Cash-strapped cities are turning to the private sector to support their costly infrastructure projects, via “Public-Private Partnerships.”
With the tightening of federal funding and line items like healthcare and education taking priority in the budget, many Americans cities simply don’t have the money to repair or build new roads, dams, airports and bridges.
For instance, in 34 states, spending on government construction projects was lower last year than in 2007. And that trend has continued this year, according to data.
To wit, some of the projects involving P3 today:
- Denver recently turned to P3 for a $1.8 billion, 34-year deal that calls for big security changes and management of new concessions at its airport.
- Kansas City is looking at P3 for its $1 billion proposed airport renovation.
- New York City’s $4 billion renovation of LaGuardia Airport’s Terminal B is being financed, designed, built, and will be managed by a P3.
One concept that is gaining momentum is P3 – as in “Public-Private Partnership.” While P3 is popular elsewhere in the world, the uptake has been slower in the U.S.
But that appears to be changing.
“This country is in dire need of infrastructure repairs, additions, and expansions due to the age and generally long history of poor maintenance of existing assets and lack of provisions for growth. As a result, I think more people are giving P3 a serious look,” said Michael Palmieri. He’s president and founder of p3poInt, a consulting company which advises local and federal government agencies and private companies on P3 deals.
P3: Not just about the money
Contrary to public perception, P3 is not just a funding mechanism. It’s a project delivery model whereby private companies partner with local governments to finance, construct, manage, and share the risk of public projects. Depending on the scope of the partnership, a private company may take on just some or all aspects of a project.
The private companies are repaid in various ways, including by income generated through highway tolls or airport fees or bonds issued by local governments. Payments often are tied to performance metrics; failure to meet established thresholds may trigger reduced or delayed payments.
What’s also different about P3 is that it takes into account not just the initial capital outlay but the total life-cycle cost of the project, including building, owning, managing and disposing of it. And while P3 projects often have lower life-cycle costs than comparable public sector costs, depending on the efficiency and expertise of private partners, it requires a mind-shift in thinking:
“The idea is to get (people) thinking about the life-cycle cost of a project,” said Peter Luchetti, managing partner at Table Rock during CGLA’s North American Leadership Forum in San Francisco this fall, underscoring why P3s often get selected for project development.
Will P3 claim a significant share of US infrastructure projects of the future?
Possibly, but it will have to overcome some negative preconceptions first.
Most significantly is the fact that historically P3 was tied to tolls, so people often equate P3 with fees or tax increases.
“Unfortunately trust in politicians has eroded in recent decades, so citizens are often wary of approving new taxes to pay for infrastructure,” Palmieri said.
But he’s upbeat about P3’s future.
“As local governments see more and more P3s being delivered and learn how to implement them, I have confidence the P3 market will continue to grow and pick up the pace over the next 5 to 10 years as an alternative way to deliver infrastructure.”
Top 10 notable P3 projects
(We hope to see more of them.)
1. Goethals Bridge
New York / New Jersey
Probably one of the most anticipated bridges in the US, this replaces an existing 85-year old one. Once completed, it will connect Staten Island, New York, to New Jersey – providing critical access for commuters and freight carriers between the 2 states. It will be a toll bridge, but hopefully a cleaner and stronger one managed by the private partners.
2. Purple Line Light Rail
Washington D.C. / Maryland
Having broken ground in August, this light rail transit line will traverse some of the most densely populated communities along the Beltway near Washington, D.C. – providing east-west transit to complement the existing north-south Metrorail and MARC lines. It remains to be seen if the Purple transit line, after completion in 2022, cuts down travel times by 40% – as promised.
3. Pennsylvania Bridges
$1.118 billion (inc. financing costs)
Replacing 558 bridges, with many aged 100 years or older, is no small feat but Pennsylvania is showing the world how to do it – and do it well. By simplifying the design and construction of these bridges via private partnership, the state DOT was able to achieve 20% cost savings. The project will be completed by the end of 2017 – a remarkable feat, and hopefully a role model for other states with crumbling bridges.
4. East End Crossing
Ohio / Kentucky
$1,319.2 million (incl. financing costs)
This could take the prize for most friendly project between states: a bridge over the Ohio River and associated roads and tunnel connecting Clark County, Indiana and Jefferson County, Kentucky and a joint effort of both states. This is one half of the bi-state Ohio River Bridges project which includes the new Abraham Lincoln Bridge leading into downtown Louisville.
5. Elizabeth River Tunnels
Since its opening last year, this project – comprising a new tunnel under the Elizabeth River linking Portsmouth and Norfolk in Virginia, along with repairs to roads and interchanges – has supported local jobs, apart from reducing commutes and congestion. But it’s also expensive – prompting the state to negotiate tolls for low-income families.
6. Chicago Skyway
This project has a simple mission: To provide the safest, fastest, and most reliable link from the northwest Indiana border to the heart of Chicago. With its steep price tag, most Chi-town motorists who’ll traverse this route likely hope the project can deliver on its promise. The 7.8 mile elevated toll road will connect I-94 in Chicago to I-90 at the Indiana border.
7. Beltway HOT Lanes
For the commuters living and working around Washington, D.C., this could ease your rush hour drives. The HOT (High Occupancy Toll) lanes on I-465 looping around the nation’s capital could significantly reduce congestion by fostering carpools, vanpools, public transit use and toll-paying drivers. The project not only aims to create a seamless network of HOV lanes in the Beltway, but also rebuild aging structures including 50 bridges.
8. Denver Eagle Project
With miles and miles of rail and bus transit throughout metro Denver along with a renovated Union Station, this project – a part of the FasTracks initiative – has not only changed the look and feel of the city but also helped catapult it among the fastest growing regions in the nation. Happy with its P3 experience, Denver is now looking at private partners to update security and manage concessions its airport.
9. I-4 Ultimate
Driving your family to the Disney parks could get easier, if you are OK with paying tolls. Interstate 4 is being expanded, from Orange County in the west to Seminole County in the east – cutting through downtown Orlando, with 4 express toll lanes in the median. The massive construction includes the rebuilding of 15 interchanges and 140 bridges, but the end product ought to satisfy the drivers.
10. Port of Miami Tunnel
How do you build a road connecting Miami with its port, with the Gulf waters in between? You build a tunnel under the main shipping channel between Dodge and Watson Islands – and build the road inside it. Once the tunnel, associated roads, and widening of the MacArthur Causeway Bridge are completed, the project ought to help Miami residents by diverting cargo trucks and cruise line buses away from congested downtown streets.