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“Public-Private Engagement: Promise and Practice.” in Planning Ideas that Matter: Livability, Territoriality, Governance, and Reflective Practice, eds. Bishwapriya Sanyal, Lawrence J. Vale, and Christina D. Rosan. MIT Press, 2012.

Chapter 9: Public Private Engagement: Promise and Practice

Lynne B. Sagalyn Columbia University Government officials, policy analysts, practitioners, and academics from diverse perspectives across the globe have enthusiastically endorsed the promise of public private engagement to solve pressing problems of public policy. The endorsement often is a rallying cry for a change in policy or reform of a prevailing policy regime, as evident in typical public-private slogans such as “partnerships for progress,” “a new framework for infrastructure,” “a tool for economic modernization,” “helping to address the urban environmental crisis,” and “meeting the investment challenge.” Not infrequently, the actual meaning of the public-private label is ambiguous, a rhetorical tactic capable of expanding the political appeal of the policy strategy. Evoking the nomenclature of public-private can mean different things: informal collaboration, formal organizational alliance, and contractual business venturing, if not an exact equal sharing of risks and rewards as commonly connoted by the word “partnership.” Whichever institutional format prevails in practice, the thrust of the public-private approach signifies a shift away from the conventional adversarial relationship between sectors to one focused on addressing and solving problems based on mutually reinforcing relationships fostered by an alignment of interests. In theory and practice, the idea of public-private (PP) blurs prevailing distinctions between roles and actions traditionally considered properly “public” and those roles and actions conventionally considered properly “private.” Loosening these fixed distinctions has generated creative solutions to vexing urban problems, yet as the public/private strategy reaches into ever-widening areas of public goods and services, policy makers and analysts are becoming increasingly uneasy over the loss of traditional public-sector values that seem to get jettisoned on the path to mutual benefit through close collaboration. Planners, in turn, worry about the connections – or lack thereof – of PP deals to the world of planning and its established principles, codified methods, and regulatory tools. Blurring the conventional public-private distinction challenges the values of public agency. And the loss of that distinction poses core questions of policy: What are the rules of engagement under the new PP paradigm? Who sets them and to what effect, in economic and political and planning realms? These clear but vexing governance questions still challenge the experts after more than three decades of PP practice. In this chapter I argue that a troublesome gap exists between the promise and the practice of PP. The promise of the PP paradigm evokes a formidable list of public benefits: collaborative advantage, resourcefulness, fiscal pragmatism, risk sharing, market-based efficiency, productivity enhancement, and innovation in design and management of public services. On the performance side, however, evidence of the strategy’s effectiveness is not extensive in light of the number of PP initiatives, and of what exists,

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the track record to date is mixed (Daniels and Trebilcock 1996, Boarse 2000, Public Citizen 2003, HM Treasury 2003, Flinders 2005, Siemiatycki 2006, Koppenjan and Van Ham 2005, Murray 2006, Cambridge Systematics 2006, USFHWA 2007a, USFHWA 2007b).1

Moreover, the thin body of evidence does little to counterbalance the pressing issue of PP governance, which is a nagging concern on the administrative side of the policy scorecard. While this policy concern is hardly exclusive to the PP model, the political rhetoric and elevated expectations of performance from cooperative (as opposed to adversarial) sector relationships focus a spotlight on the accountability issue and amplify the political risks of adopting the PP model as a governance reform.

Over the course of several decades of practice, public administrators working with expert consultants have put in place new procedures governing particular pieces of the PP process. As a distinct field of planning practice, PP is more established today than when I began researching this activity in the mid-1980s. Yet, the selective processes and procedures still fall short of benchmark best practices of public governance. The shortfall is most obvious in the realm of financial and managerial accountability. Left unmanaged, it exposes governments to political risks above and beyond the technical and financial risks of a project. In other words, the lack of strong governance controls and procedures ups the ante of the PP approach, unnecessarily raising the hurdle for policy success. My earlier writings on city building (Sagalyn 1990, Sagalyn 2001) addressed this accountability factor. The political context for PP in the United States today, however, is substantively different because the contemporary targets of the PP approach – airports, turnpikes, bridges and tunnels, and municipal infrastructure and environmental projects – directly touch the day-to-day lives of far more people in comparison to complex urban redevelopment projects. For that reason alone, these newer PP initiatives are more visible and their projected costs and benefits more understandable to all constituencies: citizens at large, civics, interest groups, elected officials, and the policy community. Moreover, by materially increasing access to specialized information and expanded opportunity for civic engagement, the Internet has fundamentally reshaped the channels through which we press for accountability from elected officials and dramatically accelerated the timing of an expected response. To make my argument, I first describe the forces giving rise to the PP strategy and its ever-widening range of practice. In this section I also discuss the challenges of complexity that adhere to PP projects and how they activate the issues of governance. PP arrangements are legally difficult to design and negotiate, and ambitious policy objectives pursued by elected officials graft onto the PP strategy add further complexity. Moreover, the status of government as a partner imposes particularly complex demands on contracting. These conditions substantively define the PP exercise and impose a particular prerequisite for success: Public players need institutional and political skills as well as technical knowledge to administrate in this field. While the PP strategy holds the promise of greater productivity by harnessing market forces and breaking down formal and established distinctions between public and private spheres of activity, this hoped for gain in efficiency is vulnerable to policy mandates and regulatory constraints layered onto PP projects. To assure political success, rules of engagement are needed to provide a best-practice roadmap for this valuable urban strategy, and these are discussed in the second section of the chapter. Governance protocols, capacity building, and comparative research on performance comprise the basis for my conclusion that theoreticians and practitioners of the PP strategy need to address an agenda for building PP policy performance.

