Public Private Partnerships

PPP One of the newer concepts in public policy is the idea of the public-private partnership, or PPP. Essentially, PPPs are when the government works with private enterprise on a project. Public projects tend to be those that benefit society as a whole, and traditionally governments as representatives of the people have been the drivers of such projects. Private enterprise has often specifically avoided many types of projects because of the financial or operational risk involved.

A public-private partnership is a form of development where government and private enterprise share the risk and capital expenditure in a project. The split will be different for every project, but it often involves the government taking on some risk in order to facilitate the project moving forward, on the principle that the project moving forward is in the best interests of the general public.

In some instances, the government utilizes public-private partnerships to facilitate major infrastructure projects that the government does not want of finance alone, particularly if there is low appetite among the public for new debt (Sharma & Bindal, 2014). Advantages & Disadvantages In theory, a public-private partnership is a meeting of the minds with respect to two parties that would not participate in a given project on their own, but when working together the project becomes viable. So the advantage for both parties is that the project goes forward.

The government's interest is typically social in nature while the private enterprise interest is profit. The latter point is self-evident by definition of private enterprise, but for government there is often some question about whether it receives anything other than theoretical benefit. One theory is that if government finances an asset, it will be able to do so at a lower borrowing cost than private enterprise, but then the private partner will operate the asset, which in theory will be more efficient.

Thus, the PPP will deliver economic efficiency while lowering the cost of capital (Nisar, 2007). The main disadvantages lie in the governance, or at least the perception of governance, in PPPs. There are risks that the governance of a project is out of public hands, even while the public still bears some of the risk. Further, government can use a PPP to reframe a pet projects -- stadiums are popular -- in such a way that the public is exposed to risk without approving the risk.

The PPP is therefore an end-around to public governance that government uses in order to ensure its projects move forward, the actions of government quite contrary to its rhetoric (Wettenhall, 2003). The public therefore has less control over its risk and resources under a PPP. There is also the specter of favoritism, where government chooses private partners on the basis of political connections.

Corruption is easier with PPPs and even when it does not take place, the perception of corruption can be higher, when it becomes apparent that the PPP represents a transfer of wealth from the people to private interests. Example An example of a public-private partnership is Lucas Oil Stadium, which is the home of the Indianapolis Colts, and was cited as the most expensive PPP for taxpayers of all major league sports infrastructure PPPs (Kuriloff, 2012).

The city sought a new stadium for the Colts to ensure that the franchise would remain in the city, which is one of the smaller markets in the NFL. The city paid $620 million of the $720 million total cost. The idea for the city was that the stadium would provide security with respect to the Colts, and that would help spur a building boom around the stadium, something that appears to have occurred (Koehler, 2012).

Yet, for a PPP to be successful typically requires such spinoff effects, as well as the PPP to be part of a comprehensive plan, because in many cases the government will not make money on the PPP asset itself, as the profits will accrue to the private partners. In this case, the city knew that it needed to build a new stadium, but wanted to offload some of the risk and most certainly wanted to offload the operating of the stadium. Thus, it secured partners for both.

The city viewed the gains from its investment as coming from the other development in the area around the stadium, which served to revitalize to some extent the city's downtown core (Koehler, 2012). My Perspective Public-private partnerships are popular in an era when public appetite for increasing government debt is low, but the government still feels that it has a role to play in development. Infrastructure is expensive, and with government often.