GUEST AUTHOR BLOG: Public-Private Partnerships – Great New Financial Option for Taxpayers or Problematic Trend? By Mary Scott Nabers author of"Collaboration Nation: How Public-Private Ventures Are Revolutionizing the Business of Government."
The Great Recession has changed forever the way government will operate in the future.
Public officials no longer have sufficient funds to provide basic, critical services to taxpayers. As a result, hardly a day goes by that a government entity somewhere isn’t proposing privatizing some public obligation, making public-private partnerships (P3s) a robust trend nationwide.
Cities and counties are struggling to stay afloat.
School districts, public colleges and state agencies are launching all types of revenue-generating initiatives. Public officials are increasingly reaching out to private sector partners for capital, expertise and professional services.
The states alone face a $3 trillion shortfall for future benefits to retired public employees. Trillions more are needed for critical infrastructure maintenance, upgrades to essential public facilities and public safety requirements. Health care reform, population growth and education funding will exacerbate the problem.
To deal with the shortfall, public officials are entering into public-private partnerships with companies to operate toll roads, build bridges, repair aging government facilities and manage technology services. Cities are partnering with firms that construct multigenerational activity centers, health care clinics and public safety facilities.
Some cities have found private sector partners to manage public transportation systems, municipal parking facilities and entertainment venues. Public universities are partnering with developers who build student housing, hotels, sports facilities and retail strips on campus to offset construction costs and generate ongoing revenue streams. Private sector firms are lining up to design, build and operate convention centers, municipal water treatment plants, consolidated data centers and public facilities.
While some P3s are hugely successful, others have proven to be total failures. The City of Chicago leased its parking meters to a private firm for a 75 year period in exchange for a $1.6 billion upfront payment, effectively moving public employees onto private payrolls.
The city needed the money and the private firm liked the stability and long-term aspect of the opportunity. It could have been a huge success. It wasn’t.
"The greatest obstacle to success may well be the melding of two disparate cultures as partnerships are created. Both must be willing to understand, accept and respect their differences."
The failed effort now has the state and its partner threatening lawsuits. Most observers say the engagement was rushed and not thoroughly analyzed. The fear is that it could now become a financial failure and the city could possibly end up returning the entire lump sum.
Another highly visible failed P3 initiative involved Pennsylvania’s efforts to lease the Pennsylvania Turnpike to an outside contractor for a lump sum of $12.8 billion. It would have been the largest public-private partnership proposed in United States history, but an analysis showed it collapsed because of miscommunication between stakeholders and the state’s elected leadership. But, there are also hundreds of very successful P3s in the United States.
Other countries have embraced P3 engagements successfully for decades. The success of P3s in Canada, one of the world’s public-private partnership leaders, can be attributed to the following factors:
- There are guidelines in place for P3 engagements;
- Canadian public officials relate to private sector partners differently and their communication outreach starts early in the process;
- Government officials have made a major commitment to P3 engagements; and
- Canada has reduced to four years its timeline for closing on large public projects cutting costs for potential partners and for government agencies.
The greatest obstacle to success may well be the melding of two disparate cultures as partnerships are created. Both must be willing to understand, accept and respect their differences.
- Public officials understand the terms “profit margins, quarterly revenue goals, vertically structured organizational reporting” within corporations, but they do not deal with issues like this in their workplace.
- Corporate executive have significant problems with the highly structured processes that surround procurements, including transparency, slow decision-making, bureaucratic structures and the politics of government.
- Public officials are risk-averse and often seek guarantees potential private sector partners see as impractical.
- Corporate executives are not comfortable with terms and conditions that government attorneys expect in contract agreements.
- Public officials are often hesitant to turn over control and want to micromanage internal processes or oversee outsourced operations.
- Corporate executives don’t understand that there are many stakeholders to please in government contracting and that process must be exact if public partners are to be successful.
- An overabundance of communication is required, especially in the initial stages of a P3.
- Commitment from both sectors must be complete and ongoing.
A Virtuous Circle
The best outcome would be a virtuous circle: government becomes more innovative and efficient and delivers better public services; a fresh source of capital flows into P3 initiatives, stimulating economic vigor and hiring; and the resulting increased tax revenues will underwrite the cost of reinventing government for the benefit of all citizens and taxpayers.
Mary Scott Nabers is President and CEO of Strategic Partnerships, Inc. The firm specializes in public-private partnerships and works to help public and private clients create better partnerships. Nabers is also the author of "Collaboration Nation: How Public-Private Ventures Are Revolutionizing the Business of Government." Learn more about Mary at www.maryscottnabers.com or www.spartnerships.com.