New York State Comptroller Thomas P. DiNapoli called for strong oversight provisions if New York broadens the authority of the state to enter into public-private partnership (P3) projects or goes forward with private financing of public projects. DiNapoli’s recommendations follow the release of a report today examining the benefits and problems that have plagued P3 projects elsewhere in the country.

“New York’s aging infrastructure needs to be rebuilt and repaired but the state’s ability to pay for this important work is limited,” DiNapoli said. “If New York allows private companies to finance public infrastructure projects, they should protect taxpayers and include safeguards to avert costly mistakes down the road. This may seem like an easy-money solution to a complex and growing problem, but poorly structured agreements have significantly cost taxpayers in other states.”

Although P3 agreements can cover almost any type of public service or activity, the most common projects have involved roads, bridges, buildings and water facilities. In some instances, private entities are allowed to set tolls, fares and other charges. While financing costs tend to be higher for the private sector, the agreements can be attractive because they may lead to more competition, better market pricing and more financing options.

In January 2011, DiNapoli issued his first report on the role that public-private partnerships might play in New York’s infrastructure needs. In December 2011, the Governor and Legislature agreed to the Infrastructure Investment Act, which authorized five state agencies and public authorities to use design-build procurement for a limited number of projects, including the replacement of the Tappan Zee bridge. Under the design-build model, design and construction services are awarded to the same contractor and not procured separately.

DiNapoli urged policymakers to develop a clear understanding of the potential benefits and costs of P3 projects before taking further action. He noted that a number of states have permitted P3 projects but no state has granted unilateral authority to any state entity to pursue P3 agreements. He cautioned that the private debt and other payments associated with P3s could be costly, and that long term agreements could impact the public for decades. In other states, poorly drafted agreements have been expensive and difficult to correct, and inadequate analysis can lead to undervaluing public assets.

To protect taxpayers, DiNapoli recommends that any P3 expansion include provisions to:

• Create a specialized entity to oversee P3 agreements with statutory provisions that establish detailed procedures for the consideration of P3s to ensure full transparency and accountability;
• Develop staff expertise to evaluate and manage P3 agreements to ensure taxpayer interests are protected;
• Require independent evaluations of relevant cost-benefit analyses to provide an impartial assessment of true costs;
• Require complete financing plans subject to independent review and approval before contracts for the project are finalized;
• Require a competitive bidding process to establish a level playing field among prospective vendors and to ensure the State receives the best possible value;
• Require an independent review and approval of P3 contracts by the Comptroller to ensure that contracts are awarded through a fair and open competitive process;
• Prohibit financing agreements with unfunded future obligations, unless the source of revenue for such payments is clearly identified;
• Require responsible use of any financial benefit to the state, focused on reducing costs to taxpayers; and
• Ensure full transparency and accountability for P3 projects, including monitoring and reporting requirements, as well as local government and public involvement through hearings and other outreach efforts.

For a copy of the report, visit: http://www.osc.state.ny.us/reports/infrastructure/p3_report_2013.pdf

For a copy of the Comptroller’s January 2011 report, visit: www.osc.state.ny.us/reports/infrastructure/pppjan61202.pdf