Taking the P3 Route to Reinvent Downtown

Using Public-Private Relationships to Help Achieve Goals Never Grows Old

ARTICLE | Jul 27, 2017

By Charles Renner

Local governments around the world can find themselves in a fierce competition for growth. The engine for that growth is the presence of young, mobile, and well-educated professionals. These are the people who fill the jobs that localities are able to create.

They fill the cafes and clubs located there. Their tax dollars fill the coffers of the local treasury, and their networks and affiliations bring optimism and a promise of further growth.

Attracting these people to town is not easy, especially for mid-tier and smaller communities. The challenge is that much of the growth that places might have experienced during the past half century came under a different urban model, one that made different assumptions about what it is people wanted.

It was a model centered upon interstate highways, half-acre lots, large industrial and manufacturing parks, and shopping malls. It led to the decentralized use of space characteristically associated with suburbia. Not anymore.

The set of motivational factors today includes plentiful career opportunities, an attractive natural and built environment, a vibrant culture, and safety and security benefits. Concurrently, evidence is mounting that retiring baby boomers crave many of the same features and are moving to–or remaining in–local government centers in far larger numbers than previous generations.

Joel Kotkin, a journalist and long-time commentator on demographic issues, recently noted that many of the ";most senior-heavy areas," for instance, are Rust Belt localities not typically associated with sun-splashed, Florida-style retirement communities.

A New Urban Model

The new model favors the density and diversity characteristic of local government centers. For localities that came to life in a more decentralized, suburban mode, it can be difficult and expensive to meet this new planning priority.

Yet the ability to attract and hold educated and skilled talent has long proven to be the single most significant determining factor in regional economic growth, particularly in the United States, where the rate of internal migration has been greater than that of other nations for nearly two centuries.

While communities combat the post-recession constraints on public sector investment, state and local leaders are themselves taxed to find real solutions to create urban places that have a magnetic effect on the factors necessary for growth. Planners and leaders can't move mountains or an oceanfront vista, but with help, it is possible to beautify an urban core, upgrade key infrastructure, introduce improved transportation choices, and build amenities that draw income-producing talent.

The only challenge is identifying innovative solutions in this direction and leveraging existing resources to produce lasting results. Managers know that a public-private partnership (P3) is a long-term agreement between a public entity–state government, county government, or public university–;and a private team that can be tasked with designing, building, financing, operating, and maintaining a public facility.

The growing use of the P3 delivery model is not an accident. As a community increases the size of its educated workforce and finds ways to attract and retain employment centers, the economic benefits from this delivery model touch entire populations.

The past decade has seen a steady increase in the use of P3 structures, and 2016 was something of a watershed year with multiple high-profile projects coming online that address a variety of public needs, including a $1 billion water infrastructure project servicing San Antonio, Texas, the site of ICMA's 2017 Annual Conference.

In each case, the public sector identified a future need aimed at supporting the attraction of mobile talent, evaluated the limits of going it alone, engaged a P3 partner, and found leadership to achieve results.

A Sioux Falls Renaissance

The history of Sioux Falls, South Dakota (250,000 population), a fast-growing metropolitan area, resembles that of other regions throughout the U.S. During the 20th century, the city grew in size and prosperity with an economy based primarily in agriculture, transportation, and associated manufacturing.

As these industries became more consolidated and employed fewer workers, Sioux Falls has shifted to be a hub for the service economy, particularly financial services and healthcare.

This shift has been both a blessing and a curse. The newer economy held out the potential for greater and continued prosperity, but the city itself was still oriented around its older agriculture, transportation, and manufacturing roots.

This led to under-used urban spaces that offered younger, mobile workers little incentive to relocate. The city needed to take full advantage of the service economy opportunities to attract workers and allow local businesses to thrive.

Through a series of downtown plans, the city has responded with a dedicated focus on re-envisioning its use of space in order to create the density and amenities of a city center. It created a central business district (CBD) in 2002 and has focused efforts on urban renewal, including converting a former brownfields site into pedestrian- and bicycle-friendly recreation space, building a sculpture park, and developing a river greenway to take advantage of one the city's greatest natural assets, the Big Sioux River.

A key part of the updated Downtown 2025 Plan is increasing the CBD's available commercial and residential real estate. To help accomplish this, Sioux Falls opted for a P3 solution to design, build, operate, and maintain a mixed-use facility with retail, office, and residential uses that will ultimately increase the density of downtown.

Nebraska Innovation Campus and P3

While P3 solutions can function well as a small part of a larger package of planning and development ideas, they also embody an approach to economic development that can serve as the organizing principle for larger projects. This is particularly true for smaller and mid-sized communities that have public-sector assets and characteristics that are attractive to private business.

Lincoln, Nebraska (population 268,000), for instance, both as a state capital and as the quintessential college town, has a significant presence in the state's public economy; however, using that presence to enhance and grow the private economy has not always been an easy endeavor.

Nebraska Innovation Campus (NIC) is a project meant to bridge that divide between the public and private economies, and what better way to do that than through a P3 project? Located adjacent to the University of Nebraska-Lincoln, NIC is a research campus designed to facilitate new partnerships between the university community and private businesses.

