P3 Could be a Competitive Advantage for US Manufacturing

Public-Private Partnerships help the public sector develop various projects and improve infrastructure in ways that benefit the public at large.  These projects and infrastructure improvements, which always raise economic and financing issues, can be particularly challenging during difficult economic times. While P3’s contribution to making capital improvements and similar initiatives a reality is well recognized, we might consider other areas of our nation’s economy that could also be assisted through the joint initiative of the public and private sectors.  One other area to consider is manufacturing.

Rebecca O. Bagley, CEO of Nortech, a regional nonprofit focused on technology based economic development in Northeast Ohio, recently wrote on Forbes.com that “collaborative public-private partnerships have emerged as an important component in this new era of American manufacturing.”  In support, Bagley describes her recent attendance at a Department of Energy/NIST roundtable, which focused on American manufacturing.  An assertion made at the roundtable was that P3 could play an important role as the US manufacturing sector transitions into what is now a highly innovative and globally driven manufacturing marketplace.  As an illustration, Bagley points to the recent announcement of a 30 million dollar federal grant made to the National Center for Defense Manufacturing and Machining in order to establish a National Additive Manufacturing Innovation Institute in the Techbelt (described as the Cleveland to Youngstown to Pittsburgh corridor).  In Bagley’s piece, Carnegie-Mellon President, Jared L. Cohon, says the “new manufacturing institute is about industry teaming with university partners…”.

As Bagley points out, solutions and innovation are to be found not only in the technology and processes we as a nation develop, but in the creativity we use in making these things happen (e.g. through P3), which in itself represents a competitive advantage.  Bagley’s piece, “Are Public-Private Partnerships The 'Secret Sauce' To A Resurgence In American Manufacturing?” can be found at
http://www.forbes.com/sites/rebeccabagley/2012/09/04/are-public-private-partnerships-the-secret-sauce-to-a-resurgence-in-american-manufacturing/

A Creative Solution for Non-Revenue Producing P3 Facilities?

Now that public/private partnerships are starting to proliferate, morphing from the traditional transportation-based programs to vertical construction for universities, municipalities and more, the next question is how to apply the P3 delivery method to non-revenue producing public facilities.  P3 projects are possible because private equity investors and lenders seek revenue-producing public facilities, such as toll roads, dormitories and stadiums, in which to invest or loan design and construction funds in return for an anticipated rate of return. Toll roads have been the benchmark for such construction, with vertical construction picking up steam.  However, thus far, private money has gravitated only to projects that would generate their own revenue, from which the rate of return can be repaid or supplemented. While this is understandable, such a philosophy has left vital non-revenue producing public facilities out in the cold. But perhaps that isn’t necessary. A little creative thought may be all that is needed to find a way to make P3 applicable to such projects.

Witness the state of Virginia, who recently augmented the revenue-producing capability of its turnpike rest areas with sponsorships. According to the Street Smart blog of the Daily Press on August 30, 2012 by Jon Cawley, GEICO is sponsoring “Safe Phone Zones” at Virginia’s rest areas as a means of generating more revenue to entice a Pennsylvania-based caterer to run the facilities’ concessions as part of a public/private partnership.  The Virginia governor claims Virginia as the first state in the country to secure a sponsor in a program of this sort.  Kudos to Virginia for its creative thinking. 

Why can’t sponsorships be part of a revenue-generation plan for non-traditional, non-revenue generating public facilities? Sponsorships could be joined with other creative techniques, such as land-swapping deals, tax concessions and reallocations, low-interest bond financing, and mixed-use office space rentals to cobble together a financial package that could make sense for otherwise non-revenue generating projects.  The beautiful thing about P3 is the sky is the limit. Parties are constrained by only their imagination (and politics).  So follow Virginia’s lead. Work sponsorships and other non-traditional revenue sources into your programs and let’s build America!

Is a Florida Public/Private Partnership Statute Imminent?

Seeing the potential of public/private partnerships (“P3”) as the preferred means for funding and building public projects now and in the future, Governor Rick Scott has pushed a P3 statute near the top of his agenda for the upcoming legislative session. Since the last session, he led a trip to Spain to court some of the biggest P3 financiers and builders in the world, espousing the vast potential for P3 jobs in Florida. Legislators have already been tapped to sponsor P3 bills in the House and Senate and bill drafting is currently underway. As a result of the current crisis in public university funding, the Florida Board of Governors appointed a task force on facilities funding that is looking into possible legislation, including P3 legislation, with a charge to report its findings by November 7, 2012, in time to seek a legislative cure.

P3 legislation is not just a pipe dream. A comprehensive bill (some would say too comprehensive) passed the Florida House in the last week of this past legislative session, but without enough time for the Senate to vote on it, especially in light of other legislative priorities such as budgets and reapportionment. However, that was the furthest a non-DOT P3 bill had traveled in the legislature, suggesting increased momentum for P3 legislation. This year, with gubernatorial support and a wellspring of concern about the need for public funds for construction, infrastructure and maintenance, we expect to see the much-needed statutory framework for P3 this year.

If any of you are interested or participating in the drafting or support of P3 legislation, please contact me so we can coordinate efforts. You can reach me at Lee Weintraub, phone number (954) 985-4147, email lweintraub@becker-poliakoff.com, fax (954) 985-4176.

Together we can kick start this new era of public construction and jobs growth in Florida.

Florida Gets Its First Public-Private Partnership Trade Association

As the momentum for public-private partnerships (“P3”) continues to accelerate, both within Florida and elsewhere, the first Florida P3 trade association is preparing to launch. With an inaugural board already empaneled and setting its first meeting in August, the Florida Council for Public Private Partnerships (“FCP3”) will provide educational content, case studies, relationship development and networking, and other programs to stimulate P3s in Florida and help its members start to do business with each other. Educational programs will include studies of P3 projects from around the state, both successes and failures, to explore what went right and what went wrong. National consultants and advisors will provide educational components and, in the process, members will develop relationships with each other with a goal of working together on P3 jobs.

