The odds are good that you will spend part of your day today driving on a public road. It is far less likely that you care (or even think about) who owns that road (local, state, or federal government) or exactly how it was funded or who pays for its maintenance. You are just glad that it is there so that you can get to where you need to be safely and efficiently.
Until relatively recently, virtually all major infrastructure projects in the U.S. have been funded by local, state or federal governments and financed via federal grants, federal loan guarantees, state and local direct expenditures, or general revenue bonds. These public infrastructure projects are owned, operated and maintained by government. Unfortunately, neither the supply – nor level of maintenance – of the existing infrastructure in our state or nation adequately meets the needs and wants of the public. In fact, the American Society of Civil Engineers recently graded the overall status of the infrastructure system in the U.S. as D+. Given this aging and inadequate infrastructure, and the never ending budget challenges faced by government at every level, the public sector has been forced to consider all viable options available to satisfy increasing infrastructure demands.
One method gaining popularity in the last 20-30 years is the Public-Private Partnership, or P3. While a relatively new concept in the U.S., many other countries have recognized the value of bringing private sector innovation and expertise to help solve this growing problem for decades. What constitutes a P3? It really is as simple as it sounds. Any time a public entity enters into a contractual agreement with a private sector entity, to leverage the skills and assets of each sector to deliver a service or facility for general public use, it is a Public-Private Partnership. As it relates to infrastructure projects, these agreements allocate the responsibilities, and the risk, associated with each phase of the life of the project, between the public and private entities.
The U.S. has been relatively slow to embrace P3’s for several reasons. From a strictly up-front cost of completion, given the decades of low interest rates and a robust bond market, governments are generally able to leverage funds less expensively than the private sector possibly could. P3’s can also be complex to create and structure appropriately and, generally speaking, are still new and oftentimes misunderstood within the U.S. A P3 is not a funding source, it is a financing mechanism. At the end of the day, the private sector partner will get paid a fair return through some combination of user fees and tax dollars. The amount paid is directly determined by how much risk and what obligations the public sector would like to transfer to the private sector.
So, why use P3’s? Well, what the rest of the world has figured out, and what we are now realizing, is that the “cost” of an asset is far greater than the initial construction cost. The total cost must be measured over the entire life cycle of an asset, including the cost of operation, ongoing maintenance, and even the longevity of an asset. As it turns out, when you bring private sector expertise and innovation into the equation and motivate them to perform, you tend to get a better, longer-lasting product than can be delivered by the public sector.
Within the U.S., Florida has been one of the leaders in the acceptance of P3’s as a viable delivery option for infrastructure projects. In fact the Florida Department of Transportation has produced of number of key projects utilizing a P3 model. In Tampa, the I-4 Connector has had a tremendous positive impact on not only local traffic, but the regional economy, connecting Port Tampa Bay directly to the interstate system. In south Florida, the Port Miami Tunnel and the improvements to I-595 have been enormously successful with an immediate positive effect on the region. In central Florida, the I-4 Ultimate project will dramatically improve the lives of thousands of travelers daily, as well as positively affect the local economy.
Going forward, there is little doubt that, as P3’s become better understood and their track record of success grows, you will continue to see more and more projects using this method of delivery.