Public private partnerships are dead, long live P3s!
For cities, President Trump’s budget includes some proposals that are sources of optimism and others that have raised concern. President Trump’s consistent support for increasing investment in infrastructure has been encouraging. If the proposed $1 trillion in infrastructure investment is strategic, the investment could be a great help to those cities struggling to upgrade aging and failing systems. However, the President’s budget also proposes to eliminate or drastically cut many of the programs that cities around the country rely on to provide essential services to their poorest and most vulnerable citizens. This has jumpstarted a decades old conversation on the role and importance of public private partnerships (P3s).
Amidst this uncertainty, two things are clear: federal funding will continue to dry up, and cities must take charge where state and national politics are deadlocked.
Unfortunately, traditional public private partnerships are complicated for everyone. Not only does each state have different processes and practices, but the American public has varying levels of comfort with private ownership, or even operation, of public infrastructure. It’s those reasons — in addition a strong municipal bond market and regular infusions of federal funding for infrastructure after the 2008 financial crisis — that have kept public-private-partnerships from proliferating here in the US the way they have in other developed countries around the world.
Or maybe we’ve been thinking about this the wrong way. Instead of thinking of P3s as a solution to the financing gap, we should approach P3s as filling the execution gap.
In the US, public private partnerships have always been touted as a solution to the financing gap: “your city doesn’t have the resources to build an infrastructure project? You should pursue a P3!” But in Canada, and elsewhere around the world, they are used to fill an execution gap. This means public private partnerships are focused on service delivery, optimization, and efficiency — where financing comes as a result, but isn’t the driving factor.
This may seem like semantics, but it gets to the fact that public partners tend to focus on services and private partners tend focus on ROI.
Execution-focused public private partnerships address that fundamental fact that public and private partners have different priorities, and explicitly seek to better align those differing priorities upfront.
Execution focused public private partnerships can also better match the types of modern infrastructure systems that technological advances have allowed cities, and their citizens, to demand.
These modern infrastructure systems — unlike highways and bridges — are often diffuse and consist of many small pieces and parts. For example, a modern stormwater management system might include thousands of street trees, green roofs, wetlands, and repaved roads to absorb water. Or a large power plant might be replaced with a network of neighborhood generators that turn food waste into energy. Because these systems tend to have a large number of smaller component projects, aggregating them into a single P3 focused on delivering project financing can have insurmountably high transaction costs.
Because these more modern infrastructure systems are deliberately designed to more flexibly and efficiently provide the same services to citizens as traditional projects, they tend to result in the same, if not greater, local benefits. In addition, they require extensive citizen participation, open new pathways for private investors to participate, and can take the burden off government budgets to build.
Examples of successful execution-focused public private collaboration abound, especially around smart cities technology. Waze, through the Connected Citizens Program, is partnering with cities around the world to use real time data to reduce traffic congestion. The City of Las Vegas released an app this year for Amazon’s Alexa that lets residents pay bills and fees, check the status of applications and permits, and get more information on city services and officials. These technology businesses have figured out how to approach distributed infrastructure systems by focusing on providing a service. We should aim to learn from these successful cases, and apply them to develop and deploy execution-focused public private partnerships for in sectors, like electricity generation and delivery and stormwater management, moving forward.
As with any multi-party agreement, there will always be questions about political and staff turnover, ROI, payments, and responsibilities (more on that in future posts!). But if at the outset, a public private partnership focus is on service delivery and execution, the details — and the money — seem to shake out more clearly and in the public’s favor than they do in traditional financing-focused public private partnerships.
Public private partnerships in the Trump Era can’t look like partnerships of the past.
Instead of being a solution to the financing gap, partnerships should be leveraged to fill the execution gap. They should be focused on service delivery, optimization, and efficiency — where private financing comes as a result, but doesn’t drive decisions. And where each partner is focused on what it does best: the government partner set standards and desired outcomes, permits and regulates; developers and investors build and manage cost efficient systems; and citizens actively engage in optimizing solutions for their community.
What do you think? What are some of the most impressive technologies, business models, or execution-focused public-private partnerships you have seen? What were the benefits and drawbacks to the public and private partners involved? What was the impact on citizens, and how did they respond?