Thursday, December 1, 2011
Public Private Partnerships Solving Government Budget Deficits
As government budget deficits continue to climb for state, local and federal governments, you will hear much more about the utilization of Public Private Partnerships, also known as, "P3s" or "PPP" to solve this problem. P3 projects are quickly rising in popularity due to the success of obtaining funds to renew Government infrastructure, improve transportation, and construct new projects that they could not afford before.
Public Private Partnership projects involve a contract between a public sector authority and a private party, in which the private party provides a public service or project and assumes substantial financial, technical and operational risk in the project. In some types of PPPs, the cost of using the provided services is given exclusively by the users of the service and not by the more traditional method of using the taxpayer.
But why would a private company assume such a huge risk?
Like any investment with large risk, there is a great opportunity for an invested private business to make a lot of money. With Public Private Partnerships, revenues can be in the form of either a fee for service, paid by government, or fees collected from users, as in the case of highway tolls, automatically ticketed red lights, or hotels attached to convention centers.
One example of a successful development utilizing Public Private Partnerships is the Overton Hotel and Convention Center located in Lubbock, TX. This 303-room hotel with a 47,000 gross square-foot conference center is located across the street from Texas Tech University and Jones AT&T Stadium in Overton Park
and was financed with private debt and equity. The conference center was financed with City bonds to be repaid by site-specific occupancy taxes and property taxes. The capital plan also included naming rights, room licenses and nonprofit foundation grants.
The City now leases the conference center on a long-term basis to the hotel owner who operates the entire property. In addition, the hotel also partnered with Texas Tech University's Restaurant, Hotel, and Institutional Management (RHIM) program to provide hands-on laboratory experiences in a variety of areas that will truly benefit the RHIM students, giving them the opportunity to become successful professionals in the hospitality industry.
With PP3s solving government budget deficits and successfully creating development projects like these, it is no wonder that they are on the rise. It really is a win-win situation for everyone involved and creates a solution to a big problem.
Author is an expert in public private partnerships and commercial real estate development news. For help with infrastructure financing or development of your public and public/private developments contact Garfield Traub Development.