Yes to more P3s in New York, but with caution

New York State Comptroller Thomas P. DiNapoli provides guidelines to avoid costly mistakes

Broadening public-private partnership (PPP, P3) schemes to include more projects and private financing is not out of the question, but strong oversight provisions to protect taxpayers and avert costly mistakes are necessary before doing so, New York State Comptroller Thomas P. DiNapoli concluded in a report released Wednesday.

“New York’s aging infrastructure needs to be rebuilt and repaired but the state’s ability to pay for this important work is limited,” DiNapoli said in a statement. While private financing can bridge the gap between increasing needs and limited funds, public-private partnerships are not an “easy-money solution.”

DiNapoli cited mistakes made in other states as examples, such as poorly drafted agreements that were expensive to correct and inadequate analyses that led to undervaluing of public assets.

In order to avoid such pitfalls, he recommended a series of provisions that must be implemented before any P3 expansion can occur. They include:

– Creating a specialised entity that will oversee P3 agreements;
– Implementing a fair and competitive bidding process to establish a level playing field among vendors and to ensure the state receives the best possible value;
– Requiring independent review and approval of complete financing plans before contracts are signed;
– Conducting independent evaluations of cost-benefits analyses to assess true costs;
– Prohibiting financing agreements with unfunded future obligations, unless the source of revenue for such payments is clearly identified;
– Ensuring full transparency and accountability for P3 projects, including monitoring and reporting requirements;
– Developing staff expertise to evaluate and manage such agreements to ensure taxpayer interests are protected;
– And requiring responsible use of any financial benefit to the state, with a focus on reducing costs to taxpayers.

Currently, New York State has a limited P3 model which allows only five agencies to use design-build procurement; financing remains under public sector control.

The next step, according to the report – Private Financing of Public Infrastructure: Risks and Options for New York State – would be to adopt a design-build-finance model.

As the state’s chief fiscal officer, DiNapoli is responsible for auditing the operations of all state agencies and local governments and managing the $160.4 billion state pension fund, one of the world’s largest institutional investors. He has been in office since February 2007.