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P3s Are Not Privatization, And Other Lessons to Share Regarding the Next U.S. Infrastructure Plan

By: 
Bill Cramer

As the Trump Administration releases bits of information to be included in his Infrastructure Plan and Congress begins parsing the details, it’ll be important for our industry to make clear the distinctions between privatization and public-private partnerships (P3s).

David Van Slyke, dean of Syracuse University’s Maxwell School of Citizenship and Public Affairs, dug into the essentials in a Politico post last week. And not a moment too soon.

“The two ideas sound similar but are actually very different,” Van Slyke writes, “and understanding the differences is critical to accomplishing Trump’s goal of modernizing and upgrading America’s infrastructure.”

Leveraging Private Sector Expertise

Privatization means the outright, final transfer of an asset from public to private hands. And as the latest round of infrastructure debate takes shape, Congressional Democrats are nervous about what they see as a plan that “would sell out rural America and allow companies to exploit public assets like roads and bridges,” Van Slyke writes.

He contends that the history of actual privatization is littered with high-profile failures. But “what most people in the United States really mean when they use the word ‘privatization’ is deeper private-sector involvement in the production and delivery of traditionally government-provided goods and services.” And that’s what the Trump Administration is proposing, with a broad plan to leverage $800 million in private investment by putting $200 million in federal funds on the table.

“It’s an ambitious proposal, one that, if successful, could permanently change the landscape of America,” Van Slyke notes.

“Public-private partnerships allow government to leverage private sector expertise to cut infrastructure costs and speed up construction. It works toward a win-win outcome based on a mutual understanding that comes from a relationship built on aligned goals, clear rules and appropriate governance mechanisms. Private sector innovation and expertise can then be integrated with government’s desire to serve the public interest while improving cost, performance and accountability.”

Speed Kills

That’s what happens when all goes well. But Van Slyke says a successful outcome depends on the structure of the deal, and whether federal and state officials are in a good position to negotiate with private partners who bring more dollars—and, often, considerably more deal-making experience—to the table.

“Most government agencies, and especially nearly all municipal governments, lack the analytical capacity and market-based pricing expertise to accurately estimate the value of their existing infrastructure assets, attract enough competition and bring the concession to closure,” he writes. “Meanwhile, the private sector is very astute at discerning which infrastructure assets are worth buying, at what price, for what duration, and with what potential return on their investment over a fixed period of time.”

At least a partial antidote to this imbalance is to remember a rule that is all too familiar to any highway operator: Speed kills.

Van Slyke urges potential public partners in P3s under negotiation to “take the necessary time to understand the proposed deal, run the numbers and perform the due diligence.” It’s a great principle, but “in the trade-off between the speed of decision-making and the necessity of citizen and stakeholder engagement, speed wins way more often than it should.”

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