Public-private partnerships: Why governments can’t do it alone

As a result of COVID-19’s impact on state and local municipalities, a new model for Public Private Partnerships (P3) is emerging to deliver citizen services in a more cost-effective way. While P3s have been around for decades, these partnerships have primarily focused on real estate and infrastructure development. But now, at a time when governments don’t have the money or the scale to provide services rapidly, state and local municipalities are teaming with the private sector in ways that haven’t been done before.

New delivery models are transforming P3s, addressing traditional funding limitations and playing a pivotal role in driving COVID-19 recovery.

Challenges

The additional obstacles that state and local governments are currently facing stemming from COVID-19 include:

• Decreased Revenue from Economic Slowdown- reduced income tax revenue; reduced sales and use tax revenue; reduced severance tax and fee revenue; and reduced property tax revenue.
• Increased Demands for Services- testing and contact tracing in the immediate recovery phases; healthcare costs for vulnerable and uninsured populations; unemployment insurance support payments; job placement/education support; increased human services support; and increased operational costs to keep public spaces clean and support social distancing.
• Costs of Transitioning to Remote Workforce- providing new technology tools and training to enable remote work; improving broadband access; and adapting services to maximize remote delivery of services.

All of these challenges arose simultaneously just as governments emerged from the last financial crisis. According to the National Association of State Budget Officers, the aggregate revenue for U.S. state governments finally matched 2008 revenue in real terms only in FY2019. In other words, state governments have no more financial capability to meet COVID-19 challenges than they had in 2008.

In addition, across the country, there are a variety of tax-limitation and spending-limitation measures for state and local governments. The details vary widely, but generally, governments have a limited ability to respond rapidly to current COVID-19 challenges and face significant hurdles to increasing or changing their tax and fee sources to pay for services. As a result, governments must seek out partners to deliver services to citizens because they cannot rapidly meet, and pay for, citizens’ needs simply with their own employees and funds.

Shifting P3 model objectives

For decades, the P3 model had been used when there was an obvious opportunity for revenue generation, specifically to entice private-sector participation. Therefore, real estate development (including public buildings, schools and surrounding transportation infrastructure) and infrastructure development (including job-generation land sales and associated construction) was a central focus.

During the crisis, however, P3s have had a different objective—to drive COVID recovery—and they don’t necessarily have an obvious revenue stream to fulfill it. This gap is driving public and private sector partners to come together to combine their resources to meet community needs. Recent examples include:

• In El Paso, Texas, the COVID-19 Enhanced Regional Public Health Partnership works on strengthening communication and coordination between public sector officials, private sector partners and healthcare providers to support the region’s response to COVID-19.
• In Birmingham, Alabama, the #BhamStrong partnership includes government, university, and private-sector organizations to support local small businesses with loans; loan applications support and assistance; and business advisory assistance.
• In Detroit, Michigan, the Rock Family of Companies is leading private-sector and non-profit organizations to coordinate the manufacture, testing, and distribution of COVID-19 mitigation supplies such as personal protective equipment (PPE), ventilators, testing supplies, and medication.
• In San Diego, California, The San Diego Culture Challenge Fund, funded by a collection of public- and private-sector organizations, is providing $1.25 million in financial assistance to support local artists.
• In Maui County, Hawaii, the government is acting as an intermediary, combining private and public dollars, and distributing funds to various non-profits that provide food assistance. This helps local non-profits meet increased demand due to the crisis.
• In Martha’s Vineyard, Massachusetts, health officials created a public-private partnership with Quest Diagnostics to make coronavirus testing available for all Vineyard residents, with a drive-through testing facility at Martha’s Vineyard Regional High School.

How to use P3s moving forward

The examples of recent partnerships highlight how combining governments’ scale, regulatory/enforcement responsibilities, expertise and personnel with private sector’s financial, manufacturing, logistics, and personnel resources can more quickly accomplish what either sector could achieve solo.

In addition to these examples, below are other areas that have always been important, but deserve extra attention as we continue towards COVID recovery.

Making Healthcare Services Accessible to Uninsured:
As a result of the increasing unemployment numbers, many people will likely become uninsured. We should be assessing how to make healthcare accessible to those people through a P3 solution.

Providing Broadband Access to Support Economic Development:
Various cities and states are now making broadband available through partnerships. To ensure the success of working remotely and to promote economic development, it’s imperative that people in rural areas have the same level of broadband service access as urban and suburban dwellers.

In the long run, COVID-19 recovery partnerships have the ability to reframe the way we’ve traditionally used P3s and lead the way to revitalized partnerships where everyone wins in the process—the public sector, the private sector, and the citizens that are being served.

Mark Howard is a Managing Director leading the state and local government consulting practice with Alvarez & Marsal. He is based in Denver. He has spent 35 years as a government executive and a consultant to governments. He has worked with governments globally on organizational transformation, innovation, and operational efficiency.