• Public Private Partnerships Should be Used to Finance Westchester's Infrastructure Projects


  • P3 Financing Will Move Projects Forward and Create Jobs

  • Westchester's aging infrastructure needs to be rebuilt and repaired, but local and county governments don't have sufficient funds to pay for it. “There may be legal debt limits, too many jurisdictions, lack of political will, “and in New York State, the Wicks Law... 

    REThinking Westchester panelists discuss public-private partnerships.

    ...which is an inefficient way to proceed,” commented Lawrence Mandelker, moderator of the panel “Public-Private Partnerships: A Deeper Look,” at which experts presented three aspects of P3 financing at Rethinking Westchester: A Blueprint for Smart Growth. The conference was organized by WCA's BLUEPRINT for Westchester. 

    There was general agreement that if there’s demand for public-private partnerships to move infrastructure improvement forward, government will respond accordingly.

    Steven Stowitts Elliott, Ph.D., Assistant Director, Economic Analysis, NYS Office of Budget and Policy Analysis, explained how P3s are permitted to be used in New York State, and how, when used in conjunction with LDCs and 63-20 revenue bonds, they can overcome many of the impediments. Elliott was the lead author of a recent New York State Comptroller’s report “Private Financing of Public Infrastructure: Risks and Options for New York State.”

    Daniel Marsh III, Director, National Development Council, who is both a consultant on how to use P3 funding and director of an organization that uses P3, talked about the many ways in which P3s are used, particularly in the western United States where they are very popular. He detailed the type of innovative finance structures that can be used to fund P3 infrastructure projects.

    Dan Sugarman, Vice President, United Water outlined a major case study with the Bayonne Municipal Utilities Authority to illustrate how an unprofitable public project was reorganized with P3 funding at a tremendous savings of infrastructure dollars.

    All agreed that P3s are an excellent option. “But there is always the danger that once the project is completed, and the political winds change, there will be those who complain about the profits enjoyed by private enterprise,” said Mandelker. “Yet to attract private sector financing, there has to be profit, so if government is open to P3 financing, it has to make it workable.”

    Why P3?
    Panelists made it clear why P3s are valuable options. As the Comptroller’s report states, “Public-private partnerships (P3s) are based on the idea that the state can maximize the value of the public’s assets by taking advantage of the private sector’s profit motive and market discipline. The public sector is given a share of the benefits of the free market that come from increased competition, more accurate and sensitive pricing, expanded financing options, and more timely response to customer demand. In return, the private sector is given the opportunity to earn profits that might otherwise be unavailable. A well-designed P3 balances public and private sector capabilities and interests.”

    Free from public contracting restraints
    Marsh described how NDC partnered with King County in the State of Washington to resuscitate a stalled medical office building construction project, the Ninth and Jefferson Building, for Harborview Medical Center in Seattle. With significant cost overruns, the project was too expensive for the government to finish. NDC created a non-profit corporation authorized to issue so-called 63-20 tax-exempt bonds to (named after an IRS ruling) to finance the project. As a private company, the nonprofit was free from government procurement and contracting restrictions. That, plus a reconfiguration of the design, helped to cut construction costs in half. Marsh cited a report from the King County Auditor’s Office which said the “restructured project was delivered at a substantial savings compared to [the] initial project estimate.”

    Water, water everywhere and not a drop of public debt
    Sugarman said United Water’s P3 agreement with the Bayonne Municipal Utilities Authority (BMUA), under which United Water will operate the city’s water and wastewater systems, will give residents “greater reliability and stability.” He described BMUA as “deeply leveraged beyond the underlying value of its assets,” and as a result had a “history of deferred investments” in its infrastructure.

    United Water and investment firm KKR entered into a 40-year partnership with BMUA. Under the terms of the agreement, KKR and United Water eliminated BMUA’s debt and committed to invest capital to modernize BMUA’s water, wastewater, storm water, and sewage systems. To satisfy citizen concerns, the agreement calls for Bayonne to maintain ownership of the system, and all BMUA employees were hired by the new entity. In addition, water rates will be set according to a formula.

    Government concerns
    Elliott of the Office of the NYS Comptroller noted that P3s have become increasingly important to supplement government investment, but warned there are risks. “Many P3 contracts have been renegotiated or refinanced due to private partner bankruptcy, costly design changes, dramatic declines in the number of users or public dissatisfaction,” he said. He noted that the comptroller has recommended reducing risk by establishing a legal framework for all P3 projects within New York State and creating a specialized state entity with P3 oversight, among other suggestions.

    The P3 panel, which followed an enthusiastic endorsement of P3 use in a keynote speech by Kathryn Wilde, CEO of The Partnership for New York City, opened the audience’s eyes to new possibilities for infrastructure development.

    “That was the purpose of Rethinking Westchester,” explained Marissa Brett, director of WCA’s BLUEPRINT for Westchester. “Our goal was to alert local officials that there are many options available to get what we need in this county, and that we all have to work together to reinvent Westchester’s economy and invest in its future.”

    For more information about the BLUEPRINT for Westchester, please contact Marissa Brett, Executive Director of Economic Development, Westchester County Association at 914.948.6444 or mbrett@westchester.org.

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