Public-Private Partnerships in the SLED Market
Published: June 22, 2020
Public-private partnerships, or "P3s," are one of the tools that government buyers can use to capture the expertise, innovation and efficiency of the private sector in key business areas. With ongoing financial pressures on government agencies at all levels, many will have a renewed interest in P3s as a means to reduce operating budgets by turning construction/implementation as well as operations and maintenance (O&M) responsibilities of certain assets over to private companies.
However, the P3 landscape has changed in recent years as privatized toll roads have fallen into political disfavor. Below are the top P3 market niches.
EXAMPLE #1 – CITY/COUNTY OFFICES: Courthouses have emerged as a surprising hot spot for P3s with Travis County (Texas) closing a deal for a new 430,000-square-foot civil and family courthouse facility to be completed in the fourth quarter of 2022. The deal will be financed via $330 million in certificates of obligation. Miami-Dade County has recently closed on a similar deal. However, not all such arrangements have to be courthouse mega-deals. Jefferson County (Arkansas) is looking at a $13.5 million deal to get new a coroner's office, county health unit and veteran’s affairs office by mid-2020. Many local governments are looking to upgrade or replace facilities that can date back to the Great Depression. Given that many local services are based on long-standing fees, these revenue streams provide a solid foundation for 30-year P3 payoff arrangements that won’t stir up political opposition.
EXAMPLE #2 – HIGHER EDUCATION FACILITIES: The publication "Inside Higher Ed" has documented a decade-long "worldwide shift away from public funding sources and toward private capital to finance higher education projects." Student housing at higher educational institutions will be a key market for P3s. Vanderbilt University has broken ground on a 600-bed affordable housing facility to serve graduate and professional students. However, while the pandemic has created some uncertainty for investors in student residential facilities, these are not the highest priority for P3s among institutions. A 2019 survey found that "campus facilities and infrastructure" (excluding housing) are the top areas of interest. Campus utilities have emerged as a top area for P3 arrangements, with Iowa, Syracuse, Illinois and Cal State-Fresno all following the lead of Ohio State in seeking energy partnerships.
EXAMPLE #3 – DOWNTOWN REVITALIZATION: Cities are increasingly competing to attract residents and employers to their locales with quality of life improvements. The City of Long Beach (California) recently converted its outdated civic center into a showpiece lifestyle complex as part of the largest municipal P3 in the U.S. The project was structured as a design-build-finance-operate-maintain (DBFOM) contract. And, this looks to be catching on. The City of Los Angeles is following Long Beach's lead with a similar DBFOM project for its civic center. The City of Henderson (Nevada) is also using a P3 to develop a new events center.
EXAMPLE #4 – GREEN INFRASTRUCTURE: New Jersey is considering P3 financing as part of its plan to make the state the "national capital of offshore wind" with a $300-$400 million wind port. Prince George's County (Maryland) has initiated a major effort to clean up the Chesapeake Bay. Part of this effort is an initiative to retrofit 5% of its total land area to reduce storm water runoff, a major pollution source for streams and rivers that feed the bay. Using the U.S. Environmental Protection Agency's (EPA) concept of a "community-based" P3, of "CBP3," the contractor has payment incentives tied to "metrics aimed at providing environmental, economic and social benefits in underserved, urban communities." Such projects are funded by the fees collected from the storm water management districts that are gradually spreading across the U.S. If any sort of “Green New Deal” is launched, expect energy and conservation projects like these to be key components of the program.
EXAMPLE #5 – TRANSPORTATION: Surface transportation has long been a top area of P3 activity. But, this means more than just toll roads, which have a checkered past in terms of financial success. The Port of Lake Charles will be using a P3 to expand the deepwater portion of the Calcasieu Ship Channel. Moreover, contractors do not have to rely on a formal bid process in all instances, a private developer offered an unsolicited proposal to create an entrance to the DC-area Metro system in Arlington. Looking to non-roadway P3 opportunities will be a necessity given the particular revenue impacts of the pandemic. If more companies shift to remote work and no COVID-19 vaccine is found, revenue from commuter tolling and mass transit could remain sluggish for months, or even years, to come.
A Look Ahead: Given the operational disruptions of the pandemic and the lingering economic impacts of the event on government revenues, contractors should take the initiative in formulating and proposing P3s with government buyers. Crisis response and understaffing will limit the capacity of most buyers to spend months getting a P3 concept off the ground. Deltek is currently tracking dozens of current—and hundreds of past—P3 opportunities that can serve as templates for future business. If you would like to gain access to these opportunities as well as budgets and capital improvement plans for federal, state and local agencies across the country in one simple interface, request a live demo of Deltek’s GovWin IQ platform today.