With the election behind us, one PPP — Public Policy Polling — might fade into the background for a while while another — public-private partnerships — attracts new attention. Richard Geddes of the American Enterprise Institute writes about the importance of getting the latter type of PPP right.
Michael Boskin in “All Aboard the Infrastructure Boondoggle” in The Wall Street Journal worries that, if Congress passes the large added infrastructure package advocated by both presidential candidates, “The logrolling and pork will get ugly without far tighter cost-benefit tests and oversight.”
Although this is a serious concern, one solution is to include more private participation in the construction, financing, operation and maintenance of US infrastructure via public-private partnerships, or PPPs. The financing component is critical because investors with actual “skin in the game” have incentives to complete projects on-time and on-budget, and to direct resources to the highest-valued projects. Private investor participation also provides critical market signals to direct public resources. If private investors are loath to invest in a project, taxpayer funds should be committed only with the utmost care.
Prof. Boskin is wise to call for tight cost-benefit analysis of projects. He is also right to stress the low returns to added U.S. infrastructure spending under the current delivery model. However, the social returns to added infrastructure spending can be high if properly directed. The value of a new lane added to a rural interstate may be low while the same lane added to a congested urban system could be very high. So how, besides cost-benefit, to move toward improved direction of spending?
Given the United States’ mature transportation system, including private-sector operation and maintenance of facilities is critical. Operation-and-maintenance PPP contracts can contractually ensure that roads, bridges, and tunnels are properly maintained under the threat of explicit penalties. PPPs also offer new investment opportunities for long-term, patient investors, such as pension funds, insurance companies, and university endowments.
Despite an acrimonious election, there is in fact strong bipartisan support for greater PPP use to improve the US delivery model. Under President Obama the Department of Transportation recently created the Build American Bureau in part to “cultivate public-private partnerships,” while the Trump platform promises to “leverage new revenues and work with financing authorities, public-private partnerships, and other prudent funding opportunities.”
But it is vital to do PPPs properly. With that in mind, a former Cornell student, Carter Casady, and I have proposed — in an AEI Policy Brief released last week — the creation of regional “PPP units” in the United States. These PPP units are specialized, dedicated groups of experts who work with the public sector to ensure that PPPs are well-structured and undertaken in the public interest. These units would be created at different levels, for example, to mirror emerging US economic mega regions.
