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Lockyer Says P3s are Toxic to Many, Talk of Them May Hamper Projects

JAN 29, 2013 3:29pm ET
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Public-private partnerships are "toxic" to a lot of people and the mere mention of them can hinder projects, California Treasurer Bill Lockyer said Tuesday.

Speaking at Governing Magazine's state and localities outlook conference here, Lockyer told the audience, "Avoid talking about public-private partnerships. They are toxic with a lot of people."

Lockyer admitted that P3s are critical to financing large infrastructure projects going forward, but said talking about them can thwart project development.

Lockyer made the comments during a panel discussion that underscored the diverse views about the problems of financing the maintenance, modernization, and expansion of American infrastructure.

He mentioned the highly controversial California High-Speed Rail project, a partially bond-funded $68 billion rail line intended to link San Francisco and Los Angeles that has been championed by Democrats in Sacramento and Washington, D. C. The state High-Speed Rail Authority is one of only a handful of entities empowered to enter into P3 agreements under California law. But Republicans lawmakers have publicly doubted the project will attract robust private investment.

"We can't do it without federal and private money," Lockyer said of the project.

But P3 agreements have met with some resistance from coast to coast, even as increasing numbers of state and local leaders rush to embrace private capital and federal resources increasingly aim to help local leaders leverage private investment.

Also on the panel, former House Transportation and Infrastructure Committee chair James Oberstar, a Democrat from Minnesota, stressed the need for more federal investment and oversight, while Chicago Department of Transportation Commissioner Gabe Klein said local control of money is crucial.

"Who looks out for the public interest?" Oberstar asked rhetorically. "What is the appropriate return on investment for the private partner?"

Chicago, where a bid to privatize the city parking meters failed spectacularly and where Mayor Rahm Emanuel has pushed "infrastructure trusts" as possible alternatives to privatization, has been a hotbed of debate on P3s.

Klein said the path forward might include more "customized" privatization," with localities taking a stake in the private partner. Even with these creative methods, municipalities will remain dependent on federal help for so-called "mega projects" that cost many billions of dollars and require years to finance and build, he said.
"The federal money is absolutely key to what we do," Klein said.

Panelists agreed that the public generally takes infrastructure for granted, and is hesitant to agree to spending more money. Oberstar said a priority should be streamlining funding mechanisms, as opposed to the current array of taxes, fees, and appropriations that fund everything from highways to ports to wastewater plants.

Lockyer said it is hard to convince public to support infrastructure investment unless you can show the money is being spent very efficiently. He also cautioned that public dialogues about infrastructure funding priorities have to be kept simple.  State and local officials should talk about funding roads, not infrastructure, he said.

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The best way to fund state projects is still tax free muni bonds. Congress is wrong to try to cut corners by eliminating tax free status of muni bonds for a public service. They offer a relatively safe investment with tax benefits for investors and give the state a lower interest cost.
Posted by abrams | Tuesday, April 23 2013 at 3:10PM ET
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New York's budget leaves it at risk of becoming one of only five states that do not allow the use of design-build procurement to deliver public infrastructure projects.

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