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Public-Private in Practice Public officials around the globe have adopted the idea of PP in response to three powerfully motivating situations: in the U.S., as a real estate strategy to redevelop declining downtowns, transform waterfronts, and revitalize inner-city neighborhoods (what in the U.K., is typically called “regeneration”); in developing countries, as a fiscal solution to the increasing demands for infrastructure and urban services arising from rapid urbanization; and in Canada, the U.K., and western European countries, as a means of devolving responsibilities from central to subnational levels of government. The growing policy preference for PP arrangements marks a broad global convergence of economic forces and changing political paradigms. For the public sector, PP symbolizes the search for greater efficiency of urban service delivery and resourceful mobilization of private capital as governments around the world face increasing fiscal constraints from limited (or cash-starved) budgets and ongoing heightened voter sensitivity to taxes. For the private sector, PPPs represent a potential cornucopia of investment opportunity in existing and emerging urban markets across the globe. Based on the logic of pragmatism, PP advocates make compelling arguments for bridging public and private sectors through alliance, collaboration, and partnership. They cast these arrangements as innovative and resourceful ways of dealing with the intensifying demands of urbanization or critical needs for economic development. Citing a combination of economic and institutional forces, infrastructure policy specialists, in particular, emphasize the core role public/private partnerships (PPPs) can play in meeting the pressing need for new large-scale investments and equally urgent need to refurbish existing systems. For national governments and international donor organizations anxious to enhance productivity and stimulate economic growth, PPPs represent an efficient means to expand the scope of their development investments and simultaneously tap advanced technological expertise. The worldwide momentum for PP solutions has emerged from a broad and diverse coalition that sees the strategy as a governance reform as much as a pragmatic fiscal imperative. Complex urban problems and a better quality of urban services, these policy reformers argue, are no longer singularly solvable by traditional forms of state intervention. Multi-faceted approaches are required, including new institutional arrangements that devolve power from the national center to local entities of government and reinvent local models of governments by engaging the private market to deliver urban services in cooperation or competition with public agencies (Osborne and Gaebler 1993; Moore and Pierre 1998; Engberg 2002). International funding organizations like the World Bank, Asian Development Bank, Japan Bank for International Cooperation, and Inter-American Development Bank have entered the PPP advocacy tent seeking to promote and expand the development of needed infrastructure around the world (USFHWA 2007a). And relatively recently, the European Union (EU) accepted the PPP as a “complementary implementation tool,” linking PPP use to its initiatives for economic development and competitiveness (EC 2004; EC 2003; Newman and Verpraet 1999; Elander 2002; Grimsey and Lewis 2004). In so doing, the EC was building on the experience of a number of OECD countries that have well-established programs. The U.K.’s Private Finance Initiative (PFI), begun in 1992, is the most well-known, but other countries with significant PP projects include Finland, Germany, Greece, Italy, the Netherlands, Portugal, and Spain (International Monetary Fund 2004). In the U.S., the Department of Transportation through its surface transportation administration aims to expedite urban transportation projects by encouraging state and local transportation

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agencies to consider the “selective use” of PPP approaches and has put out substantive materials to support that position (USFHWA 2007b, 4-2). The extensive scope of PPP transportation activity in the continental U.S. is evident in Figure 9.1. Some leading politicians have adopted PPPs as part of their ruling party’s wider “modernization” agenda, as did Labour Party’s Tony Blair when he became Prime Minister of the U.K. in 1997 (Flinders 2005).

Opportunity and Experimentation Beyond the search for increased efficiency in the delivery of urban services and the fiscal pressure to mobilize substitute private capital for infrastructure investments, the momentum for PP arrangements represents a response to heightened awareness among private-market professionals – developers, construction management firms, and infrastructure consortia and their investment bankers, lawyers and specialized consultants – of new economic opportunities within urban markets around the globe. This is a relatively new phenomenon with two distinct but mutually reinforcing forces. After decades of public-sector incentives aimed at attracting private investment capital into urban neighborhoods and commercial districts, changing demographic patterns in the U.S. are pulling private equity investments into previously capital-starved urban markets, newly labeled “emerging markets.” Globally, rapid population and the prospect of economic opportunity that has historically drawn people to cities will, demographic experts project, produce a 21st century of “urban gigantism” as the developing world spawns cities with populations between one and five million rapidly grow in unprecedented numbers (Montgomery 2007).

