Public-Private Partnerships: Completing Infrastructure Projects Without Public Funds

Recent blog articles have identified the significant need for additional infrastructure investment in Washington:  Washington’s Fracture Critical Bridges Need Repair and More Washington Infrastructure Projects On The Horizon.  This blog article discusses one promising method of relieving the backlog of critical projects without requiring taxpayers to bear the financial burden of the investments.

Confronted with a scarcity of public funds, governments have begun to tap Public-Private Partnerships (so called, “P3s” or “PPPs”) to supplement traditional funding sources for infrastructure projects.  P3s are performance-based contracts between the public and private sectors to arrange the financing, construction, and long-term operations and maintenance of public infrastructure projects.  Under the P3 model, the public sector contributes assets, such as a road or airport, and the private sector contributes investment capital to upgrade or enhance these assets.  P3s may take many forms, but typically private companies cover the upfront costs in exchange for the right to run and/or collect tolls from the facilities.

Since these partnerships began, their popularity has increased drastically due to the public sector’s desire to transfer the cost and risks of major public improvements to the private sector.  Private companies are oftentimes in a better position to effectively manage the risk and decrease the overall cost of the project.  The benefits are shared by all parties, including taxpayers.

These partnerships are being used regularly throughout the United States and other countries.  For example, Virginia has delivered over $9 billion in P3 transportation projects since 1995, Florida undertook two major P3 projects totaling nearly $3 billion in 2009, and Texas has delivered $6.2 billion in P3 projects.  In Canada and the UK, P3s are employed in approximately 10 percent of all infrastructure projects.[1]

Washington, however, has been slow to adopt the use of P3s. In October, a report commissioned by the Washington State Department of Transportation (“WSDOT”) on mega capital construction projects was released.  The report suggests that WSDOT expand its use of P3s, noting that P3 projects can be completed sooner and without an obligation to pay off bonds.  Without the support of P3 projects, it is unlikely that there will be enough public financing to meet Washington’s infrastructure needs.  But, with the assistance of private partners, governmental agencies can leverage private sector capital, expertise, and resources to achieve its infrastructure goals.

There are also significant advantages from the private sector’s perspective.  With P3 contracts, the private sector can avoid unnatural costs that are commonly found in government projects, including prevailing wages and environmental and labor regulations.  According to the Washington Policy Center, these expenses can inflate a public sector project by up to 40 percent.[2]  In addition, P3s allows private companies to translate upfront capital expenditures into a flow of ongoing revenue.

[1] Washington State Joint Transportation Committee, Evaluation of Public Private Partnerships: Executive Summary (January 19, 2012).

[2] Michael Ennis, Washington Policy Center, The Case for Public/Private Partnerships in Transportation Planning (January 2007).

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