Editor’s note: this article is excerpted from a longer commentary that appears in the May issue of Infrastructure Investor magazine, available to subscribers only. Click here to learn more.
In January 2008, three months before he would resign as Governor of New York, Eliot Spitzer asked me to “sell” the New York Lottery. That effort began a policy process that produced, with many twists and turns, the New York State Asset Maximization Commission, whose widely anticipated report and recommendations have recently been released. The story of how one led to the other, contains, I believe, essential lessons for anyone hoping to understand how much work remains to get the PPP market moving in the United States.
Our initial plan was to harness the $7 billion annual revenue stream the New York Lottery generates to seed with $4 billion a permanent endowment for New York’s public university system. We imagined offering a 40-year lease concession of a significant interest in the Lottery sufficient to garner a big enough upfront payment to create this new endowment and continue the Lottery’s existing contributions to elementary school funding.
But by mid-March, it was clear that our funding mechanism, the Lottery proposal, was still poorly understood and unlikely to pass the legislature.
Before March 10, 2008, that sort of thing still seemed like a big problem. But then of course Eliot Spitzer, already weakened from a year of controversy and missteps, showed us what a real problem looks like, erupting in a fireball of salacious charges, painful apologies and, lastly, resignation.
When the dust settled and the new Governor took up the reigns, an interesting thing happened. He expressed misgivings about the current Lottery proposal, citing the confusion and misunderstandings it had generated despite our best efforts. What we needed, he believed, was a respectful, comprehensive approach that put all the right people at the table and took their viewpoints seriously.
From that insight came the New York State Asset Maximization Commission, created in October 2008 by executive order.
In just three months, with a tremendous effort by the Commission’s talented executive director, Samara Barend, the group held public hearings in every corner of the state, issued a preliminary report laying out principles and an analytic framework, and received testimony from more than 120 organizations and individuals, all of which was made publicly available on the Internet.
What will emerge from this work will be a combination of process and action recommendations, including: (1) specific partnership transactions that can move forward immediately based on Governor Paterson’s existing authority, (2) a permanent new approval framework and oversight process for asset maximization initiatives in the form of a permanent state board, residing within the Empire State Development Corporation; (3) a first-of-its-kind examination of all the state’s assets across the full range of asset classes, including transportation, energy, healthcare, education, information technology, underutilized property, and social infrastructure; and (4) a set of critical principles for protecting the environment and the rights or workers.
What should also emerge is a new understanding from the private sector that the energy and enthusiasm it feels for public-private transactions has still not taken root in the corridors of state capitals across America. The infrastructure community needs to realize that when it comes to politicians’ feelings about your proposals, in the phrase of the recent romantic comedy, “they’re just not that into you.” Where major deals are attempted as “one-off” transactions, without any overarching framework (e.g., the Pennsylvania Turnpike) the forces of the status quo are much stronger than fund managers and bankers want to believe. And they will defeat you. Bringing good ideas to market, through the political process, will require the private side to develop a much better political capacity. On the public side, it requires a sustained effort like the one undertaken in New York, where the forces that are essential to accomplishing anything are engaged in a consistent and respectful manner.
Sean Maloney served as first deputy secretary to Governors Eliot Spitzer and David Paterson of New York, where he was instrumental in creating the New York State Asset Maximization Commission. He currently focuses on infrastructure transactions as a partner at Kirkland & Ellis in New York City.