Let’s jumpstart infrastructure projects with new public-private partnerships
By Guest Columnist CHARLES WHATLEY, managing director of UrbanIS USA, an advisory firm focused on Public-Private Partnerships
In a globally competitive marketplace – inside or outside the perimeter or across the river – are nearly irrelevant designations.
It is time that the Atlanta region start to consider cooperative ways to finance and deliver lifeline infrastructure projects. While community scale governance has benefits, there are few advantages to small scale infrastructure development and delivery. Moreover, small cities of relative fiscal strength are surrounded by counties that struggle fiscally while being responsible for much of the lifeline infrastructure.
How to finance infrastructure is an essential question. Public-Private Partnerships (P3) have the potential to improve the outcomes of investment in lifeline infrastructure and to make our region more competitive.
In November 2013, Georges Lemieux, the senior Canadian Trade Commissioner in the Atlanta Consulate General Office, invited me and another local business person to attend the Canadian Council for Public-Private Partnerships 2013 P3 Conference in Toronto.
While we did not meet Mayor Rob Ford, we did witness Toronto’s economic engine at full throttle. Toronto has 300 construction cranes in the sky and over 140 buildings of 30-stories or more under construction – right now.
Imagine a metro region of 5.6 million people with transit options connecting the city core to the suburbs by rail, bus, streetcar and roads. And imagine pedestrian-friendly and bike-friendly streets that connect job centers, higher education, sporting venues, arts and music districts, and retail and restaurants.
Now imagine that 2.7 million of the citizens live in the urban core, and that political consolidation occurred among five cities to form a consolidated government.
That describes Toronto, perhaps the most dynamic city in North America. Toronto is now among the most densely populated and diverse cities anywhere. The city’s core is growing by 100,000 people a year, and the province is gaining more than 100,000 new Canadians annually through the country’s enlightened immigration policy.
Toronto has an interesting history around how consolidation occurred. In 1967, the seven smallest municipalities of metropolitan Toronto were merged into their larger neighbors — creating a region of six municipalities consisting of the old City of Toronto, East York, Etobicoke, North York, Scarborough and York.
What occurred in 1998 is rather bold political strong-arming. The provincial government of Conservative Mike Harris dissolved the metropolitan government despite opposition from the component municipalities and a rejection in a municipal vote. All six municipalities were amalgamated into a single municipal government, creating the current City of Toronto.
Whether consolidation by brute force resulted in efficiencies or cost-savings is still debated. What is clear, Toronto had an infrastructure problem of megacity proportions overnight.
Not unlike many major cities or states in the United States, Toronto and the Province of Ontario have a backlog of infrastructure repairs, replacements and upgrades.
According to an article in “The Star” newspaper on Nov. 13, 2013, “Ontario needs an estimated $100 billion in new infrastructure, with about 60 percent of roads, schools, etc., more than half a century old after years of governments tackling projects only on an as-needed basis.”
But Canada and Ontario are working on how to tackle this massive backlog. The 2008 Infrastructure Framework Agreement that is part of Infrastructure Canada’s Building Canada program outline the following:
Canada and Ontario agree on the need for high-quality, modern public infrastructure that contributes to long-term economic growth, a clean environment and strong communities. They also agree on the need for long-term planning to strategically address infrastructure needs in priority areas, including water, wastewater, public transit, the core National Highway System, green energy, as well as priorities that enhance Ontario’s public infrastructure, such as infrastructure for small and northern communities.
Toronto is making key strategic investments in transit, roads, water and sewer, social services for the the homeless, healthcare, education, and workforce development.
The lifeline and social infrastructure investments are now managed and coordinated through Infrastructure Ontario and Toronto’s Major Capital Infrastructure Coordination Office. Infrastructure Ontario engages with municipalities, universities and other public sector entities to determine whether Alternative Financing and Procurement (AFP) is of potential value in the delivery of large scale infrastructure projects ($20 million or more).
Public-Private Partnerships (P3), particularly as practiced in Canada, have the potential to improve the outcomes of public investment in lifeline infrastructure. P3 represents a mix of public and private investment and ownership in the same asset. P3 is not privatization. Privatization is the transfer of all ownership and finance to the private sector.
Infrastructure delivered by a P3 method is considered a unique asset class. Instead of investors buying the municipal bonds that pay for the construction of a new water treatment plant; investors finance the development, design and construction of that plant in partnership with the municipality.
The revenue generated by the water system provides the return on investment and funds operations and maintenance of the facility. The plant can be purchased by another operator with approval of the municipality. Usually the new “owner” makes upgrades to ensure the long-term financial viability of the underlying asset.
P3 is about performance, meeting the public requirements and achieving the desired outcomes that provide more efficient infrastructure for municipalities and their citizens. The logic of specifying performance and availability rather than materials, equipment and finishes makes for a better business case. Lifecycle planning for cost and performance exceeds the traditional procurement processes standards. High performing assets have more value than marginal performers.
Lastly, P3 done right is about systems thinking and collaboration. The delivery group on a P3 project works as a team from the start of the project. This early collaboration allows the municipalities and their partners to develop high-performing infrastructure solutions that create value for the citizens and the investors.
Pay for performance gives the public partner control and leverage to ensure that the desired outcomes are achieved. This is not hands-off privatization but rather a new way to manage infrastructural investment. P3 is a generational approach that determines the value of money, pays for performance, and value engineers for lifecycle cost and performance. A region that wants to be competitive and efficient must think and act strategically about infrastructure.
Global investors in P3 projects need to see public sector champions, a clear legislative and legal framework, procurement processes that reward value and results, and clearly defined revenue streams. More than a few of the needed infrastructure projects in the state and region would benefit from the P3 approach. We need new tools and ways to attract investment for infrastructure to the Atlanta region and Georgia.
This legislative session is a good time for Georgia to greatly expand the use of P3 infrastructure project delivery beyond roads, water reservoirs and ports. Examples of P3 delivery on Georgia Department of Transportation and Georgia Ports Authority projects show we can do it right. A clear legislative framework and procurement mandate requiring consideration of P3 for any infrastructure project over $20 million would go a long way in convincing investors and developers that Georgia is ready for P3.
Lifeline infrastructure is essential to economic development, quality of life, and viable communities. An appropriate strategy for delivery of these projects is critical to aligning infrastructure build-out with development opportunities and service delivery. They trump incentives.
UrbanIS USA is focused on structuring and implementing Public-Private Partnerships (P3s) for infrastructure and economic development.