In the abstract, public–private partnerships have appealed to lawmakers and the American public alike, who have been seduced by the promise of leveraging public funds for infrastructure projects and of realizing business-world efficiencies. In reality, however, costly contract renegotiations, unexpected delays, and other hurdles have dogged many such arrangements.
With supporting data from public–private partnerships nationwide and abroad, a series of recommendations that will help partnerships reap hoped-for rewards include recognizing the benefits and limitations of public-private partnerships, entering into a contract that properly guards against demand risk and opportunistic renegotiation, and ensuring transparency for partnerships within government budgets.
Public–private partnerships are often touted as a “best-of-both-worlds” alternative to public provision and privatization. But in practice, they have been dogged by contract design problems, waste, and unrealistic expectations. Governments sometimes opt for a public–private partnership, for example, because they mistakenly believe that it offers a way to finance infrastructure without adding to the public debt. In other cases, contract renegotiations have resulted in excessive costs for taxpayers or losses for private firms. This paper proposes a series of best practices that communities can undertake to ensure that public–private partnerships provide public value. These include choosing partnerships for the right reasons, relying on flexible-term Present-Value-of-Revenue (PVR) contracts, including partnerships on government balance sheets, and implementing good governance practices. Enacting these reforms will help maximize taxpayer value and reduce risks for each party involved in a public–private partnership.