Public Private Partnerships

Any discussion about the Trans Texas Corridor must include a discussion about Public Private Partnerships.  There is a lot of debate and discussion in Austin, and other state capitols, about new applications for this tool long used by government entities.  Public Private Partnerships are designed to allow a government entity working with a private partner to provide a service to its citizens that it cannot necessarily afford to provide itself.  For example, many communities privatize their trash collection, or the operation of their hospitals, saving the community from large overhead costs.  These are common uses of the Public Private Partnership tool.  CorridorWatch.org and other grass roots groups have expressed concern that overuse of the Public Private Partnership method will result in higher costs of goods and services when the private sector profit is combined with existing taxes and tolls.

Long Term, High Dollar

Recently, long term, high dollar agreements have been executed for the long term lease of transportation infrastructure in Indiana, Illinois and Ontario, Canada.  Enticed by large up-front payments from the private concessionaire, state agencies have entered into long term lease agreements for the operation of existing toll facilities.  Subsequent evaluation of these agreements reveals that those government entities may have sold themselves, and their citizens, short.  In the case of the Indiana Toll Road, the concessionaire will see a return of their initial investment earlier than originally thought, and the 50 years of revenue stream which would have previously been utilized by State and local elected officials, will instead be the profit of a private concessionaire.  In the United States such long term leases are considered effective ownership by the IRS.

Not Just for Transportation

Public Private Partnerships are not limited to transportation assets.  All classes of public assets are under consideration: ports, penal systems, hospitals, educational facilities, airports parking facilities, water treatment facilities and waterways, to name a few. In a list recently provided to New Jersey Governor John Corzine, UBS identified several investment opportunities worthy of consideration including the lottery, development rights at state transit stations, the state fiber-optic network and, surprisingly, naming rights to public facilities!

Pros and Cons

While the use and type of Public Private Partnerships are being expanded and explored, in the case of 50 year agreements their long term affect is largely unknown.  The advantages often touted include transferring the financial risk to the private partner, up-front payments, different bonding requirements, and more flexibility with bond proceeds.  But government entities utilizing these PPP agreements need to be aware of certain risks.  Recent reports raise concerns about unreasonable toll increases, long term contracts in excess of 50 years, loss of revenue and “non-compete”, or “competition limiting” clauses which limit future public development of infrastructure.

Oversight and Peer Agency Review

Before any government agency or entity is authorized to enter into a binding agreement, in excess of a determined dollar figure, the advantages and disadvantages of each proposal received from a qualified Public Private Partner and the terms, length and benefit of the agreement need to be evaluated by a designated state agency, using an established criteria, and approved by the Legislature.