Mayor Hancock’s office is currently considering the implementation of a Public Private Partnership (P3) office within city government to help determine projects, negotiate contracts, obtain financing, and operate and maintain completed projects with private providers. The Mayor believes this type of project delivery model will benefit the City of Denver, but at what cost?
While there are debatable benefits to this type of development model, members of City Council have real concerns about the risk/reward balance and transparency of this type of process over traditional delivery methods that have built our great City.
Why do governments enter into a P3 projects in the first place? Often it’s to avoid assuming full financial responsibility for infrastructure projects, which might be for a variety of reasons. They might not want to assume additional risk that could lower their bond rating, or they might have to put projects out to a vote, which might add to the timeframe of an already-lengthy process. They also might not have the personnel and expertise necessary to develop and manage these projects.
Fundamentally, a P3 is a long-term contract between a government and a private sector party. It is most viable for large-scale projects that involve significant capital investment and have a revenue-generating component (tolls, fees, service charges). The government leverages the private company’s skills and assets to build all, or significant portions of, a project. While the government and company each try to mitigate their own risks and liabilities, they share, in some way, in the risks and rewards of the project. The government retains some measure of control over the project, either through ownership of the project, or contractual provisions that bind the private party to meet certain benchmarks and specifications.
Despite the potential for tangible benefits from this type of project structure, it is rightly facing some resistance from Denver City Council. The concerns are that voter approved public assets, such as the National Western Complex, or the Denver Center for the Performing Arts, which are undergoing major redevelopment right now, might prioritize private profit margins over civic concerns – durability, design, and programming needs. The city is a multigenerational asset builder and holder, while lifecycle cost is very important, profitability is not our business, nor should it be, when using public money to build public assets.
Furthermore, transferring a project’s future revenues to the private sector might disadvantage taxpayers, who will not be benefitting from those funds. The process would need to be extremely transparent and taxpayers informed of the benefits they would receive, yet thus far, the Mayor’s office has been driving this effort without adequately addressing these concerns.
The Mayor’s approach cuts Council out of the process of voting on final contracts. The structure that is being proposed by Arup, the company the City of Denver hired to help it implement the P3 structure, would not allow City Council to have the final say on contracts; rather it would only give us the authority to approve what is being called a “framework ordinance” that establishes what City Council would like to see happen in this type of project. After approval of this framework ordinance, the city’s P3 office would seek out a partner willing to work with the city under those conditions and enter into an agreement. The better approach would be to involve Council at both points, first to establish community aims of the contract negotiation, and later to approve the final agreement is consistent with Council’s intent.
Personally, my main concern is that public assets – such as the National Western Complex – will be built with an eye for protecting private partner profitability, and that if something goes south, taxpayers will be impacted to a larger degree than they already are. I want to make sure that Denver voters will truly benefit from all infrastructure projects going forward, and that the processes to build those projects are completely transparent and financially sound.
For more information on Resolution 17-0764, which is scheduled for Finance & Government Committee on 8/22, or to share your opinion, please contact City Council at email@example.com
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