The global convergence of practice reflects a particular political pliability inherent in the PP strategy. In some countries, PP has been an experimental innovation (Netherlands, Spain, Finland); in others, an ideological force (U.K., Canada, Australia); and in still others, a variant on a history of mixed enterprise (U.S., France, Singapore). Government officials have applied the PP model to an ever-broadening set of urban service needs, though some services, like prisons, remain controversial (Grimsey and Lewis 2004, Verkuil 2007). In the realm of urban service infrastructure, PP projects take in waste water and sewage treatment works, power plants, pipelines, telecommunications infrastructure, public-use motorways, toll roads, toll bridges, tunnels, road upgrading and maintenance, railways, subways, light rail systems, airport facilities, harbors, affordable housing, student housing, school buildings, government offices, fire and police stations, hospitals and other health services, social housing, prisons and secure training centers, parking stations, and museum buildings, among other projects for recreation and tourism. (See Table 9.1 for a list of illustrative PP projects.) In the realm of urban redevelopment, what began with initiatives for downtown development now includes waterfront transformation, historic preservation, brownfield development, neighborhood commercial-center revitalization, community development lending, and military base conversions. Whether for urban redevelopment/regeneration, transportation and environmental infrastructure, or economic development, the PP model and its many variants has become the policy of choice for municipal government in the U.S. and an increasing number of governments in Europe and Asia. Between 1985 and 2004, for example, more than $2 billion of worldwide PP infrastructure projects had been planned and funded, with 53 percent of them completed by the year-end 2004 (USFHWA 2007a, 2-2).

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The open character, flexible format, and customization of project-specific business terms and conditions for public/private sharing of risks and responsibilities makes the PP model highly adaptable (Sagalyn 2006, Sagalyn 2007). The precise mechanisms of ownership and finance and the specific obligations for production and delivery of urban goods and services can be rearranged to produce different allocations of public and private responsibility, which is what government officials in the U.K., North American, Europe, and Asia have been experimenting with for the past three decades. Their experimentation has produced a broad range of institutional formats, as described in Table 9.2. Pure privatization – when government disengages totally through transfer of ownership to a private firm, which takes over assets and assumes responsibility for service delivery – differs from the many formats for contracting out, which in turn differs legally and financially from the joint venture. Formats for contracting out are forms of procurement, and they typically circumscribe the nature of the PP relationship to what is specified in the contract. In contrast, the joint venture or development agreement PPP commonly used for regeneration and economic development projects, for example, typically involve a mutual commitment to the venture greater than what is transmitted in the development agreement. In practice, these agreements implicitly cover what cannot be anticipated – a mutual commitment to deal with unexpected project-threatening crises if and when they occur, which may mean renegotiating the agreement if necessary to ensure successful execution of the project (Frieden and Sagalyn 1989; Bovaird 2004; Sagalyn 2001). Beyond the particulars of specific institutional formats, all PP arrangements share a significant common attribute: the negotiated allocation of risk, responsibility, and control between public and private partners. This is the core of the PP business relationship, in theory and practice, so much so that it even shapes the potential for partnership (vanHam and Koppenjan 2002). The variations in arrangements for contracting out represent a veritable alphabet-soup of acronyms (see “project delivery approaches” in Figure 9.2). From these government officials can choose among diverse alternatives to the traditional public-sector procurement model, which many experts benchmark as bureaucratically inefficient and costly. These alternatives bundle the legal and contractual dimensions of delivering urban goods and services – ownership, finance, construction, operation, and maintenance – in different ways, what I call “positional combinations.” These are graphically portrayed in Figure 9.3 as a continuum – 100% public to 100% private – of role combinations for providing urban services, redeveloping cities and neighborhoods, and fostering economic development. For infrastructure projects, the delivery approaches are differentiated by three core elements: the services bundled (the degree of private control over service delivery and extent of policy control retained by the public entity), the financial commitment of the private sector (investment risk), and the ability and willingness of the public sector to share financial risk (public risk taking). Whichever format public officials choose, service delivery is redirected from unidirectional agency to public-private co-production and decision-making, and it is this institutional move which challenges the structure and values of public sector agencies (Engberg 2002). Politically, the emphasis shifts as well: “What matters is what works,” said Britain’s former Prime Minister Tony Blair in an often-quoted phrase (Financial Times 1998, cited in Newman and Verpraet 1999, 489).2

In short, adoption of the PP strategy signifies political regime reform.

