CEO of The P3 Group Inc. and National Policy Advisor on Public-Private Partnerships & Urban Redevelopment for the National Bar Association.
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Urban redevelopment, also known as urban renewal, is met with several challenges for communities around the country. The lack of adequate infrastructure, housing and other critical public facilities all hinder the execution of urban redevelopment plans. Likewise, this lack of infrastructure and facilities present significant obstacles to attracting new industry and citizens to communities. A successful urban redevelopment plan can create additional demand for housing and public services such as fire, police, education and healthcare. Urban redevelopment requires planning, land acquisition, the elimination of blight and slums and input from the public. Urban redevelopment also requires effective governance that creates clear and concise policies and strategies to be put in place and executed.
During my time as the CEO of a public-private partnership (P3) development firm and national policy advisor on P3s and urban redevelopment, I’ve observed that P3s can offer urban communities a unique opportunity to implement strategic plans faster while transferring significant risk from the public sector. Cities, counties, urban renewal and economic development agencies can use P3s to attract industry, upgrade infrastructure and develop new facilities.
For example, a large industry that will create 1000 new jobs is considering moving to an urban community. The community lacks a suitable facility to house the company, but having a facility is pivotal to the final decision of the company’s leadership. The company asks the city, county or one of its economic development agencies to construct and lease the facility. The leadership of this urban community is concerned about how issuing debt for this type of transaction will impact its general obligation capacity, credit rating and ability to fund future capital projects. A public-private partnership can move this project forward and address the concerns of the community leaders.
Using a P3 to address the facility needs of this industry can be accomplished in the following manner. The government agency selects a P3 developer and passes a resolution acknowledging that the government has the authority to execute this transaction but believes it will relieve the burden of government by allowing this transaction to be executed by the private sector. The P3 developer uses a nonprofit that has a conduit issuer to issue taxable bonds to finance the construction of the facility. The bonds are backed by a long-term lease from the company that will be occupying the facility. Any profits earned from the lease are shared with the government, and at the end of the financing term, the facility is then donated to the government agency. Using this model, the government isn’t involved with the issuance of the debt and has no liability associated with the project. The company gets the facilities it needs, and the community benefits from 1,000 new jobs.
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Another example that could materialize from the first example is the need for more housing and infrastructure to support the growth that will follow a large industry moving into an urban community. The city and county have the same concerns about how to responsibly issue debt and pay for the infrastructure improvements needed to support this growth. The city has a feasibility study that shows a need for 300 new homes, but the existing infrastructure will not support the additional homes. Using a public-private partnership, the city could select a P3 developer who can partner with a national builder to move this project forward. The government would again pass a resolution acknowledging its authority to make infrastructure improvements for the benefit of the public but resolves that it will relieve the burden of government to have the infrastructure improvements financed and constructed by the private sector. The P3 developer will enter into a firm agreement with the builder to purchase the completed lots at a price that includes the cost of the infrastructure improvements needed to support the development. In a substantially similar manner as the first example outlines, the P3 developer would then construct the infrastructure needed and sell the completed lots to the builder. The proceeds from the sale of the lots are then used to retire the debt, and the infrastructure improvements are donated to the government to operate and maintain.
I have outlined two of the many ways in which public-private partnerships can be used to help redevelop urban communities. The fact is that many urban communities are plagued with environmental issues, dilapidated and abandoned properties. So in some situations, creating and executing an urban renewal plan that identifies and incorporates opportunities to use public-private partnerships can create a win-win scenario.
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