Public-private partnerships bring benefits for both sides
CHARLESTON, W.Va. - Public-private partnerships, it's been said, will revolutionize the way governments pave roads and build buildings, just by allowing state agencies to join forces with the business sector.
By partnering with private companies, the state will be able to complete projects faster because it does not have to pay for the construction right away. Supporters say the government might even save money on construction in the long run by entering into these partnerships.
A Putnam County commissioner recently announced construction on the long-awaited final segment of U.S. 35 in Mason and Putnam counties could begin as soon as April, if the state set up a public-private partnership.
But that sounds too good to be true, right? Businesses exist to make money, so why would a private company want to pay for a government project and then complete the project using its own resources?
It's simple: Businesses view these big developments as investments.
Businesses invest money and resources, and in return, their government partners pledge steady payments over the next 10, 20 or 30 years, or a cut of the project's profits.
"It's like a 30-year mortgage on a house," said Rick Norment, executive director of the National Center for Public-Private Partnerships.
Because states and cities are usually good at paying their bills on time, the private sector views these projects as secure long-term investments, much like government bonds.
"You build a water system, you've got a very reliable revenue stream an investor can see," Norment said.
Repayments can be structured in several ways.
States could set up a user fee, like tolls on a road, and then give their business partners a cut of that money. Alternatively, the government could just agree to make regular payments to the company.
States also can use a "concession agreement," where a company would pay the government to operate and maintain a facility. This lowers the costs for the state and allows businesses to make money on the projects.
"It's like moving in a house. You don't want to wait until you've got 30 years of payments before you move in," state highway engineer Darrell Allen said.
Public-private partnerships also save states money because, instead of building a road in several pieces over many years and dealing with increased construction and material costs, the project is completed in a much shorter span of time with little effect from inflation.
Public-private partnerships have exploded in popularity over the last few decades. Norment said 15 years ago, only four states allowed them. Now, 34 states have partnership laws on the books.
This was partially spurred by funding issues caused by the federal government's cutback on infrastructure funding and states' limited abilities to fill that gap.
Many aging roads, water and sewage systems are nearing the end of their lifespans, leaving cash-strapped states with big needs and little money.
"People can clearly see, here's a cost-effective solution to the problem," Norment said. "West Virginia has been part of that stampede."
Norment said while each state's laws are different, these partnerships generally function the same way.
Governments form a contract with a private company or group of companies to complete a project, whether it's a road, a new medical center, an urban development project or a sewage treatment plant.
This contract lays out each entity's responsibilities: which parts of the project the state will manage, which parts the private company will complete, as well as future responsibilities once the project is finished.
"Basically this is a marriage," Norment said.
Sometimes governments have skills businesses do not, and vice versa. For instance, governments can use imminent domain laws to obtain property that would be difficult for private businesses to acquire.
The private sector, meanwhile, might have more experience with environmental regulations of large construction projects.
Norment said private companies' biggest contributions often are their technical skills and design experience to come up with more cost-effective ways to solve problems.
As part of these agreements, companies often promise to maintain the road or building for as long as the contract. Norment said companies are forced to do a better job because their payment depends on it.
In addition to construction responsibilities, public-private partnerships also allow governments and businesses to share profits.
This can be accomplished in several ways. States could set up a user fee, such as a toll on a road, and then give the business a cut of that money over the next 20 or 30 years. Alternatively, the government could just agree to make regular payments to the company.
States also can use a "concession agreement," where a company pays the government to operate and maintain a facility. This lowers the costs for states and allows businesses to make money off the projects.
Either way, the state gets high-dollar developments without providing all the money up front.
Last month, Putnam County Commissioner Andy Skidmore announced work to complete U.S. 35 in Mason and Putnam counties could begin as soon as April if the state set up a public-private partnership.
Gov. Earl Ray Tomblin cautioned Skidmore's comments may be "premature," but many projects in West Virginia have already been completed using public-private partnerships.
The $50 million Stonewall Jackson Lake State Park in Lewis County was built as a public-private partnership between the state, the resort management company Benchmark Hospitality and McCabe-Henley-Durbin, project developer.
Marshall University partnered with a private firm to finance and develop $83 million worth of campus facilities including its new health and wellness center. The company was reimbursed through user fees charged to students.
In 2008, the Legislature passed the "Public-Private Partnership Act," allowing the state Division of Highways to collaborate with private companies to build new roads.
But as Gov. Earl Ray Tomblin noted in last year's State of the State address, that bill required the division to receive legislative approval before forming one of these partnerships, limiting the legislation's usefulness.
In the 2013 regular session, the Legislature passed another bill allowing the agency more flexibility in forming public-private partnerships.
Brent Walker, spokesman for the state Division of Highways, said West Virginia has not formed any public-private partnership since the legislation passed but is building a list of potential projects.
He said before the legislation passed, the agency had to wait for contractors to approach the state to set up a partnership. Now, the state can solicit business partners.
Walker said the list of potential projects could include U.S. 35; the Corridor H highway that would run through central West Virginia; W.Va. 10, a four-lane highway from Man to Logan; the "King Coal Highway," which would expand the current U.S. 52 through several southern counties; and the "Coalfields Expressway," a proposed 60-mile, four-lane highway running from Raleigh County to Wise County, Va.
"Heretofore, you've seen us build projects at four-, five- or six-mile stretches. This kind of delivery method would allow us to build them faster," Walker said.