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POLICY RECOMMENDATIONS Fiscal Health
Policy Recommendation 3:
States can assess existing statutes enabling public-private partnerships to ensure maximum flexibility to pursue this approach to achieving capital projects efficiently and effectively.
State Examples
Kentucky’s Revised Statue 45A.077 permits local public entities to enter into public-private partnerships. The broad wording of the statute gives public officials significant flexibility in selecting offers. This makes room for creative and “best fit” proposals.
the efforts of Sanford Health and Avera Health we have partnered in funding to sustain new health care graduates in rural South Dakota. These partnerships have created significant opportunities to keep our people in South Dakota and support them in their careers.”
The Fiscal Health Subcommittee approved this recommendation emphasizing the need to increase efficiency in capital projects developed through public-private partnerships. The subcommittee focused on how increased flexibility may make the model a more feasible option. Public-private partnerships can alleviate many common pain points in undertaking state capital infrastructure projects, such as mitigating cost overruns and schedule delays. These partnerships are better able to utilize competitive markets to lower costs compared to traditional public procurement approaches. Strategies for effective partnerships include shared risk among partners, clearly delineated areas of responsibility, integrated resourcing and explicit parameters of costs and accountability.
A major drawback of public-private partnerships is a lack of flexibility, as highlighted in a report from the University of British Columbia.1 They traditionally involve long-term contracts that are inflexible. Changes to the contracted project typically require bilateral negotiations, resulting in cost increases. The report suggests the efficacy of public-private partnerships depends on various factors including the likelihood a change in terms will be necessary, the cost of switching to alternative approaches and the bargaining power of government.2 Flexibility can be improved with broad legislative language and limiting the private partner’s ability to raise prices during renegotiations.
Texas Transportation Code Chapter 223 allows public entities to enter into Comprehensive Development Agreements. The state has completed approximately $12 billion in public-private partnership projects.3 The flexible nature of the agreements has been a critical aspect of the program.
Additional Resources
The Council of State Governments State Leader Policy Brief: Innovative Revenue Models — https://web.csg.org/csghealthystates/wp-content/uploads/sites/23/2022/05/ Healthy-States-National-Task-Force-Policy-Brief-Innovative-Revenue-Models.pdf
U.S. Department of Transportation: Successful Practices for P3s — https://www.transportation.gov/sites/dot.gov/files/docs/P3_Successful_Practices_Final_BAH.PDF
Endnotes
1 Ross, T., & Yan, J. (May 19, 2013). Efficiency vs. Flexibility in Public-Private Partnerships. Retrieved Oct. 14, 2022, from Copenhagen Business School: https://www.cbs.dk/files/cbs. dk/rossyanefficiencyvsflexibility.ashx_.pdf.
2 Ibid.
3 U.S. Department of Transportation. (March 2016). Successful Practices for P3s: A Review of What Works When Delivering Transportation Via Public-Private Partnerships. Retrieved Oct. 14, 2022, from U.S. Department of Transportation: https://www.transportation.gov/ sites/dot.gov/files/docs/P3_Successful_Practices_Final_BAH.PDF.