Making generalizations about contracting out is tenuous because substantial variations in procurement laws and procedures exist worldwide (and within federalist government

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systems such as the U.S.). Yet more than the involvement of private enterprise per se, bundling is what distinguishes PP infrastructure contracting arrangements. Bundling ties together traditionally discrete procurement processes of design, financing, construction, operations, and maintenance. By vertically integrating some or all of these functions, bundling creates the potential for greater economic efficiency because private companies have a financial motivation to think in ways that might generate greater productivity and cost efficiencies over time, that is, for the duration of their service contract (Daniels and Trebilcock 1996). Bundling also can open up to competition a set of economic activities previously excluded from that process (Grimsey and Lewis 2004). Implementation Challenges In theory, the market-based logic of PPP promises to deliver design and management innovations as well as economic efficiencies. In practice, the institutional architectures needed to execute on these multiple objectives remain complex. The list of implementation hurdles can be daunting. Case studies of partnerships show that the processes and procedures necessary to select private concessionaires, services providers, or real estate developers willing and able to operate in the public interest pose a challenge to existing public expertise. Plus, the contract arrangements and joint-venture agreements necessary to implement these projects are exceedingly difficult to design and negotiate. Accordingly, public players must be skilled politically to deal with multiple constituencies in both public and private realms, as well as technically versed in the details of what it takes to deliver the infrastructure service or redevelopment/regeneration project. The details of specific project conditions and the ambitions of public objectives matter a lot as well. Political cultures vary and shape the institutional context of contracting. Rate-setting constraints on cost recovery or profits, extraordinary programmatic public benefits, or other policy mandates can create potential losses in economic efficiency and reduce private investment value (Daniels and Trebilcock 1996). Low levels of competition resulting from a field of bidders narrowed by the high level of performance or technical expertise or regulatory constraints required of the public RFP (Request for Proposals) process create complex economic problems for PP projects. Bidders are likely to add on risk premiums to cover a range of possible situations: a requirement for a contractual price guarantee, potential contract penalties for delays, and apprehension about capricious government action. When PP projects are carried out by numerous independent public agencies and proliferate in number, fragmentation of policy coordination can present another policy problem (Flinders 2005). Alternatively, when driven by a central government, as in the case of airport privatization in Australia, the process might “quarantine” adjacent commercial development from the scrutiny of state and local planning processes (Freestone, Williams, and Bowden 2006). And, as nearly all reviewers of case-based experience point out, PP sector partnerships cloud accountability.

Government detachment is the linguistic myth of “privatization.” That is the policy reality quite evident in case analyses of PP projects, not surprisingly. The reallocation of roles inherent in the PP paradigm creates complex combinations of legal rights, economic interests, and financial risks, and these complicate (and compromise) the theoretical promise of the PP approach. It is not unusual for PP arrangements to create contingent liabilities for public entities; after all, implementing complex redevelopment or infrastructure projects carries enormous financial risks. These risks include shortfalls in projected usage, downward shifts in market demand, cost overruns, entitlement failures, costly program changes due to development requirements, premature loss of assets or

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termination of leases, publicly sponsored competition, and lower-than-anticipated residual values for assets. Since government actions create assets with private-sector value and embed economic rights – long-term fee-based revenue streams, special development incentives, and opportunities to capture value from adjacent real estate development – PP arrangements readily beget political exposure in the potential give away of “too much,” even if officials follow best practices of public administration.

Researchers who have examined in detail PP projects, for example, offer persuasive evidence that contracting out may involve government-backed financing, regulatory restrictions, and ongoing subsidy, or implicate other public policy concerns that involve ongoing monitoring of governance. Daniels and Trebilcock (1966) reviewed three high-profile Canadian infrastructure projects: Highway 407 toll roadway in the northern region of the Greater Toronto Area, the Prince Edward Island Fixed Link Bridge across Northumberland Strait, and the redevelopment of Pearson International Airport (in two phases, Terminal 3 followed by Terminals 1 and 2). Despite the depiction of economic benefits to the government from private-sector efficiency and risk bearing, they found that each project included some significant role for government in project financing or long-term subvention. The decision to develop the project through a PPP did not eliminate sensitive public policy concerns, right-of-way and eminent domain issues, and monopoly pricing concerns, among others. Rather, the need to respond to these policy concerns created tension with the need to provide credible assurances to the developer/operator that “the franchise value of the undertaking would not be debased ex post by direct government action” (388). Like many investments taken on by government, PP projects confront a well-established list of political hazards. First, of course, there is the failure to form a partnership as well as the failure to complete a project, both of which are haunting probabilities for any government official. Koppenjan and Van Ham (2002) analyzed formation risk in some detail in their analysis of nine transport projects in the Netherlands. Not surprisingly, they found that success was not a given but most apparent when the decision-making process embedded active engagement of the partners. Complexity is a second factor (Sagalyn 2007). Whether driven by fiscal pragmatism or regime reform, the PP strategy is demanding in terms of policy ambition as well as financial feasibility. For both redevelopment (regeneration) and infrastructure projects, the product is also complicated in its technical specification. With infrastructure bundling, for instance, bidding private partners often form consortia (“virtual corporations”) because “the functions involved are highly specialized and entail deployment of quite different bodies of complementary expertise and resources” beyond the capabilities of individual firms unless a firm is vertically integrated (Daniels and Trebilcock 1996, 390). For redevelopment (regeneration) projects, state and local government entities regularly collaborate to facilitate funding, marshal powerful financial incentives, or expedite entitlement approvals (Sagalyn 2001). The whole gets fashioned into a project-specific organizational network governed by the business terms and conditions of the contracting arrangement, concession or franchise agreement, long-term ground lease, or disposition and development agreement. Managing relations is a third factor. Each side of the relationship is typically populated with multiple players, public and private entities themselves often representing infra-sector collaborations. Public officials responsible for managing negotiations for a PP project face a high hurdle in securing agreement among government players to not one,

