Community Planning, Trends / Innovation

Embracing the Future of Infrastructure

P3 Projects and Evolving Funding Mechanisms

Mary Scott Nabers, CEO of Strategic Partnerships Inc.

January 19, 2024 7:29PM EST

Image courtesy of CrackerClips via Adobe Stock

Infrastructure is the backbone of our society, encompassing a wide range of vital industry components, public facilities, networks, security measures, and all other systems that support the quality of life of our residents.

However, too much of America’s infrastructure is outdated, inefficient, and ill-equipped to meet modern demands. Public funding is often inadequate to address even the most critical problems. Still, our daily dependence on clean drinking water, safe bridges, modernized schools, healthcare facilities, dependable power grids, port upgrades, and disaster relief remains unchanged, regardless of funding limitations.

That’s why the U.S. Congress is increasingly endorsing, incentivizing, and sometimes mandating private sector investment when federal funding is allocated for infrastructure projects. There is not enough public funding to cover the needs. Private sector investment is required.

How the Infrastructure of Tomorrow Is Being Funded

Communities can leverage various programs and funding mechanisms to address ongoing infrastructure challenges. Many local governments turn to municipal bonds to fund projects. The bonds are backed by municipal revenue and used to support public initiatives. Special tax districts can also be established to fund projects or services. When that is the case, the special districts impose additional taxes on residents within a defined area, generating revenue solely for the identified project. Grants provide funding for projects at all levels of government.

Apart from those funding options are public-private partnerships (P3). P3s are becoming a more viable option for communities because private-sector investment is attractive to local leaders. The funding mechanism is valued for the collaboration it fosters between public entities and private sector firms as much as for the funding they provide.

The P3 Knowledge Gap

According to the American Road & Transportation Builders Association (ARTBA), there were 29,000 active highway and bridge projects last year, reflecting a nine percent annual increase over the previous year. ARTBA anticipates that transportation construction work will reach $172.3 billion in 2023, up from $155.4 billion in 2022, and a large portion is expected to represent public-private partnership initiatives.

Despite this statistic, many public officials continue to exhibit reluctance when considering a P3 approach for funding major projects. This is due, in part, to the relative newness of the P3 delivery model and because a distinct procurement process with lengthier legal agreements may be required when private sector investors are involved.

Even with numerous conferences, training sessions, and webinars focused on P3 delivery models, this approach remains unfamiliar and can appear daunting, especially when alternative funding sources are involved. Unfortunately, the media’s contribution to disseminating knowledge has been minimal, resulting in varying levels of P3 legislative adoption across states.

Consequently, some government leaders have chosen to forgo federal funding for critical projects rather than embrace a delivery model they have not tested. Therefore, it is timely to emphasize the significance of understanding the basics of a P3 delivery model for citizens and public executives.

Image courtesy of Adobe Stock IRVINE, CALIFORNIA 16 APRIL 2020: Brandywine student housing

Five Best Practices for P3 Execution

Here are some critical steps to ensure success in a P3 engagement. These tips are crucial for both public and private sector executives to remember:

Project selection. Not all large projects are suitable for a P3 engagement. It’s essential to thoroughly assess a project’s components and feasibility during the planning phase. Public officials with available funding may opt for an alternative delivery method if no funding or unique expertise is required. However, a P3 delivery model may be optimal for large and complex projects.
First-time P3 engagements may require advisors. This applies to three categories of execution: technical, legal, and/or financial services. The need for all three depends on a project’s type and size and the experience level of public officials overseeing the project.
The governmental entity should appoint an internal project champion. Having a secondary champion is also valuable for contingency situations.
Civic outreach. Develop a civic outreach plan early in the planning phase for effective internal and external communication. Many projects hold a high profile and garnering community and stakeholder support will be critical. The quicker you can gain allies and, at least, establish a middle ground with opponents, the more the likely smooth execution will be achieved. Clear communication and transparency are vital.
An in-house team should be established to ensure success, collaborate with advisors and project leaders, and assist the private sector partner. The in-house team should be qualified, experienced, capable, and committed to the project’s success.

Numerous regions have enjoyed the benefits of private sector investments in public projects, including the District of Columbia’s street lighting initiative and a new Mississippi River bridge in Baton Rouge, Louisiana. New student housing projects, including one at the University of Massachusetts, improved public safety facilities, and affordable housing projects have also benefitted from collaboration through P3s.

Communities should remain flexible in the face of changing funding methods and proactively explore diverse financial avenues to meet critical project needs. The future of infrastructure development and public initiatives hinges on adaptable and innovative funding approaches.