public-private partnerships: terms, concepts, processes arthur c. nelson, ph.d., faicp university of...
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Public-Private Partnerships:Terms, Concepts, Processes
Public-Private Partnerships:Terms, Concepts, Processes
Arthur C. Nelson, Ph.D., FAICPUniversity of Utah
Arthur C. Nelson, Ph.D., FAICPUniversity of Utah
Key TermsKey TermsEconomic Development
Creating jobsImproving wagesReducing unemploymentEnhancing tax baseCreating economic resilienceAdvancing family and social quality of lifeStabilizing declining/stagnating areasImproving competitivenessEstablishing economic linkages
Economic DevelopmentCreating jobsImproving wagesReducing unemploymentEnhancing tax baseCreating economic resilienceAdvancing family and social quality of lifeStabilizing declining/stagnating areasImproving competitivenessEstablishing economic linkages
Key TermsKey Terms
PublicAction based on centralized and
collective decision-making process.Collective decision on what to provide
and how to pay for it (resulting from a voting process).
Public-sector provision of a good or service, or assisting private sector in providing such.
PublicAction based on centralized and
collective decision-making process.Collective decision on what to provide
and how to pay for it (resulting from a voting process).
Public-sector provision of a good or service, or assisting private sector in providing such.
Key TermsKey Terms
PrivateThe economic decision-maker is an
individual consumer or producerMaximizing utility (satisfaction) or profitsResource allocation decisions based on
decentralized process.
PrivateThe economic decision-maker is an
individual consumer or producerMaximizing utility (satisfaction) or profitsResource allocation decisions based on
decentralized process.
Key TermsKey Terms
PartnershipFormal or informal agreement by
public and a private sector entities
To provide a good or service that both parties desire but neither can deliver on their own.
PartnershipFormal or informal agreement by
public and a private sector entities
To provide a good or service that both parties desire but neither can deliver on their own.
ConceptsConcepts
Public-Private Partnerships in Economic DevelopmentVoluntary relationship.Need for agreed-upon strategy.Long time frame.Agreement on contributions of resources.
Public-Private Partnerships in Economic DevelopmentVoluntary relationship.Need for agreed-upon strategy.Long time frame.Agreement on contributions of resources.
ConceptsConcepts
Expansion of Partnerships since 1980:Mobility of capital increases competition among
cities and metropolitan areas.Contracting economies need to be creative to
create resilience in public and private sectors.
Federal cut-backs in economic development aid.Rapidly changing economy creates surplus of
certain properties:Vacant properties just-in-time inventories &
storageBrownfields, greyfields, by-passed land
Expansion of Partnerships since 1980:Mobility of capital increases competition among
cities and metropolitan areas.Contracting economies need to be creative to
create resilience in public and private sectors.
Federal cut-backs in economic development aid.Rapidly changing economy creates surplus of
certain properties:Vacant properties just-in-time inventories &
storageBrownfields, greyfields, by-passed land
ConceptsConcepts
Incentives for new developmentFederal/state funds for new infrastructure but
little/no funds for operations and maintenance.
In Virginia, state will assume O&M of all roads (including subdivisions) built to state
standards.Under-priced utilities result in higher fees than
costs for efficient development and lower fees than costs for inefficient/low-density/fringe
development.Zoning systems rooted in past, making it easier
to by-pass urban-zoned areas in favor of ag-zoned ones.
Incentives for new developmentFederal/state funds for new infrastructure but
little/no funds for operations and maintenance.
In Virginia, state will assume O&M of all roads (including subdivisions) built to state
standards.Under-priced utilities result in higher fees than
costs for efficient development and lower fees than costs for inefficient/low-density/fringe
development.Zoning systems rooted in past, making it easier
to by-pass urban-zoned areas in favor of ag-zoned ones.
ConceptsConcepts
Private disincentives for non-traditional products and locationsSavings-and-loan bailout of 1980s/90s
reshaped lending practices.Preference for proven projects of single-use
in newly developing areas.Fiduciary responsibility to investors requires
conservative “proven” investments.Rates of return higher for non-traditional
investments pushing many beyond feasibility.
Private disincentives for non-traditional products and locationsSavings-and-loan bailout of 1980s/90s
reshaped lending practices.Preference for proven projects of single-use
in newly developing areas.Fiduciary responsibility to investors requires
conservative “proven” investments.Rates of return higher for non-traditional
investments pushing many beyond feasibility.
