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Testimony to
New York State Commission on State Asset Maximization

Public-private partnerships

Presented by Kenneth Adams
The Business Council of New York State
November 6, 2008

Commissioners, thank you for holding this hearing on this important subject today, I am Kenneth Adams, president & CEO, of The Business Council of New York State. The Council represents more than 3,000 employers in New York of all sizes. Our members employ more than one million New Yorkers. Our members are very interested in the opportunities presented by public-private partnerships or P3's.

The nation and New York state face daunting infrastructure needs:  from education facilities, to water and wastewater facilities; to public safety centers; to information technology infrastructure; to IT services; to transportation needs.

P3's offer a means for New York State to address these needs in a way that helps further community economic objectives; “infrastructure” means much more than roads and bridges and P3s should be thought of in the broadest sense of ‘infrastructure'.

P3s are not THE solution – they're a part of a solution; that's where the partnership aspect of the process plays a pivotal role in determining whether a P3 is a success or a failure. P3s should not be viewed as the solution to a budget crisis – or a way to supplant public investment. The P3 process by its nature works best when there is a strong and trusted relationship among the public and private partners who advance the process together. An open and collaborative process between the public and private sectors helps to ensure that P3 projects go well and also provides for an atmosphere which encourages innovation and creativity.

The P3 process also must include the public and other stakeholders – and it is a process which makes its objectives clear from the outset. There are longstanding P3 successes around the world – many countries in Europe and Australia have been using a P3 model for many years; more recently, Canada, our state's largest trading partner, has had demonstrated P3 successes over the past 5 years. P3s represent between 10 and 15% of all UK investments in public infrastructure

Why P3s now? Relying solely on tax-exempt bond markets and grant sources is proving insufficient to meet major infrastructure needs; alternative sources of public and private equity funds must be considered which would include P3s, and other types of bonds.

The Commission's charged with among other things making recommendations regarding specific State assets that could be maximized through an alliance with the private sector; standards must be developed for potential alliances with the private sector; identifying an appropriate procurement process should also be recommended to the Legislature and the Governor for the State to enter into alliances with the private sector entities to maximize State assets.

Transportation is a key sector where P3's can be beneficial. The state's transportation needs are large and growing, far exceeding our reliance on fuel taxes, tolls and borrowing to fund transportation infrastructure.

This requires serious consideration of alternatives to the standard approach to financing, constructing, and operating our transportation system. Key elements driving private sector transportation infrastructure investment:

Private sector transportation investment would help accelerate projects and keep them on-time; on-budget by implementing:

There are specific transportation projects in New York that have great potential for this kind of collaboration.

Bridges

Rail

But, public-private partnerships may go well beyond transportation needs. The commission has the benefit of many talented members and access to expertise which can ensure that we not be constrained by near term needs:  in an era when state revenues are declining, the opportunity ought not be lost to review the submissions from the state agencies in response to the DOB directive around ‘core mission'. That is many worthwhile services might be provided by state agencies – which can no longer be met through existing resources; and those needs should be evaluated through a P3 lens:  whether it's the rethinking of how wastewater treatment facilities are funded; to thinking broadly about state-owned resources such as our vast network of parks where revenue maximization may not be realized because resources to maintain and expand them may be constrained.

It may be as simple as looking to neighboring states, such as New Hampshire, which in 1998 entered into a 30 year lease agreement for the operation of their state-owned ski facilities. In entering into a lease which protected and ensured the broadest public access (and thus keeping to the state's objectives) but allowed for the operation of the facility to be professionally managed and operated after competitive procurement. This was NOT privatization of assets; this has served as a means to increase access and use; increase capital investment in the ski area; and ultimately increase revenues to the State of New Hampshire from both lease payments and through a percent of gross revenues generated by the facility. Increasing the state's return on its assets – while maintaining those assets in the public domain — should be fully explored, and, as New Hampshire has shown – with clear objectives, a tightly written lease and revenue agreements, the goals can be met for a true P3.

We can also look at New York's leadership role with its public and private universities in support of research, development and technology transfer for examples on how P3s can be used to further economic and infrastructure objectives. The P3 partnership which created the College of Nanoscale Science & Engineering demonstrates how complex issues such as intellectual property ownership didn't impede private sector investment and commitment to achieving the outcome — an example of having an equitable transfer of risk and reward.

P3 initiatives with our public universities — SUNY and CUNY — ought to be fully evaluated. The asset portfolio within SUNY and CUNY represent real opportunities to provide P3 solutions for these systems' capital needs and perhaps for ways to leverage research into broader economic P3 partnerships.

In conclusion, New York State needs to improve infrastructure while providing taxpayers needed relief by accessing private capital.

We cannot rely upon Washington to bring our fair share of funding back to New York and P3's would help to supplement our infrastructure needs.

The growing use of P3's for transportation and other projects in the United States and across the globe demonstrates a sensible alternative to traditional funding and procurement. Carefully crafted P3's would help to avoid additional taxes; reduce the State's reliance on borrowing; green the environment; adapt to a changing global economy; and create jobs.