The ancient Romans were among the first advanced civilizations to understand the importance of public roads and other infrastructure. Modern civilization has come a long way from these early beginnings. From colossal bridges and tunnels to super highways and major hi-speed rails, the need for replacing outdated infrastructures – or creating entirely new ones – remains a continuing financial challenge for states and local governments. Typically, the cost for these projects is substantial, ranging in the millions, and even billions, of dollars. For most local governments who simply cannot afford to pay for or finance these costs, public-private partnerships are the only option.
While the concept of public-private partnerships is not new and has been used successfully for decades in the United States, new financial pressures on federal, state and local agencies have resulted in a renewed focus toward P3s as a means to reduce operating budgets by turning operations and maintenance responsibilities over to private companies.ii However, attracting private equity to fund infrastructure projects still presents major challenges, particularly in regions where public-private partnerships have not gained acceptance due to the political climate or regulatory hurdles in these regions. Unfortunately, major public infrastructure projects such as tunnels, roads and bridges have seen only limited investment by private equity firms who are hesitant to invest due to political fears and the slower pace of completing governmental projects. “Any time you’re involving a governmental agency or authority, it can be much more difficult to complete the deal…There can be political issues, and things often just move a lot slower.”iii Indeed, “[m]any people thought the Trump administration’s push for U.S. infrastructure upgrades would open the floodgates for private equity firms to step in and help modernize the country’s infrastructure…”iv Contributing to the reluctance of these firms to get involved is the fact that some states lack any legislation governing public-private partnerships. As a result, these states are missing out on a golden opportunity to attract private equity as a means of funding sorely needed infrastructure improvements.
A majority of states, such as Florida, do have specific legislation addressing public-private partnerships.v In Florida, for instance, there is legislation covering public transportationvi, turnpikesvii, local transportation facilitiesviii and expressway and bridge authoritiesix. In fact, Florida has, in recent years, had some significant P3 projects, as have other states. These “P3 friendly” states present the perfect environment for private investors who have the necessary capital and desire to partner with state and local governments. Investors can make a return on their capital, while the public benefits from improved or new infrastructure. It’s potentially a “win-win” for both sides, and should prompt more states to follow in the footsteps of Florida and other states with P3 legislation. While road and bridge projects have been the most traditional applications of P3s in the past, some investors are predicting a broadening of the types of projects that will be funded via P3s, such as in the water and wastewater industries, and potentially in the university housing markets. Thus, moving forward, there should be more opportunities for government contractors in industries that have not traditionally used the P3 model.xii
Saul Ewing Arnstein & Lehr LLP
July 6, 2018