Here’s a great article on what makes for a great infrastructure public-private partnership (P3) from the Brookings Institution. I commend it to you and this blog post is primarily a few takeaways from the article.
The move to P3s has been pushed by smaller budgets, developing private sector expertise in large scale infrastructure projects, and different priorities in the public sector. P3s have taken on a number of different varieties as different project types and needs have presented themselves. Brookings does a great job of cataloging the new developments in P3s in the United States and spells out several different items:
- The different types of P3 infrastructure contracts
- a. Bid/Build
- b. Design/Build
- c. Design/Build/Finance
- d. Design/Build/Finance/Operate/Maintain)
- The different risk sharing categories and typical arrangements
- Great examples from across the US
- Nine best practices for an infrastructure P3
- Create a strong legal framework that defines public sector’s role and allows for private flexibility.
- Prioritize projects based on qualifiable public goals.
- Pick politically smart projects (what’s feasible, what’s not?).
- For the public sector, understand what draws the private sector to the project.
- Find the right revenue stream to pay for the investment.
- Create a clear and transparent process.
- Build an empowered public sector team that can make and execute smart procurement decisions.
- Actively engage with stakeholders and the public.
- Monitor and learn from the partnership—don’t just add water and walk away; nourish the P3.
The article also points out that infrastructure P3s are commonplace in other countries, but are relatively new in the United States. North Carolina has several financing tools that fit within the broad “P3” category:
- Perhaps the most recent change has come via Session Law 2013-401 (HB 857) or the “Design-Build,” “Design-Build Bridging Construction,” and P3 contracting methods of local government contracting. School of Government Professor Norma Houston has a great summary of the three methods here, here, and here. In a nutshell:
- Design-Build (N.C. Gen. Stat. § 143-128.1A) is a more hands-off approach by a local government, where the local government adopts project criteria and then a private entity is hired to design the project and perform construction. The City of Greenville authorized Design-Build in 2013 for its Convention Center Renovation and Addition Project and as of October 2014, looks to be on track.
- Design-Build-Bridging (N.C. Gen. Stat. § 143-128.1B) involves hiring two different entities, one of which is a professional designer who designs 35% of the project and a second entity is hired to finish the design and perform construction.
- P3 contracting (N.C. Gen. Stat. § 143-128.1C) is, as Professor Houston notes, not a new authority in North Carolina, but previously required a specific grant of authority from the General Assembly before S.L. 2013-451 took effect. This new legislation allows local government entities to partner with a private developer to construct, operate, and finance a capital project. The local government is allowed to acquire, construct, own, lease (as lessor or lessee), and operate a public-private project or facilities within a public private project, and can also make loans or grants for those purposes. There is a 50% developer-financing requirement for the total project costs and the Local Government Commission has to approve the contract if a capital or operating lease is involved.
- Under the Downtown Development Law (N.C. Gen. Stat. § 160A-458.3), If a capital project is located in a city’s central business district (defined by a city council), then if the city council finds that the project is “likely to have a significant effect on the revitalization of the central business district,” the city may acquire, construct, own, and operate or participate in the acquisition, ownership, and operation of a downtown development project (public or private). City funds can be no more than 50% of the total funds.
- TIF or Synthetic TIFs (click here for a recent article I wrote about the subject) often involve back-and-forth collaboration between a local government investing in infrastructure projects and stimulating private development (the picture attached to this post is of “Firebird” of the Bechtler Museum in Charlotte, a “Synthetic TIF” project).
- Special Assessment Revenue Bonds (I like to call them SARBs, some people prefer Special Assessment District, or SAD) are another financing tool that allows for a private entity to take the lead at several portions of a development process, including the ability of a private entity to handle the bidding process for an infrastructure project. Read more about the only SARBs project to date here and more generally about SARBs here. This authority is set to expire in July 2015, but has been extended once before in 2013.
On a personal note, I am listening to Robert Caro’s “The Power Broker: Robert Moses and the Fall of New York” on my daily commute to our Carrboro HQ. The book provides an interesting history of the development of the public authority in New York. Many of the same lessons that apply to P3s could also apply to public authorities (e.g. prioritizing projects based on the public’s goals).
At any rate, the Brookings article is a good thought piece and with the several changes to North Carolina’s Department of Commerce and other projects like the I-77 Express Lanes project between NCDOT and Cintra, it’s a good read to help analyze the changes to the P3 landscape.
I remain of the impression that the real “keys” to a successful P3 of any form are that a) you choose the right tool for the project and b) the project is a “win” for the government and a “win” for the developer. It’s best to key in to the project and desired outcomes and then pick the financing tool and partnership approach that works for that approach.
Let us know if you’d like to talk more about the article, have another piece of required reading, or have a project and want help digging through the P3 toolbox.