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Public-Private Partnership: What is it? What are the potential benefits?

August 20, 2017
Most of you probably had the chance to drive on any of the interstate highways in the United States, but have you ever thought about the process of building these roads for public use? When you pay a bill to a local electricity company, do you think about how electricity is generated from a power plant and transferred to you through an electrical grid?

Regardless of where you live in the U.S., you are almost always provided with very basic and fundamental infrastructure by a local, state and/or the federal government. Infrastructure such as roads, railways, hospitals and power plants from which you benefit are often built with a government budget (taxes you paid), but this is not always the case.

What is a Public-Private Partnership?

In fact, many infrastructure and social overhead capital projects have been, and are financed, through Public-Private Partnerships (“PPP” or “P3s”), a long-term contract between a private sector entity and a government agency to provide goods and services to the public. In the contract, the private party bears the risk of and responsibility in a project, while party’s monetary compensation comes in as a payment from the government or usage fee from the public. [1] One example is toll-road concessions. Instead of a local government paving an intra-state highway for residents with its own budget, the government enters a PPP with a private highway construction company, which assumes full responsibility of building and maintaining the road and then charges a fee from users at a toll for the period agreed in the contract – i.e. 30 years. The other example of a PPP is in the electricity sector. The government can hire a private power-plant construction company to build and operate a hydro power plant, and then the company sells a pre-fixed volume of electricity at a promised rate to a state-owned electricity company, which in turn provides electricity to the public.

Image: National interstate highways – potential PPP projects. Source: Wikimedia Commons.Image: National interstate highways – potential PPP projects. Source: Wikimedia Commons.

PPPs in the United States

It is reported that the U.S. infrastructure sector requires to attract approximately $3.6 trillion by 2020 to bring the nation’s infrastructure up to a good condition. [2] The range of social infrastructure projects nowadays is much broader than that of the past, ranging from surface transportation and waste facilities to public universities. Not all projects can be financed and completed through PPPs since some cities and states rather have abundant cash in hand or can raise funds with lesser costs, but there seems to be more than sufficient room for PPPs in the U.S. public sector infrastructure projects. Per AIG’s recent report on P3s, while faced with rapid deterioration of all types of infrastructures in every state, the U.S. federal, state and local governments are having difficulty in financing new infrastructure projects due to decreased tax revenue and shrinking budget. [3] This definitely makes PPPs more attractive and viable option for governments to consider and utilize. The U.S. Department of Transportation, a federal agency with the most driving force on P3s in the U.S., states that currently 35 States and the District of Columbia have enacted the state legislation that enable the use of P3 approaches for the development of transportation infrastructures. [4] Lawmakers begin to realize the practicality of PPPs and have been supportive of providing a proper environment for public and private sector to win-win.

Image: P3 Impact Award given by the U.S. Department of State. Source: Department of State.Image: P3 Impact Award given by the U.S. Department of State. Source: Department of State.

Benefits of PPPs

Why do we have to promote and use more of the Public-Private Partnership scheme in the social infrastructure sector? What are clear benefits of a private sector entity getting involved in a social infrastructure project with a government? It should not be so esoteric to comprehend one of the more obvious benefits: funding from the private sector can relieve the burden on local and state governments with a dearth of tax revenue and budgetary shortcomings, while they focus more on development impact of a new project on quality of people’s everyday lives. However, this is not the only benefit of the Public-Private Partnership: 1) PPPs can cost a government less than a traditional social infrastructure project, 2) PPPs can deliver projects faster than traditional government procurement, 3) PPPs can help a government diversify the risk of less-effective projects, and 4) PPPs can take off the financial burden of ongoing maintenance and management of social infrastructure facilities from a government.

