Part 3.What Public–Private Partnerships Are

Even with their ubiquity, there remains some ambiguity as to what exactly constitutes a PPP. For this article, however, we focus on a more specific, emerging form of PPP that gives the private sector a greater role in decision making and assumption of risk in the joint venture.

The private sector has long been involved in infrastructure projects, under arrangements by which the private sector, under contract, designs and builds facilities (or roads) and then turns them over to the government to operate and maintain. Our specific focus is on long-term partnerships involving the private delivery of public infrastructure services. Thus, Public–private partnerships are ongoing agreements between government and private sector organizations in which the private organization participates in the decision-making and production  of a public good or service that has traditionally been provided by the public sector and in which  the private sector shares the risk of that production.

Three critical conditions characterize this conception of these emerging PPPs:

  1. The relationship between the public and the private sector organization is long term, rather than a one-time relationship, such as might occur in a conventional contract for a good or service (such as office products or secretarial assistance).
  2. The private sector cooperates in both the decision making as to how best to provide a public good or service and the production and delivery of that good or service, which normally have been the domain of the public sector.
  3. The relationship involves a negotiated allocation of risk with the private sector instead of government bearing most of the risk.

These emerging forms of PPPs take a variety of forms that reflect varying degrees of private involvement, including design, build, and operate; build, own, operate, and transfer; and design, build, finance, and operate.

Next time we will explore important elements of successful conventional contracting including arm’s-length negotiations, transparency, clear specifications of the good or service being bought, and specific evaluation criteria.

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Part 2. What Public–Private Partnerships Are and What They Are Not

What Public–Private Partnerships Are and What They Are Not

After years of underfinancing much-needed repairs and maintenance to America’s infrastructure—by as much as $2.2 trillion, according to some estimates—digging out of the current deficit will be costly. And with state and local governments facing tight budgets, it may be decades before the work will be affordable. The lack of resources for infrastructure improvement and maintenance extends beyond highways and affects a range of public capital investments, from levees to wastewater treatment and from transportation to schools. The dismal state of the nation’s current infrastructure could hamper future growth.

The ways that governments allocate new funding for infrastructure projects and the ways they build, operate, and maintain those projects has contributed to the problem. New spending often flows to less valuable new construction at the expense of funding maintenance on existing infrastructure.  Further hindering efficiency, the traditional process for building infrastructure decouples the initial investment—the actual building of a highway, for example—from the ongoing costs of maintaining that highway. As a result, the contractor building the highway often has little incentive to take steps to lower future operations and maintenance costs. Such inefficiencies likely contribute to falling rates of return on public capital investments. PPPs can be used for solid waste, transport (airports, bridges, ports, rail, roads, tunnels, and urban railways), tourism, and water.

The United States is a relative newcomer to PPPs. Public–private partnerships have existed worldwide at least since the time of the Roman Empire (e.g., the use of private tax and toll road collectors) and in the United States since its founding. During the Revolutionary War, the Continental Congress authorized the use of privateers to harass the British navy. Later, much of the West was developed through a variety of PPPs, including the cross-continental railway. The production of transportation infrastructure often has been undertaken with PPPs, from the development of private toll roads and canals during the nation’s early history up to the recent Dulles Greenway—a privately financed, built, and operated toll road in northern Virginia.

Even though there is an old nineteenth-century tradition of privately provided public infrastructure and even of private tolled roads and bridges,  the United States still depends almost exclusively on the government for its public transport infrastructure (with the important exception of railroads).The two-decade trend toward PPPs that has revitalized the ways that many countries provide infrastructure has gained only little traction  in the United States. Whereas the United Kingdom financed $50 billion in transportation infrastructure via PPPs between 1990 and 2006, the United States, an economy more than six times as large as that of the United Kingdom, financed only approximately $10 billion during the same period.

Even with their ubiquity, there remains some ambiguity as to what exactly constitutes a PPP. . . For future articles . . . we shall focus on a . . . form of PPP that involves a greater role by the private sector in decision making and assumption of risk in the joint venture.

Public–Private Partnerships: Public Accountability

Public–private partnerships (PPPs or P3) are growing in popularity as a governing model for delivery of public goods and services. In recent years, the state of California for instance has partnered with the private sector to finance, design, construct, operate, and maintain two state infrastructure projects—the Presidio Parkway transportation project in San Francisco and the new courthouse in Long Beach. Both the California Department of Transportation (Caltrans) and the Administrative Office of the Courts (AOC) entered into P3s for these projects in order to achieve benefits that they might not have obtained under a more traditional procurement approach (such as design-bid-build).  PPPS potential benefits include greater price and schedule certainty and the transfer of various project risks to a private partner.