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but a series of consistent and interlocking, agreements detailing each participant’s rights and obligations in implementing the PP project. PP projects are threatened by a number of other generic political risks, including stakeholder resistance and active citizen or community opposition, contact mispricing or over-generous economic incentives, and interference from political officials that could beget favoritism and corruption. All of these situations can generate litigation (and certainly projects delays) and can result in project failure even if the project wins its judicial challenges. Because PPPs represent a paradigm shift, political risks specific to the PP strategy – most notably, financial failure reverting to public take-over or buyout – are potential liabilities capable of inducing political backlash and pushback. This is where the processes and procedures aligned to traditional norms of governance and designed to address specific PP issues, identified in Table 9.3, can help shield the PP strategy from a premature abandonment. Toward Rules of Engagement The theory and rhetoric behind the PP movement has set up high performance hurdles for these projects. Advocates promoted the strategy as a multi-dimensional tool: a means of providing more cost-efficient delivery of urban services, stimulating innovations in technology and the design of complex physical infrastructure projects, shifting the very substantial risks of public capital investment to private ownership, reducing the bureaucratic snags to getting projects through the approvals system, and expediting the time it takes to implement large-scale public initiatives in city building, regeneration, or economic development. This set of arguments for PPPs represent a fully loaded promise of reform for urban governance at a time when direct government action needs both a new cloak of political optimism and a deep source of capital funding. The limited evidence on performance from detailed case studies of ambitious and complex PPP projects, mostly for physical infrastructure, however, consistently reveals that results have been considerably less than the theoretical and rhetorical claims. For example, on risk transfer and cost efficiencies, performance results present a weak story line, so far. For the majority of case studies discussed in published research, academics found that government ended up sharing significant financial risks, either in the form of a long-term public subvention (in Canada: Prince Edward Island Fixed Link/Confederation Bridge and the Richmond-Airport-Vancouver Line; in the U.K.: National Air Traffic Services, Devonport Dockyard; in the U.S., Tacoma Narrows Bridge project) or take-over (Channel Tunnel Rail Link, U.K.; M1-M5 Motorway, Hungary; Camino Columbia project, Texas, U.S.), government-backed financing for the entire project (Canada: Highway 407), or government payment of compensation for contract cancellation (Canada: Redevelopment of Pearson Airport Terminals 1 & 2). We have learned from case-by-case study that the actual benefits of contracting do not flow automatically from the bundling format of PP infrastructure projects. The story is not much different for PP redevelopment (regeneration) projects, which, by comparison, are technically less specified and programmatically more fluid during the early stages of developer selection and design and development. In each, public-sector players are put in the position of having to acquire or rapidly develop sophisticated institutional skills and the political acumen necessary to execute agenda setting, contract negotiation, and policy oversight of complex PP projects. These are public-sector responsibilities that no government official can formally delegate to the private sector – and expect to keep governing. This mandate for policy governance means coping with the demands for transparency, the dilemma of confidentiality, and the politics of consultation with a wide

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range of stakeholders. Based on their study of the Asian experience with PPP infrastructure projects, Kumaraswamy and Morris (2002) found the primacy of political skills to be essential. In this arena where the line between what is public and what is private blurs, how do we define the “proper” role of each sector? Or, in the absence of clear norms, how do we define the appropriate scope of action, the reasonable level of financial and hands-on engagement with the private sector? How should we think about “rules of engagement” for PP arrangements when public officials have no clear blueprint for operating in this blurred sphere? (See Figure 9.4.) We are not starting with a blank slate. Public officials can draw upon administrative protocols from several widely used governance frameworks. These include regulatory schemes set up by statute and administered through formalized processes and specialized institutions (e.g., regulatory schemes for land use and environmental control), programmatic rules and procedures attached to sources of funding from other levels of governments or granting foundations (e.g., block-grant funding or economic-development programs), and informal norms of consultation established overtime through trust and influence (e.g., vetting among powerful interests and community groups). Norms of best practice in public administration have emerged over the decades from a mix of political traditions, notions of procedural fairness and open dialogue; policy controversy that often engages the media to emphasize what is missing in open debate and less-than-transparent decision making; and the appealing but vexing concept of the “public interest.” However vague the concept may seem, the “public interest” reflects an underlying public-private distinction: We do not expect the profit-oriented private players to act, without incentives, in the “public interest,” but we do expect public officials to act beyond their own self-interests. A full discussion of what it would take to craft rules of engagement for PP ventures is beyond the scope of this chapter. A list of commonly accepted norms of best public practice, however, would include: accountability; procedural fairness (including provision for administrative and judicial appeal of decisions flowing from government powers); ban on conflicts of interest, transparency and standards of disclosure; rights protection for citizens and property owners, stakeholder participation; and in certain realms, social equity to mediate market-driven outcomes. The introduction of market-driven benchmarks in the PP process challenges established policy norms and is bound to trigger political controversy. The public sector with profit ambitions? Public profit for what use? In 2005, the first privatization of a toll road in the U.S., the City of Chicago, for example, sold a 99-year operating lease for the Chicago Skyway to private interests for $1.83 billion. Shortly thereafter, the State of Indiana sold a 75-year concession for the 157-mile East-West Toll Road for $3.85 billion. In assessing the monetary impact of these transactions, where is the greater public interest? In proceeds used to close a budget gap and set up reserves with only a small portion set aside for a neighborhood improvement fund (as did the City of Chicago), or in the 100 percent targeting of proceeds to fund specific transportation projects in Toll Road counties around the state for broad public benefit (as did the State of Indiana)? Risk sharing, which is at the core of PP arrangements, places a heavy emphasis on confidentiality, particularly when the business terms and conditions of an agreement are being negotiated. Hammering out the details of complex agreements requires meeting