First, PPPs can cost the government less than a traditional social infrastructure project because the process is centralized and managed by a private entity, which usually has expertise and techniques required for a certain industry. Once a PPP is decided by a government, a private entity takes full responsibility and moves along every step of the process, which usually saves time and money. More efficient processes not only lead to more cost-effective project results but also benefits potential taxpayers from paying less dues for their usage. Second, in line with the aforementioned benefit, the PPP can deliver projects faster than traditional government procurement since a private entity usually determines which subcontractors to hire and which techniques to apply from a kickoff to avoid falling behind the schedule, a delay that would cause a material loss on its revenue as well as credibility in a market. Third, since terms of a concessionary contract are usually fixed once a project takes off, a private entity assumes the risk of cost-overrun and less-than-expected usage of an infrastructure, resulting in lower revenue. Through the PPP, the government is diversifying these risks, eventually lowering the risk of taxpayers as well. Lastly, any piece of infrastructure needs both periodic and ad hoc maintenance as well as upgrade to meet an expected usage life. These cost taxpayers money, but with PPPs, the government can structure a contract in a way that a private partner takes care of maintenance throughout the contracted period.

Many infrastructures in the U.S. - roads, hospitals, power plants, schools and railways – are either deteriorating quickly or outdated, and local and state, as well as the federal, government should act fast to replace and enhance current social infrastructures. Public-Private Partnerships can bring this necessary change quickly with less costs and less burden on citizens, and simultaneously, private partners can benefit from working with governments since their reputation and expertise in markets will only be improved. PPPs are win-win systems for both the public and private sector.

Student Blog Disclaimer
  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.


References

  [1] The World Bank Group, “Public-Private Partnerships Reference Guide,” Washington, DC, April 27, 2017. https://pppknowledgelab.org/guide/sections/1..

  [2] PwC, “Public-private partnerships in the US: The state of the market and the road ahead,” November, 2016. http://www.pwc.com/us/en/capital-projects-infrastructure/publications/public-private-partnerships.html

  [3] Dan McNichol, “The United States: The World’s Largest Emerging P3 Market,” American International Group, April, 2013. https://www.aig.com/content/dam/aig/america…/final-p3-aig-whitepaper-brochure.pdf

  [4] U.S. Department of Transportation Federal Highway Administration, “Successful Practice for P3s: A review of what works when delivering transportation via public-private partnerships,” March, 2016. https://www.transportation.gov/buildamerica/programs-services/p3/successful-practices

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RESOURCE SPOTLIGHT:

