Separating fact from myth on public-private partnerships

9/24/2012

DURING the past two decades, state government in Ohio has grown at an unsustainable rate. It has assumed roles to which it is not well suited, from running tollbooths to managing parking garages.

This cannot continue if Ohio is to remain economically competitive, with a lean and efficient tax and regulatory structure that invites business creation. In a time of tight budgets, it makes no sense to waste taxpayer dollars on services that the private sector can perform better, or that can be leveraged to create new opportunities for strategic investment.

One tool in this effort is the creation of public-private partnerships that allow government to tap the skills -- and often the capital -- of private-sector enterprises to accomplish noncore tasks or to raise more money.

Ohio State University recently signed an agreement with a private company to manage campus parking operations, in return for an up-front payment of $483 million. This revenue will create a significant endowment focused on research and education, and allow the private sector to focus on managing the parking system.

State government is exploring public-private partnerships to meet transportation needs. Largely because of declining revenues from federal and state gasoline taxes, Ohio has an estimated $1.6 billion gap between projected highway funding needs and what it can afford.

Gov. John Kasich's administration is studying the potential lease of the Ohio Turnpike. The debate over this option is often contentious and emotional, and a lot is at stake for the turnpike's employees and regular users.

It isn't clear whether leasing the turnpike would be a good deal for Ohio taxpayers. But the idea should not be dismissed out of hand because of unfounded fears.

The Buckeye Institute, working with the Reason Foundation, recognizes the need for an informed and balanced debate on this issue. Our new report, Ten Myths and Facts about Public-Private Partnerships in Transportation, seeks to provide a primer for citizens and policy makers.

The report notes that over the past 25 years, more than 30 states have enacted legislation that authorizes private-sector financing of highways and other transportation projects. Some states are pursuing public-private partnerships to improve state toll roads; others seek private financing of new projects.

Among the common myths and misperceptions about public-private partnerships are that they involve the sale of roads to private interests, that they allow private toll operators to charge unlimited rates, that they involve selling assets to foreign companies, and that government bears all the risk if a project goes bankrupt.

All these premises are false. For example, state officials determine future toll rates before they sign any lease or agreement. Similarly, Ohio State took a lower private bid on its parking garage to guarantee control over enhanced garage fees.

Foreign investment in -- not purchase of -- public assets could properly be viewed as "in-sourcing" that brings significant money to the state. And if a private-sector investor-operator declares bankruptcy, the asset would revert to the project's lenders, who -- with the state's permission -- would select a new operator.

Public-private partnerships are tools to increase revenue and leverage assets. Detailed agreements allow them to be tailored to the specific needs of a project and government.

Debate over public-private partnerships needs to be free of emotionalism and demagoguery. We won't know whether leasing the Ohio Turnpike makes sense until a study commissioned by the state comes out at the end of the year.

In the meantime, Ohioans ought to understand that their worst fears are not founded on reality.

Kevin Holtsberry is president and Greg R. Lawson is policy analyst of the Buckeye Institute for Public Policy Solutions, a free-market research organization in Columbus.