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Business and Government working together

Friday, September 2, 2011

Because there is a shortfall of government funds to pay for our infrastructure needs, there is a motivation to look to alternative financing techniques such as public-private partnerships (P3s) . While there is great potential in P3s to help fund our unmet infrastructure challenges we must be aware of the pitfalls in such agreements.

Public-private partnerships (P3s) enable governments to partner with the private sector to finance the construction, maintenance, and operation of infrastructure projects. P3s allow for the financing of large public works projects without requiring the public to finance them through taxes or bonds. At a time when New York's transit and highway systems are increasingly bankrupt, P3s are an attractive alternative to traditional financing mechanisms.

A recent report by the state Comptroller entitled, Controlling Risk Without Gimmicks: New York's Infrastructure Crisis and Public-Private Partnerships, highlights the need to carefully structure such agreements and warns against four primary financial risks associated with the financing technique:

  • "Failure to Identify the Full Value of Public Property. P3 agreements may underestimate the value of public assets, and so short-change the public.
  • Unfavorable Pricing Mechanisms. P3 agreements may include pricing mechanisms or financial contingencies that burden the public with unwarranted expenses, including excessive fee and toll increases.
  • Unrealistic Expectations and Poorly Drafted Agreements. P3 agreements may create expectations that go unmet, either when a private entity promises more than it can deliver or when the contracts fail to lay out the private partner's obligations adequately. The result may be that the public fails to receive the anticipated benefit.
  • Budget Gimmickry. P3 agreements are sometimes used for short-term fiscal relief, which provides a short-term cash benefit while pushing costs to the future and potentially increasing public debt."

While supporting the concept of P3s, labor is intent upon ensuring that the jobs created are good jobs and that the government workforce must not be jeopardized. All projects should have prevailing rate, apprenticeship and other labor standards.

Statement by Roger Clayman, LI Federation of Labor, to the Senate Standing Committee on Transportation (Sept. 2011)
Controlling Risk Without Gimmicks: NY's Infrastructure Crisis and P3s, NYS Office of the Comptroller (Jan. 2011)

Public-Private Power Grab: The Risks in Privatizing State Economic Development Agencies, Good Jobs First (Jan. 2011)

A Guide to Evaluation Public Asset Privatization, In the Public Interest (Jan. 2011)