You don’t have to be a certified economic developer (I’m not) to understand that water, transportation and telecommunication infrastructure are essential to economic growth. It doesn’t matter whether you’re a small town, large city, state or a nation, when infrastructure is planned, funded and well-maintained, it plays a vital role in economic development.
Unfortunately, this well-documented link between well-maintained infrastructure and economic expansion notwithstanding, public-sector agencies facing reduced budgets are no longer equipped to make the investments necessary to build and maintain essential infrastructure. Look around and you can see evidence of the gap between the need and the resources that the public sector has to meet those needs.
There are simply not enough tax dollars to go around, but somehow there’s enough to send billions of dollars overseas in the form of “foreign aid.” What’s “foreign” to me is why that “aid” isn’t coming to the American towns and cities that need it.
Don’t let me get started.
Decision-makers at the federal, state and local levels who try to use the traditional approach to building and maintaining infrastructure face a two-dimensional problem. First, they aren’t given the funds to construct necessary infrastructure and, second, they have to deal with the cost of inaction and/or deferred maintenance.
In a 2011 survey conducted by The National League of Cities, 60 percent of the respondents said they “delayed or canceled capital projects that year due to fiscal conditions.” The survey concluded that the funding gap is “unlikely to improve,” which will lead to “further deterioration both in terms of physical condition and value.”
Furthermore, according to the National Association of Manufacturers, 70 percent of their members believe that America’s infrastructure “needs either quite a bit of improvement of a great deal of improvement” and that “infrastructure improvement is critical to the success of their business.”
It’s a consequence of the New Normal: Slow Economic Growth.
It’s estimated that for every $1 billion spent on building or repairing infrastructure, 15,000 jobs are created. Remember the multi-billion-dollar stimulus package? Imagine the job creation if we spent the majority of that money on improving America’s infrastructure instead of it being, well, wasted.
So, what can be done given the fact that public infrastructure is badly in need of repair and that the public sector doesn’t have the funding to pay for it?
Increasingly, the public sector is turning to public-private partnerships. Much of the literature on public-private partnerships refers to them as “new” or “revolutionary,” but they’ve actually been around for a while but now have a fancy name.
In 1654, Richard Thurley designed, funded, built and maintained a bridge over the Newbury River in the Massachusetts Bay Colony. The General Court of Massachusetts allowed him to charge a toll on the bridge as long as he maintained it in good repair.
Another example is the Lancaster Turnpike built in 1793 by the private sector with public-sector oversight. The toll road reduced travel times allowing farmers to connect with the lucrative markets in Philadelphia.
Today, a public-private partnership describes “a contractual agreement between a public agency and a private-sector entity to deliver a service or provide a facility for use by the public.” The most common public-private partnerships involve a private entity working in partnership with a public-sector agency to provide financing, construction and operation of an infrastructure project such as a highway, bridge or building.
To date, public-private partnerships have been associated mainly with transportation infrastructure. There are numerous examples of the private sector funding and building highways. The public sector allows the private sector to collect tolls to recoup their investment and make a profit. Public-private partnerships are becoming a more common mechanism to build schools, wastewater treatment plants and prisons.
An interesting challenge has been improving the capacity of public-sector workers to execute and manage innovative partnerships. The partnerships involve varying degrees of risk and taking risks isn’t something that is encouraged or rewarded in most bureaucracies. The learning curve can be steep.
The primary benefit of public-private partnerships are that they can shift the construction and maintenance risk to the private sector, thereby allowing the public sector to focus on outcomes and not inputs.
When properly structured, a public-private partnership allows each entity to do what it does best. The private sector is responsible for building, operating and maintaining infrastructure, allowing the public sector to focus on its priority, serving the community.
Paul A. Grasso Jr. is president and CEO of The Development Corporation, 190 Banker Road, Suite 500, Plattsburgh.