PPPs have existed since the Roman Empire, but their expansion into traditional public projects today raises serious questions about public accountability. In a series of articles we plan on examining public accountability and its application to government and private firms involved in PPPs.

Part One-The Model:

Public–private partnerships (PPPs) increasingly have become the default solution to government problems and needs, most recently for infrastructure, and they are embraced by a wide range of constituencies, across political parties, and throughout the world. This trend may accelerate as governments experience fiscal deficits and look for alternative ways to finance and deliver government services. The rationale for creating such arrangements includes both ideological and pragmatic perspectives.

Ideologically, proponents argue that the private sector is superior to the public sector in producing and delivering many goods and services.

Pragmatically, government leaders see PPPs as a way of bringing in the special technical expertise, funding, innovation, or management know-how from the private sector to address complex public policy problems. The expanding domain of goods and services provided by PPPs includes private toll roads; schools, hospitals, security services, wastewater treatment, and emergency response.

There are many challenging technical and structural aspects to creating successful PPPs that have been addressed by other authors (see, e.g., Grimsey and Lewis 2004; Hodge and Greve 2005; Yescombe 2007). However, with the increased use of PPPs, the issue of public accountability has become one of the more important of policy questions raised (see, e.g., Guttman 2000; Sclar 2000). The purpose of upcoming articles is to provide a framework to assist public managers in effectively exercising accountability with PPPs. We will begin with a discussion of the nature of PPPs and the traditional concept of public accountability. Second, we focus on the unique characteristics of inter-organizational relationships that are pertinent to the exercise of accountability in PPPs. Finally, we shall offer a framework to analyze PPP accountability issues along several important dimensions that shape the relationships forged in public–private partnerships.

Next Time: What Public–Private Partnerships Are and What They Are Not

 

Revisions to Federal Transportation Project Grant Program Encourages Use of P3s

The federal grant program that provides funding for freight and highway projects throughout the country has been revised to support projects that use funding from the private sector or other nonfederal sources.

The Fostering Advancements in Shipping and Transportation for the Long-Term Achievement of National Efficiencies (FASTLANE) program has been renamed the Infrastructure for Rebuilding American (INFRA) program, the U.S. Department of Transportation’s Build America Bureau announced recently. Congress authorized FASTLANE to receive $4.5 billion over five years under the Fixing America’s Surface Transportation (FAST) Act of 2015 to provide competitive grants or credit assistance to nationally and regionally significant freight and railway projects beginning in 2016.

The INFRA program will provide approximately $710 million in FY 2017 and up to $855 million in FY 2018, according to a July 5 Federal Register notice. The INFRA program will evaluate projects using updated criteria to ensure that they meet national and regional economic vitality goals and encourage the use of nonfederal funding and innovation in the project delivery and permitting processes, including P3s. The program’s revisions could provide some insight into the approach President Trump could take in proposing a $1 trillion infrastructure funding package later this year, reported The Hill.

Each large project that is selected for funding will receive at least $25 million; each small project will receive a minimum of $5 million, and 10 percent of available funds will be reserved for small projects for each fiscal year of funding. The INFRA program preserves the FAST Act’s statutory requirement that at least 25 percent of funding be reserved for rural projects.

Projects eligible for funding include reconstruction, rehabilitation, property acquisition, environmental mitigation, equipment acquisition and operational improvements that affect system performance.

Applicants can resubmit previously submitted FASTLANE applications but must explain how these projects competitively address the INFRA grant criteria. Applications are due Nov. 2.

What GOP Plan For Health Care Reform May Mean For You?

The House GOP Health Care Reform Plan provides a blueprint for eliminating important elements of the ACA and replacing them with a more market-oriented approach.

On Wednesday key Capitol Hill committees started debate on the controversial new Health Care legislation

Both President Trump and the House GOP plan contemplate using tax credits to subsidize the purchase of health insurance.

Hearings on the “American Health Care Act” (AHCA) stretched overnight at the House Ways and Means Committee and Energy and Commerce Committee. Ways and Means approved its portion of the AHCA at around 4 a.m. on Thursday, while discussion continued at Energy and Commerce

While partial details on the AHCA’s costs are available, the Congressional Budget Office hasn’t yet estimated how the AHCA would affect the uninsured rate or how much it would cost overall. CBO would not have a “score” — a report on the effects of the bill — before next week, when the measure could go to the Budget Committee.

The Plan has not yet been analyzed by the Congressional Budget Office, so it is unknown how much the plan will cost and what its impact will be on the number of people who are insured. Additionally, despite the Republican majority in the Senate, it is unclear whether all the Republican senators will support the bill.

