A slew of factors have made the deals all the buzz among transportation wonks and public officials. Warnings about the deplorable shape of America's roads and bridges have convinced the public of the need to build. But in the wake of the recession, state and local governments continue to struggle financially. Raising taxes is a nonstarter in many places, as is the notion of taking on additional debt through bonds. P3s have been portrayed in some cases as a solution to this dilemma, a source of "new money." "Politicians are at the point where people are crying out for enhancements to infrastructure, but they don't want to hear any proposals for new public revenues," says Phineas Baxandall, a senior budget policy analyst at the nonprofit U.S. PIRG. "So anything that makes it sound like the money's coming out of thin air is a win-win."
The Council for Public-Private Partnerships, which acts as a clearinghouse for P3 advocacy and counts as its members such P3 players as CH2M Hill, Deloitte and United Water, phrases it this way: "By establishing public-private partnerships, government authorities have achieved goals that would otherwise go unmet because of budget limitations." The language taps into a state or local official's greatest concern_that they lack the wherewithal to build infrastructure. "It's perceived as free money," says Puentes of the Brookings Institution. "That perception has to be dealt with," largely because, Puentes and others say, the capital often comes at a cost that can exceed the expense of typical municipal borrowing.
The most attractive aspect of a P3 for many lawmakers is that the borrowed money may not count as debt the same way a municipal bond does. The distinction is hard to grasp since the same citizens ultimately pay for the project, either through tax dollars or tolls. A recent report from New York state Comptroller Thomas DiNapoli says that the deals can be viewed as a form of "backdoor borrowing" that helps lawmakers get around laws requiring voter approval for issuing certain types of debt. They can also act as an end-run around a jurisdiction's debt limit, imposed by statute or simply by the political realities of their state.
"A lot of the time public officials say, 'We don't have any money, let's do a P3,'" says Joshua Schank, head of the Eno Center for Transportation, a think tank. That's a misperception, and one that is fueled by private-sector firms who want to pump up the concept, but also, Schank says, "by public officials who want to escape the reality that if they want better infrastructure, somebody's got to pay for it, and that somebody's got to be taxpayers."
Yet a recent report from the U.S. Department of Transportation's inspector general said unambiguously that P3s are unlikely to reduce the infrastructure funding gap, since they don't increase funding levels. The only way P3s could be seen as generating revenue for state and local governments, the report concluded, is through whatever savings they might achieve through lower construction costs. But even those aren't certain.
"There are people who say P3s create money. That is largely not true, but it's not entirely untrue," says Geoffrey Yarema, a partner at the law firm Nossaman, who has served as an adviser on some of the country's largest public-private partnerships. "They don't produce funding, but they can reduce costs significantly."
But reduced costs aren't a certainty, according to the Congressional Budget Office (CBO). In a 2012 report, the CBO found that P3s have built highways "slightly less expensively and slightly more quickly" than the traditional approach, but the relative scarcity of data and uncertainty of existing studies on the topic "make it difficult to apply [those studies'] conclusions definitively to other such projects."
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