Building Chicago - Spring/Summer 2012 - (Page 6)
By Colin Myer, FMI
PARTNERSHIPS in the U.S. —
The Perfect Storm P
ublic-Private Partnerships (PPPs) have existed in the United States for more than 200 years, and many PPPs are still operating today. As the name implies, PPPs are contractual agreements between government entities and private companies whereby the resources, risks and rewards of the public agency and the private company are combined to afford greater efficiency, better access to capital and acceptable risk transfer. The public’s interests are fully assured through provisions in the contracts that provide for ongoing monitoring and oversight of the operation. PPPs deliver services and/or facilities to a wide variety of markets, including water/ wastewater, transportation, education (both K-12 and college), health care and social services. The use of such partnerships is increasing because they are an effective tool for meeting public needs while maintaining a high level of public control, they improve the quality of services, and they are more efficient, and thus more costeffective than the traditional funding methods. Such partnerships have been used extensively by governments abroad. Between 1990 and 2008, PPPs in Europe multiplied nearly tenfold, accounting for a signiﬁcant percentage of infrastructure investments in certain countries. Between 2001 and 2006, PPPs accounted for 32.5 and 22.8 percent of infrastructure investment in the United Kingdom and Portugal, respectively. While the transportation sector is the largest beneﬁciary of PPP investments, European countries have used PPPs for projects in defense, environmental protection, government buildings, hospitals, information technology, municipal services, prisons, recreation, schools, solid waste, transport (airports, bridges, ports, rail, roads, tunnels and urban railways), tourism and water. The United States is a relative newcomer to PPPs. Although there is an old 19th-century tradition of privately funded public infrastructure, including privately tolled roads and bridges, the United States still depends almost exclusively on the government for its public transportation infrastructure (with railroads representing a major exception). While the two-decade trend toward PPPs has revitalized the ways in which many countries provide infrastructure, it has gained comparatively little traction in the United States. For example, the United Kingdom ﬁnanced $50 billion in transportation infrastructure via PPPs between 1990 and 2006, whereas the United States, an economy more than six times as large as that of the United Kingdom, ﬁnanced only $10 billion over the same period. The traction that PPPs have gained in the U.S. has been meaningful. Many expect this trend to intensify, as PPPs have proven to be a viable option to repair and upgrade infrastructure – especially when public resources are strained and private capital is in need of strong, risk-adjusted investment opportunities. In one form or another, 25 states, as well as Puerto Rico, have developed legislation allowing for PPPs. They can be an effective way to provide infrastructure. However, they are not a free lunch, as their costs are very similar to public investments. For example, when a state or local government sets up a PPP to build, maintain and operate a highway in exchange for toll revenue, drivers are still on the hook for tolls and the government relinquishes future toll revenues. Similarly, if the government leases an existing highway in exchange for a lump-sum payment, it is exchanging future toll revenue for present funds. Further, high-proﬁle bankruptcies of several partnered U.S. highway projects and swift contract renegotiations of other projects raise concerns about the government selecting the right projects, hiring the right private partners and establishing durable, long-term contracts. PPPs have the greatest potential to achieve efﬁciency gains by bundling responsibility for the initial capital investment
PPPs have the greatest potential to achieve efficiency gains by bundling responsibility for the initial capital investment with future maintenance and operating costs.
6 • Building Chicago Spring/Summer 2012
Table of Contents for the Digital Edition of Building Chicago - Spring/Summer 2012
A Message from the Builders Association President
Do You Know Where Your Information is Today? …you may want to get some cloud cover.
Public-Private Partnerships in the U.S. The perfect storm.
Four Sustainability Trends to Watch in 2012 Sustainable development enters a new phase.
Member Projects Continuing to “Build Chicago.”
Questions Abound in Financial Outlook Prospects and predictions.
Index of Advertisers
Building Chicago - Spring/Summer 2012