Partnership TypesPartnership Types
Type Public Sector Private Sector
O&M Owner OperatorDesign-Build Owner, operator BuilderTurnkey Finance, oversight Builder, operatorLease-purchase Lessee, then owner Builder, lessorTemporary Seller of facility Owner,
operator withPrivatization reversion later
Lease-Develop Lessor or seller Lessee, investor & operator w/ reversion
Build-Own-Operate Receives title at end of Financer, builder,
lease/franchise period operator, collects fees
Type Public Sector Private Sector
O&M Owner OperatorDesign-Build Owner, operator BuilderTurnkey Finance, oversight Builder, operatorLease-purchase Lessee, then owner Builder, lessorTemporary Seller of facility Owner,
operator withPrivatization reversion later
Lease-Develop Lessor or seller Lessee, investor & operator w/ reversion
Build-Own-Operate Receives title at end of Financer, builder,
lease/franchise period operator, collects fees
Partnership FrameworkPartnership Framework
Elements Components_________________Objectives Economic growth, job creation, income
generationIncome redistributionSocial, cultural, environmental improvement
Activity types Infrastructure development, O&MBusiness and community facilitiesWorkforce developmentSocial servicesInstitution building
Participants and Composition of participants definedRelationships Roles determined
How risks and rewards are sharedHow resources are committed
Elements Components_________________Objectives Economic growth, job creation, income
generationIncome redistributionSocial, cultural, environmental improvement
Activity types Infrastructure development, O&MBusiness and community facilitiesWorkforce developmentSocial servicesInstitution building
Participants and Composition of participants definedRelationships Roles determined
How risks and rewards are sharedHow resources are committed
Partnership FrameworkPartnership Framework
ElementsComponents_________________
Organizational Stand-alone organizationArrangement Agreement on assignment of duties
Geographic Scale Within a jurisdictionWhole jurisdictionMulti-jurisdiction
Time Scale Short-term with specific periods established for each
partnerLong-term with termination/exit/successor
provisions
ElementsComponents_________________
Organizational Stand-alone organizationArrangement Agreement on assignment of duties
Geographic Scale Within a jurisdictionWhole jurisdictionMulti-jurisdiction
Time Scale Short-term with specific periods established for each
partnerLong-term with termination/exit/successor
provisions
10 Steps to Success10 Steps to Success
1 Prepare for Public/Private Partnerships.2 Create a shared vision.3 Understand partners and key players.4 Be clear on risks & rewards for all parties.5 Establish clear, rational decision-making process
(transparency).6 Make sure parties do their homework.7 Secure consistent and coordinated leadership.8 Communicate early and often.9 Negotiate a fair deal.10. Build trust as a core value
Source: Urban Land Institute, Ten Principles for Successful Public/Private Partnerships, 2005.
1 Prepare for Public/Private Partnerships.2 Create a shared vision.3 Understand partners and key players.4 Be clear on risks & rewards for all parties.5 Establish clear, rational decision-making process
(transparency).6 Make sure parties do their homework.7 Secure consistent and coordinated leadership.8 Communicate early and often.9 Negotiate a fair deal.10. Build trust as a core value
Source: Urban Land Institute, Ten Principles for Successful Public/Private Partnerships, 2005.
1. Prepare1. Prepare
Assess capabilitiesWhat is desired; what is available?
Craft a vision (see step 2).Be prepared to revise local rules, codes,
procedures. Identify sources of funds show me the
money.Have the land/site ready.Know your partners; get the “right” team.
Assess capabilitiesWhat is desired; what is available?
Craft a vision (see step 2).Be prepared to revise local rules, codes,
procedures. Identify sources of funds show me the
money.Have the land/site ready.Know your partners; get the “right” team.
2. Create the Vision2. Create the VisionSelect the appropriate visioning process
HearingsCharrettesSurveys
Create a clear, consensus vision (to the extent possible)
Be sure the vision is sustainable over the investment horizon – or at least two
election cycles.Can the vision be a political platform?
Select the appropriate visioning processHearingsCharrettesSurveys
Create a clear, consensus vision (to the extent possible)
Be sure the vision is sustainable over the investment horizon – or at least two
election cycles.Can the vision be a political platform?
3. Know the Partners3. Know the Partners
Public partner often plays leadIdentifies vision, objectives.Has ability to marshal considerable
financial and process management tools.
Private partnerCan leverage public financing
creatively.Designs-builds efficiently.Markets-manages profitably.
Public partner often plays leadIdentifies vision, objectives.Has ability to marshal considerable
financial and process management tools.
Private partnerCan leverage public financing
creatively.Designs-builds efficiently.Markets-manages profitably.
3. Know the Partners3. Know the Partners
NonprofitsNeighborhood associations, CDCs,
foundations, etc.Assists with processes; often lead in
identifying opportunities.Source of seed, gap financing.
StakeholdersIndividuals, firms directly impacted.Selected groups in formal, informal
oversight function.
NonprofitsNeighborhood associations, CDCs,
foundations, etc.Assists with processes; often lead in
identifying opportunities.Source of seed, gap financing.
StakeholdersIndividuals, firms directly impacted.Selected groups in formal, informal
oversight function.
4. Risks & Rewards Project
4. Risks & Rewards Project
Risk Factor ConcernMarket risk Will there be demand?Construction risk Will project be on time and on
budget?Ownership risk Will lease-up, rents, and
management be profitable?Interest-rate risk Will rates increase?Performance risk Will project achieve its public
purpose(s)?
