How to encourage public-private partnerships in the US

By any measure, the United States is a laggard in terms of public-private partnership (PPP) projects. Between 1985 and 2011, there were 377 transportation PPP infrastructure projects funded in the U.S. Those projects comprised just nine percent of the total nominal costs of infrastructure PPPs around the world. Europe leads the infrastructure PPP market, concentrating more than 45 percent of the nominal value of all PPPs.

There appear to be several discrete, but related, reasons why the U.S. has been slow to pursue PPPs in comparison with European and Asian countries:

• In some cases, there is a lack of consensus, institutional capacity, and expertise to properly promote the benefits and costs of PPP deals. In Pittsburgh, for example, an arrangement to lease the city’s parking operations to a private entity collapsed when the city council voted against the transaction.
• Deals are getting more complex, politically heated, and cumbersome as some stretch across jurisdictions and even international borders, as is the case with the New International Trade Crossing intended to connect Detroit to Windsor, Ontario.
• With state and municipal finances under strain, the public sector is trying to transfer greater responsibility to the private sector, including in the arena of project financing.

In this regard, the U.S. Government Accountability Office recently noted that while the U.S. has done much to promote the benefits of PPPs, it needs to do more to assist states and metro areas in thinking through potential costs and trade-offs, as well as assessing national interests.

At the federal level, the Federal Highway Administration’s Office of Innovative Program Delivery (IPD) provides case studies and best practices, as well as helps public project sponsors evaluate various financing alternatives, including PPPs. IPD is in the process of creating a Surface Transportation Finance Center that will provide technical assistance for project sponsors that lack a clear approach to the funding and financing of a project. While it will continue to include PPPs as a financing option, the Center will not be a dedicated PPP unit and will focus only on transportation projects. In addition, the recently enacted Moving Ahead for Progress in the 21st Century Act authorizes the U.S. Department of Transportation to provide best practices, technical assistance, and model contracts for states interested in a PPP delivery model.

A Modest PPProposal

A possible solution is the creation of a specialized institutional entity to assist with the expanding opportunities for PPPs. These so-called “PPP units” fulfill a variety of functions, including quality control, policy formulation and coordination, technical advice, standardization and dissemination, and promotion of PPPs. As it has in other countries, the creation of a national PPP unit in the U.S. would provide public and private actors with dedicated support for integrating PPPs in the national infrastructure agenda.

Creating a federal PPP unit in the U.S. would:

• Provide states, cities, and metropolitan actors with the support and technical assistance needed from the procurement stage through long-term management of the projects by helping public actors determine the best Value for Money investment, assess long-term economic benefits of projects, and increase capacity to deal with contract changes over the life of the PPP.
• Create a more attractive, open, and robust environment that encourages private investment by creating predictability in the procurement process and demonstrating that the government actors involved want to “do business.”
• Serve as the first step in creating an integrated national infrastructure agenda, given that PPPs are integral to the overall capital investment and infrastructure strategy of the nation. Establishing a more uniform PPP process across all 50 U.S. states necessitates creating a broad strategy for national infrastructure development in the future.

There is no one-size-fits-all design of a PPP unit, but U.S. public entities could learn from experiences of other countries and from the growing track record in several U.S. states. A PPP unit reflects not only the needs of a particular PPP program, but also the administrative capacity and political structure of a specific government. Ultimately, the success of an American PPP unit will depend on a clear and consistent national plan and strategy for infrastructure development.

This article was first published by the World Bank’s Public-Private Partnerships blog. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Robert Puentes is a senior fellow with the Brookings Institution’s Metropolitan Policy Program where he also directs the program’s Metropolitan Infrastructure Initiative.

Image: Traffic makes its way up the 110 freeway under an interchange of roads in Los Angeles January 28, 2012. REUTERS/Mike Blake.