Four reasons why public-private partnerships may be a lifeline for struggling cities

This past week The New York Times published an article entitled, “Public-Private Partnerships Could Be a Lifeline for Cities.” The author, Kent Rowey frames his argument in support of public-private partnerships with an example from the crippling financial state of Detroit.

Apparently, the Motor City is considering dire revenue raising options such as selling its collection of classic cars and permanent art collection. Detroit recently filed for the largest municipal bankruptcy in the nation’s history.

Rowey argues that the solvency solution need not be so permanent or culturally punishing as selling Detroit’s Mustangs and Monet masterpieces. Instead, he suggests exploring public-private partnerships for municipal services in which a private equity investor would make an up-front payment to run a public service or utility.  In return, the private companies gain a concession to run a long-term contract.

Rowey cites United Water’s own partnership with the City of Bayonne, New Jersey as an exemplary public-private partnership. In 2012, Bayonne contracted a 40-year concession for its water and waste system through a partnership with KKR and United Water that abides by a strict scheduled rate protocol and other tight regulations. Employees have since benefited from increased training and enhanced safety conditions and the City has benefited from an upgrade in its debt rating by Moody’s. United Water will also invest at least $20 million in the City’s infrastructure in the first 5 years.

Similarly, Rowey cites Chicago’s $1 billion dollar, 75-year contract with a private company to operate its 36,000 parking meters that began in 2008. Chicago’s parking meter system is now considered to be one of the best in the world. Users can pay with credit cards and soon they will offer a pay-by-cellphone option.

Public-Private Partnerships can indeed produce state-of-the-art municipal services and serve as a “lifeline for Cities” struggling to stay above water in several key ways:

  • Moving municipal functions into private hands can allow governments to focus on maintaining basic services, making public payroll, and meeting pension fund obligations.
  • Private partners can replace aging infrastructure with state-of-the-art technology and allow cities to remain competitive or enhance their attractiveness to new businesses.
  • Instead of relying on taxes to rebuild and operate municipal services, most revenue streams come directly from millions of paying utility customers.
  • A reduced debt load will allow the city to turn to education and employment improvements, instead of being crippled by the weight of aging infrastructure and utility operation.

We agree with the author’s assessment on the immense potential that cities have in public private partnerships to unlock the value of their municipal assets.

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