Membership in FCP3 will be open to anyone interested in P3s, with membership categories including public owners; equity financiers and lenders; contractors, lenders and developers; and associate members including lawyers, accountants, and members of the insurance and surety industries. The inaugural board consists of members from large and well-known governmental entities, investment firms, banks, contractors and engineers. The board membership will be announced after the inaugural meeting in August. The goal is to launch FCP3 this fall.

If you’re interested in more information about membership, please contact me. Otherwise, stay tuned to this blog in the fall for more details.

Continued Interview with Prominent P3 Investor

In my last post, I summarized the first half of my interview with Jane Garvey, the North American chair of Meridiam Infrastructure, one of the country’s leaders in public/private partnerships (“P3”). Here is the rest of the information she provided in that interview.

I asked her about the effect on P3 momentum caused by the Legislature’s failure to pass the P3 legislation during the last session. Most P3 participants, especially investors, would tell you comprehensive P3 legislation is critical to attract investments in P3 jobs because they create or advance the perception of stability in the P3 process. Many public owners are unsure of how to embark on P3 projects and, in the absence of comprehensive legislation to guide them, they tend to wallow around a bit, adding time, cost and anxiety to the process. Legislation tends to coalesce and educate public entities, prompting them to develop stable structure within their agencies to better anticipate and handle P3 opportunities. The failure of the Florida Legislature to pass P3 legislation during this past session disappoints, but Jane doesn’t believe it will stifle interest in Florida. Her perception is that the political and private will in support of P3 projects, already reflected in the substantial increase in the number of P3 jobs, will overcome the deficiency created by the lack of legislation. 

My last inquiry of Jane (we’ll be scheduling a follow-up interview shortly) involved her expectations about the use of P3’s in Florida in the near future. Jane pointed out that Florida was always among the national leaders in P3 on transportation projects (where a P3 statute has been in place for some time now). But she also pointed to the promise of P3 jobs in higher education. We’ve already seen significant higher education P3 jobs, from the University of Florida’s Innovation Village, to the dorms at the University of Central Florida, and the dorms and football stadium at Florida Atlantic University. I know of others currently being considered, but not yet ready for announcement. Jane knows of these too and feels this is the start of a new wave of P3’s in Florida that will take us far beyond the realm of transportation. It appears she’s right, so we’ll continue this series of interviews with P3 leaders in the future.

Prominent Investor in P3 Projects Speaks About Florida's Prospects

Jane Garvey, the North American Chair of Meridiam Infrastructure, knows a thing or two about public/private partnerships (“P3”). Meridiam is one of the country’s leaders in P3 projects, from compiling the P3 team and fertilizing it with ideas and experience to investing in the enterprise as a shareholder or lender. Jane is their top person in North America and shared her thoughts with me about Florida’s potential for P3 development. In this blog post and some that will follow, I will share her thoughts with you.

P3s are not ideal for every job. They’re more appropriate for large, complex, innovative projects not neatly fitting into traditional capital programs. The project must be critical to the public owner, as criticality will ensure the facility will be operated for the long-term, thus generating the necessary operational revenue to repay private investors and contractors for their risks. Criticality also ensures strong public sector buy-in, as lack of public commitment to the job may dilute the prospects of success. Historically, critical projects have included transportation as well as social infrastructure, such as schools, courthouses, and teaching hospitals.

The proposed P3 project must have a good revenue stream or it won’t attract investors or lenders. Stable revenue tied to the job, such as shares of federal funds, sales taxes or impact fees, will lure investors. Riskier prospects may deter investors. Without private funding, the P3 delivery method will fail, so it is important for funding to be attracted through assurances of stable revenue sources from which investors may earn an appropriate return on their investment.   

Jane echoes the sentiment of everyone who has been through a successful P3 project that one of the most critical components is someone to champion the project or at least champion the notion of an alternative delivery method. Someone from the business community or a public official must advance the cause through the political channels and in the arena of public perception to avoid the project’s defeat at the hands of questionable, controversial or adverse concerns about the project’s viability, feasibility or appropriateness. 

Finally, a successful P3 project must be a good fit with the public. The affected public entity must have institutional capability, meaning its various departments and operational structure must be able to seamlessly implement and monitor the job without disruption, delays or excessive red tape. Because disruptions are common when a public agency unfamiliar with P3 exercises its new set of P3 skills, delays can be reduced if the public agency’s decision-makers are well structured and the agency hires a financial advisor and outside legal counsel possessing the required P3 skill set.

Keep an eye on this blog for future posts, including more from my interviews with Jane Garvey, as well as other P3 experts, as we continue picking their brains for nuggets of wisdom we can all use to begin or continue to implement the P3 delivery system in Florida.

Public-Private Partnership Legislation Died Without Senate Approval

House Bill 337, codifying public-private partnerships (“P3”) in Florida, was approved by the House last week and sent to the Senate, but it died in the Senate without action before the end of the legislative session last Friday. Although this is a minor loss of momentum for P3s in Florida, it doesn’t change anything as there is still authority for public-private partnerships in Florida public construction. As one attendee asked me at one of our recent P3 workshops, “why do we need this legislation anyways since we can do public-private partnerships regardless of the bill?” He was right and I responded that the legislation had drastically increased statewide awareness of the P3 solution to the public construction budget crunch, which was really the best argument in favor of the bill. So although the bill didn’t pass, it won’t change much and P3s continue to be the hot thing in Florida construction. Stay tuned to this blog for further news, ideas and suggestions about P3s as the process continues gathering momentum even without Tallahassee’s help.