Pennsylvania governor urges more 'reverse' PPPs

Speaking at the Public-Private Partnerships USA Summit in Washington DC, Ed Rendell said governments should do more PPPs in which they give subsidies or other revenue streams to the private sector to encourage delivery of new projects.

Pennsylvania Governor Ed Rendell has advocated what he called “reverse” public-private partnerships (PPPs), in which the government subsidises some of the financing for private development of new-build projects that are supported by the public but lack financial resources. 

Ed Rendell

“Earmarks are over . . . there’s just no federal money at the scale necessary to do these large-scale projects so the question is: can a project that people want and are willing to pay for to some extent, can it be done by a reverse PPP?” said Rendell, speaking to delegates at the Public-Private Partnerships USA Summit in Washington DC.

The estimated $5 billion Mon-Fayette and Southern Beltway in the western part of Pennsylvania, in which the state is looking to build three sections of highway totalling 50 miles, is an example of a reverse PPP, Rendell said.

“The turnpike doesn’t have the money to make this happen – regardless of their bonding capacity,” Rendell said. As a potential solution, he said the turnpike can invite the private sector to “come in, operate the tolled portion and in return get a subsidy from the state for coming in and putting money upfront to build the unbuilt portion”.

The Turnpike Commission has received three responses for its request for concepts and solutions for the Mon-Fayette and Southern Beltway, but has not yet made a decision on how it will proceed with the project, a commission spokesperson said. 

The development of a light rail system in the Philadelphia area could also proceed as a reverse PPP, Rendell said. The public sector cannot afford the creation of the Schuylkill Valley Metro on its own, “but can we do a $20 million per year subsidy and give [the private sector] all the proceeds from the revenues”? Rendell asked. “It’s possible, it’s possible.”

Rendell contrasted these types of arrangements with his state's attempt to lease the 531-mile Pennsylvania Turnpike – a PPP in which money flowed from the private sector to the public sector.

“For the turnpike, [Spanish infrastructure manager] Abertis told us how much money they would give us to operate it,” Rendell said, making reference to the $12.8 billion a consortium of Citi Infrastructure Investors and Abertis offered for a 75-year lease for the road.

Rendell did not shy away from talking about the state's attempt to lease the turnpike – a project that failed largely due to opposition from the Pennsylvania Legislature. He expressed frustration about the public's misunderstanding of the difference between selling and leasing a state-owned asset for a long period of time.

He also said the participation of foreign investors in the process, such as affiliates of Australian investment bank Macquarie Group and Abertis, caused “fears of koala bears collecting tolls” and other wrong-headed concerns about foreign control.

“Abertis manages the airport in Orlando. It’s the global economy – wake up!” Rendell said.

Local politics also played a factor. The turnpike is a major bastion of civil service jobs in Pennsylvania, Rendell explained, and members of the turnpike commission have long used it as a source of patronage.

“Parties have always split the jobs and split the white collar patrons. There wasn’t a member willing to give up the patronage – not one,” Rendell said.