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What is a Public-Private Partnership?
- A Public-Private Partnership is a contractual agreement between a public agency and private company. Partnerships can take on many forms including:
- Attracting private sector capital raised in the debt and equity marketplace to either replace or fill the gap left by public funding shortfalls for construction of new transportation and/or transit projects.
- Long-term operating and maintenance contracts that transfer risks and costs to the private sector.
- Many types of infrastructure assets have been funded using Partnerships, including road, highway, tunnel, and bridge projects. Public-Private Partnerships have been used for new projects, enhancements to existing infrastructure, and to operate and maintain existing facilities.
Why should the public sector work with the private sector on infrastructure projects?
- Partnerships allow us to build or repair important infrastructure that the public sector simply cannot pay for any other way.
- Partnerships are a win-win solution that serve everyone’s interests. The public is not giving away its public facilities, merely bringing on some new partners to assume the cost and risk of building or maintaining a facility in exchange for a return on their investment.
How is the public’s interest protected in Public-Private Partnerships? Will tolls increase on state roads?
- The public sector negotiates the contract, so it has the power to dictate what’s allowed for the private partner, including the toll rate.
- Market forces dictate that the lower the rate of toll escalation, the lower the bid from the private sector will be. This does not make Partnerships impossible, just somewhat less lucrative. Therefore, the state must balance the effect of an increased toll with other needs that the state could meet with the revenue from the Partnership.
Will Public-Private Partnerships lead to an explosion of new toll roads?
- Public-Private Partnerships are merely a tool to finance projects that are selected through a transparent and rigorous public planning process. Partnerships should not be used to build projects that have not been approved through a regional planning process.
- The money generated from Public-Private Partnerships could and should be used for improving the transit system, our first defense against traffic gridlock. As the public sector uses more Partnerships to cover the cost of our road program needs, it can shift more state and local money to transit systems.
What happens if the private partner goes out of business?
Public-Private Partnerships are like a married couple with a prenuptial agreement. Just as a prenuptial agreement defines what happens if someone dies or wants to get a divorce, the Partnership contract has stipulations in case the private partner goes out of business, or one partner wants out of the agreement.
To whom is the private partner accountable?
The public. The state is in the business of figuring out ways to deliver vital public services — for the people of Illinois — and so it will hold private partners accountable through exacting contracts.
How many Public-Private Partnerships should we use?
- Public-Private Partnerships may not be appropriate for every project, but they are a great option to consider for high priority projects we cannot complete otherwise.
- A good regional planning process means the public can be intimately involved with deciding where Partnerships make sense and how they should be structured.
How will Partnerships affect local builders and union jobs?
- The new projects made possible by Public-Private Partnerships could provide more work for local builders, who have seen a decrease in available jobs over the last few years.
- The public partner has the ability to negotiate the terms of the labor policy in the contract with the private partner.
Why have Public-Private Partnerships become a topic for discussion?
- The U.S. Dept. of Transportation has recently taken administrative action that will make it easier for states to move forward with Partnerships.
- Though Illinois is not new to Partnerships, and the federal government has given them the nod, the Illinois General Assembly still needs to pass legislation authorizing their use. As of February 2004, 23 states — not including Illinois — have enacted legislation that would allow Partnerships to be used for transportation infrastructure.
Who else is using Public-Private Partnerships?
- Public-Private Partnerships have been around for a long time, and are growing more and more popular here in the U.S. and overseas.
- Some of the more famous examples of Partnerships include Minnesota ’s Hiawatha Light Rail, Colorado ’s E-470 Tollway, New Jersey ’s Hudson-Bergen Light Rail, Nevada ’s Las Vegas Light Rail, Massachusetts Route 3 North, Virginia ’s Dulles Greenway and Pocahontas Parkway, California ’s SR 125, and Alabama ’s Folly Beach Express.
- In Italy and Australia , the majority of toll roads are owned by private companies.
- Locally, the City of Chicago has entered into a long-term lease of the Chicago Skyway with the Macquarie-Cintra consortium.
Why did Business Leaders for Transportation write this paper?
- Public-Private Partnerships appear to be a key opportunity for the state to tap new resources for expanding and maintaining its transportation system.
- Business Leaders for Transportation decided to look into Public-Private Partnerships because of a concern about the lack of funding to build critical infrastructure, the successful Chicago Skyway agreement, and the new federal law encouraging Partnerships. Illinois businesses depend on a great transportation system that can get employees to work and home and goods from plant to shelf.
What does the state need to do to make more use of Public-Private Partnerships?
The General Assembly needs to pass legislation authorizing the use of Partnerships in its current session.
How do Public-Private Partnerships affect Governor Blagojevich’s proposed capital program?
The next state capital program should be carefully planned and based on new revenues that will allow Illinois to invest in a healthy balance of transit, roads, and freight. Part of the planning process should involve investigating the use of innovative financing and technologies for selected projects, including Partnerships.
Written by: Peter Skosey – Meteropolitian Planning Councel May 2006
About SME Global Consulting
Our business model is to serve the communities we have worked in for more than a quarter century, as a business that supports other businesses. SME Global Business Consulting strategies can assist business in optimizing business operations, including team building, sales performance, strategic planning and more, providing small to medium enterprises competitive advantages.
By leveraging collective experience and education we help emerging and mature organizations flourish in a constantly changing business environment, where the economy is knowledge based. Additionally, SME Global Business Consulting is a subject matter expert in public private partnerships (PPP)s and can provide support and services for public private projects.
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