By Donald C. Fry
It’s hard not to notice that governments everywhere are scrambling to come up with creative ways – other than blunt-force taxes – to tap into private-sector funding for public-sector use.
In Baltimore, the City Council is considering legislation that would allow advertisements on fire trucks. Meanwhile, the Mayor’s Office will soon propose a program to sell advertisements on some public buildings, according to published reports.
Such options are intended to raise money for Baltimore’s operational budget. But the biggest potential these days for leveraging private-sector funding for government use relates to creating public-private partnerships for capital projects.
State governments, including Maryland, are increasingly seeking to devise win-win scenarios to gain private-sector investor participation in funding expensive infrastructure that is needed, but currently beyond the means of the government’s own tapped-out coffers.
For example, the lease of Seagirt Marine Terminal to Ports America Chesapeake, negotiated in 2009, is Maryland’s current flagship public-private partnership. Among other things, the estimated $1.8 billion in value to the state over the life of the 50-year partnership provided $700 million in immediate, privately-funded port infrastructure improvements, including the construction of a 50-foot berth that will enable Baltimore to handle a major portion of new east-coast super-ship container business expected after the Panama Canal expansion is completed in 2014.
The state would have been unable to fund these improvements without the partnership, under which Ports America Chesapeake will improve and operate the facility and make annual payments to Maryland based on its revenue.
Other public-private arrangements are being pursued in Maryland. A school for the arts in Hagerstown is a non-transportation-related capital project built through an alternative-financing public-private initiative. State legislation enacted in 1997 allows the Maryland Department of Transportation to accept public partnership proposals for non-highway assets such as transit-oriented development, airport and port facilities, and allows qualified private entities to submit proposals to acquire, finance, construct and/or operate new transportation facilities.
But it’s fair to say that Maryland, while dipping its toe into the pool, has not yet fully committed to diving into public-private partnership waters.
Indiana is a nearby state that offers a glimpse of the level of private capital that can be leveraged through such partnerships. For instance, that state gained $3.8 billion for capital projects by leasing its Indiana Toll Road to a private company in 2006. Meanwhile, Indiana has three more major public-private partnerships in the works for transportation infrastructure projects including a $2.4 billion bridge over the Ohio River in which the state of Kentucky is also participating, according to a report last week in the Bond Buyer, a daily public finance publication.
Also, an Indiana municipality, East Chicago, recently consummated a deal that will create the state’s only privately-owned toll bridge to replace an existing bridge that has been declared unsafe, reports the Bond Buyer.
Are these kinds of deals in Maryland’s future? It’s hard to say. Existing public-private partnerships elsewhere come in a wide variety of configurations outside of traditional government funding methods. They include leases such as the Port of Baltimore’s Seagirt deal, private loan programs and outright private ownership of assets from bridges to water systems and even parking meters.
Maryland could be fertile territory for an aggressive push for transportation-related public-private partnerships, if only because the state’s own traditional funding source for new capital projects – the Transportation Trust Fund – suffers from chronic revenue stagnation. And lawmakers in Annapolis have clearly demonstrated their reluctance to address our state’s continuing crisis in funding transportation infrastructure.
Maryland law currently allows public-private partnerships under a variety of circumstances. In this year’s General Assembly session, however, an administration bill intended to set practical, efficient and uniform state policy for the development of such partnerships prompted an inordinate amount of tinkering from lawmakers and special-interest advocates. Though different versions of the bill passed each chamber, consensus legislation was not achieved before the session ended.
This raises the question of whether new legislation out of Annapolis on public-private partnerships would ultimately encourage or discourage the development of them.
What should good public-private partnership policy look like? Basically, it should allow for competitiveness, but cultivate reasonably expedited initiatives with appropriate, but restrained legislative oversight.
For example, it’s logical that lawmakers – particularly budget committees – be aware of and understand the nature of proposed public-private partnership initiatives as they are being developed. But once formal legislative review begins, it should be reasonably expedited. A review process of prolonged delays does not work well with private-sector time frames.
It’s very important to carefully plan prospective public-private partnership agreements to protect state interests. But it’s critical that such initiatives be conducted within a time frame consistent with private-sector contract negotiations and with a minimum of legislative intrusion. Government must act with a sense of urgency in its evaluation process. An inordinate delay could impact interest rates driving the cost of the project higher and causing the terms to be subject to renegotiation.
Can we successfully achieve beneficial policy for taking full advantage of opportunities to leverage private-sector resources in funding infrastructure and other badly-needed public assets in Maryland? I believe that we can.
But we must effectively find opportunities to take advantage of a good concept that is already legal in Maryland, establish a culture of efficiency and predictability in the public sector review process, and avoid piling on with debilitating bureaucracy and mandates.