It is far from clear, however, whether the Medicaid provisions of the House GOP plan have sufficient support to pass the Senate. Four GOP senators recently warned that they would not support any plan that does not protect the Medicaid expansion population. Moreover, in his speech last week, President Trump argued that Congress should give governors the “resources and flexibility with Medicaid to make sure no one is left out.” It is not clear what Trump meant by this statement and whether he supports the House GOP plan’s Medicaid changes could very well cause some people to lose coverage.

One way of shedding light on what a final law may look like is to look at its putative winners and losers. Although it is hard to assess the ultimate impact of health care reform until more details emerge, what’s now known suggests that particular subsectors of the industry could be winners or losers:

1. Hospitals:

To the extent health care reform results in significantly more uninsured patients, hospitals will likely bear increased costs. Because hospitals often treat patients regardless of ability to pay, more uninsured patients means increased charity care and bad debt write-offs. This burden would fall heavily on disproportionate share hospitals (DSH) — hospitals that treat a large percentage of the indigent population. The ACA had reduced government funding to DSH hospitals under the theory that they would offer less uncompensated care as the number of uninsured people drops. The House GOP plan would benefit DSH hospitals by repealing the ACA’s funding cuts.

2. Pharmaceutical Industry:

The plans contemplated by the Trump administration and House GOP will have a mixed impact on the pharmaceutical industry.

The ACA reflected a complex bargain between the Obama administration and the pharmaceutical industry. The pharmaceutical industry benefited from more insured people who could afford to purchase more drugs. It also benefited from the closing of the “doughnut hole,” the coverage gap between an initial threshold of drug costs that would be covered by Medicare Part D and a much higher catastrophic maximum after which Part D coverage would resume. In return, the branded pharmaceutical industry agreed to an annual tax of about $3 billion (allocated among branded pharmaceutical companies based on their share of the branded pharmaceutical market) and cutbacks on Medicaid reimbursements for prescription drugs.

The House GOP plan partially unwinds this bargain. The plan benefits the pharmaceutical industry by repealing the $3 billion annual tax and maintaining the closure of the doughnut hole. Additionally, repealing the “medicine cabinet tax” may boost the sale of over the counter drugs. But the pharmaceutical industry will lose to the extent that people reduce purchases of prescription drugs because they lose their health insurance or are covered by plans that provide only limited coverage for expensive drugs, even while the ACA’s cutbacks on Medicaid rebates are left intact.

3. Medical Device Manufacturers:

Health care reform will likely be a major boon to device manufacturers because there is strong GOP support for lifting the excise tax on devices. Device manufacturers may also benefit from greater flexibility in patients’ ability to use HSA money on devices that would not typically be covered by insurance. That being said, device manufacturers may suffer lost sales to the extent people lose insurance coverage or purchase only thin coverage that leads them unable to afford certain devices.

While the House GOP plan reflects the bill that the House GOP leadership would like to pass, it is likely to be just the start of a heated health care reform debate. Different health care industry subsectors may yet have a significant role in shaping whatever bill, if any, ultimately passes in Congress and is signed by the President.

Republican leaders have emphasized that the objective of the law is to lower the cost of coverage and reduce government mandates, not necessarily to increase or even maintain the number of people covered.

One thing remains clear: the changes contemplated by the Trump administration and congressional Republicans are likely to have significant implications for just about every sector of the health care industry.

Republicans hope to send the AHCA to the full House within the next month.

This week in Congress.

The Senate will consider resolutions of disapproval under the Congressional Review Act (CRA) and confirmation of the president’s appointees to federal agencies. The House will be taking up litigation reform legislation and appropriations legislation to fund the Defense Department through the remainder of fiscal year 2017. The highest profile activity in Congress this week, though, is expected to take place in the House which plans to mark up the legislation to begin to repeal and replace the Affordable Care Act.

The Senate will return on Monday afternoon, when votes are expected on two resolutions of disapproval of federal regulations issued in the final months of the Obama administration under the CRA. The first vote will be on H.J. Res. 37 to disapprove a rule from the Department of Defense, the General Services Administration, and the National Aeronautics and Space Administration revising provisions of the Federal Acquisition Regulation to require federal contractors to disclose findings of noncompliance with labor laws. The Senate is then scheduled to vote on the motion to proceed to H.J.Res 44, a resolution of disapproval of the Bureau of Land Management’s Resource Management Planning rule, finalized in December 2016. The regulation establishes the procedures used to prepare, revise or amend land use plans pursuant to the Federal Land Policy and Management Act of 1976, but congressional Republicans, state and local governments, and affected property owners have argued that the new process creates more confusion and greater uncertainty. The White House has announced support for both resolutions of disapproval, indicating the president would sign them into law upon Senate passage (both resolutions have already been approved by the House).

