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Kathleen Brown at ULI: Public-Private Partnerships Work; Still Have Political Challenges

The federal government is spending huge sums of money to keep the economy moving, but the investment and capital markets remain defined by mixed messages and scarce capital. A recent panel at ULI-LA’s Infrastructure Summit 2009, excerpted here by TPR and entitled “Financing P3 Infrastructure, Transit and Public Facilities,” attempted to find a ray of hope and a path for the future in the expanding practice of public-private partnerships. The panel featured Kathleen Brown, senior advisor, Goldman Sachs, and Frank Rapoport, senior partner, McKenna Long & Aldridge.

Published Friday June 26, 2009

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Frank Rapoport

Kathleen Brown

Rapoport: Since I spend most of my week in Washington I wanted to just spend a minute with you talking about what Washington’s view, or ignorance, of public-private partnerships (P3) is, and why it may be important in stimulating deal-flow in the United States...

...What is the Obama Administration saying about P3s? Very briefly, Ray LaHood, the Secretary of the Department of Transportation, started to mouth the words “public-private partnership.” Why wouldn’t he? That is less money that Washington has to give the governors and mayors if our private equity clients are willing to finance these deals.

Developers here might want to take a look at what may be a model of future stimulus funds called the $1.5 billion Discretionary Fund that Ray LaHood has. In short, all of the stimulus money, except for this pot, was given to the governors and mayors. This $1.5 billion is available for transportation and unique related projects where the local city or governor can raise most of the funds. A developer could put in for $30 million or $40 million out of this pot of money, as long as the city has a P3 mentality that allows the developer to bring his own private equity. This could be the model of future stimulus funds.

As we talk to governors and mayors around the country who don’t have a P3 law, like California, we warn them that it might mean they are going to be left out if the next wave of stimulus money in 2010 has provisions on it that you must put skin in the game. The only way to do that is to have fully embraced public-private partnership. My thesis is that the urgency of this market is such that the more political will that we see from Obama and from Congress to send the right signals to the mayors and governors to do more deals, the better off that will be. How could they send that signal? In the reauthorization of the transportation bill—up Sept. 30—they could increase the TIFIA funding, which is a subordinated debt-product that could be used to structure a P3 deal, to have this layering of bank debt that is subordinate. If they increased that, it would be a good signal. If they lifted the limits on private activity bonds, that would also be a good signal.

The handwriting will be on the wall. Watch and see whether Obama starts sending more signals that P3 is a really good thing. A good way to do that would be to set up a Best Practices Center in Washington. Every other country, you heard, has a partnership—Partnerships UK, Partnerships British Columbia. It’s no secret that Governor Schwarzenegger, when he got interested in P3 four or five years ago, had to leave the country to find anybody who knew anything about it. He went up to Canada to meet with Larry Blaine at Partnerships British Columbia. Why don’t we have that type of center in Washington, never to dictate policy or tell a mayor what to privatize or not, but to simply show him, or her, the standardized deal documents, the best practices, and provide expertise?