By Jamie M. Fischer
The Infrastructurist recently posted an article about the President’s Council on Jobs and Competitiveness’ new report, which highlights infrastructure spending as perhaps the most important initiative to create jobs in the U.S. The article notes that, since the Council is comprised of private sector leaders, “it’s no surprise that they recommended more public-private financing,” and even the establishment of a National Infrastructure Bank to facilitate such financing. A commenter on the article challenged the need for and wisdom of PPP arrangements, asking:
What’s all this private/public partnership talk about? The federal government can borrow money at 3 percent. So why is it so urgent to find people to invest who are looking for 15% return?”
So what’s all this PPP talk about?
It’s true that infrastructure is a federal issue. This is especially true of transportation infrastructure that can facilitate interstate commerce. Likewise, state and local governments should be concerned with infrastructure spending to benefit their constituents. However, getting the private sector involved can lend multiple benefits to the process, which might be lacking if governmental agencies have to go it alone:
- Market Orientation and Financial Viability: Businesses are profit-oriented, it’s true. But, theoretically, money is made by providing something of value to customers, something that people are willing to (and choose to) pay for. Incorporating a money-making interest into managing an infrastructure project can ensure that the project is a money generator in the long term, rather than a money sink, and that it is sensitive to the demands of the market and customer feedback.
- Broader Economic Impact: Assuming that private funders of an infrastructure project employ people, they can pass on returns from their investments to employees and share holders. This can create a positive economic impact (and possibly new jobs) beyond whatever impacts are generated by the infrastructure project itself.
- Financial Sustainability: Of course, PPP agreements must be carefully crafted so that profit motivations do not overshadow public concerns such as livability and equity. However, through creative revenue sharing agreements, PPP projects could provide public agencies with funds to use in other areas. This can ultimately lighten the load on taxpayers while providing broad public benefit.
In short, PPP agreements can be tools for leveraging private money to achieve public goals. Simultaneously, they can stimulate economic growth through the private sector. To me, the PPP concept is a welcome, moderate alternative to two seemingly opposed models for economic recovery: one that demands heavy governmental spending and regulation, and another that demands everything be left up to market capitalism. I suspect that, if both the public and private partners have mutual benefit in mind when they come into negotiating a PPP agreement, then they can get more done together, and more quickly, than either could do alone.
It has never been very clear to me exactly what a PPP is supposed to accomplish. It seems that most companies who are of the scale to get involved in one are more motivated by profits than I would like.
Whom do I trust more? A politician that others (likely) elected, or a corporation making money for others? Is a frankenstein combination of the two going to be better than either? Potentially. Personally, I trust government more than the private sector.
And where do privately managed, publicly funded organizations (like most transit agencies) fit in. Are they already PPP’s?
Good thoughts, Greg. By nature, public (government) agencies are more motivated by satisfying public needs than private companies are. For government-only initiatives, however, the lack of profit motive or the lack of investment capital can lead to fiscally unsustainable or inviable projects. This is a main reason why, in Atlanta for example, we have so many beautiful plans for a multi-modal transportation system that just have not been implemented yet. My hope is that by getting the private sector involved, these projects could happen sooner rather than later. Of course, the profit motive of a private agency can sometimes be at odds with public interests. To safeguard against this, the trick is to have very carefully crafted contracts that set publically-oriented constraints on the profit-maximizing function of a project. We need lawyers who are also familiar with goal programming.