Senate floor activity for the remainder of the week is uncertain. It is possible the majority leader will initiate action on the nomination of Seema Verma to serve as Administrator of the Centers for Medicare and Medicaid Services. The nomination was advanced by the Senate Finance Committee last Thursday on a straight party-line vote.

On the other side of the Capitol, the House will return to legislative business on Tuesday, when members will consider seven bills, including five measures under the jurisdiction of the Transportation and Infrastructure Committee, under suspension of the rules.

On Wednesday, House members will consider three additional bills under suspension of the rules, all reported by the Natural Resources Committee.

The House will then take up H.R. 1301, the Department of Defense Appropriations Act for FY 2017, subject to a rule. The funding bill would replace the Department of Defense provisions of the current continuing resolution for FY 2017, which is set to expire on April 28, and provide funding through the end of this fiscal year, which ends on Sept. 30. The legislation meets the overall defense spending limits set by law for FY 2017, providing $516.1 billion for base budget needs. The bill also provides $61.8 billion in Overseas Contingency Operations funding, which is the level allowed under current law. These amounts are also in line with the National Defense Authorization Act signed into law by President Obama in December. Unlike the Defense Appropriations bill that passed the House on a party-line vote last summer, this version of the defense spending bill maintains statutory budget limits. As a result, it is likely to garner more bipartisan support for House passage in this session of Congress. Press reports indicate the Trump administration is preparing to request an additional $30 billion in supplemental funding for the Department of Defense in FY 2017, largely for readiness spending, but it remains unclear how Congress will respond to any supplemental appropriations request. It also remains unclear how or when Congress will deal with funding for the 10 remaining FY 2017 spending bills before the continuing resolution expires on April 28.

During the remainder of the week, House members will consider three pieces of litigation reform legislation reported out of the House Judiciary Committee. Each will come to the floor under a rule.

On Thursday, the House will take up two of these measures. H.R. 725, the Innocent Party Protection Act, limits the ability of federal courts to remand cases to state court under certain circumstances. Members will also consider H.R. 985, the Fairness in Class Action Litigation Act of 2017. The bill includes language from a previous class action reform proposal, which passed the House in 2016, to prohibit federal courts from certifying any proposed class under Rule 23 of the Federal Rules of Civil Procedure unless the party seeking to maintain a class action demonstrates that each member of the proposed class suffered an injury of the same type and scope. This version of the legislation also includes some additional provisions related to class action litigation, including disclosure requirements on third-party litigation financing.

The third litigation reform bill will be considered on Friday. H.R. 720, the Lawsuit Abuse Reduction Act of 2017, would amend Rule 11 of the Federal Rules of Civil Procedure to make the imposition of sanctions for violations of the rule mandatory, not discretionary as under current law.

Also this week, House Republican leaders are expected to release their proposal to repeal and replace the Affordable Care Act.  Once the bill is released, committee action is on tap, with markups this week, and prompt floor action can be expected as early as next week.

With all committees now organized, both chambers are facing busy hearing schedules.

 

In Congress: Votes on several Cabinet nominees Expected

Today the Senate is scheduled to resume legislative business with an afternoon vote scheduled on the nomination of Rex Tillerson to serve as the Secretary of State under President Trump. On Tuesday, the Senate will take up the nomination of Elaine Chao, wife of Senate Majority Leader Mitch McConnell, R-Ky., to serve as the Secretary of Transportation.

Votes on several other Cabinet nominees can be expected throughout the week as the nominations are reported by their respective Senate committees. On Monday, the Small Business and Entrepreneurship Committee is scheduled to vote on the nomination of Linda McMahon to serve as the Administrator of the Small Business Administration, and the Finance Committee is scheduled to consider the nomination of Steven Mnuchin to be Treasury Secretary. The nomination of Senator Jeff Sessions, R-Ala., to serve as attorney general is expected to be considered by the Judiciary Committee on Tuesday. That same day the Committee on Energy and Natural Resources is scheduled to vote on the nominations of Rep. Ryan Zinke, R-Mont., to serve as Interior Secretary and former Texas Governor Rick Perry to serve as the Secretary of Energy. The Homeland Security and Governmental Affairs Committee plans to meet on Wednesday to consider the nomination of Rep. Mick Mulvaney, R-S.C., to be Director of the Office of Management and Budget. Also on Wednesday, David Shulkin is scheduled to appear before the Veterans’ Affairs Committee regarding his nomination to head the Department of Veterans Affairs.