By Michael Keating
While researching our Keating Report government budget and spending forecast for the January issue of Government Product News, we uncovered a few trends in public-private partnerships (PPP). We found that more local governments are entering long-term relationships with private providers in PPPs. The arrangements can cover a variety of activities, from building and/or operating infrastructure assets (like turnpikes and parking concessions) to running all city services.
Transportation infrastructure projects come to mind when one thinks of typical PPPs, but energy-saving performance contracts offer a lot of PPP bang for the buck. The contracts deliver massive energy savings in schools and municipal buildings, with a short payback time frame. Richard Norment, who is executive director of the Arlington, Va.-based National Council for Public-Private Partnerships, in fact, predicts that PPPs tied to energy generation and conservation projects will be a huge PPP growth area in 2013.
PPPs in 2013 will share a close connection between needs and revenue, especially as communities face more urgent needs. Some of those needs include: aging infrastructure, shrinking economy and government budgets and growing populations. To more smoothly ride out fiscal hiccups, city administrators are putting greater emphasis on risk management and stable revenue streams — and that's where PPPs can deliver.
Look for more creativity as PPPs are formulated and discussed in 2013, especially in the use of social media and other tools to reach out to future generations. PPPs often involve building infrastructure that will serve a community's needs for a century or more. Today's voters, including adults and seniors, will help fund, design and deliver a community's new PPP-produced infrastructure asset, but they may not be around to use it. Creative use of online tools, including social media, says Autodesk senior industry manager Terry Bennett, will play a role in formulating PPPs in 2013.
According to Bennett, the partnership between those who will build the long-term infrastructure asset and those that will use it will expand greatly in 2013. Social media, says Bennett, can give youngsters the ability to shape what their city is going to look like, rather than merely inhabit it as we (adults) envision it. A city, for instance, could use an online video game tied into a redevelopment project to give tomorrow's generations and community members a say in how their neighborhood will look.
Governments, more and more, are seeking asset control in their PPP negotiations, says Masood Sohaili at the Los Angeles-based DLA Piper law firm. With regard to ownership and financing, governments are pushing the private providers of capital to allow ownership and in many cases, operations, subject to consent and approval rights, to remain with the governmental entity. Sohaili told Government Product News that governments are offering capital providers the opportunity to provide long-term subordinated debt, with some equity-type features normally included in concession arrangements, so long as that debt can be structured to work with senior financing and the municipal capital markets.
PPP's have been a viable option for many cities and counties over the past several decades. However, considering the substantial needs of America's infrastructure alone, it's a safe bet that PPP's role will continue to evolve as communities face their most important problems.
Michael Keating is senior editor for Govpro.com and Government Product News, a sister publication of American City & County. His Keating Report forecast will be posted soon at Govpro.com. He can be reached via e-mail at email@example.com.