  • <h3>Congressional Budget Office</h3><p><img width="180" height="180" alt="" src="/live/image/gid/4/width/180/height/180/380_cbo-logo.rev.1406822035.jpg" class="lw_image lw_image380 lw_align_right" data-max-w="180" data-max-h="180"/>Since its founding in 1974, the Congressional Budget Office (CBO) has produced independent analyses of budgetary and economic issues to support the Congressional budget process.</p><p> The agency is strictly nonpartisan and conducts objective, impartial analysis, which is evident in each of the dozens of reports and hundreds of cost estimates that its economists and policy analysts produce each year. CBO does not make policy recommendations, and each report and cost estimate discloses the agency’s assumptions and methodologies. <strong>CBO provides budgetary and economic information in a variety of ways and at various points in the legislative process.</strong> Products include baseline budget projections and economic forecasts, analysis of the President’s budget, cost estimates, analysis of federal mandates, working papers, and more.</p><p> Quick link to Products page: <a href="http://www.cbo.gov/about/our-products" target="_blank">http://www.cbo.gov/about/our-products</a></p><p> Quick link to Topics: <a href="http://www.cbo.gov/topics" target="_blank">http://www.cbo.gov/topics</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>The Penn World Table</h3><p> The Penn World Table provides purchasing power parity and national income accounts converted to international prices for 189 countries/territories for some or all of the years 1950-2010.</p><p><a href="https://pwt.sas.upenn.edu/php_site/pwt71/pwt71_form.php" target="_blank">Quick link.</a> </p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Federal Reserve Economic Data (FRED®)</h3><p><strong><img width="180" height="79" alt="" src="/live/image/gid/4/width/180/height/79/481_fred-logo.rev.1407788243.jpg" class="lw_image lw_image481 lw_align_right" data-max-w="222" data-max-h="97"/>An online database consisting of more than 72,000 economic data time series from 54 national, international, public, and private sources.</strong> FRED®, created and maintained by Research Department at the Federal Reserve Bank of St. Louis, goes far beyond simply providing data: It combines data with a powerful mix of tools that help the user understand, interact with, display, and disseminate the data.</p><p> Quick link to data page: <a href="http://research.stlouisfed.org/fred2/tags/series" target="_blank">http://research.stlouisfed.org/fred2/tags/series</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>MapStats</h3><p> A feature of FedStats, MapStats allows users to search for <strong>state, county, city, congressional district, or Federal judicial district data</strong> (demographic, economic, and geographic).</p><p> Quick link: <a href="http://www.fedstats.gov/mapstats/" target="_blank">http://www.fedstats.gov/mapstats/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>HUD State of the Cities Data Systems</h3><p><strong><img width="200" height="200" alt="" src="/live/image/gid/4/width/200/height/200/482_hud_logo.rev.1407788472.jpg" class="lw_image lw_image482 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/200/height/200/482_hud_logo.rev.1407788472.jpg 2x, /live/image/scale/3x/gid/4/width/200/height/200/482_hud_logo.rev.1407788472.jpg 3x" data-max-w="612" data-max-h="613"/>The SOCDS provides data for individual Metropolitan Areas, Central Cities, and Suburbs.</strong> It is a portal for non-national data made available through a number of outside institutions (e.g. Census, BLS, FBI and others).</p><p> Quick link: <a href="http://www.huduser.org/portal/datasets/socds.html" target="_blank">http://www.huduser.org/portal/datasets/socds.html</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Federal Aviation Administration: Accident & Incident Data</h3><p><img width="100" height="100" alt="" src="/live/image/gid/4/width/100/height/100/80_faa-logo.rev.1402681347.jpg" class="lw_image lw_image80 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/100/height/100/80_faa-logo.rev.1402681347.jpg 2x, /live/image/scale/3x/gid/4/width/100/height/100/80_faa-logo.rev.1402681347.jpg 3x" data-max-w="550" data-max-h="550"/>The NTSB issues an accident report following each investigation. These reports are available online for reports issued since 1996, with older reports coming online soon. The reports listing is sortable by the event date, report date, city, and state.</p><p> Quick link: <a href="http://www.faa.gov/data_research/accident_incident/" target="_blank">http://www.faa.gov/data_research/accident_incident/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>National Center for Education Statistics</h3><p><strong><img width="400" height="80" alt="" src="/live/image/gid/4/width/400/height/80/479_nces.rev.1407787656.jpg" class="lw_image lw_image479 lw_align_right" data-max-w="400" data-max-h="80"/>The National Center for Education Statistics (NCES) is the primary federal entity for collecting and analyzing data related to education in the U.S. and other nations.