NEW YORK CITY—On Saturday, Gary Cohn, the chief economic advisor to President Donald Trump, announced an infrastructure and public-private partnership proposal. The plan hopes for $200 billion in federal government dollars, and $1 trillion in private spending and from state and local coffers for the administration’s infrastructure plan, according to the Washington Post.
The passage of such a law will face certain challenges as some members of Congress have voiced hesitancy about spending $1 trillion on infrastructure, with the deficit increase anticipated from the tax reform bill.
Gregory Hummel, a partner at the law firm of Bryan Cave, who focuses on real estate and public finance projects, defines public-private partnerships, also called PPP, P3 or 3P, as long-term cooperative arrangements between entities in the public and private sectors.
He emphasizes there is a complex, varied landscape of P3 approaches. However, he sets forth the following components as often integral to PPP financing:
“There’s an element of risk sharing at the equity level that goes beyond what you have in a typical public debt, infrastructure or offer,” says Hummel. “There is the potential for certain earnings as a result of that equity investment.”
He adds there is also taking the operational aspects of a given service and entrusting it under the terms of the concession agreement or operating agreement to a private party. “I’ve seen that lead to some creative business planning, alternate sources of income and delivery of what had been wholly public in its nature to be able to do more.”
With an example of P3 construction of schools, he describes how instead of being dormant in the evenings, the building spaces can be used to generate earnings.
“There is a wide range of things you can do along the operational side of things that you wouldn’t get in the normal way public procurement occurs,” Hummel says.
With funding the Gateway Program, Hummel points out New Jersey Gov. Chris Christie in 2010 scuttled the plan to replace the more than 100-year-old Amtrak tunnel under the Hudson River, which had already secured $3 billion in funding. Christie instead used the money to repair bridges and roads in New Jersey.
Subsequently, in November 2015, the governors and senators of New York and New Jersey announced a funding agreement of the Gateway Program with the two states splitting 50% of the project cost and the other 50% coming from the federal government as agreed to under President Barack Obama’s administration.
The first phase of the Gateway Program includes the Portal North Bridge Project and work on the Hudson Tunnel. The project requires constructing the new two-track Hudson River Tunnel and Hudson Yards concrete casing. It also encompasses updating the electrical system that powers trains and rehabilitating the existing tunnels damaged by Superstorm Sandy.
Crain’s reported on Dec. 29, the Trump administration Federal Transit Administration administrator K. Jane Williams alleged there was never an agreement between the two states and federal government to fund the program. On Dec. 31, New York Gov. Andrew Cuomo’s budget director wrote to the US Department of Transportation in an effort to revive the federal funding commitment but the request was denied.
Crain’s reported that a federal transportation official noted such projects called for 20% in federal funding with the rest of funds coming from local and state government and private entities.
In explaining a potential P3 structure for the Gateway project, Hummel says, ”There could be stakeholders coming together and arranging that portion of the capital stack that would be federal, state and local.” He points to tolls and congestion lane pricing for additional revenue sources. With the private sector component, transit-oriented development pods on either ends along the train routes could allow for value capture, he adds.
Hummel supports P3 infrastructure deals that tap into the technological advancement of private market expertise, such as adding the smart dimension to different systems. “It’s not replacing what’s worn out with exactly the same thing but doing more in terms of understanding the real opportunities that are presented by micro grids in the delivery of power, sustainability as it relates to form water management, and the potential use of renewable energy sources,” he says.
However, critics including the voices in this Newsweek article, say denying public funding is a way to privatize essential public services and shared infrastructure. The priority can then become about maximizing corporate profits, which does not always result in best serving the public.
To protect the public and taxpayers’ interests, Hummel offers the following advice: “Make sure you’re getting true value for money by evaluating the P3 offering against the project conventionally financed with public debt. Make sure that the provider of the public works and or the services has a lot of skill and experience and recognize that P3 is not for all projects.”