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The Danger of Public-Private Partnering

Research & Commentary
March 26, 2015

by Larry Checco

Millions of dollars are at stake in long-term public-private partnerships, and the public is losing out.

By Larry Checco


Through public-private partnerships, or P3s, governments are turning more and more to the private sector for financing.

Why the federal government would even consider risking billions of taxpayer dollars by entering into long-term public-private partnerships with one hand tied behind its back is beyond me.

But that’s exactly what will happen if some bureaucrats in Washington get their way.

It’s not news that all levels of government are strung out financially. Yet the business and financial burdens of providing services and infrastructure to their citizenries relentlessly go on.

Enter public-private partnerships, or P3s. Governments are turning more and more, through these structures, to the private sector for financing.

For years, P3s have been employed to offset government costs in nations as far-flung and disparate as Great Britain, Australia, Canada, India, and Russia — and P3s are now beginning to gain traction in the United States.

P3s are not necessarily a bad thing. In fact, when executed properly, they can do good.

But unlike routine government contracts that can be terminated and awarded to another company for any number of reasons, these long-term — usually between 25 and 99 years — P3 agreements almost always guarantee a steady stream of income to the private partner, even if terminated early.

In essence, we’re talking about the potential of privatizing profits and socializing losses whenever the government enters into such agreements — to the detriment of we the taxpayers.

In an effort to address infrastructure and budget deficits, several states have entered into P3 agreements for the construction and maintenance of toll roads. Unfortunately, almost all of these roads have struggled financially and, in some cases, have required state and federal government bailouts.

Bailouts to the private sector! Ouch! We’ve seen this movie before.

But here’s another rub: These bailouts do not actually cover any incomplete road construction. They rather ensure that investors get their government-guaranteed rates of return, profits that can run as high as 12 to 18 percent.

Or take the city of Chicago, where officials decided to privatize parking meters using a P3 deal to close a one-year budget deficit. According to the Chicago inspector general, the city has lost somewhere between $1 billion to $2 billion in future revenues.[pullquote]Just one public-private partnership has cost Chicago somewhere between $1 billion to $2 billion in future revenues.[/pullquote]

In addition to the lost future revenues, Chicago taxpayers are on the hook to pay the private firm — even if they want to terminate the deal early.

So who’s minding the chicken coop?

Deep in the belly of the beast exists a small, little known group that sets accounting standards for the federal government, the Federal Accounting Standards Advisory Board.

The FASAB has created a task force to look more closely at P3 arrangements. In full disclosure, I was invited to be a member of the task force as a taxpayer representative.

Over the course of the last two years, task force members have developed specific recommendations to increase accountability and transparency by requiring federal agencies to disclose and reveal P3 arrangements. All of which I agree with, by the way.

The majority of the FASAB’s Board of Directors supports the task force’s recommendations. But one board member’s concern may derail and block the task force’s efforts and impede transparent reporting of P3s. In part, the member argues, the recommendations are too expansive and would cover too many P3 arrangements.

Excuse me, but if over time we’re talking about saving taxpayers billions of dollars, my recommendation is to require transparency and greater accountability from my government, not less!

After all, the private enterprises that the government is partnering with in P3s are certainly looking after their self-interest. As taxpayers, we need to ensure that the government is looking after ours.

We’re not talking chump change here, folks. Billions of dollars are at stake in these long-term contractual agreements, and our kids and grandkids will be forced to make good on them anytime anything goes wrong. And let’s be honest, our government does not have a very good track record when it comes to husbanding American tax dollars.

Whether you are a budget-conscious fiscal conservative or a liberal-minded taxpayer concerned about waste, fraud, and abuse, this is one issue worth keeping an eye on.

Larry Checco is the president of Checco Communications and a columnist for Accountability Central, where he writes on economics, politics, and income inequality. He holds a degree in Economics from Syracuse University and an MA in Journalism and Public Affairs from American University.

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