured for the capital investment that will be required.
• Then, a comparison of funding options must be considered, and that is best done by comparing all components of the project, including expertise, risk transfer, operations, maintenance, etc.
• Normally, a project champion is named to oversee the internal group responsible for overseeing long-term engagement.
• A civic outreach plan should be developed so that there is total transparency for all parties. Internal and external stakeholders, taxpayers, citizens and media representatives need that to see and understand the delivery process.
• Advisors are recommended for first-time P3 project launches, and the selected advisors should be very experienced in P3 delivery processes. Financial advisors help determine whether private sector funding is the best option and, if so, in developing repayment plans. Legal advisors assist with developing long-term contracts that set out guidance for operations, maintenance, asset turn-back, etc. Technical advisors, if used, help with the solicitation process.

Change happens, and government operations often must evolve. It is incumbent on elected officials to be the visionaries who understand and lead change when it is required.