No free lunch

A growing clamor for P3s to be used to underpin the federal government’s infrastructure aspirations could work against the model in the long term

Right now, ‘infrastructure’ appears to be on the lips of almost every politician in Washington.

If it’s not President Joe Biden or Transportation Secretary Pete Buttigieg extolling the virtues of infrastructure to deliver an age of renewal across the US, then it’s high ranking Republicans pushing back on what ‘infrastructure’ really means and how much they would be willing to spend on it.

As we have reported, the recent noises coming out of Washington do at least appear to be pointing in the same direction: there is broad agreement that ‘something needs to be done’, and the two sides don’t appear to be too far away on making some in-roads into what that ‘something’ might be.

One sticking point looks to be how it will all get funded – and the way this debate is framed could yet have some long-term consequences for the P3 industry.

It has been notable that in comments made to the press by many Republicans, the notion of P3 is often brought up as an alternative to raising taxes to pay for the proposed investment. The danger here is that by presenting the debate in this way, the impression may be given that getting the private sector to finance projects is essentially ‘free money’.

Some sources have suggested that it was the realization that the private sector would need paying back – with interest – that eventually led to the stalemate in the Trump administration’s infrastructure plans, which had been more squarely planted on using P3s in the early days. If this is the case, then Republicans risk falling into that trap again, and could end up significantly damaging the model in the longer term.

A good example of this could be the UK, which for a decade or more aggressively used the P3 model as part of the Blair government’s efforts to keep its campaign pledges of reinvigorating the country’s infrastructure without frightening the middle classes with ever increasing tax bills.

The problem was, it was never properly explained to the public that these investments in schools and hospitals in particular (where there was no user fee) would have to be paid for by taxation over the long term, with authorities paying off their new buildings over decades, instead of simply on completion. Hence, in recent years, relatively regular articles appearing in local press musing aloud as to why locals are still paying for certain buildings, often seeing those payments not as part of the recompense for the work, but merely profit for the private parties.

This is why education is key – not just at a federal level but at a local level, too. By making it clear what the public sector is contracting for, including the long-term benefits such as maintenance and operation of an asset, the authority can better explain to its citizens why it is using the model and what to expect from it.

It is often said that there is no such thing as a free lunch. Similarly, those who attend P3 conferences will often hear the refrain that P3 is not a panacea.

As Republicans increasingly look to pitch P3s as a direct alternative to the Democrats’ tax raising plans, they are in danger of giving the public the impression that they have found a loophole in both those maxims.