Public-private partnerships hold great promise for Pennsylvania
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Imagine a bridge getting replaced and taxpayers paying nothing until it is operating -- and then paying only a fraction of its life-cycle costs. This is the way that much of the world -- including Canada, Mexico and Europe -- builds infrastructure, and it has finally come to America.
The model is known as a public-private partnership, or P3. Infrastructure is built by private companies willing to risk their own money in return for the right to earn user fees. They also have to keep what they build in tiptop shape.
Can this be done in Pennsylvania? With a new gubernatorial administration geared to take office and looking at solutions for the state's growing budget deficit, of course it can.
P3s are under way in Florida, Texas, California and a host of other states -- all with upfront money provided by contractors and their financial backers, which often include union pension funds.
Using a P3 has many advantages over traditional methods of financing.
Contractors don't litigate over deficient government design documents or complain about delays by government inspectors who must sign off on work to make periodic payments during construction. Contractors don't get paid until they have substantially completed their projects. And, since contractors often are on the hook for 40 to 60 years of operation and maintenance, they have a powerful incentive to build superior structures designed to last.
Local government officials may also be interested in this model, as it works well for standing up new urban infrastructure like town halls and administration buildings, public parking structures, mass transit lines and transportation centers, multi-use stadiums, college housing and even libraries and schools.
P3s are not about selling government assets; instead, they are partnerships in which industry operates under long-term leases with governments to create mutual economic development.
Why would a contractor want to do projects this way rather than bid, build and receive progress payments, and then simply leave when the job is finished?
Well, with municipalities hard up for money and with even weaker state budgets, there is little public work to bid on. Using the P3 model, upfront cash is provided by a contractor's financial partners and can produce returns that are pretty stable and rewarding over the life of a project.
Indeed, witness the backing from union pension funds, which see their counterparts in Canada getting percentage returns in the mid-teens. Also, most of labor likes this model because it means jobs, jobs, jobs.
A well-respected financial report by Sphere titled "Benefits of Private Investment in Infrastructure" estimates that between $180 billion and $250 billion of private equity and pension fund money is available to leverage P3 opportunities.
Putting this money to work in Pennsylvania would help fix the state's crumbling infrastructure and stimulate its economy. The Federal Highway Administration claims Pennsylvania has the nation's most structurally deficient bridges, classifying 8,140 out of 31,704, or 26 percent, as structurally deficient.
Twenty-eight states have legislation authorizing P3s for roads, bridges and other public projects. Pennsylvania should adopt the best features of these laws.
Legislation should include safeguards to protect against corruption and assure that taxpayers and users get a fair deal. Contractors' upfront cash payments should be used by the state for debt reduction or capital investment, not one-shot offsets to cover annual budget deficits. And potential P3s should be identified and carefully vetted by a permanent state advisory board.
In Pennsylvania, we need the state Legislature to pass and the governor to sign the House bill that would amend Title 74 and allow the state to enter into public private partnerships to build or rebuild state roads and bridges. This legislation was crafted by state Rep. Rick Geist, R-Altoona, incoming chairman of the House Transportation Committee, with lots of positive input from Reps. Joseph Markosek, D-Monroeville, and Mike Turzai, R-Bradford Woods, among others. Gov.-elect Tom Corbett has announced his support for P3s.
Passage of this legislation would bring a flood of private capital to help rebuild Pennsylvania.
First Published January 6, 2011 12:00 am