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behind closed doors. The issues raised by closed-door negotiations for redevelopment deals remain unchanged since I first wrote about the accountability dilemma (Sagalyn 1990). For infrastructure projects the accountability dilemma embedded in confidential partnership agreements poses a distinct and intellectually challenging problem involving proprietary rights. Ghere (2001), for example, asks us to consider what such ownership could mean in the case of a large-scale municipal water operation or state corrections facility:

First, partnerships may involve the sale of existing capital facilities (such as a water treatment plant) or provide for the private partner to finance and own a new facility. Second, a fee-for-service partnership might convey a fee-based revenue stream to the private firm. In such an arrangement, the private partner could be viewed as “owning” a customer base and, indeed, may exercise rate-setting authority. Third, control over operations – including assumption of a public-employee workforce – could also constitute a form of asset creation. And fourth, it is conceivable that, in certain cases (for example, with park systems, toll roads, or corrections), partnerships could arrange for real estate transactions accruing to the private firm (444).

Operating for profit under market conditions, a private vendor understandably wants to protect its competitive position. Acting rationally, it will condition its engagement in bidding and negotiation on some type of confidentiality agreement restricting the sharing of proprietary technical, business, financial, or legal information. While this restriction may not cover the full period of the long-term agreement, bidders will aim for as long a period as possible but certainly insist on specified durations related to project-sensitive phases, including planning and contract negotiation. This was the case with Vancouver’s RAV project, where, Siemiatycki (2006) explains, the “confidentiality screen” may have kept the city manager from sharing information about the vendor consortium’s controversial cut-and-cover construction method with the Vancouver City Council “even if there were parts of the plan that could be to the detriment of constituents” because that information was part of the proprietary bid. “The level of secrecy required to maintain the integrity of the private-public-partnership delivery model,” he wrote “calls into question whether the RAV-project governance structure threatened the fiduciary responsibility for the civil service or provided the necessary accountability to the elected officials who were responsible for deciding whether to approve the project” (148).3

Strict confidentiality agreements can also shield the full costs of these projects and obviously make difficult, if not impossible, the task of evaluating the actual efficiency gains from privatization contracts.

But as with other aspects of PP implementation, procedural variations in practice shape governance implications (see Briffault 2000). Confidentiality need not be total. Public officials can establish clear standards for what information must be kept confidential (Siemiatycki 2006). Confidentiality need not be coterminous with the contractual term. By limiting the scope and timing of confidentiality, greater transparency can be built into the PP process. For example, under the procedures established by the state of Texas in 2003 authorizing PPPs through Comprehensive Development Agreements (CDA), information submitted by bidders remains confidential until a final contract is signed with the winning bidder. More to the point, the State Department of Transportation can provide modest compensation (up to $1 million) to losing bidders for use of intellectual property included in the proposal (Durbin Associates 2005, cited in Buxbaum and Ortiz 2007, 19).

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Over the course of several decades, government officials and their consultants have development formalized processes and procedures for selecting private developers and operating vendors, reviewing and evaluating responses to RFPs, documenting deals, and conducting public hearings. Some officials have produced management audits, even financial audits of PP projects. Still, the procedures of PP transactions are specialized, and they are less likely to be familiar or readily understood or as transparent as conventional procedures for public vetting. Moreover, because they engage the private sector in the provision of “public” goods and services, these PP ventures generate particularly complex economic issues for which we have few precedents of best practice. The confidentiality issue discussed above is a case in point. The tension between confidentiality and transparency in large-scale infrastructure projects is not limited to PP projects, nor is it likely to be resolved by reverting to the traditional model of project delivery. And the same can be said for the broader set of policy issues surrounding the PP strategy. Toward an Agenda for Policy Performance In the U.S., Europe, and Asia, experience with PP initiatives has brought to the fore common issues of governance, independent of performance results. PPPs represent a political challenge to the structure and values of public-sector agency. They involve difficult issues of contracting compared to the traditional model of public procurement. And because the agreement (implicit if not explicit) involves risk-sharing, they place a heavy emphasis on confidentiality, which heightens the role of disclosure and legislative oversight. Because the policy strategy leverages private capital, PPPs are biased toward market-based investments and only secondarily, if at all, address social equity concerns. On the other hand, the strong case for PP has gathered widespread support from a number of conceptually compelling arguments that are unlikely to fade away, especially in fiscally pressed environments likely to predominate in the near future. They have stimulated accelerating application to urban infrastructure and planning projects across the globe. Case-based results have selectively demonstrated modest efficiencies and innovation. In its capacity to ensure provision of urban services and stimulate economic productivity through private investment, PPPs have become a powerful and essential instrument in the tool kit of policy makers. Their biggest promise lays in the future as public and private players work through the kinks of complex risk-sharing agreements, and policy analysts mine the experiences for insights to improve efficiencies in practice. How stakeholders respond to the governance issues of PPPs will inevitably depend on both the cultural traditions and policy context of country-specific public/private initiatives. But the mandates central to the agenda for policy performance of PPPs are universal: governance protocols, capacity building for public officials, and comparative research on outcomes.

