Originally published on the National League of Cities (NLC) CitiesSpeak blog.
The Trump administration has proposed expanding the U.S. Department of Transportation Private Activity Bond program, encouraging the development of public-private partnerships (P3s) in transportation projects. While P3s do not work for all communities or all types of projects, they can provide some key benefits to help meet local infrastructure needs. And with the Trump Administration’s emphasis on them, it may be worth looking into whether a P3 would suit your community’s latest project.
At their best, P3s are a good way to bring in new technology and expertise that local government might not otherwise be able to exploit. In many cases, private corporations take on the greater part of the risk and management responsibility, and their profit is often tied to their performance, while local governments retain ownership of the assets.
Though allowing private entities to finance, construct and manage public assets is not something to be entered into lightly, below we’ve outlined some of the benefits P3s can yield.
P3s Can Stretch Your Budget
When considering bids, local governments must look at the tradeoffs between the cost and quality details of the project being proposed. Some may interpret as the lowest bid, only to find out later it wasn’t the best. P3s focus on long-term operation and maintenance costs, which means they consider those – and how to keep them low while avoiding deferred maintenance – when awarding a bid. In addition, set performance and maintenance standards into the P3 contract, the projects are orchestrated to meet the standards the community expects over time.
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 either by payments from ratepayers, such as in a water district, or they receive a portion of the higher taxes generated by improved infrastructure.
P3s Can Get Projects Done More Quickly
When it comes to red tape, private corporations may have more flexibility than governmental bodies. P3s can bring quick 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.
Los Angeles County’s Metro system is looking toward P3s to dramatically accelerate the dozens of projects – some by more than a decade.
Deficient bridges are a problem across the country. Pennsylvania used a P3 and economics of scale to repair more than 550 small bridges across the state in one project – with the repair completed over a decade earlier than they would have, had the state done them one-by-one. In addition, the Pennsylvania Department of Transportation saved 30 percent on the cost to build them and the private partner will maintain the bridges for 25 years.
P3s Can Improve Innovation
Popular in Canada and Europe, P3s have also changed the landscape in China. An early win for P3s, forty years ago, the Central Park Conservancy saved New York City’s Central Park. The conservancy started small, by saving the park’s unique structures, but has seen such success that it has taken over the park management altogether. In 2014, Chicago used a P3 to invest its Riverwalk, a downtown area that was once unused and neglected by pedestrians; today, this area has seen major revitalization and economic development.
Other levels of governments have also explored the use of P3s. In addition to the state and county examples mentioned above, the U.S. Department of Energy and the American nuclear industry have partnered as “innovation incubators,” using a blend of resources across laboratories, academic facilities and private sector companies to improve reactor and fuel technology.