In prior posts, we have explained that the proliferation of public – private partnerships in recent years has been due, in part, to the financial stresses placed on local governments during that same period of time. The logic is straightforward enough. Local governments rely on public facilities, such as ports and convention centers, to generate revenue. These facilities are facing increased competition, both nationally and globally, and require costly upgrades in order to remain competitive.
Bridging the Funding Gap
However, due to stagnant tax revenues and increased expenditures in other areas, local governments cannot fund these improvements on their own. By leveraging private-sector financing and expertise, PPPs help bridge this funding gap and, in a nutshell, permit local governments to do more with less. Unsurprisingly, the government that is facing perhaps the greatest budget pressures—the federal government—is now turning towards public-private partnerships more than ever before. Indeed, in his 2013 State of the Union speech last month, President Obama proposed new public-private partnerships in several areas, including ports, pipelines, schools, defense, and energy.
P3s Beneficial to All Economies – Good or Bad
Although it was the economic downturn that caused both the public and private sectors to focus on the benefits of public-private partnerships, P3s do not require a bad economy to be effective. Indeed, regardless of how much capital a local government has on hand, a properly designed P3 will help squeeze as much public benefit out of each public dollar as possible—good economy or bad. Accordingly, as the economy continues to improve, it is important that we not lose our focus on the efficiencies that P3s can bring.
Qatar Embraces P3s
Perhaps nowhere is this point made clearer than in Qatar, one of the wealthiest countries in the world. Over the next several years, Qatar plans on implementing a staggering $140 billion in infrastructure and other development projects, including major transportation and tourism upgrades similar to the projects on tap in the Miami area, but on a much larger scale. To be sure, Qatar does not need P3s to make these projects happen. Qatar could rely on traditional means of financing and operation and still, presumably, have cash left in reserve. But Qatar has calculated that, by taking advantage of P3s, it will save $30 billion on these projects—money that can be used for other important investments in Qatar’s future. Clearly, if Qatar, a country awash in money and resources, can focus on P3-driven efficiencies, then so can (and, in a global economy, must) we, even in a bull economy.