{{RELATEDLINKS}}With slashed budgets and depleted resources, public agencies simply don't have the firepower to improve infrastructure and provide what is needed to attract new investment. The private sector has similar budget woes, especially emerging from the recession. Yet, when government and industry collaborate to share a common vision, they can find creative ways to stimulate economic growth, expand the tax base, and provide good-paying jobs.
The final result - a public-private partnership (PPP) - is a legal agreement between a public agency and private-sector companies by which a mutually determined plan is followed to deliver an improvement or service that will benefit the public. PPPs are a popular way to complete important projects that have either stalled or wouldn't get off the ground because of funding issues or political bottlenecks.
"One illustration of the growth in interest in PPPs is the rapid increase in state legislation to provide the framework for development of PPPs," indicates Richard Norment, executive director for the National Council for Public-Private Partnerships in Arlington, Virginia. "In the last five years the number of states that have this legislation on the books has gone from 21 to 33, with several more expected in the near future. All of these are driven by the limitations in public budgets and the growing visibility of successful PPP projects."
In most cases, the PPP is the funding tool that delivers badly needed infrastructure. Partnerships can vary from one public agency and one private-sector company to multiple agencies and companies. Businesses don't have to officially be part of a PPP in order to benefit (for example, a PPP that builds new telecommunication infrastructure not only benefits local companies by providing faster service, but also attracts new businesses that become customers of existing local businesses).
Why should a company care about public-private partnerships if it is thinking about relocating or expanding? Because PPPs provide a glimpse into how a region functions, as well as its level of commitment to economic growth. The health of infrastructure is critical to the economic environment of a community. If the government entity understands how partnerships can help meet the public needs in these areas, it has an enormous positive impact on the efficiency of business operations.
"If given a choice between sites with positive or less-positive PPP environments, the CEO should look at the state of the infrastructure, how it might impact the growth potential of the business, and also examine if local government can address any remaining infrastructure needs," adds Norment.
"PPPs can illuminate a forward-thinking government partner and serve as a good sign of a strong, pro-business climate," adds Christopher Lloyd, director of infrastructure and economic development for Richmond-based McGuireWoods Consulting. "They are another tool that can be used to quickly and efficiently deliver needed infrastructure or other priorities that have an economic development nexus."
Leading Public-Private Partnerships
Virginia and Texas are credited by most experts as having the strongest support for PPPs in the nation. Both have extensive legislative and regulatory frameworks that support the use of PPPs (the Texas statute, passed less than a year ago, is heavily modeled after the Virginia statutes, which are now over 10 years old). New PPPs in Virginia include road and metro projects in the Washington, D.C., area and Hampton Roads. Texas has also focused on transportation infrastructure, including upgrades to the LBJ Freeway and the Cotton Belt Rail Line. The Alliance Texas public-private partnership has helped bring more than $40 billion in economic impact for North Texas, including a recent announcement by GE Transportation that it will invest $96 million in a new plant in North Fort Worth.
In Kentucky, The Department of Defense has teamed up with private contractor Lend Lease to build the first "net zero" military housing in Fort Campbell. This PPP includes multiple public- and private-sector partners that have an interest in learning how to commercialize these design breakthroughs in the construction industry.
{{RELATEDLINKS}}"The partnership produced a product with a 54 percent energy reduction and a 27 percent water reduction when compared to a conventionally designed home," states the National Council for Public-Private Partnerships. "The remaining 46 percent of energy is produced by photovoltaic solar panels to achieve a net-zero energy consumption."
Louisville continues to transform its downtown through public-private partnerships, including the KFC Yum! Center, a $238 million sports and multipurpose arena that opened in October 2010. A number of private-sector firms contributed to the financing, including Yum! Brands, in return for naming rights and other corporate sponsorships.
"The arena is a perfect example of public-private partnerships in action," says Alan DeLisle, executive director of the Louisville Downtown Development Corporation. "There were a number of different financing techniques that took place and many organizations came together to make it work."
Kern Economic Development Corp. in Kern County, California, is a public-private partnership that supplies the infrastructure and other assets needed for creating an attractive business climate and steady GDP growth. For example, it has dedicated a special team to work with alternative-energy companies; it has also collaborated with the local community college to create a skilled work force for this growing industry. Kern County also collaborated with Southern California Edison to upgrade transmission lines to handle the extra capacity these new companies would provide in the future.
"Without key members of the public and private sectors sitting at the table together, projects of economic significance could easily be held up in the system," says Richard Chapman, president and CEO of the Kern Economic Development Corp. "The essence of economic development stewardship lies in successfully guiding clients through permitting, site location, financing, and work force development in the shortest amount of time."
The Macon Economic Development Commission is the lead economic development agency for Macon and Bibb counties in Georgia. This PPP is funded primarily by the business community, with some funds from county government. Private companies participate in the PPP through its "Macon NOW" fund-raising campaign. Since 2004 more than $4.5 million has been contributed from the private sector to advance the commission's recruitment and retention programs.
"NOW has allowed us to strengthen our existing industry program, including hiring a manager," says Patrick Topping, senior vice president for the Macon Economic Development Commission. "We can now be more proactive in what we do, instead of strictly reacting to requests."
Parting Advice
Business owners should look at the political environment of the prospective community to see if the public sector has the mindset to promote the use of PPPs. Communities that embrace PPPs are more likely to respond collaboratively to create a healthy business environment.
Remember that not all PPPs are created equal. Look at their history of success, failure, or feuding - the structure can sometimes be complicated, especially with lots of stakeholders who may have special interests. Egos can get in the way and slow down or halt the entire process; the deal can also be based on overly optimistic financial projections that may lead to poor performance and finger-pointing down the stretch.
"The keys to a successful public-private partnership are having a public-sector leader/champion, solid statutory foundation, dedicated PPP team from the public sector, detailed business plan, clearly defined revenue stream, complete stakeholder support, and careful vetting of the private partners," says Norment. "If any one of these is missing there is a higher potential for failure in the project."
"How a PPP functions can tell a company a lot about how the community invests in itself to support economic development," adds Topping. "If done correctly, public-private partnerships encourage the business community to get involved in economic development and lessen the burden on the public sector to create new jobs and new investment in the community."
Public-Private Partnerships Illuminate a Community's Business Environment
Companies choosing a location where PPPs are in place can benefit from the public and private sectors commitment to economic growth.
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