In today’s economic environment and constrained public sector budgets, public agencies have been forced to reexamine the means by which they conduct business, control costs, and deliver services. Large public sector agencies operating significant assets, infrastructure, and facilities have in recent years seriously examined one such alternative, the potential of utilizing partnerships or ventures with the private sector to bring private capital, lower borrowing costs, and more efficient management practices to the agencies. Public Private Partnership’s or P3s, which are generally agreements between the public sector and private sector to deliver services, are now authorized in a majority of States and federal legislation permits federal agencies to enter into certain types of partnership transactions with the private sector.
Public Private Partnership are particularly important in large scale public infrastructure projects/programs, including highways, transit systems, and federal facilities. By leveraging public assets, private capital and management expertise can be engaged to improve capital assets and infrastructure, asset management effectiveness, and enhance delivery of services.
Partnerships between public entities and private business however can be complicated as each party is trying to adapt its typical business approach to the other partner.Public entities do not always fully understand private sector goals and challenges and private companies have no appreciation for public sector’s methodical decision making process, procedures, and controls set in place to protect interest (such as procurement and property disposal/underutilization determinations). MCFA often times acts as a facilitator and translator helping both entities align goals to ensure that all parties maximize the benefit of the transaction.
Monetization of Underutilized Assets:
Governmental entities possess extensive portfolios of real property, facilities, and infrastructure. As budgets shrink and government activities reduced or modified over an asset base, a portion of a Government’s portfolio of assets have become underutilized. The maintenance and ownership expenses of underutilized assets impacts budgets and provide little or no return to the Government owner. It also strains existing Government resources. Governments may have the opportunity to offer these underutilized assets to the private sector for development of mission supportive facilities and/or to generate revenue to the Government.
In addition, Governments are strained to plan, finance, and own and maintain existing deteriorating infrastructure or new facilities. Government’s capital budgeting for infrastructure has become a major challenge to agencies and impacts the ability to deliver services and fulfill its respective core missions. A potential solution is to invite private capital and expertise to finance and develop assets and infrastructure supporting the Government mission or essential government functions.
Types of Public-Private Ventures:
- Real Property:
- Disposal of Excess Property/Facilities – Sale of property no longer being used to private third parties.
- Leasing of Underutilized land/buildings – Entering in to a lease with a private party to develop a parcel of land or occupy a building.
- DoD Housing Privatization – Long term agreement with private housing developer to develop, operate, and maintain military housing at DoD installations.
- Energy-Utility Infrastructure:
- Utility Privatization – Campus utility infrastructure conveyed to local utility provider and provider assumes all maintenance and operating expenses.
- Energy Efficiency and Conservation Projects – Private ownership and operation of building / campus energy systems.
- Power Purchase Agreements – Long term agreement by owner to purchase power / water / utilities at set pre-negotiated rates from an energy asset developer/owner/operator.
Design/Build/Operate/Maintain Privatization – Government contracting with private entity to design/build/operate/ and maintain major transportation infrastructure such as toll roads and transit projects.
Benefits of Public-Private Ventures
There are many benefits and positive attributes accruing to the public sector in pursuing public-private ventures outlined above. These include:
- Reduced Ownership Costs by Disposal / conveyance of Underutilized Assets
- Potential Positive Revenue Stream
- Brings private sector experience and expertise to operation and maintenance of infrastructure
- Improves operational efficiencies and costs control
- Allows governments to allocate internal resources to core competencies
- Risk is shifted to third parties
As Governments continue to explore programs and practices which can improve the delivery of services under budgetary constraints, public-private venture opportunities are often overlooked. Governments often do not fully comprehend the benefits of such programs or the processes or legal authorities under which projects can be executed. Private sector partners also do not typically understand the procedures, processes, and timelines to execute projects. MCFA has extensive experience advising Government entities evaluate condition / performance of its current assets and help develop a program to address inefficiencies and capital budgetary planning. MCFA can assist in the identification of opportunities for asset development, evaluate feasibility, and navigate the process of implementing solutions, including potential public-private venture solutions. MCFA believes that the future of US public infrastructure development will be joint undertakings between the government and private sector and MCFA is uniquely positioned to support clients achieve results.