Finding the middle – balancing public and private interests with P3s

By Mary Ebeling

Many agencies have been slow to adopt a Public Private Partnership (P3) model for transportation and infrastructure financing. As traditional revenue sources dry up, governments at all levels are taking an increasingly hard look at using a P3 funding model. P3s offer enormous opportunities to construct large capital projects on shortened timelines. The trick is to match the right private partner to the appropriate project. This matching requires detailed analysis that many municipal and state offices may not have the capacity to successfully complete, sometimes leading to a high-profile and embarrassing failure of a highly public P3 project.

Some cities have started to back away from privatization of traditionally publicly run services, such as entering into contracts to manage parking, and the lack of technical capacity to analyze the deals may contribute to this reluctance. Contract stipulations in Chicago’s parking management contract in 2008 has created seemingly endless litigation between city and contractor and restricted the city’s ability to quickly move forward with livability initiatives, such as delaying installation of protected bike lanes. Contract language and contract management for these types of partnerships require dedicated staff time to craft an agreement document that will protect civic interests on a level field with the bottom line of the private partner.

In British Columbia, a special office provides a model for success. Although Partnerships British Columbia has not focused on transportation projects, large construction projects managed by a company wholly owned by the Province are delivering projects ahead of schedule and within budget. To date, 31 countries have established offices that review and make recommendations on the viability of proposed P3s. These offices assess proposals to determine if the project is likely to be a benefit to taxpayers, as well as the potential long-term results. Staff craft contracts that are mutually beneficial and, importantly, that maximize the public benefit of a project.

Virginia’s P3 office provides an example of an active program in the U.S. The P3 model has been used primarily for highway tolling projects in Virginia, although transit projects have also received funding. Recent P3s, such as new High Occupancy Toll lanes in I-495, attempt to balance public and private sector interests. However, tolls for this project are lower than expected, and the private investors may not get the return on investment they hoped for.

Currently, 30 states authorize the use of P3s and projects have benefited multiple transportation modes, including transit such as the Hiawatha light rail in Minneapolis. As P3s are becoming more common due to tight budgets, it is essential that agencies write contracts that clearly define roles and responsibilities, protect the public interest, and find a balance between private interests and taxpayer investments.

Mary Ebeling is a Transportation Policy Analyst at SSTI.