The concept of public-private partnerships or P3s is not a new one. Government entities throughout the world have used P3s for hundreds of years to deliver services such as water, transportation, social services and infrastructure. The United States and its local governments are not strangers to P3s, but until recently the United States has been behind the global curve with regards to the use of P3s. According to the Brookings Institute, between 1985 and 2011, the United States’ spending on P3 infrastructure projects accounted for only 9% of the global total spending on P3 infrastructure projects. However, the interest in and demand for P3s in the United States has increased in recent years.
Many local and state governments recognize that P3s have the potential to access capital and leverage resources so that governments can meet the demands of their citizens and deliver services more effectively and efficiently. Generally, the private entity absorbs many of the upfront costs and obtains the capital for a project. This model allows state and local governments to invest in major infrastructure projects that tax dollars alone cannot fund. States and local governments are using, or exploring the use of, P3s for transportation projects; social infrastructure such as schools, health facilities and government buildings; and utility projects. Those governments that have successfully leveraged P3s generally have two things in common: (1) they have legislation enabling the creation and use of P3s, and (2) they have an entity dedicated to overseeing P3s, ensuring that projects align with the state’s overall policy goals, and reviewing costs to ensure that the state is receiving the best value.
Like state and local governments throughout the United States, Kentucky and local governments within Kentucky are using P3s to deliver services and develop infrastructure. For example, Lexington and Louisville have utilized P3s to promote economic development. The University of Kentucky contracted with a private developer to upgrade student housing. And, Kentucky is using a P3 to design, develop, build and operate the Next Generation – Kentucky Information Highway (NG-KIH).
At the state level, there are two categories of P3 projects – road projects and other projects. With regards to road projects, the Kentucky General Assembly has considered, but has not passed enabling legislation. During the 2015 session, the House passed a bill that would have allowed Kentucky to enter into contracts with private entities for the purpose of building and financing transportation projects. However, the Senate did not pass the bill. As such, Kentucky cannot currently use P3s to execute road projects.
However, as related to other projects, Kentucky, and specifically the Finance Cabinet, has the authority, under the Kentucky Procurement Code, to use P3s. Further, the Procurement Code empowers the Finance Cabinet to oversee P3s to ensure that the state is receiving any promised benefits and that the P3 is achieving its goals. The NG-KIH project, which aims to build the infrastructure necessary for the delivery of high-performance internet services throughout the state, is a prime example of the Finance Cabinet’s ability to utilize P3s to design and build innovative projects that will ultimately benefit the entire state.
While oversight and transparency are available at the state level through the Procurement Code, the same cannot be said of local P3 projects. Some local governments have adopted procurement codes or other procedures for regulating P3 projects. But, such protections are not universal. Without such oversight in place, residents cannot be sure that local governments are choosing the best partners to deliver the desired services.
Certainly, P3s present challenges and require local governments to reconsider their models for delivering traditionally state-sponsored services and facilities. But with proper oversight, thoughtful implementation, and buy-in from government and business leaders, P3s have the potential to enable states and local governments to more efficiently deliver services to their citizens.
Carrie Gilbert is an attorney in the law firm of Dressman Benzinger LaVelle, with offices in Cincinnati, Ohio, Crestview Hills, Kentucky, and Louisville, Kentucky.