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1. I can offer several (less than satisfying) explanations for this state of affairs. First, a PP project takes a long time to execute before data can be marshaled for evaluation, and the full implications of performance may not even be understood for many years after a project’s completion. Second, in the absence of a statutory or administrative mandate or a political decision to repurchase a concession or provide a subsidy, government stakeholders do not have strong self-motivation to undertake ex-post evaluations that might reveal disappointing results or embarrassing and costly construction overruns. Third, the information needed to assess performance of a PP project more often than not is confidential. Fourth, because each project has a nearly unique set of complexities general lessons are hard to come by (Sagalyn 1990; Sagalyn 2007), especially from experiences in emerging market economies. 2. Until 1992, when new regulations superseded by the Private Finance Initiative (PFI), British governments operated under rigid rules inhibiting the involvement of private sector capital in the financing of public sector projects (Flinders 2005, 220). 3. The literature presents other anecdotal examples of failed accountability. For example, Rosenau (1999) cites the situation in which Corrections Corporation of America (CCA) was reported to have “explicitly misinformed” city and state officials about the security risk of inmates housed in a Youngstown-based private prison. Instead of “promptly notifying” officials when five murderers escaped, CCA attempted to cover it up. “If the same event happened in a public prison,” she asks, “would accountability dynamics have been different?” She cites accountability problems in policy-level partnerships in the electric service sector as well and instances of failed government responsibility that are not hard to come by. In short, no sector is a priori more accountable or immune from lapses. “Hard evidence is absent,” she notes, and “both sides make convincing cases” (20).

Figure 9.1: Major surface transportation PPPs in the continental United States since 1991

Source: USDOT, FHA, Case Studies in Public-Private Partnerships in the United States, July 2007.

Table 9.1: Illustrative sample of public/private projects in North America

Type of project PP format* Date begun**

Development: Abbotsford Hospital (British Columbia) BDFOM 1987

Battery Park City (Manhattan, NY) DDA 1969 Beverly Hills and Montage Gardens (California) DDA 2000

California Plaza (Los Angeles) DDA 1981 CityPlace (West Palm Beach) DDA 2002

Downtown Silver Spring (Maryland) DDA 1999 Excelsior and Grand (St. Louis Park, Minneapolis) DDA 2001 Rowes Wharf (Boston, Massachusetts) DDA 1985 Southside Works (Pittsburgh, Pennsylvania) DDA 2000 Yerba Buena Center (San Francisco) DDA 1980

Redevelopment:

42nd Street/Times Square (Manhattan, NY) DDA 1980 Atlantic City Outlets –The Walk (New Jersey) DDA 2002 Belmar (Lakewood, Colorado) DDA 2002 Burnham Hotel at Reliance Building (Chicago, Illinois) DDA 1998 Fruitvale Village (Oakland, California) DDA 2002 James F. Oyster School/Henry Adams House (D.C.) DDA 1999 Horton Plaza (San Diego, California) DDA 1977 Union Station (D.C.) DDA 1985

Transportation:

Alliance Airport (Texas) DDA 1989 California State Route 91 HOV Lane BTO 1995

Charleswood Bridge (Winnipeg, Canada) DBFO 1993 Chicago Skyway Lease (Illinois) Concession 2004 Dulles Greenway (Virginia) DBFO 1988 E-470 Tollway (Colorado) DBO 1985 JFK Airport Terminal 4 (New York) DDA 1995

