The Martinelli Report
Public-Private Partnerships: A Fiscal Solution?
2015 will prove to be another interesting fiscal year for most states and local governments. For the fifth straight year, state spending will increase but growth will be minimal with continued intense competition for limited funds. A report released by the National Association of State Budget Officers (NASBO) explained that states are expected to spend $22.7 billion more in 2015 than in 2014 with a total of $748 billion from their general funds. The bulk of this 3.1 percent increase will be utilized by constantly rising Medicaid and education costs. This will leave little, if any, opportunity for increased spending in most other areas. There also is not much new money available to employ either.
2015 General Fund Spending Modifications
According to Governing, thirty-nine states authorized general fund spending increases for their K-12 education. Thirty-six states increased spending for Medicaid with their budgets. Twelve states cut public assistance funding. K-12 education will see an $11.1 billion increase in state spending, higher education a $4.4 billion increase, and Medicaid a $8.5 billion increase. In addition, corrections will see an increase of only $1 billion, transportation $1.4 billion, and all other expenses will have an increase of $5.8 billion. With the majority of funds being spent on K-12 education and Medicaid where does that leave the remainder of state program and project necessities? If current trends continue then there may be a constant struggle for the rest of the limited funds that are not spent on education and healthcare. While competition is not uncommon, states may begin to rely on analytics in order to determine where state funds would be spent best. Performance measurement will be given an increased level of importance in order to justify and explain which programs will achieve the desired level results and what works best.
Demand for Solutions
This fiscal situation will also require creative solutions in order to meet the demand for budgetary necessities and build resilient, innovative, and adaptable communities. By allowing projects and programs to go underfunded or unfunded, state and local governments will not be building strong communities that can stand up to a challenge or crisis. It is vital to have financial resources in place for critical systems and infrastructure, not just health and education, in order for a state to be economically strong and resilient in the event of a crisis. 3Ps are one type of solution that allow project and program necessities to be fulfilled while continuing to build these strong communities. Without a solution, how long can some programs remain underfunded and projects put on hold? Ultimately, any projects concerning economic development will also hinder a state’s ability for growth without the creation of any new jobs and revenue.
Economic development is critical to the strength of a state as well. The ability to create new jobs and grow is a sign of a state’s fiscal strength. In addition, the amount of debt that is held by cities, towns, and the state are important to bond ratings and the capacity to fund projects and pay back debt. If a local or state government is given a poor bond rating, then economic development becomes more difficult. Another issue concerning economic development is how it affects tourism and a government’s capability to draw in new residents. If a state is perceived as economically weak or unstable, then it is likely that new residents will not move into the area. In addition, if tourism has remained underfunded then there is not an effective method to draw in more business or to counteract any misconceptions of a possible negative economic situation.
Role of 3Ps?
It is up to state and local governments to utilize effective methods to remain innovative and competitive. The bleak fiscal outlook for the upcoming year conveys the necessity to employ solutions such as 3Ps in order to meet their needs and to excel. The benefits of 3Ps are as follows below:
- Can be critical for transportation, gaming, energy, public works, public safety, environment, infrastructure, health, education, and corrections projects
- Public and private sectors both share in the risks and rewards
- Offer a high delivery of service
- Must be a statutory foundation for the implementation of the partnership
- Transparency is a requirement at all times in order for citizen and stakeholder support and project success
- A comprehensive contract is also critical and outlines all requirements, the business plan, responsibilities, risks, and benefits for both sectors
- The revenue stream must be detailed as well
- A valuable option for offering a reasonable project ROI
- May create jobs and aid within economic development
- Accelerates project completion due to provision of access to additional capital
- Allows the public sector to incorporate private sector knowledge and expertise
- Addresses budgetary constraints and the competition for allocation of funds without additional taxpayer expenses.
The benefits of 3Ps are obvious, however, should they also be viewed as a fiscal solution? It depends on the circumstances and the demand for services. If a government cannot find a way to fund a program or project or must make infrastructure repairs, then yes, 3Ps are a viable solution. 3Ps may not be a feasible solution for all necessities. It is important for leaders and lawmakers to weigh all options and find the most beneficial one. 3Ps offer practical solutions for a wide variety of public policy needs, however, they should not be viewed as a fix-all or replaced for adequate public sector budgets.