Public-Private Partnerships: Bridging The Water Funding Gap
By Mary Scott Nabers, president and CEO, Strategic Partnerships Inc.
Americans are a proud bunch and a low score in any area is a bummer. But, according to the American Society of Civil Engineers, the U.S. gets a “D” grade when it comes to water infrastructure.
The low score comes from the fact that about 650 water main breaks occur every day, accounting for the loss of two trillion gallons of treated water and $2.6 billion in costs each year. This continues because the public funding available to remedy the situation is short by about $1 trillion.
Because of the critical nature of the nation’s water resources and the fact that public funding is not available, public-private partnerships (P3s) are quickly gaining favor with public officials. When city leaders seek alternative funding sources, they often turn to private capital to finance new water plants, repair aging or damaged facilities, and prevent the loss of billions of dollars. Water, one of the country’s most precious assets, can no longer be ignored.
Some question why tax-exempt funding is not used. The reason is simple. Cities in the U.S. already have about $1.7 trillion in long-term debt and city officials are hard-pressed to borrow more. Many citizens have relied on government to provide water for so long that they assume elected officials will find a way to remedy the problem without funding. They are opposed to more debt. Most don’t realize that thousands of water pipelines throughout the country are 50 years beyond their anticipated expiration timeline.
With private-sector capital, critical projects can be initiated immediately and public officials can get a risk-free, guaranteed cost solution that will remedy the situation. Funding for these types of projects is available in ample supply, therefore bearing low interest rates — often only slightly higher than tax-exempt bond funding. The higher cost is more than justified because all risk is shifted to the private-sector partners and the public entity owns a new asset that stops the drain on its water resources.
Even without the funding, P3s offer cities other benefits. Private firms are extremely adept at long-range planning, construction, and operations. When a private company engages to maintain a delivery system or a facility it constructs, the best equipment possible is used and there is constant attention to its functionality. There are a number of cases where cities have seen a 30 percent savings in O&M of water plants. And, water P3s provide the kind of long-range investment that private firms find attractive.
Historically, almost 50 percent of water construction projects have been classified as design-build. That means that the private partner takes full responsibility for the design and construction of a project. However, in this type of engagement, the private firm turns the new asset over to the public partner once construction is complete. Those who don’t favor this type of engagement argue that less costly and less efficient equipment is often used — and that will be more costly to public entities in the long run. P3 engagement models reverse that and cities contract with the private-sector partner to operate the facility. The public entity still retains control because the terms of the contracts clearly state all guidelines, expectations, and success criteria.
In July, officials of Nassau County, New York, announced a public-private partnership that requires the private contractor to save taxpayers a minimum of $230 million during the agreement’s 20-year term. Also, the El Paso, TX, city council approved a P3 in which a private company will invest more than $65 million in a water production and chemical manufacturing facility that will bring first-of-its-kind technology to the region and have a $7.7 million economic impact in the community. The private-sector partner must enhance the drinking water supply by extracting minerals from wastewater, leaving only potable drinking water. When completed, the facility will provide an additional 2.2 million gallons of drinking water a day.
The city council of Wichita, KS, is considering a new P3 to help pay for an estimated $1.6 billion in water and sewer infrastructure repairs and upgrades. But, while the city will allow the chosen partner to operate the new facility, it will retain the right to set rates and make policy decisions. Companies are currently being encouraged to express interest and provide financial options along with statements of expertise.
This is the future — public-private collaborations. In spite of the fact that some fear P3s, the concept is not new. America was built by collaborative efforts, and P3s, when carefully managed, offer the U.S. immediate solutions for the country’s most critical infrastructure needs.
About the Author
Mary Scott Nabers is president and CEO of Strategic Partnerships Inc., a business development company specializing in government contracting and procurement consulting throughout the U.S.