P3 Do’s and Don’ts

By Kevin Crowder CCeD, Director of Economic Development

Why is a city going to do a P3? Because you’ve identified a public benefit or service that needs to be provided and, although you’ve iden­tified that public need, there is limited or no public funding to provide it. There is also continued resistance to tax increases and increases in the public debt, yet in order to do a P3 to provide that public need, there also must be a revenue source that provides reasonable return on investment potential to a private partner in the deal. Therefore, not all projects are going to be suitable as P3s, but where they do work they can free up limited public resources to provide for other needs and services that are not attractive P3 candidates. P3s can be done for infrastructure, office development, hotels, residen­tial projects, arts and culture, recreation, and parking, parking, and more parking.

What are the benefits of doing a P3? Immediate access to new sources of capital; expedited project completion; mitigated risk; economic development catalyst. First, a city can access new sources of capital that are available immediately. Since the private sector needs to realize a return on investment, project completion is usually expedited compared to a publicly managed project. A P3 leverages private expertise and it transfers risk to the party that’s best suited to deal with that risk. Also, a P3 allows a city to promote economic development through private sec­tor investment opportunities that are catalysts for additional economic development and investment. Be careful however, as there are also pitfalls to P3s that can include insufficient public sector understanding of what a P3 is and what it is not: A P3 is not outsourcing or privatization, rather it is using private money to deliver and provide for a public need. Secondly, there can be political risk to P3s and that risk is increased when there is no project champion in public sector leadership. There is also a misconception that P3s are free, that they are giveaways to the private sector, when in reality they are using private money to provide for public needs and public benefits.

Understand the real estate environment and your potential developer partner. If your community is going to do a public private partnership, it is important to understand the real estate environment and that you will be dealing with developers that will bring their A-Team to the table to negotiate the deal. Developer partners will want to ensure fairness, responsiveness and timeliness, and it is important to remember that developers understand their world far better than the public sector does. Keep in mind that developers have many choices on where to invest their money and they are guided by return on investment, market feasibility, and brand connection, and that they may not care about your local politics except to the ex­tent that it helps get their deal done. Another tip is to be very clear about roles and responsibilities; this goes both ways. If your agreement is not clear, you can end up in a situation where one party says they will ‘try’ to do something and their partner hears them ‘promise’ to do some­thing. This situation can potentially get very painful very quickly, and have serious negative impacts on a partnership and credibility.

 Clarify each parties’ roles and effectively communicate relevant factors from each sides perspective. It is important that your private sector partner understand there are public sector considerations that are not present in a private sector trans­action. Make sure that they understand, and that you define, the differ­ences between the city’s regulatory and proprietary roles. Make sure they know that elected officials have pain thresholds that vary from com­munity to community and from elected official to elected official. That there are deal breakers and certain things that the public sector cannot do or will not do that could be entirely appropriate business terms in the private sector.

Be realistic about the impacts and challenges that you will face. Additionally, public officials should remember that in a public private partnership you are using public resources to accomplish something that cannot be provided by the marketplace. This can result in a change to the status quo and when you change the status quo you negatively impact whoever benefits from it. In this situation, let’s be realistic and ask how many elected officials or decision makers does that negatively impacted person have on speed dial and what are going to be the political ramifications. Public officials and their development partners need to understand this reality so that the project can be delivered to provide the public policy goals as intended.

 Don’t forget that every P3 is different and requires an experienced team to achieve policy goals. Some final guidance for public officials that are considering a P3 includes engaging the right third party consultants for your project. Remember that your private-sector partner is going to be coming to the table with his A-Team, so make sure you have yours at the table as well. Keep in mind that every P3 is different and must be approached on its own merits. In the Town of Davie, RMA is assisting the Davie CRA through the full process of evaluating the market and project feasibility, gathering public input, developing the solicitation, assisting with the selection, and negotiating the development agreement. In Miami Shores, our role so far has been limited to an assessment to determine if a P3 is even feasible to achieve their goals of downtown revitalization, and in Gainesville RMA assisted the CRA with the development of the RFP document, based on the good work that the CRA had already completed. P3s can be a valuable tool to achieve policy goals when used the right way, but they can also create political minefields when not fully vetted or understood.

Photo caption: In Miami Beach, the P3 model was used to deliver a much-needed Publix Supermarket to the South Pointe neighborhood, and provide 500 public parking spaces at the entrance to the city, as well as additional retail offerings previously not locally available to residents and visitors.