In good news for Ohio taxpayers, state policymakers are recognizing that there's no free lunch in public infrastructure, and they're seeking new ways to do more with less.
Facing a perfect storm of persistent budget deficits, underfunded public pensions and tightening federal spending on highways and the like, cash-strapped states like Ohio are going to have to innovate if they want to continue to maintain—much less expand and modernize—their infrastructure systems to keep pace with an increasingly competitive global economy.
Ohio has now joined at least 25 other states in passing sensible legislation to authorize public-private partnerships (PPPs) to develop infrastructure projects. Governments around the world have shown they can partner with private firms to finance and develop new highways, bridges and other infrastructure vital to our economy. Public-private partnerships offer a way to bring new sources of capital to the table as “traditional” sources like fuel taxes and government borrowing dry up in an increasingly challenging fiscal environment.
In March of this year, Gov. John Kasich signed into law House Bill 114, which included language authorizing transportation public-private partnerships in Ohio. This will benefit the state by allowing officials to seek private funds to fund and build needed transportation projects now, as opposed to decades from now—if ever—given the shaky state of government finances.
The legislature is currently revisiting the issue in House Bill 153, ostensibly to clarify and add more policy direction on how PPPs will be used. The version passed by the House earlier this month represents a good start to a solid PPP framework, but,the Senate has a chance to improve upon the House's bill in two key ways.
First, the House language grants exclusive authority to the director of the Office of Budget and Management (OBM) to analyze and determine which transportation public-private partnership projects to advance. Vesting such authority in one individual, however, goes against the grain of global best practices.
Countries like the United Kingdom, Australia and Canada that have successfully implemented PPPs for decades have found it beneficial to create a team of experts—a PPP “center of excellence”—to evaluate and procure projects, given that these projects tend to be more complex and require more rigor than your garden variety of government purchasing. The center brings together experienced technical, financial and legal experts to study, prioritize and select projects using a consistent set of standards and practices. This promotes transparency, accountability and performance in infrastructure decision-making. The PPP team can also translate lessons learned and best practices from previous projects to new ones, generating a cycle of continuous improvement.
The Ohio Senate should consider adopting this approach by creating a dedicated public-private partnership center of excellence within the OBM instead of granting all PPP authority to the director. Excellent, proven models for structuring a PPP center abound, including Partnerships U.K. (United Kingdom), Partnerships B.C. (British Columbia), Infrastructure Ontario and Puerto Rico’s new Public-Private Partnerships Authority.
A second area for improvement would be to expand the scope beyond just transportation. Highways and bridges are a good, and much-needed start, but what about schools, hospitals, courthouses and other types of social infrastructure? Funding pressures exist across the board in public infrastructure—not just transportation—and new solutions are needed.
The Ohio Senate need not reinvent the wheel in expanding the scope of public-private partnerships beyond just transportation. Global PPP leaders like the U.K. and Canada have long used partnerships to develop hospitals and schools, in addition to transportation projects. Domestically, Virginia has passed two separate PPP laws used by the state to deliver infrastructure across a variety of sectors, including highways, road maintenance, education facilities, telecom and psychiatric hospitals. Similarly, Puerto Rico adopted legislation in 2009 inviting private investors to modernize or develop new roads, schools, ports, water systems and energy plants. In addition, the California court system is currently using a public-private partnership to finance and build a new, $492 million courthouse to replace an aging facility in Long Beach. Given the Golden State's budget woes, a PPP was the only realistic option to deliver such a costly, but nonetheless important, project.
Ohio policymakers deserve credit for realizing that new tools are necessary to deliver public infrastructure as we enter what is hopefully a new era of fiscal responsibility. Ohio can no longer afford to sit on the sidelines and watch other states take the lead on PPPs, so getting the policy right from the outset is critical. Private capital is flowing to those states that have created a sound legal framework for infrastructure investment, and if the Senate gets the details right in the current bill, Ohio's economy and business climate will benefit from public-private partnerships for years to come.
Leonard Gilroy is the director of government reform at Reason Foundation, a national think tank advancing free minds and free markets.