Public-private partnerships a winning strategy

The global recession was unkind to communities across the United States and around the world. Facing diminished tax bases, frozen capital markets and a reduction in federal and state funding, many local governments shelved worthwhile infrastructure projects ranging from new highways and bridges, to cultural venues and mass transit links.

This scenario sparked an uptick in the number of public-private partnerships, also known as PPPs. While collaboration between the public and private sectors has been a mainstay in Europe for decades, this model has gained traction in the U.S. over the past 10 years. In fact, the number of American PPPs grew tenfold from 1998 to 2010, according to a recent study by industry journal Public Works Financing.

Though the economy is gradually rebounding and financing is becoming accessible once again, many municipalities intent on preserving their capital and minimizing risk continue to see PPPs as a favorable solution. What began as an offshoot of the recession is likely to remain a viable platform for bringing large-scale infrastructure improvements to fruition.

Ongoing domestic projects made possible by PPPs include the development of New York City’s Brooklyn Bridge Park, the Chicago Skyway, the Port of Baltimore expansion, and the Puerto Rico Highway. Here in South Florida, PPPs range from the development of downtown Miami’s Museum Park and the nearby PortMiami tunnel, to the redevelopment of Interstate 595 in Broward County and the University of Miami Life Science and Technology Park in Miami’s Health District.

The advantages of the PPP model are multifactorial. For public sector entities charged with meeting the basic needs of their communities, creating a joint venture with an experienced private sector development partner creates new cost and time efficiencies when it comes to planning, financing, procurement and construction. The National Council for Public-Private Partnerships estimates that governments typically realize cost savings of 20 to 50 percent through PPPs.

PPPs can also reduce the total amount of time required to complete a project. Case in point: the reconfiguration of Florida’s Interstate-4 is projected for completion within six years rather than the 20-plus year timeline that was envisioned before a private partner entered the arrangement. Additionally, the PPP model creates jobs at the local level.

Lastly, the high-profile nature of these projects has a tendency to attract top-tier companies that are among the most experienced in their fields.

Timely examples are unfolding in our own backyard. The proposed redevelopment of the Miami Beach Convention Center has lured international development firm Tishman Hotels & Realty and Pritzker Prize-winning architect Rem Koolhaas; the new Miami Art Museum has been designed by the acclaimed firm Herzog & de Meuron; and the planned Airport City mixed-use project adjacent to Miami International Airport would be built by Odebrecht USA, one of the world’s largest private developers.

For private companies, PPPs present an opportunity to undertake projects that tend to generate steady revenues over the long-term. According to Deloitte Development LLC, a standard PPP offers risk-adjusted returns between 10 and 15 percent over 20 years or more.

PPPs also enable businesses to capitalize and enhance the value of existing public assets, as is the case with the Interstate-595 reconstruction, the waterfront Museum Park development in downtown Miami, and the Miami Beach Convention Center project.

Recognizing the mutual benefits of PPPs, the federal government is contemplating a series of policies and funding mechanisms aimed at spurring additional collaborations between private enterprises and governments. Concepts such as the creation of a national infrastructure bank, a new water infrastructure loan initiative, and programs specifically targeting high-speed rail and highway projects are all under consideration at the congressional level.

Elected leaders at the state and local levels should follow suit by embracing this model and encouraging companies to become involved. While many of the PPPs underway today have been triggered by recession-era financial constraints, the positive impacts of these projects will serve their communities for decades to come.

Albert E. Dotson, Jr. is a partner with Bilzin Sumberg and leads the firm’s government relations and land development practice. He represents a number of companies involved in public-private partnerships, including Odebrecht USA, South Beach ACE, and Wexford Science & Technology.

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