The New York State Comptroller, Tom DeNapoli, issued a new report this month that discusses public private partnerships (P3s) and makes recommendations for municipal entities that are considering P3s for infrastructure projects. The report seems to be directed at the New York State Assembly, which had legislation that would have authorized P3s in the state without any limit on size or requirement for oversight. From the report:
Since that time, [New York] has authorized a number of agencies and public authorities to use a simple form of public-private partnership known as design-build contracting. The Thruway Authority’s procurement of the new Tappan Zee Bridge is being undertaken using design-build methods, with the expectation that this approach will streamline the project, shift some financial risk to private contractors rather than the Thruway and its users, and result in savings for the Authority.
Policy makers in New York are now considering whether to authorize more sophisticated types of P3s that depend on private financial investments. The State Fiscal Year (SFY) 2013-14 Executive Budget included a proposal for “design-build finance” P3s that would for the first time have given private firms the authority to finance public infrastructure projects.
This provision, which was not contained in the Enacted Budget, would have permitted any State agency, public authority, commission, council, or other State entity to turn to private investors for the financing of public infrastructure projects. These P3 agreements would have been authorized throughout the State, without limits on the size or cost of the project and with no requirement for independent oversight.
States and counties have often had to backstop failed P3s, and there are many other instances where cities have not collected adequate revenue for the assets they had given up. DiNapoli suggests getting ahead of the issue by requiring independent financial reviews and other measures before any project bidding is initiated or finalized. The report also laid out the many variations of P3s:
The report is now the best primer on the pros and cons of the privatization of public assets. At 19 pages, it is well worth a read.
Another interesting infrastructure-related event was the launch of Deutsche Bank’s two new exchange traded funds for revenue bonds and regulated utilities. The Municipal Infrastructure Revenue Bond Fund (RVNU) and the Regulated Utilities Fund (UTLT) were just listed on the New York Stock Exchange Arca system. This is an easy way to get short or long-term exposure to the infrastructure sector. Deutsche Bank says the ETFs are the first of their kind. The usual caveats about the use of ETFs always apply.