It is Time for Public-Private Partnerships in New York

According to the New York Times, ….New York Governor Andrew Cuomo “is considering reducing the state’s work force by up to 15,000 people in his budget. While most of the focus has been on Medicaid and state education, the cuts would represent a “substantial downsizing of the state’s workforce, including clerical workers, state troopers and park rangers. And that belt-tightening would almost certainly be accompanied by noticeable reductions in government services, though it is hard to predict where and how much until Mr. Cuomo releases his proposed budget in early February.”

“Mr. Cuomo has made trimming the state’s far-flung bureaucracy a top priority of his new administration, hoping to reduce costs to taxpayers and root out waste.”

At the same time, two reports have been published supporting the idea of public-private partnerships (P3s) in infrastructure which should be useful for Governor Cuomo to consider as he approaches his budget. The first report is from the State Comptroller and the second is a white paper produced by a strong coalition from the private sector. Public-private partnerships are not currently authorized in New York.

The first reportis from the State Comptroller, Thomas D. DiNapoli and published this month. Citing a 2009 report by the same Office the estimated investment needs to maintain transportation ($175 billion), municipal waste water ($36 billion) and clean water ($39 billion) infrastructure across the State over the next 20 years totals $250 million. The current 2010 report explores the opportunities for public-private partnerships and discusses the potential pitfalls that the state should avoid in undertaking and negotiating public- private partnerships.

The conclusions of the report are worthy of consideration:

“Public-private partnerships may provide a new and useful option for the financing and construction of public infrastructure in New York State, but they also present some of the most complicated and challenging financial arrangements that the State has ever considered.” The report goes through a number of risks and potential pitfalls to consider, all of which are realistic. However these issues can be handled with good planning, realistic solicitations and excellent P3 agreements negotiated with the advice of experienced consultants and lawyers.

The comptroller report recommends that “if the State decides to move in the direction of public-private partnerships, decision makers must first adopt policies that identify the types of projects that will be eligible for development and operation as P3s, adopt a methodology for determining the value of public assets that are involved, enact statutory changes to existing procurement law, and determine how to prevent potential negative impacts on users, employees, and taxpayers.”

The comptroller’s report concludes:

“There are four essential principles that New York must adopt in order to mitigate the financial risks inherent in public-private partnerships:
Full and Fair Value: Identify and use the best practices for the valuation of public assets to ensure that the public receives the full, fair value for the use of its property.
Reasonable Pricing: Keep private sector profits within reason to ensure that P3 agreements do not burden the public with unwarranted expenses, excessive fees, or high toll increases.
Realistic Agreements: Carefully draft P3 agreements to ensure that they do not include unrealistic expectations or inaccurate financial calculations.
Responsible Budgeting: Avoid budget gimmickry by adopting financing rules that prevent a disproportionate shift of current capital costs onto future taxpayers. This must be based on a comprehensive reform of the State’s debt and capital financing practices.”

While the report is indeed cautious, it does lay out realistic considerations for public-private partnerships in New York.

The white paper of note is reported in an article in entitled, “Industry Knocks on Cuomo’s Door.”

As is the case with all new governors the private sector generally wastes no time communicating its agenda. In New York the groups include the Real Estate Board of New York and the Committee to Save New York supporting the new Governor’s cost cutting agenda.

Separately (but part of the larger coalition) the New York Building Congress produced a white paper asking the Governor to fix existing state funding streams to provide the greatest possible return to taxpayers. Chief among the requests is to fix the state’s Dedicated Highway and Bridge Trust Fund which has been frequently raided over the years to cover a variety of operating expenses and debt service.

The Building Congress white paper also recommends that the Cuomo Administration look to public-private partnerships to leverage private-sector funds and expertise. The white paper says, “A spectrum of P3 models exist that enable governments to significantly reduce their exposure to risk and overall costs to the public while improving transportation networks.”

Of particular note is the list of sponsoring organizations signing onto the white paper including the General Contractors Association; the New York chapters of the American Council of Engineering Cos. and the American Institute of Architects; the Long Island Contractors Association; the Building Trades Employers Association; the Construction Industry Council of Westchester and Hudson Valley; the Association for a Better New York; the Subcontractors Trade Association; and the Laborers-Employers Cooperation and Education Trust.

With the backing of both the State Comptroller as well as the private sector, infrastructure public-private partnerships may now get serious consideration in the State of New York.