Risk Factor ConcernMarket risk Will there be demand?Construction risk Will project be on time and on
budget?Ownership risk Will lease-up, rents, and
management be profitable?Interest-rate risk Will rates increase?Performance risk Will project achieve its public
purpose(s)?
4. Risks4. Risks
Public Private________________Real, perceived conflict of interest Excessive costs, lost profitsReal, perceived mismanagement Time-consuming processesControversial impacts Failure to create long-term
valueLand use conflicts Accused of unfair profits at publicCondemnation dislocation expenseRelocation costs, procedures Change in key leadershipDisagreement on market value Market short-fall, failure
Developer fails to perform Loss of equityPublic opposition, NIMBYism Untimely airing of key financialLiability impacts details
Liability impacts
Public Private________________Real, perceived conflict of interest Excessive costs, lost profitsReal, perceived mismanagement Time-consuming processesControversial impacts Failure to create long-term
valueLand use conflicts Accused of unfair profits at publicCondemnation dislocation expenseRelocation costs, procedures Change in key leadershipDisagreement on market value Market short-fall, failure
Developer fails to perform Loss of equityPublic opposition, NIMBYism Untimely airing of key financialLiability impacts details
Liability impacts
4. Rewards4. Rewards
Public Private________________Increase community wealth Achieves necessary rate-of-
returntax base, public infrastructure Resources to sustain firm
Increased taxes, other revenue Value, wealth creationPromote, advance image Enhanced reputationJob creation, higher wages Experience to get next jobCommunity betterment Develop market nicheRe-election of officials Enhanced quality of
life for firmand employees
Public Private________________Increase community wealth Achieves necessary rate-of-
returntax base, public infrastructure Resources to sustain firm
Increased taxes, other revenue Value, wealth creationPromote, advance image Enhanced reputationJob creation, higher wages Experience to get next jobCommunity betterment Develop market nicheRe-election of officials Enhanced quality of
life for firmand employees
5. Clear, Rational Decision Process
5. Clear, Rational Decision Process
TransparencyCreate road mapDefine roles and responsibilities
Memorandum of understandingCreate checks and balances
Multiple oversightPeriodic reports, benchmark
assessmentsWillingness to adapt to changes
TransparencyCreate road mapDefine roles and responsibilities
Memorandum of understandingCreate checks and balances
Multiple oversightPeriodic reports, benchmark
assessmentsWillingness to adapt to changes
6. Do Your Homework6. Do Your Homework
Due diligence (market, environ., political, etc.)
Share informationAdopt scenario planningPursue creative public/private finance plansAssess all options
Financing instruments: bonds, “soft second’s”, long-term leases, bond insurance, etc.
Maximizing use of publicly-owned landTechniques to reduce development costTechniques to enhance project cash flow
Due diligence (market, environ., political, etc.)
Share informationAdopt scenario planningPursue creative public/private finance plansAssess all options
Financing instruments: bonds, “soft second’s”, long-term leases, bond insurance, etc.
Maximizing use of publicly-owned landTechniques to reduce development costTechniques to enhance project cash flow
7. Consistent Leadership
7. Consistent Leadership
Political will this project survive re-elections?Administrative will public talent be available
through the project phase and some time after?
Community are key community leaders behind the project and are they likely to remain active?
Media will there be sustained media support or at least reasoned reporting?
Developer will the developer have staying power?
Political will this project survive re-elections?Administrative will public talent be available
through the project phase and some time after?
Community are key community leaders behind the project and are they likely to remain active?
Media will there be sustained media support or at least reasoned reporting?
Developer will the developer have staying power?
8. Communicate8. Communicate
Internal communicationsScheduled updatesPeriodic meetings/status reports
External communicationsMedia coverage of benchmarksWeb page management
Internal communicationsScheduled updatesPeriodic meetings/status reports
External communicationsMedia coverage of benchmarksWeb page management
9. Negotiate Fair Deal9. Negotiate Fair Deal
What is Fair?Private
Reasonable rate-of-return relative to risk.Clear public concessions based on
benchmarks.Public
Improved infrastructure assurances.Tax revenue enhancements reasonably
assured by private sector.
What is Fair?Private
Reasonable rate-of-return relative to risk.Clear public concessions based on
benchmarks.Public
Improved infrastructure assurances.Tax revenue enhancements reasonably
assured by private sector.
10. Trust as Core Value10. Trust as Core Value
Request for Qualifications (RFQ) first, check out references
Request for Proposals (RFP) from qualified RFQ responders
Clear status report processUnderstand perspective of all stakeholders
MOUs useful to put these in writingHumility without finger-pointing usually best
approach for handling bumps-in-the-night.
Request for Qualifications (RFQ) first, check out references
Request for Proposals (RFP) from qualified RFQ responders
Clear status report processUnderstand perspective of all stakeholders
MOUs useful to put these in writingHumility without finger-pointing usually best
approach for handling bumps-in-the-night.