Ten Current Challenges to US Public-Private Partnerships in Water Infrastructure: What Holds Us Back from Global Innovation Practices

Why We Cannot Leverage Huge Supplies of Expertise, Money, and Tested Models During a Time of Incredible Demand for Infrastructure and Services - and some options for moving forward

1.    Too much supply, not enough demand: current P3 landscape is counter‐intuitive to the need for resources at federal, state and local levels to replace, upgrade or build new infrastructure -‐ billions of equity to invest, significant domestic and global expertise, and millions of jobs to be generated, but only 20--‐23 substantial US projects were in the 2017 transaction pipeline. Therefore, a mismatch of resources poised to ensure America’s competitiveness and the overwhelming gap in the American public-private partnership culture. 

2.    A 19th century view that public sector infrastructure is a “public works” project – best owned and operated by governments – and not a “public service” that is best delivered by partnering between the goals‐oriented impacts desired by citizens, industries, as well as entrepreneurial, private sector capabilities desired by taxpayers. Therefore, partnerships are presented with a conundrum: what is the appropriate balance of effectiveness, efficiency, and savings? How do we address “Chevy” rated tax and funding policies against desire for “Cadillac” services?

3.    Demand for solutions to address citizen, taxpayer, economic and societal interests are unobtainable after our quick-search assessment of 30 US counties, municipalities, and public-works agencies and a high level assessment of 75 additional locations – where many pension programs are underwater, property tax values have just now returned to pre‐recession levels, and voters are in an anti‐bond, anti‐debt mood. Simply, the money to fund a 21st century infrastructure - especially water-related - is not going to magically appear without increased rates, raising dollars, investing for the long-haul. And we can no longer not communicate clearly to citizens and industries that someone has to pay for the delivery of water to their homes and businesses while removing waste from its use.

4.    The reality of government shutdowns over the past several years, including the most recent one – and the state of affairs for federal budget negotiations, debt‐limit, and similar national fiscal debates – has proven that counties, cities, and other localized government authorities will “have to go it alone” in the new normal or the “Age of Austerity.” Federal subsidies and state resources for local government have been in a declining period for at least a decade according to many budget analysts and forecasters. Therefore, local elected and appointed officials are the bearers of bad-tiding that often lead to their being kicked to the curb for raising rates and taxes. 

5.    With the financial services industry often viewed through an unfavorable lens and in certain perspectives unfair ‘bailout’ scenario by many citizen groups across the country, there is a perspective – caused by miscommunications and hyperbole - that private equity investment in public infrastructure is a disadvantage for taxpayers. Simply, there is a notion that most partnerships are a win‐lose proposition, where valuations of assets are exploited in a crisis. Yes, mistakes have been made but in the overwhelming case of US history and global development of P3s, we are leaving significant amounts of resources on the table that could address our infrastructure demands. 

6.    Through a combination of public and private management fault‐lines, where fear of failure by elected and appointed officials bumps against impatience for a so‐called ‘perfect transaction model’ by investors and financial advisors, reaching accord on a ‘mutually beneficial opportunity’ is increasingly difficult. Assuming that the private sector is going to take on all the risk while not being compensated accordingly is a dead-end proposition; while assuming that the public sector is going to turn over its long-held assets for exploitation and a free-run of the house is not realistic.

7.    As more and more innovative governors, county executives, and mayors seek to adopt out of the box strategies, the belief among a number of elected officials is that their own procurement and legal staff remain in many cases risk adverse at best, outright negative towards non-‐government solutions at worse – and therefore stymie alternative models and collaborations that have had successful results and performance in other parts of the US and especially abroad. It appears from nearly three years of conferences and forums attended on the subject of public-private sector innovation, the best way to unleash alternative models and practices is to reform procurement into a performance-based system. Instead of telling potential bidders what colors the wheels of the wagon need to be, provide the baseline outcomes and results for technical and economic impacts, and then let smart people compete on ideas, approaches and solutions.

8.    Elected and appointed officials face unstable conditions for presenting alternative solutions for resources: entrenched public employee unions, well financed watchdog and transparency groups, new media investigative coverage create fear of political reprisal. In turn, poor grassroots communications, over-promising financial results, and underestimating the length of time required for achieving return on investments are self‐ inflicted wounds by politicians AND private sector partners. These collective challenges combine to spark reluctance in support by citizens, taxpayers, voters, and in some cases create ‘strange bedfellows’ such as Occupy Wall Streeters and Tea Partyers.

9.    All the same, out of frustration for lack of meaningful progress and through their entrepreneurial, creative capabilities, the evolution of disruptive technologies, alternative revenue models, and innovative consumer-oriented best practices applied to government services, a new generation of public and private sector next-generation leaders are launching a plethora of exciting tools, operating models, and partnering arrangements. From the Urban Mechanics initiative in Boston to the Chief Innovation Officer in San Francisco (funded by the Rockefeller and/or the Bloomberg Foundations), cities are realizing that someone has to be the intermediary among common interests and fragmented operations in many regions and communities – a neutral third-party to connect the dots. However, we lack in the US such entities around large-scale infrastructure projects that drive innovative strategies and practices.

10. While the “old models” of partnering on grand‐scale projects – toll‐roads, airports, parking garages, even certain water systems ‐ are driven by global finance investment strategies, a new alignment or alliance of innovators, public service thought‐leaders, non‐government organizations, philanthropists, entrepreneurs, technologists – and myriad youth and student civic initiatives ‐ has sparked a portfolio of emerging tactics and techniques including:

 Â·      Mobile applications and big data-analytics

·      Social impact investing and venture philanthropy

·      Public‐public ‘management’ scenarios where more successful and innovative government organizations take‐over less successful and inefficiently performing operations of other departments or even peer jurisdictions in proximity to each other

·      Applying lessons from the “Shared Economy” and implementing collaborative arrangements through Shared‐Service Centers

·      Adoption of transparency metrics and performance--‐based analysis of traditional resource allocations, thereby raising awareness of more effective and impactful approaches to government procurement, contracting, and service delivery

·      Reality that the public sector has an extensive portfolio of under‐leveraged and non‐ performing assets that could be optimized with enhanced technology deployment and creative, entrepreneurial management

Therefore, while Gallop, Pew Charitable Trust, and other polling results show that over 70% of citizens and voters support the creation of a National Infrastructure Bank or Fund, and while bipartisan groups of governors and mayors have convened forums and conferences to seek a federal‐local alliance in favor of expanding public‐private partnership projects, some of the best practices and progress is being made in hyper‐local markets or outside of the US in efforts that must be scaled, sponsored, and otherwise networked into an Innovation‐Driven Water Resiliency & Partnership Agenda.

 For those in the water-infrastructure space, observing the ebb and flow of droughts and floods in Texas, as well as the serious consequences of Cape Town South Africa, the opportunities are abundantly clear for a private-sector, entrepreneurial and innovative approach to America's infrastructure gap. Through our recent “Roundtable on Water Infrastructure Financing and Alternative Models for Innovation,” AccelerateH2O invites global and national best-practices and demonstration with the ongoing efforts of the unique Texas Water Development Board’s SWIFT program as well as to identify additional solutions for small and rural systems that lack traditional balance-sheets for financing repairs, upgrades, and multi-system projects.

Through collaborations among the US Water Partnership, the US Water Alliance and a host of other organizations led by public and private senior executives with significant expertise, there is no reason why more innovative programs for infrastructure cannot be launched in 2018 to prevent a Cape Town scenario in America.