Public-Private Partnerships Praised at Chicago Conference

Published April 11, 2012

Public-private partnerships can help solve some of the “horrific” problems currently being faced by governments, according to Laurence Msall, president of the Civic Federation of Chicago.

Msall spoke during a March conference on private-public partnerships, presented by the Federation in partnership with the Federal Reserve Bank of Chicago.

One of the biggest drawbacks of governments running programs is that they do not stress accountability, or “manage,” for performance, said panel participant William Abolt, head of the Sustainability, Energy, and Carbon Management National Practice at The Shaw Group, Inc., in St. Charles, Illinois.

Better Investments

“Most governments are not very good at fully costing services. They are bad at making capital investments,” Abolt said.

Abolt said the best prospects for managed services, a type of public-private partnership, are in programs with especially tight government funding, which makes it easier to build the political will to bring in private investors.

Managed services can help governments build or maintain infrastructure, improve services, and conserve resources while increasing revenues, Abolt said. He cautioned, though, that expectations for any such program must be realistic rather than the grandiose promises typical of government officials.

Risk Transfer

Another benefit to a public-private partnership is that project risk is transferred from the government agency to the private entity, said Ted Hamer, director of the Global Infrastructure Advisory Practice for accounting and business consulting firm KPMG.

For instance, he said, Chicago in 2008 leased 36,000 metered parking spaces for $1.16 billion to a fund managed by Morgan Stanley. If gasoline prices soar and driving declines, Chicago’s privatized parking meters probably will generate less revenue. The risk of that revenue decline falls on the Morgan Stanely fund.

Transparency, strong financial backing and well-defined project needs and scope are essential elements of successful public-private partnerships, Hamer said.

“You have to be able to go to the capital markets to get financing. They have to see value for their investors’ money,” he said.

The City of Chicago is examining the performance of a recently executed public-private partnership for its recycling program, said Alexandra Holt, director of the city’s Office of Budget and Management.

Substantial Savings

City officials decided to have a private vendor compete for part of the recycling business, with the city handling the rest. The vendor, Waste Management, is providing the service for $6.6 million a year versus the $13.6 million the city had been spending.

Based on the results of the first full quarter of the public-private partnership, Waste Management will get more work when the recycling program expands to another 20,000 residences later this year.

The city is also looking at partnerships for curb and gutter work, tree trimming, and street marking. There is no immediate time frame for those programs.

Labor on Board

Though labor unions exert a lot of influence in Chicago, “Organized labor has no problem with managed competition,” said Edward Hogan, attorney with Hogan Maren, Ltd. in Chicago, which represents most of the city’s labor unions. “But there are policy issues you need to consider. You have to have a Plan B consideration.”

There can be disasters such as floods, or the public-private partnership may not work out as envisioned, he explained. The government entity has to have contingency plans for such problems.

Denver has successfully undertaken a private-partnership to expand its public transportation system, the first project of its type in the nation, with 50 of the proposed 122 miles of rail lines already under construction and 40 percent of the project already under contract, according to Phillip Washington, general manager of the Denver Regional Transportation District.

Washington said the keys for a successful venture include having a solid financial consultant review and recommend any changes to project parameters in the very early stages; a project director with the relevant experience (a transportation project will be different from a sidewalk project, for example); and a focus on performance.

Denver officials also hired contractors to establish workforce training programs to help people develop the necessary skills to be able to work on the project.