The Wall Street Journal reported today that, among the talking points for fiscal
cliff avoidance, the government is considering removing the tax exempt status of
municipal bonds, which would severely limit the borrowing power of local
governments. If this happens, the cost of private capital to fund public
facilities and infrastructure would not be so out of whack compared to the cost
of public borrowing. This would encourage more public/private
partnerships. Currently, when considering alternatives for financing public
construction, public agencies compare the higher costs of private capital to the
lower costs of issuing municipal bonds. That is one of the factors that could
weigh in favor of traditional procurement techniques over public/private
partnerships. However, if the tax exempt status of municipal bonds is removed,
this would no longer be a factor in favor of traditional procurement.
Keep an eye on this. If in fact public financing
becomes less attractive and the pending public/private partnership bill passes
in Florida, P3s in Florida may become much more prevalent in future public
construction.
