Global Trend

The New Era of Public-Private Partnerships

As Bill Clinton acknowledged in 1995, “The era of big government is over.” However, society still needs to make investments in huge infrastructure projects like highways, dams, and cultural institutions. When developing these big projects while maintaining a smaller government, the solution is increasingly to turn to “public-private partnerships,” to which both government and private enterprise bring their unique advantages.

For example, the state of Texas has planned a new road-building project that would cost an amazing $184 billion and cover the state with 4,000 miles of toll roads, some of them a quarter of a mile wide. It will be built entirely with private money, according to The Christian Science Monitor.

Already, farmers and others whose land stands in the way of the project are up in arms. But in the light of recent Supreme Court decisions it is highly unlikely that they will be able to block the development, especially in light of the millions of jobs the project will create.

Announced in 2002 by Governor Rick Perry, the so-called Trans-Texas Corridor is the biggest transportation plan since the American interstate highway system, which was the largest public works project ever undertaken in the history of civilization.

The Trans-Texas Corridor will be more than just a road. It will feature 10 lanes for cars and trucks, with a speed limit of 85 miles per hour. It will also include six railroad tracks as well as pipelines for oil, natural gas, water, electricity, and telecommunications.

These partnerships between government and private business are the wave of the future, and dozens of states are rushing to capitalize on their promise of jobs, money, and better public infrastructure. Within the next 10 years, some 10,000 miles of new roads are expected to be built through such deals.

California is planning a highway from San Diego to the Mexican border using such an alliance. Colorado is building a Denver beltway using private money. And Virginia is building a light rail system using the same approach.

Many are watching the Texas model closely, because it is the largest and most ambitious project to date. The private developers of the toll road will, for example, have the exclusive right to locate the off-ramps near their own gas stations, restaurants, and hotels.

In cities like Columbus, Texas, there is some concern. Interstate 10 provides that town with 80 percent of its sales tax, more than property tax pulls in. If the new highway doesn’t serve that community, that revenue could dry up. But the concerns of small towns will have an uphill battle against the estimated $13 billion a year in revenue the highway will create in Texas, not to mention the 2.6 million jobs.

The model seems irresistible. New York plans to start leasing bridges, highways, and other transportation facilities to private companies, which will turn around and charge tolls for their use, according to a report from Associated Press Newswires. The fact is, the state can’t build the facilities without help from private industry, so the choice is either to have no new infrastructure, or to form the alliance with business.

New York already has its own model for how this works. Stewart Airport, near the city of Newburgh, was sold and converted into a private business. It seems to work well for all concerned, making a profit and bringing in tax revenue. The next candidate there is the Tappan Zee Bridge, 30 miles north of Manhattan. Nothing much would change for the ordinary citizen. The state Thruway Authority already charges tolls on the bridge.

Nevertheless, the deeply entrenched politics and union-dominated work forcees in New York State promise to make such plans anything but smooth sailing. There will be plenty to fight about, but in the end, economics will dictate the outcome.

For example, New Jersey is now looking into leasing the New Jersey Turnpike to a private company to offset a budget deficit. Similarly, Chicago recently leased its famous 7.8-mile Chicago Skyway to a Spanish-Australian consortium. And a private railroad opened in Las Vegas in 2004.

In Georgia, Senate Bill 5, if passed, will allow any local government in the state to partner with businesses to do anything that might be defined as fulfilling a public need, including creating parking lots and constructing office buildings. Under the new law, they’ll be able to issue public debt and make grants and loans to the developers. They’ll be able to condemn any property that stands in the way, according to an article from the Associated Press Newswires.

While many are protesting loudly, the arrangement makes perfect sense when a city is growing so fast that it can’t even fund its own water treatment plants, its schools, its court system, or its jails.

The fact is, there’s a long history of public authorities forming alliances with private businesses. The railroads are a prime example. Until recently, they were all privately owned, though they were always considered a public transportation system. More recently, as military facilities close, the armed forces have had to strike deals with private developers to use the land and buildings for new purposes that provide jobs for civilians and profits to the businesses.

Just last year, according to the Baltimore Sun, the Navy decided to enter into a deal with developers to operate housing at the Naval Academy and Naval Station in Annapolis this fall. The Navy openly admitted that a private firm experienced in doing this could provide much better maintenance and upkeep than the military itself does. The Navy will be a limited partner in the venture. The Defense Department now has a housing privatization Web site to handle such matters.

This, too, is nothing new. Congress established the Military Housing Privatization Initiative, known as MHPI, in 1996 to help improve the quality of life for military personnel. Through it, the military can provide housing faster and more efficiently than the traditional process could. Since then, the military has formed public-private housing partnerships at more than 30 installations and is working on about 60 others.

In light of these trends, we offer four forecasts for your consideration:

First, expect controversy in the short term. In many places, it will be an uphill battle to forge these public-private alliances, but people will ultimately have to make a choice between settling for what government alone can provide to the community and living with the public-private partnerships. This is already playing out in water-stressed California, where various governments are trying to get private companies to install desalination plants such as the ones used in the Middle East. With the state and local government strapped for funds, the only alternative the citizens have is to cut their water consumption. With the entire Pacific Ocean at their feet, the choice seems obvious.

Second, as new projects based on public-private alliances come on line and prove their success, the protests will die down and become marginalized. The fears of abuse will naturally evaporate, because these projects are dedicated to benefiting the public. If they can’t create a meaningful business case, they won’t be built. Projects that create obvious win-win situations, such as road-building in Texas or water-supply enhancement in California, will be hard to stop. And since both the government and business will make money while ordinary citizens will gain valuable infrastructure, the trend will continue to grow.

Third, the public-private partnerships will force Americans to reconsider the role of government. People will begin asking fundamental questions, such as: What is the real function of government? What services should a government be providing its citizens, and what parts of the infrastructure should be under its control? Can the public good be better served through government control, or through partnerships with professionals in a given field? Anyone who has had to deal with a government bureaucracy and compared it to doing business with a real company can probably provide an answer.

Fourth, such thriving and successful public-private partnerships will provide a spur to the economy ? not just locally, but nationally as well. This approach will provide an on-going edge in generating jobs and revenue that will be completely resistant to the changing needs of the global economy, since infrastructure and other public facilities and services will always be in demand. This will ensure the continued health of the businesses our economy depends on, the governments they partner with, and the people they both serve.

References List :
1. The Christian Science Monitor, March 23, 2005, “A 10-Lane Road to the Future,” by Kris Axtman. ⓒ Copyright 2005 by The Christian Science Monitor. All rights reserved.2. Associated Press, January 25, 2005, “Public-Private Partnership Proposal Gets Legislators Attention,” by Joel Stashenko. ⓒ Copyright 2005 The Associated Press. All rights reserved.3. Associated Press, January 27, 2005, “Public-Private Partnership Bill Drawing Biggest Heat of Session,” by Dick Pettys. ⓒ Copyright 2005 The Associated Press. All rights reserved.4. The Baltimore Sun, July 30, 2004, “A Public-Private Partnership Is to Run Family Housing at Naval Academy, Station,” by Mary C. Schneidau. ⓒ Copyright 2004 by The Baltimore Sun. All rights reserved.5. Los Angeles Times, November 25, 2003, “California; New Water Source Idea,” by Dan Weikel and Jean O. Pasco. ⓒ Copyright 2003 by The Los Angeles Times. All rights reserved.