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June 2014

Pub Perspective: The most important P in PPP is the last one

This year, APTA’s business members have put together a series of conference sessions that showcase new business models involving more private sector participation in providing service. The ideas range from additional financing strategies to innovative ways of maintaining railcars and buses. While there is great potential in public-private partnerships — or “P3s” as they are known — it would be a grave mistake to assume they are the complete answer. In fact, the better people understand that the most important word in the phrase “public-private partnership” is “partnership,” the more solid the future of P3s — and the industry — will be.

Help in saving money or finding new money
The growing interest in P3s comes from several concerns about our industry’s basic paradox, right now. At a time when our services haven’t been this popular since when Dwight D. Eisenhower was president, it is becoming harder and harder to meet that demand. Not only are costs beginning to climb again, competition, even for the record levels of funding we continue to see, has never been higher.

As the Highway Trust Fund and the Mass Transit Account both speed toward insolvency, many in Congress, as well as outside, assume others, particularly the private sector, will take up the slack if there is truly a need. Unfortunately, this will not happen.

True, many cities are voting to increase local funding for public transportation, but the fine print in almost all of these ballot measures assumes there will be a federal piece of the funding package. 

Second, like any other government, states and cities also have competing priorities, so their ability to step in can only go so far. Finally, very few industrialized countries fund their entire public transportation program from a single level of government or a single source. That means that partnerships are the rule, not the exception, to good transportation policy.

Private sector only one of many partners
For P3s to work, the private partners need public partners they can count on. In fact, in the places where P3s are used extensively — and almost all other countries use them more than the U.S.  — the commitments are clearly spelled out in the law and in development agreements, which are in place well before any contract is signed. However, there are many states and cities where P3s are still not even legal.

The first thing to understand about P3s is that they are primarily a money-saving strategy and are still expected to earn a return on investment, which usually is paid from the savings achieved by delivering the project faster than with conventional methods. The second thing is that P3s need other  reliable funding sources so that they can manage the commercial risk. That means that the time when policymakers want to rely on P3s more is no time to let trust funds go insolvent.


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