Private Participation in US Infrastructure: The Role of PPP Units

Abstract

The use of public-private partnerships (PPPs) is expanding globally. PPP contracts have become the main vehicle to incorporate private-sector skills, resources, and risk management into the delivery of critical infrastructure facilities. PPPs include two key elements: bundling together, in some combination, facility design, construction, operation, maintenance, and financing, along with the meaningful transfer of infrastructure-related risks to private partners. PPPs have been used to deliver network infrastructure such as roads, bridges, tunnels, and water systems, as well as social infrastructure such as schools, hospitals, prisons, and courthouses. Properly designed, executed, and enforced PPPs can create substantial social value. Poorly designed PPPs, however, can generate social costs. Therefore, ensuring careful end-to-end management of the PPP process is crucial to their success.

Countries around the world are addressing those challenges by creating PPP units. PPP units are quasi-governmental entities that assist the public sector with pre-project screening, project prioritization, education, and expert advice. PPP units have been established in Australia, Canada, China, Israel, Japan, Egypt, the United Kingdom, and India, among many other countries. They strive to ensure that infrastructure projects attract private participation while promoting the public interest. Despite their global popularity, PPP units remain relatively understudied and underused in the United States.

PPP units have effectively supported private participation in infrastructure around the world. Because the US lags behind other developed countries in PPP use, the benefits of such units would likely be large if implemented here. In this report, we consider how the United States can effectively use PPP units. Fifty such units would emerge if undertaken at the state level. This would result in many relatively small units with minimal PPP deal flow that fail to capture economies in size and scope. Alternatively, a single large federal PPP unit could create problems of its own. We explore a middle ground: creating seven regional PPP units in conjunction with a federal unit. Modeled roughly on the West Coast Infrastructure Exchange (WCX), these regional PPP units mirror the seven emerging US economic megaregions. Their formation would occur in concert with evolving federal PPP unit efforts.

We then review the set of benefits generated by our proposed regional PPP units. Benefits include greater public-sector understanding of and expertise in PPP project delivery, discovering and implementing global best practices, improved project screening and prioritization, lower transaction costs associated with PPPs, and the allocation of capital to higher-valued projects. Greater reliance on PPP units would refocus US infrastructure investment on asset performance, rigorous project evaluation, and enhanced public-sector procurement capacity. PPP units would also allow state and local governments to improve their infrastructure project development and delivery while effectively managing risk and addressing a set of well-recognized US infrastructure problems.