With funds for infrastructure improvements drying up across the nation, many private companies and government agencies are collaborating in creative ways to generate the revenue needed for important construction projects. Public-private partnerships, or P3s, have been one solution to a shortage of funds since the early 1990s.
Across the United States, $30 billion has already been invested toward the completion of 50 P3 projects, as two dozen states have enacted authority for state transportation agencies to consider and enter into public-private partnerships. The U.S. Department of Transportation, hard pressed to support the Highway Trust Fund and federally aided transportation projects, has hailed P3s as the ‘silver bullet’ in solving transportation funding woes.
Also known as ‘privatizing’ or ‘monetizing’ public assets, a P3’s scope can range from simple litter removal at a site to the outright sale of a government transportation asset.
The process has generated considerable controversy on Capitol Hill, with critics claiming that the sale of public assets and privatization of government projects display a lack of concern for the public good. But, according to Michael Della Rocca, President of Halcrow North America, the benefits of P3s have been proven in the global marketplace. Michael Della Rocca sat down with Michael Zetlin to discuss the economy, the condition of public projects, and the light at the end of the tunnel.
Halcrow: An International Perspective
Della Rocca has had considerable experience with P3s. A London-based multinational firm, Halcrow has been in business for 140 years, working in countries where public-private partnerships are considerably more common. That experience has afforded Della Rocca confidence in the future of P3s, although he admits that convincing state governments to experiment with P3s is a complex challenge. “Many people looking at the U.S. market tend to view it as a single market, which is inappropriate,” Della Rocca says. “It really is 50 distinct markets, each with their own perspective on how the project can be considered. So you need to have a tailored approach, that is unique to the expectations and legal framework in each of those states.”
With funding in the public sector dwindling just as rapidly as in the private sector, many state and municipal government projects are stalled or have been sacrificed in the interest of other priorities. Infrastructure competes with healthcare and education for government dollars, and funding to those programs maybe preserved by diminishing funds thats states have previously allocated to infrastructure. At that point, moving projects forward means raising revenue through taxes or transportation tolls or the allocation of federal stimulus funds.
The success of stimulus packages is inconsistent, Della Rocca points out, as many states and other entities used the most recent tranche of federal funding in lieu of their own dollars, rather than adding federal money to current expenditures and enhancing programs.
“When the funds were first available from the stimulus package, people were hoping that the money spent would go into projects that would generate long term economic benefits,” Della Rocca explains. “The reality of what has happened, at least with this first wave of funding, is the money has been allocated principally to rehabilitation projects, which do serve a purpose in fixing an existing problem but don’t necessarily generate the kind of long term economic returns that infrastructure investment usually does.”
The stimulus money has helped states maintain a holding pattern, Della Rocca says, which preserves existing jobs but doesn’t stimulate growth. Della Rocca admits, “There are examples of programs where major capital investments with long term benefits have received funding, but I think they are more the exception than the rule.”
One such exception was the ARC Tunnel improvement by NJ Transit and The Port Authority of New York and New Jersey, which Della Rocca hails as a “successful” project that was moving along on its own in terms of funding and environmental approvals, but some of that money did go into accelerating its implementation.
For the most part, however, Della Rocca has been disappointed with how the money has been allocated in terms of generating work. Even in a down economy, savvy businesses are striving to take advantage of government priorities to find work. Della Rocca points out that, even though education and healthcare compete with construction projects, school and hospital construction ultimately become a boon to the construction industry as well.
Della Rocca remains confident for P3 progress. “The market here is still maturing. If you look at what happened in the U.K. 10 to 15 years ago, they were in the same position the United States is in right now,” he says. “It took some growing pains to get to the point where it was a commonly accepted approach and delivery mechanism.” One by one, state and local governments are catching up, with states like Virginia and Texas leading the way in procurement and evaluation of unsolicited proposals with sophisticated new mechanisms.
Ultimately, the situation is driven by need. With funds for infrastructure development falling short, Della Rocca predicts P3s will become more common simply out of economic necessity. As the economy continues to struggle, infrastructure as a necessary means to drive the economy becomes more evident, and Della Rocca predicts that need will bring government agencies around to consider alternative funding options.
High-speed rail
“When the President, without any foreshadowing, put into his stimulus package $8 billion to move the high-speed rail program forward in the United States, we were really energized,” Della Rocca says. “When you look at the 11 corridors that have been designated for a potential high-speed rail investment in the United States, we see that as a real growth opportunity for our firm but also for the industry at large.”
Halcrow’s own success with public transportation overseas gives it a unique advantage as U.S. demand for mass transit improvements increases. Again, Della Rocca points to the success of high speed rail in overseas projects, “Most recently, we completed the Channel Tunnel Rail Link in the U.K. It was completed on time, it was completed under budget, and it is the type of high-speed rail technology solution that really advances the state of the art in the industry.”
Sustainable building
Throughout the recession, green and energy efficiency initiatives will result in demand for new sustainable structures, or existing structures will be retrofitted to meet the demands of an economy that can no longer afford massive waste.
Even as the economic crunch is forcing budget cuts, the demand for efficiency and sustainability continues to attract business. This means a higher demand for green buildings and a greater investment in alternative energy, says Della Rocca.
Tenants are now more concerned than ever with LEED-certified buildings, a real marketplace consideration that, as Della Rocca says, is “not just a socially responsible thing to do anymore.” The demand for green building specifications drives a need for energy audits, retrofits for improving the mechanical/electrical systems and façade replacements that improve operating costs. With the capital to build new commercial towers under constraint, retrofits are often the best way for owners and developers to offer a competitive product and compete for tenants.
Technological innovations are driving the market. Alternative energy systems and high efficiency projects are quantified by carbon footprinting, which allows tenants and developers to analyze the effectiveness of green policies. Advanced software makes green construction easier than ever before as services and design elements can be evaluated immediately under industry-standard criteria. The growing demand for green building, paired with the operational savings benefits means a growing marketplace in both public and private projects.
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