NEW ORLEANS – Florida's state bond director, Ben Watkins, said public-private partnerships haven't delivered on their promises to get public projects done faster and cheaper.
Watkins, appearing at the National Municipal Bond Summit here Friday, said he does not believe P3s are necessary to do the financing, design, construction, operations and maintenance of public infrastructure projects.
"The tax-exempt bond market has been adequate to finance infrastructure projects for hundreds of years," he said.
After reviewing university student housing, hotel and conference centers, and other P3 projects, Watkins said "Mickey Mouse" analyses have been done on the public benefits because they are often done by industry insiders and supporters.
"In the end, there is no rigorous analysis," he said, adding that assumptions are embedded in the paperwork. "There is no objective and critical analysis of the alternatives because the recipient doesn't care about the cost of financing, they just want the project."
The deals play on government's lack of diligence in exposing hidden costs that can be embedded in the structure, he said.
Watkins also was critical of P3s that are supposed to involve the transfer of risk to the developer.
"In the context we've seen it used there is no real, meaningful risk transfer and you have an extraordinarily expensive cost of funding," he said. "The other thing embedded in the structure, but people don't like to talk about, is giving up the free cash flow to the developer."
Other panelists countered Watkins arguments about the necessity and benefits of P3s.
One reason California's Long Beach opted to use a P3 is that voters rejected a bond issue, according to Ignacio Barandiaran, a principal at Arup.
On Wednesday, the city closed on its $533 million project to build a new city hall, port headquarters, library and park.
Instead of the city paying upfront to build the facilities and pay for operating costs over time, the city and Port of Long Beach will make availability payments over a 40-year period.
The city will use the $12.6 million it had been spending on upkeep at the old facilities to make the payments, said Barandiaran, the city's lead financial and technical advisor on the project, which also involves a private residential and commercial development.
"The risk transfer is the land value that is generated because that development is wrapped within the structure and cross subsidizes a part of the cost," Barandiaran said.
Long Beach's cost will be less than if the city had done a "build-to-suit" project, he said, adding that the end result is that the city gets a $533 million investment in public infrastructure that will cost no more than its basic cost to maintain the existing facilities.
In Kentucky, where many residents particularly in the eastern part of the state do not have access to broadband Internet service, the state's project to build the middle-mile open fiber network probably would not have been done without a P3, according to Steve Murphy, chief financial officer of the Kentucky Wired Infrastructure Co.
The complex project involves the use of availability payments and a state contribution that is not that large, he said.
"Payments were being made to private providers anyway," he said, referring to Internet service the state paid for its agencies. The "public purpose is important. It's not a luxury."
Murphy also said that private Internet providers were not going to make the investment to increase Internet access.
"We have significant infrastructure needs," he said. "It is likely this project would have gotten crowded out if we didn't have an effective alternative to get it done."
Murphy said he took over as CFO in November, two days before Republican Gov. Matt Bevin was sworn in, replacing term-limited Gov. Steve Beshear, a Democrat who championed the Internet project.
"I've spent the last few months explaining the deal and what it would cost to shut it down," Murphy said, adding that ending the project would be costly to the state.
Watkins said that value can be derived from a P3 that is integrated into a design-build contract when the financing is provided by the government.
Florida recently created a conduit issuer to "strip the financing out" of transportation projects involving P3s, he said.