Highway 407 (Ontario, Canada) DBO 1993 Hudson-Bergen Light Rail (New Jersey) BOT/DBOM 1994 Indiana Toll Road Lease Concession 2005 Las Vegas Monorail (Nevada) BOT/DBOM 1993 Pocahontas Parkway Route 895 (Virginia) DBFO 2004 Pearson International Airport Terminal 3 (Toronto) DBFO 1986 Prince Edward Island Bridge (Canada) DBFOT 1985 Richmond-Airport-Vancouver Line (Canada) DBFO 2001 Route 28 (Virginia) DBT 2002 South Bay Expressway Route 125 (California) DTO Franchise 1991 State Highway 30 (Texas) DBFO Concession 2006 Water and Sewer Infrastructure: Atlanta Water Service (Georgia) O&M Contract 1998 Franklin Waste Water Treatment Plant (Ohio) DBFOT 1995 Phoenix Water Treatment Facility (Arizona) DBO 2000 * DDA = Disposition and Development Agreement; see Table 2 for other acronyms. ** Date project begun generally means start date of public-sector planning; in select instances where that date is

not available from online information, the date begun represents the date the private vendor was selected. Source: Author

Table 9.2: Formats for public/private project implementation

Type of PP Model Acronym Public Interface Privatization

Asset sale

Sale-leaseback Asset sale and contracting Concession / Franchise Licensed service agreement Outsourcing / Contracting Generalized procurement Service provision contracts: Service procurement Design and construct D&C Design build operate DBO Design build finance operate DBFO Design construct manage finance DCMF Design build finance operate manage DBFOM Operate and maintain O&M Operate, maintain, and manage OM&M Build own operate BOO Build own operate maintain BOOM Build own operate remove BOOR Rehabilitate own operate ROO Capital provision contracts: Service procurement and capital asset Build transfer operate BTO Build operate transfer BOT Build lease transfer BLT Build lease transfer maintain BLTM Build own operate transfer BOOT Build own operate train transfer BOOTT Design operate transfer DOT Lease renovate operate transfer LROT Rehabilitate operate transfer ROT Business Improvement District BID Special taxation and co-decision making Community Development Bank CDB Co-capitalized lending venture Redevelopment partnership Project-specific joint decision making Joint venture agreement JV Co-Investment “mixed enterprise”

Source: Author

Notes: Outsourcing or contracting out: arrangement in which the public sector maintains ownership or policy control (for example, rate setting) of a function but contracts with a private operator to discharge that function through some type of procurement process over a contractually defined period of time.

Procurement process: arrangement in which the public sector decides on a mix of rights and responsibilities – risk allocation, operation, financing, maintenance, performance – of a service over a contractually defined period of time.

Franchise: arrangement in which a private firm is granted a license to operate/provide services in a particular territory for a contractually defined period of time.

Concession: legal arrangement in which a private firm is granted land or property for a particular purpose (to provide water and electricity) for a contractually defined period of time in return for services, after which the infrastructure is returned to the public entity.

Business Improvement District: business-initiated territorial arrangement within a city in which all property owners or businesses are subject to additional tax assessments that are used to fund services and improvements within the district and to pay for the administrative costs of the BID operations (Briffault 1999: 368).

Community development bank: lending venture jointly capitalized by government and private sector funds designed to leverage private capital for loans, guarantees, venture capital, grants and technical assistance to small businesses in disadvantaged neighborhoods. The Los Angeles Community Development Bank, for example, created by the U.S. government in 1995 was capitalized with $435 million from the U.S. Department of Housing and Urban Development and $210 million from regional commercial banks (Rubin and Stankiewicz 2002).

Redevelopment partnership: a project-based arrangement that typically involves co-investment by the public sector. The public investment may involve all manner of direct or indirect financial assistance as well as regulatory relief, bureaucratic expediting, and related forms of project assistance. The public entity (or entities) may or may not be a co-owner of the project in the legal sense, notwithstanding profit-sharing arrangements.

Joint venture: arrangement in which private and public entities jointly undertake the development (and perhaps operation and maintenance) of a facility that will provide services.

Figure 9.2: Major types of transportation PPPs

Asset Sale

Full Service Long-Term Concession or Lease

Multimodal Agreement (Public-Private Partnership)

Joint Development Agreement (JDA – pre-development)

Transit-Oriented Development (TOC – post-development)

Build-Own-Operate (BOO)

Build-Operate-Transfer / (BOT)

Design-Build-Operate-Maintain (DBOM)

Design-Build with Warranty (DB-W)

Design-Build (DB)

Construction Manger at Risk (CM@Risk)

Contract Maintenance

Fee-Based Contract Services

Project

Delivery

Approaches D

egre

e o

f private

secto

r resp

on

sibility an

d risk

High

Low

Source: USDOT, FHA, Case Studies in Public-Private Partnerships in the United States, July 2007.

Figure 9.3 PP positional combinations

100% Private

100% Public

• own• finance• build• operate• maintain

• legal rights• economic interests• financial risks• political risks

Figure 9.1: Major surface transportation PPPs in the continental United States since 1991

Source: USDOT, FHA, Case Studies in Public-Private Partnerships in the United States, July 2007.

Table 9.3: Governance Norms Norms PP Issues

• Accountability • Procedural fairness • Ban on conflicts of interest • Transparency • Administrative and judicial appeal • Confidentiality / proprietary rights • Disclosure • Confidentiality agreements • Rights protection • Information imbalances • Stakeholder participation • Normative regime change

Devolution / policy fragmentation Centralization

• Social equity • Social equity