The Upside to Fiscal Challenges: Innovative Partnerships Between Public and Private Sector

Abstract

The first U.S. public‐private partnerships, or P3s as they are now called, began over 200 years ago. These contractual arrangements between government entities and private companies for the delivery of services or facilities have long been used for water/wastewater, transportation, urban development, and the provision of social services. And the use of such partnerships is increasing because they provide an effective means for meeting public needs, maintaining a high level of public control, improving the quality of services, and increasing the cost‐effectiveness of traditional delivery methods.Although outsourcing of public services is sometimes used to accomplish many of the same goals, P3s are likely to be a solution when public funds are not available and when: Capital is required to upgrade the infrastructure and so achieve a lower cost, or higher quality, of services. The contract horizon in the P3 transaction is sufficiently long for the investor/operation to recoup investment dollars and a rate of return. City residents make payments for the service provided, creating the revenue stream for private profits. The private partner in the P3 has a low cost of capital, often attributable largely to a large and sophisticated balance sheet. This article uses examples of several recent P3 contracts to illustrate their role in shifting risk and increasing collaboration between the public and private sectors.