The limits of public-private partnerships

by Mark Szakonyi


It’s sold as magical elixir for all our infrastructure woes.

Lack of state and federal funding? Public-private partnership.

Want to sound hip without giving any concrete plans? Public-private partnership.

Trying to convince voters that you will improve the infrastructure at no extra cost to them? Public-private partnerships.

In practice, public-private partnerships are far trickier. For instance, the Florida Department of Transportation has failed to hook a private partner to build the $1.8 billion First Coast Outer Beltway because the proposal has too much risk and too little profit for private partners.

The project being in Florida, however, does gives it an edge considering the state’s past success in such partnerships.

Florida will likely be looked on as model for public-private partnerships due to putting about $4 billion in projects on the books, Journal of Commerce editor R.G. Edmonson wrote.

The $1.2 billion toll road being built parallel to Interstate 95 near Miami is one example. It would have taken the state 15 years if it went on it own.

But it’s not always that easy, as the JOC points out.

David Seltzer, a principal in Mercator Advisors of Philadelphia, said such unions may are illusions if the states don’t have the revenue to back up the project.“I’m saying it is fool’s gold, unless there is the revenue stream to pay a return on that capital,” Seltzer told the JOC.

“I would be wary of claims that the private sector can step in and execute where state and local government cannot, because they still need that revenue stream which politicians have been unwilling or unable to approve at any level of government.”

My story this week shows that’s part of the reason potential private partners are balking at building the outer beltway. It’s unclear how much traffic will use the toll road and under the state’s proposal, the toll road wouldn’t be guaranteed through a turnpike authority, as in other public-private partnership.

Private financing is complicated by the volatile lending market, where lenders want contractors to put down equity ranging from 10 percent to 40 percent of the project.
These stringent upfront costs make it even harder for private contractors to get the 10 percent to 15 percent return many are aiming for.

Fonte: Jacksonville Business Journal - 04/02/11

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