At project completion it will offer 2.2 million square feet of facilities, including conference and auditorium space, office space, laboratories, and greenhouse space. It employs more than 5,000 people in a dense, urban environment.

A project of this scale would not be possible without state and local government support, along with high-competency private partners, all well positioned to build Lincoln for the future with some $190 million in joint investment among the P3 partners.

San Antonio's Vista Ridge

San Antonio (1.4 million population; Sheryl Sculley, city manager) stands as the seventh largest city in the nation. According to Forbes magazine, San Antonio has already seen the largest growth of young workers of any city in the country. Yet, the two most significant employment sectors, health care and technology, are lagging in their ability to find the talent necessary to keep pace.

San Antonio civic and business leadership recognized that their community needed to continue developing necessary tools to attract more of their key demographic. In fact, without a large progressive undertaking, city leadership would be at risk of losing billions in potential economic impact from its continued growth of 20,000 residents a year.

As a result, the San Antonio Water System (SAWS) crafted the vision of a 142-mile water pipeline project called Vista Ridge that will deliver enough water for some 162,000 new families by 2020, providing a 20 percent increase in water supply. A 2012 study commissioned by a local bank determined that meeting a region's growing water supply needs can result in 1 to 3 percent added economic growth with a full investment payback in approximately three years of full operations. With this information, San Antonio took aim at a key infrastructure target.

SAWS opted for a P3 undertaking in order to engage private equity and much needed development expertise in securing and constructing a resource delivery project that requires roughly $1 billion in investment, thousands of private water commitments, along with the 142 miles of built-to-last water pipeline.

Keys to Success

In each of the examples, there are three generally applicable considerations of which decisionmakers should be mindful in order to lay the foundation for successful P3 projects:

There has to be an appreciation for the complexity of P3 deals.They can be complicated and involve multifaceted financing, long-term contractual relationships, and merging of public- and private-sector interests.

Identifying quality private partners can make or break a project.The relationships on which P3 projects depend will necessarily span many years; therefore, public-sector participants need to carefully develop criteria for evaluating potential partners that take proper account of the timeline and challenges associated with projects.

Few large-scale projects are finished without some kind of unanticipated challenge arising. It is important to select partners who have demonstrated the skill, stability, and commitment required to see projects through to completion. Public-sector participants should study carefully their potential partners' portfolio of projects and evaluate how each dealt with the inevitable circumstances that challenge a team's ability to finish a project.

The important role of policymakers in the P3 delivery model cannot be understated. Successful P3 projects almost always enjoy the sustained presence of political champions at each relevant level of government.

Specifically, it is wise to ensure that there is state-level statutory authority expressly permitting the type of undertaking being sought, along with a locally-approved procurement process that includes strong elements of transparency and local-leadership affirmation.

In other words, you need to secure buy-in for the project at the earliest possible stage, or at the very least, identify political opponents and develop actionable strategies for handling political opposition over the long term, because, as mentioned above, the timeline for P3 projects often extends over many years.

Establishing political consensus also provides potential private partners the needed assurance to commit fully to a P3 project and helps to secure the best possible pool of talent. In short, experience, authority, and transparency are the building blocks to P3 success.

A Demand for Innovation

It is unlikely that the fiscal circumstances facing America's local governments will change greatly over the next decade. From the urgent need to update century-old infrastructure to the pressures exerted by legacy costs, particularly those associated with pension obligations, local governments will continue to labor in a resource-constrained environment.

Organic, sustainable economic growth becomes an imperative, but it is tougher to achieve when sought by so many different localities around the country. Competition is indeed fierce and by its nature will force planners and leaders to reach toward innovations in project design, finance, and delivery.

P3 is one such innovation that, when applied in the right manner, can allow local governments to create solutions that differentiate their communities and brand them as places capable of getting things done.


Here are examples of P3 projects that were completed in 2016:

Vista Ridge Water Project, San Antonio, Texas: http://www.saws.org/your_water/waterresources/projects/vistaridge

University of Kansas, Master Development, Lawrence, Kansas: http://fpd.ku.edu/campus-master-plan

Drexel University, Mixed-Use Development, Philadelphia, Pennsylvania: http://drexel.edu/now/archive/2016/March/Drexel-Announces-Master-Developer

Redstone Gateway, Huntsville, Alabama: http://www.redstonegateway.us

Nebraska Innovation Campus, Lincoln, Nebraska: http://innovate.unl.edu

Hemisfair Mixed-Use, San Antonio, Texas: http://hemisfair.org/about/hemisfair-project-faq


 

Charles Renner is a partner, Husch Blackwell LLP, Kansas City, Missouri (charles.renner@huschblackwell.com).

 

For Further Reading:

Commentary on P3s can be found at http://www.governing.com/columns/smart-mgmt/col-hidden-risks-public-private-partnerships-infrastructure.html

ICMA white paper on infrastructure financing can be found at https://icma.org/node/64992

Advisory from the Government Finance Officers Association can be found at http://gfoa.org/public-private-partnerships-p3 

 

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