</strong> NCES is located within the U.S. Department of Education and the Institute of Education Sciences. NCES has an extensive Statistical Standards Program that consults and advises on methodological and statistical aspects involved in the design, collection, and analysis of data collections in the Center. To learn more about the NCES, <a href="http://nces.ed.gov/about/" target="_blank">click here</a>.</p><p> Quick link to NCES Data Tools: <a href="http://nces.ed.gov/datatools/index.asp?DataToolSectionID=4" target="_blank">http://nces.ed.gov/datatools/index.asp?DataToolSectionID=4</a></p><p> Quick link to Quick Tables and Figures: <a href="http://nces.ed.gov/quicktables/" target="_blank">http://nces.ed.gov/quicktables/</a></p><p> Quick link to NCES Fast Facts (Note: The primary purpose of the Fast Facts website is to provide users with concise information on a range of educational issues, from early childhood to adult learning.): <a href="http://nces.ed.gov/fastfacts/" target="_blank">http://nces.ed.gov/fastfacts/#</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Internal Revenue Service: Tax Statistics</h3><p><img width="155" height="200" alt="" src="/live/image/gid/4/width/155/height/200/486_irs_logo.rev.1407789424.jpg" class="lw_image lw_image486 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/155/height/200/486_irs_logo.rev.1407789424.jpg 2x" data-max-w="463" data-max-h="596"/>Find statistics on business tax, individual tax, charitable and exempt organizations, IRS operations and budget, and income (SOI), as well as statistics by form, products, publications, papers, and other IRS data.</p><p> Quick link to <strong>Tax Statistics, where you will find a wide range of tables, articles, and data</strong> that describe and measure elements of the U.S. tax system: <a href="http://www.irs.gov/uac/Tax-Stats-2" target="_blank">http://www.irs.gov/uac/Tax-Stats-2</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>The World Bank Data (U.S.)</h3><p><img width="130" height="118" alt="" src="/live/image/gid/4/width/130/height/118/484_world-bank-logo.rev.1407788945.jpg" class="lw_image lw_image484 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/130/height/118/484_world-bank-logo.rev.1407788945.jpg 2x, /live/image/scale/3x/gid/4/width/130/height/118/484_world-bank-logo.rev.1407788945.jpg 3x" data-max-w="1406" data-max-h="1275"/>The <strong>World Bank</strong> provides World Development Indicators, Surveys, and data on Finances and Climate Change.</p><p> Quick link: <a href="http://data.worldbank.org/country/united-states" target="_blank">http://data.worldbank.org/country/united-states</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>National Bureau of Economic Research (Public Use Data Archive)</h3><p><img width="180" height="43" alt="" src="/live/image/gid/4/width/180/height/43/478_nber.rev.1407530465.jpg" class="lw_image lw_image478 lw_align_right" data-max-w="329" data-max-h="79"/>Founded in 1920, the <strong>National Bureau of Economic Research</strong> is a private, nonprofit, nonpartisan research organization dedicated to promoting a greater understanding of how the economy works. The NBER is committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community.</p><p> Quick Link to <strong>Public Use Data Archive</strong>: <a href="http://www.nber.org/data/" target="_blank">http://www.nber.org/data/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>USDA Nutrition Assistance Data</h3><p><img width="180" height="124" alt="" src="/live/image/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg" class="lw_image lw_image485 lw_align_right" srcset="/live/image/scale/2x/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg 2x, /live/image/scale/3x/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg 3x" data-max-w="1233" data-max-h="850"/>Data and research regarding the following <strong>USDA Nutrition Assistance</strong> programs are available through this site:</p><ul><li>Supplemental Nutrition Assistance Program (SNAP) </li><li>Food Distribution Programs </li><li>School Meals </li><li>Women, Infants and Children </li></ul><p> Quick link: <a href="http://www.fns.usda.gov/data-and-statistics" target="_blank">http://www.fns.usda.gov/data-and-statistics</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>NOAA National Climatic Data Center</h3><p><img width="200" height="198" alt="" src="/live/image/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg" class="lw_image lw_image483 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg 2x, /live/image/scale/3x/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg 3x" data-max-w="954" data-max-h="945"/>NOAA’s National Climatic Data Center (NCDC) is responsible for preserving, monitoring, assessing, and providing public access to the Nation’s treasure of <strong>climate and historical weather data and information</strong>.</p><p> Quick link to home page: <a href="http://www.ncdc.noaa.gov/" target="_blank">http://www.ncdc.noaa.gov/</a></p><p> Quick link to NCDC’s climate and weather datasets, products, and various web pages and resources: <a href="http://www.ncdc.noaa.gov/data-access/quick-links" target="_blank">http://www.ncdc.noaa.gov/data-access/quick-links</a></p><p> Quick link to Text & Map Search: <a href="http://www.ncdc.noaa.gov/cdo-web/" target="_blank">http://www.ncdc.noaa.gov/cdo-web/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>